Derivatives, Hedging Activities and Interest Expense

9 Months Ended

Dec. 31, 2016

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivatives, Hedging Activities and Interest Expense

Note 7 – Derivatives, Hedging Activities and Interest Expense

Derivative Instruments

Our liabilities consist mainly of fixed and floating rate debt, denominated in various currencies, which we issue in the global capital markets, while our assets consist primarily of U.S. dollar denominated, fixed rate receivables.  We enter into interest rate swaps, interest rate floors, interest rate caps and foreign currency swaps to hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities.  Our use of derivative transactions is intended to reduce long-term fluctuations in the fair value of assets and liabilities caused by market movements.  All of our derivative activities are authorized and monitored by our management and our Asset Liability Committee which provides a framework for financial controls and governance to manage market risk.

Credit Risk Related Contingent Features

Our derivative contracts are governed by International Swaps and Derivatives Association (“ISDA”) Master Agreements.  Substantially all of these ISDA Master Agreements contain reciprocal ratings triggers providing either party with an option to terminate the agreement at market value in the event of a ratings downgrade of the other party below a specified threshold.  As of December 31, 2016, we have daily valuation and collateral exchange arrangements with all of our counterparties.  Our collateral agreements with substantially all of our counterparties include a zero threshold, full collateralization arrangement.  However, due to the time required to move collateral, there may be a delay of up to one day between the exchange of collateral and the valuation of our derivatives.  We would not be required to post additional collateral to the counterparties with whom we were in a net liability position at December 31, 2016 if our credit ratings were to decline, since we fully collateralize without regard to credit ratings with these counterparties.  

Note 7 – Derivatives, Hedging Activities and Interest Expense (Continued)

Derivative Activity Impact on Financial Statements

The following tables show the financial statement line item and amount of our derivative assets and liabilities that are reported in the Consolidated Balance Sheet:

	December 31, 2016
	Hedge accounting				Non-hedge
	derivatives				accountingderivatives				Total
			Fair				Fair				Fair
	Notional		value		Notional		value		Notional		value
Other assets:
Interest rate swaps	$	-	$	-	$	59,033	$	508	$	59,033	$	508
Interest rate floors		-		-		1,673		2		1,673		2
Foreign currency swaps		271		19		763		38		1,034		57
Total	$	271	$	19	$	61,469	$	548	$	61,740	$	567
Counterparty netting and collateral held												(516	)
Carrying value of derivative    contracts – Other assets											$	51
Other liabilities:
Interest rate swaps	$	-	$	-	$	45,235	$	305	$	45,235	$	305
Interest rate caps		-		-		30		-		30		-
Foreign currency swaps		93		4		13,900		1,426		13,993		1,430
Total	$	93	$	4	$	59,165	$	1,731	$	59,258	$	1,735
Counterparty netting and collateral posted												(1,734	)
Carrying value of derivative    contracts – Other liabilities											$	1

As of December 31, 2016, we held collateral of $111 million, which offset derivative assets, and posted collateral of $1,329 million, which offset derivative liabilities.  We also held excess collateral of $4 million, which we did not use to offset derivative assets, and we posted excess collateral of $33 million which we did not use to offset derivative liabilities.   

Note 7 – Derivatives, Hedging Activities and Interest Expense (Continued)

	March 31, 2016
	Hedge accounting				Non-hedge
	derivatives				accountingderivatives				Total
			Fair				Fair				Fair
	Notional		value		Notional		value		Notional		value
Other assets:
Interest rate swaps	$	-	$	-	$	29,469	$	640	$	29,469	$	640
Interest rate floors		-		-		1,679		4		1,679		4
Foreign currency swaps		364		39		4,337		290		4,701		329
Total	$	364	$	39	$	35,485	$	934	$	35,849	$	973
Counterparty netting and collateral held												(905	)
Carrying value of derivative    contracts – Other assets											$	68
Other liabilities:
Interest rate swaps	$	-	$	-	$	68,383	$	475	$	68,383	$	475
Interest rate caps		-		-		30		-		30		-
Foreign currency swaps		-		-		9,340		835		9,340		835
Total	$	-	$	-	$	77,753	$	1,310	$	77,753	$	1,310
Counterparty netting and collateral posted												(1,303	)
Carrying value of derivative    contracts – Other liabilities											$	7

As of March 31, 2016, we held collateral of $320 million which offset derivative assets, and posted collateral of $718 million which offset derivative liabilities.  We also held excess collateral of $2 million which we did not use to offset derivative assets, and we posted excess collateral of $22 million which we did not use to offset derivative liabilities.

Note 7 – Derivatives, Hedging Activities and Interest Expense (Continued)

The following table summarizes the components of interest expense, including the location and amount of gains and losses on derivative instruments and related hedged items, as reported in our Consolidated Statement of Income:

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2016			2015			2016			2015
Interest expense on debt	$	397		$	334		$	1,133		$	964
Interest expense (income) on derivatives		2			1			(5	)		(4	)
Interest expense on debt and derivatives, net		399			335			1,128			960
Loss on hedge accounting derivatives:
Foreign currency swaps		62			6			25			23
Loss on hedge accounting derivatives		62			6			25			23
Less hedged item:  change in fair value of fixed rate   debt denominated in a foreign currency		(62	)		(7	)		(25	)		(25	)
Ineffectiveness related to hedge accounting derivatives		-			(1	)		-			(2	)
(Gain) loss on debt denominated in foreign currencies    and U.S. dollar non-hedge accounting derivatives:
Gain on non-hedge accounting debt denominated    in foreign currencies		(907	)		(222	)		(969	)		(68	)
Loss on non-hedge accounting foreign currency     swaps		1,127			263			1,159			170
Loss (gain) on U.S. dollar non-hedge accounting interest     rate swaps		82			(98	)		(13	)		(72	)
Total interest expense	$	701		$	277		$	1,305		$	988

Interest expense on debt and derivatives represents net interest settlements and changes in accruals.  Gains and losses on hedge accounting derivatives and debt dominated in foreign currencies exclude net interest settlements and changes in accruals.  Cash flows associated with hedge accounting, non-hedge accounting, and de-designated derivatives are reported in Net cash provided by operating activities in our Consolidated Statement of Cash Flows.

The relative fair value allocation of derivative credit value adjustments for counterparty and non-performance credit risk within interest expense was not significant for the three and nine months ended December 31, 2016 and 2015 as we are fully collateralized on substantially all of our derivatives without regard to credit ratings.