Financial Guaranty Contracts Accounted for as Credit Derivatives (Tables)

9 Months Ended

Sep. 30, 2014

Credit Derivatives

Subordination and Ratings



	As of September 30, 2014							As of December 31, 2013
Asset Type	Net Par Outstanding		Original Subordination(1)		Current Subordination(1)		Weighted Average Credit Rating	Net Par Outstanding		Original Subordination(1)		Current Subordination(1)		Weighted Average Credit Rating
	(dollars in millions)
Pooled corporate obligations:
Collateralized loan obligation/collateral bond obligations	$	12,985	32.0	%	35.8	%	AAA	$	19,323	32.4	%	34.0	%	AAA
Synthetic investment grade pooled corporate	9,301		21.3		19.9		AAA	9,754		21.6		20.0		AAA
Synthetic high yield pooled corporate	—		—		—		—	2,690		47.2		41.1		AAA
TruPS CDOs	3,242		45.3		34.9		BB+	3,554		45.5		32.9		BB+
Market value CDOs of corporate obligations	1,352		21.4		26.5		AAA	2,000		24.4		30.5		AAA
Total pooled corporate obligations	26,880		29.4		29.7		AAA	37,321		31.5		30.6		AAA
U.S. RMBS:
Option ARM and Alt-A first lien(2)	2,064		17.9		7.9		BBB+	2,609		19.2		8.6		BB-
Subprime first lien	1,428		30.9		51.2		A	2,930		30.5		51.9		AA-
Prime first lien	233		10.9		0.4		B	264		10.9		3.2		CCC
Closed-end second lien	20		—		—		BB	23		—		—		B+
Total U.S. RMBS	3,745		24.3		30.3		BBB+	5,826		24.4		30.1		BBB
CMBS	2,207		34.5		45.5		AAA	3,744		33.5		42.5		AAA
Other	7,263		—		—		A-	7,591		—		—		A-
Total	$	40,095					AA	$	54,482					AA+

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(1)	Represents the sum of subordinate tranches and over-collateralization and does not include any benefit from excess interest collections that may be used to absorb losses.


(2)	In the fourth quarter of 2014, $622 million in net par was terminated as part of a negotiated R&W settlement.



	As of September 30, 2014				As of December 31, 2013
Ratings	Net Par Outstanding		% of Total		Net Par Outstanding		% of Total
	(dollars in millions)
AAA	$	26,263	65.5	%	$	38,244	70.2	%
AA	2,979		7.4		3,648		6.7
A	3,529		8.8		3,636		6.7
BBB	3,906		9.8		4,161		7.6
BIG	3,418		8.5		4,793		8.8
Credit derivative net par outstanding	$	40,095	100.0	%	$	54,482	100.0	%

Net Change in Fair Value of Credit Derivatives Gain (Loss)



	Third Quarter					Nine Months
	2014			2013		2014			2013
	(in millions)
Realized gains on credit derivatives (1)	$	17		$	24	$	58		$	93
Net credit derivative losses (paid and payable) recovered and recoverable and other settlements	(31		)	0		(38		)	(137		)
Realized gains (losses) and other settlements on credit derivatives	(14		)	24		20			(44		)
Net change in unrealized gains (losses) on credit derivatives:
Pooled corporate obligations	4			96		10			(43		)
U.S. RMBS	252			195		117			(248		)
CMBS	—			3		2			(1		)
Other(2)	13			36		(2		)	172
Net change in unrealized gains (losses) on credit derivatives (3)	269			330		127			(120		)
Net change in fair value of credit derivatives	$	255		$	354	$	147		$	(164	)

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(1)	Includes accelerations due to terminations of CDS contracts of $(0.1) million and $0.1 million related to net par of $1.6 billion and $0.3 billion for Third Quarter 2014 and Third Quarter 2013, respectively, and $0.6 million and $15 million related to net par of $2.9 billion and $3.3 billion for Nine Months 2014 and Nine Months 2013, respectively.


(2)	“Other” includes all other U.S. and international asset classes, such as commercial receivables, international infrastructure, international RMBS securities, and pooled infrastructure securities.


(3)	Except for net estimated credit impairments (i.e., net expected loss to be paid as discussed in Note 5), the unrealized gains and losses on credit derivatives are expected to reduce to zero as the exposure approaches its maturity date. With considerable volatility continuing in the market, unrealized gains (losses) on credit derivatives may fluctuate significantly in future periods.

Five-Year CDS Spread

on AGC and AGM

Quoted price of CDS contract (in basis points)

One-Year CDS Spread

on AGC and AGM

Quoted price of CDS contract (in basis points)

Fair Value of Credit Derivatives Assets (Liabilities)

and Effect of AGC and AGM

Credit Spreads



	As of September 30, 2014			As of December 31, 2013
	(in millions)
Fair value of credit derivatives before effect of AGC and AGM credit spreads	$	(2,755	)	$	(3,442	)
Plus: Effect of AGC and AGM credit spreads	1,187			1,749
Net fair value of credit derivatives	$	(1,568	)	$	(1,693	)

Net Fair Value and Expected Losses

of Credit Derivatives by Sector



	Fair Value of Credit Derivative Asset (Liability), net						Expected Loss to be (Paid) Recovered (1)
Asset Type	As of September 30, 2014			As of December 31, 2013			As of September 30, 2014			As of December 31, 2013
	(in millions)
Pooled corporate obligations	$	(22	)	$	(30	)	$	(26	)	$	(48	)
U.S. RMBS	(1,192		)	(1,308		)	(97		)	(175		)
CMBS	—			(2		)	—			—
Other	(354		)	(353		)	40			39
Total	$	(1,568	)	$	(1,693	)	$	(83	)	$	(184	)

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(1)	Includes R&W benefit of $99 million as of September 30, 2014 and $180 million as of December 31, 2013.

As of September 30, 2014



Credit Spreads(1)	Estimated Net Fair Value (Pre-Tax)			Estimated Change in Gain/(Loss) (Pre-Tax)
	(in millions)
100% widening in spreads	$	(3,159	)	$	(1,591	)
50% widening in spreads	(2,363		)	(795		)
25% widening in spreads	(1,965		)	(397		)
10% widening in spreads	(1,726		)	(158		)
Base Scenario	(1,568		)	—
10% narrowing in spreads	(1,414		)	154
25% narrowing in spreads	(1,184		)	384
50% narrowing in spreads	(791		)	777

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(1)	Includes the effects of spreads on both the underlying asset classes and the Company’s own credit spread.