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C » Topics » Asset/Liability Management Hedges:

This excerpt taken from the C 10-Q filed Nov 4, 2005.

Asset/Liability Management Hedges:

 
   Notional
Amounts
   Derivatives Receivables—
Fair Market Value
   Derivatives Payables—
Fair Market Value
In millions of dollars
   Sept. 30,
2005
   Dec. 31,
2004
   Sept. 30,
2005
   Dec. 31,
2004
   Sept. 30,
2005
   Dec. 31,
2004
Interest rate contracts   $ 423,426   $ 362,937   $ 3,514   $ 4,742   $ 1,528   $ 2,541
Foreign exchange contracts     89,974     78,581     1,022     1,268     802     1,655
Equity contracts     132     1,318     11     204     1     7
               
 
 
 
Total               $ 4,547   $ 6,214   $ 2,331   $ 4,203
   
 
 
 
 
 

        A derivative must be highly effective in accomplishing the hedge objective of offsetting either changes in the fair value or cash flows of the hedged item for the risk being hedged. Any ineffectiveness present in the hedge relationship is recognized in current earnings. The assessment of effectiveness excludes the changes in the value of the hedged item which are unrelated to the risks being hedged. Similarly, the assessment of effectiveness may exclude changes in the fair value of a derivative related to time value which, if excluded, are recognized in current earnings.

84

        The following table summarizes certain information related to the Company's hedging activities for the three- and nine-month periods ended September 30, 2005 and 2004:

 
   Three Months Ended
September 30,
   Nine Months Ended
September 30,
  
In millions of dollars
  
  2005
   2004(1)
   2005
   2004(1)
  
Fair Value Hedges:                          
Hedge ineffectiveness recognized in earnings   $ 176   $ 114   $ 149   $ (212 )
Net gain (loss) excluded from assessment of effectiveness(2)     231     92     (45 )   428  
Cash Flow Hedges:                          
Hedge ineffectiveness recognized in earnings     (2 )   5     (13 )   17  
Net gain (loss) excluded from assessment of effectiveness(2)     —     1     1     6  
Net Investment Hedges:                          
Net gain (loss) included in foreign currency translation adjustment within accumulated other changes in equity from nonowner sources   $ 35   $ (178 ) $ 394   $ (99 )
   
 
 
 
 
(1)
Reclassified to conform to the current period's presentation.

(2)
Represents the portion of derivative gain (loss).

        The accumulated other changes in equity from nonowner sources from cash flow hedges for the three-and nine-month periods ended September 30, 2005 and 2004 can be summarized as follows (after-tax):

In millions of dollars
   2005
   2004
  
Balance at January 1,   $ 173   $ 751  
Net gain (loss) from cash flow hedges     187     (24 )
Net amounts reclassified to earnings     (23 )   (173 )
   
 
 
Balance at March 31,   $ 337   $ 554  
Net gain (loss) from cash flow hedges     (120 )   139  
Net amounts reclassified to earnings     (37 )   (118 )
   
 
 
Balance at June 30,   $ 180   $ 575  
Net gain (loss) from cash flow hedges     388     (331 )
Net amounts reclassified to earnings(1)     (98 )   (25 )
   
 
 
Balance at September 30,   $ 470   $ 219  
   
 
 
(1)
Includes $82 million pretax ($54 million after-tax) realized with the Sale of Life Insurance & Annuities Business in the 2005 third quarter.

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