This excerpt taken from the C 10-K filed Feb 28, 2005.
Type of Derivative
Legally enforceable master netting agreements are in place which permit the Company to net receivables and payables with the same counterparty across different underlying derivative contracts. The amount of netting under these agreements at December 31, 2004 and 2003 was $232.9 billion and $186.1 billion, respectively. In addition, the Company obtained cash collateral from counterparties that further served to reduce exposure. After taking into account the benefit of netting and collateral, derivatives receivables recorded on the balance sheet as Trading Account Assets at December 31, 2004 and 2003 were $57.5 billion and $55.3 billion, respectively.
The Company's credit exposure on derivatives and foreign exchange contracts is primarily to professional counterparties in the financial sector, with 78% arising from transactions with banks, investment banks, governments and central banks, and other financial institutions.
For purposes of managing credit exposure on derivative and foreign exchange contracts, particularly when looking at exposure to a single counterparty, the Company measures and monitors credit exposure taking into account the current mark-to-market value of each contract plus a prudent estimate of its potential change in value over its life. This measurement of the potential future exposure for each credit facility is based on a stressed simulation of market rates and generally takes into account legally enforceable risk-mitigating agreements for each obligor such as netting and margining. The following table presents the global derivatives portfolio by internal obligor credit rating at December 31, 2004 and 2003, as a percentage of credit exposure:
The following table presents the global derivative portfolio by industry of the obligor as a percentage of credit exposure: