TD Bank 2005 Annual Report Download - page 103

TD BANK FINANCIAL GROUP ANNUAL REPORT 2005 Financial Results 99
Credit Exposure of Derivative Financial Instruments
(millions of Canadian dollars) 2005 2004
Current Credit Risk- Current Credit Risk-
replace- equivalent weighted replace- equivalent weighted
ment cost1amount amount ment cost1amount amount
Interest rate contracts
Forward rate agreements $28 $ 47 $ 10 $34 $ 116 $ 24
Swaps 12,429 17,468 4,077 14,283 19,294 4,787
Options purchased 1,030 1,409 297 797 1,092 222
Total interest rate contracts 13,487 18,924 4,384 15,114 20,502 5,033
Foreign exchange contracts
Forward contracts 5,217 9,618 2,154 7,248 11,558 2,582
Swaps 2,786 3,603 1,032 1,653 2,336 665
Cross-currency interest rate swaps 5,111 12,543 2,761 5,772 11,952 2,682
Options purchased 857 1,725 358 908 1,580 341
Total foreign exchange contracts 13,971 27,489 6,305 15,581 27,426 6,270
Credit derivatives 332 5,994 1,329 719 7,396 1,327
Other contracts25,426 10,378 3,050 2,444 5,222 1,668
Total derivative financial instruments $33,216 $62,785 $15,068 $33,858 $60,546 $14,298
Less impact of master netting agreements and collateral 19,282 31,145 7,900 21,849 32,439 8,030
Total $13,934 $31,640 $ 7,168 $12,009 $28,107 $ 6,268
1Exchange traded instruments and forward foreign exchange contracts
with an original maturity of 14 days or less are excluded in accordance
with the guidelines of the Office of the Superintendent of Financial
Institutions Canada.
The total positive fair value of the excluded contracts at October 31, 2005
was $2,250 million (2004 – $1,432 million).
2Includes equity and commodity derivatives.
LITIGATION
During fiscal 2005, the Bank added $365 million to its contingent
litigation reserves for Enron-related claims, to bring the total
reserve for this matter to approximately $641 million. The two
principal legal actions regarding Enron to which the Bank is a
party arethe securities class action and the bankruptcy proceed-
ing. The Bank believes it is prudent to increase the reserve to this
level; however, it is possible that additional reserves above this
level could be required. Additional reserves, if required, cannot
be reasonably determined for many reasons, including that other
settlements arenot generally appropriate for comparison purpos-
es, the lack of consistency in other settlements and the difficulty
in predicting the future actions of other parties to the litigation.
The Bank also agreed to settle bankruptcy court claims in this
matter in 2005 for approximately $160 million.
The Bank and its subsidiaries areinvolved in various other legal
actions in the ordinary course of business, many of which are
loan-related. In management’s opinion, the ultimate disposition
of these actions, individually or in the aggregate, will not have a
material adverse effect on the financial condition of the Bank.
Current Replacement Cost of Derivatives
(millions of Canadian dollars) Canada1United States1Other international1Total
By sector 2005 2004 2005 2004 2005 2004 2005 2004
Financial $13,724 $13,693 $97 $132 $13,806 $14,606 $27,627 $28,431
Government 2,320 2,094 ––234 263 2,554 2,357
Other 1,888 1,585 121 183 1,026 1,302 3,035 3,070
Current replacement cost $17,932 $17,372 $218 $315 $15,066 $16,171 $33,216 $33,858
Less impact of master netting
agreements and collateral 19,282 21,849
Total $13,934 $12,009
2005 2004
By location of ultimate risk22005 2004 %mix %mix
Canada $6,020 $5,015 43.2 41.8
United States 2,189 1,873 15.7 15.6
Other international
United Kingdom 1,285 703 9.2 5.9
Europe – other 3,367 2,982 24.2 24.8
Australia and New Zealand 685 1,012 4.9 8.4
Japan 80 106 .6 .9
Asia – other 43 56 .3 .5
Latin America and Caribbean 90 76 .6 .6
Middle East and Africa 175 186 1.3 1.5
Total other international 5,725 5,121 41.1 42.6
Total current replacement cost $13,934 $12,009 100.0 100.0
1Based on geographic location of unit responsible for recording revenue.
2After impact of master netting agreements and collateral.
CONTINGENT LIABILITIES, COMMITMENTS AND GUARANTEES
NOTE 20