TD Bank 2009 Annual Report Download - page 116

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 FINANCIAL RESULTS112
Credit Exposure of Derivative Financial Instruments
(millions of Canadian dollars) 2009 2008
Current Credit Risk- Current Credit Risk-
replacement equivalent weighted replacement equivalent weighted
cost1amount amount cost1amount amount
Interest rate contracts
Forward rate agreements $ 78 $ 109 $ 15 $ 91 $ 104 $ 15
Swaps 23,283 29,676 11,429 20,727 27,751 10,133
Options purchased 850 986 344 1,198 1,483 711
Total interest rate contracts 24,211 30,771 11,788 22,016 29,338 10,859
Foreign exchange contracts
Forward contracts 6,905 11,890 2,128 22,783 28,998 4,601
Swaps 2,777 3,951 1,048 2,414 3,705 1,262
Cross-currency interest rate swaps 9,281 25,038 8,206 19,835 33,212 8,689
Options purchased 731 1,148 193 1,408 1,799 366
Total foreign exchange contracts 19,694 42,027 11,575 46,440 67,714 14,918
Other contracts
Credit derivatives 1,302 4,511 1,535 8,869 17,741 6,238
Equity contracts 2,499 5,119 1,030 3,725 6,871 928
Commodity contracts 836 1,572 417 835 1,937 599
Total derivative financial instruments 48,542 84,000 26,345 81,885 123,601 33,542
Less: impact of master netting agreements 35,711 52,076 18,127 60,572 79,854 23,269
Total derivative financial instruments after netting 12,831 31,924 8,218 21,313 43,747 10,273
Less: impact of collateral 4,808 5,131 1,492 8,499 9,544 2,115
Net derivative financial instruments $ 8,023 $ 26,793 $ 6,726 $ 12,814 $ 34,203 $ 8,158
1Exchange-traded instruments and non-trading credit derivatives, which are given
financial guarantee treatment for credit risk capital purposes, are excluded in
accordance with the guidelines of OSFI. The total positive fair value of the excluded
contracts as at October 31, 2009 was $903 million (2008 – $1,663 million).
Current Replacement Cost of Derivatives
(millions of Canadian dollars) Canada1United States1Other international1Total
2009 2008 2009 2008 2009 2008 2009 2008
By sector
Financial $ 30,563 $ 51,835 $ 128 $ 512 $ 9,501 $ 23,010 $ 40,192 $ 75,357
Government 3,600 2,030 ––774 340 4,374 2,370
Other 2,810 3,124 717 190 449 844 3,976 4,158
Current replacement cost $ 36,973 $ 56,989 $ 845 $ 702 $ 10,724 $ 24,194 $ 48,542 $ 81,885
Less: impact of master netting agreements and collateral 40,519 69,071
Total $ 8,023 $ 12,814
2009 2008
2009 2008 % mix % mix
By location of risk2
Canada $ 4,269 $ 4,310 53.2% 33.6%
United States 1,590 2,868 19.8 22.4
Other international
United Kingdom 191 558 2.4 4.4
Europe – other 1,373 4,197 17.1 32.7
Other 600 881 7.5 6.9
Total other international 2,164 5,636 27.0 44.0
Total current replacement cost $ 8,023 $ 12,814 100.0% 100.0%
1Based on geographic location of unit responsible for recording revenue.
2After impact of master netting agreements and collateral.
Certain of the Bank’s derivative contracts are governed by master
derivative agreements having provisions that may permit our counter-
parties to require, upon the occurrence of a certain contingent event,
i) the posting of collateral or other acceptable remedy such as assign-
ment
of the affected contracts to an acceptable counterparty, or
ii) settlement of outstanding derivative contracts. Most often, these
contingent events are in the form of a downgrade of the senior debt
ratings of the Bank, either as counterparty or as guarantor of one
of the Bank’s subsidiaries. At October 31, 2009, the aggregate net
liability position of those contracts would require i) the posting of
collateral or other acceptable remedy totalling $20 million in the event
of a one-notch or two-notch downgrade in the Bank’s senior debt
ratings and ii) funding totalling nil following the termination and
settlement of outstanding derivative contracts in the event of a one-
notch or two notch downgrade in the Bank’s senior debt ratings.
Certain of the Bank’s derivative contracts are governed by master
derivative agreements having credit support provisions that permit our
counterparties to call for collateral depending on the net mark-to-
market exposure position of all derivative contracts governed by that
master derivative agreement. Some of these agreements may permit
our counterparties to require, upon the downgrade of the senior debt
ratings of the Bank, to post additional collateral. As at October 31,
2009 the fair value of all derivative instruments with credit risk related
contingent features in a net liability position was $6 billion. The Bank
has posted $5 billion of collateral for this exposure in the normal
course of business. At October 31, 2009, the impact of a one-notch
downgrade in the Bank’s senior debt ratings would require the Bank
to post an additional $0.5 billion of collateral to that posted in the
normal course of business. A two-notch down grade in the Bank’s
senior debt ratings would require the Bank to post an additional
$1.5 billion of collateral to that posted in the normal course of business.