Long-Term Debt

12 Months Ended

Dec. 31, 2011

Commercial Paper and Other Short-Term Borrowings and Long-Term Debt [Abstract]

Long-Term Debt

Note 12—Long-Term Debt

The following is a summary of the Company’s long-term debt:

(Dollars in millions)	December 31, 2011		December 31, 2010
Senior debt:
Fixed and floating rate Federal Home Loan Bank advances with maturities ranging from December 2011 to February 2016. These notes bear a combined weighted-average rate of 1.75% at December 31, 2011 and 1.72% at December 31, 2010	$	3,625	$	3,000
Floating rate notes due March 2011. These notes, which bear interest at 0.08% above 3-month LIBOR, had a rate of 0.38% at December 31, 2010		—		500
Floating rate notes due March 2012. These notes, which bear interest at 0.20% above 3-month LIBOR, had a rate of 0.76% at December 31, 2011 and 0.50% at December 31, 2010		500		500
Floating rate notes due June 2014. These notes, which bear interest at 0.95% above 3-month LIBOR, had a rate of 1.48% at December 31, 2011		300		—
Fixed rate 2.125% notes due December 2013		399		399
Fixed rate 3.0% notes due June 2016		698		—
Note payable:
Fixed rate 6.03% notes due July 2014 (related to consolidated VIE)		8		8
Subordinated debt:
Fixed rate 5.25% notes due December 2013		413		422
Fixed rate 5.95% notes due May 2016		741		756
Junior subordinated debt payable to subsidiary grantor trust:
Fixed rate 10.875% notes due March 2030		—		10
Fixed rate 10.60% notes due September 2030		—		3
Total long-term debt	$	6,684	$	5,598

Senior Debt

On June 6, 2011, the Bank issued $300 million in aggregate principal amount of Senior Floating Rate Notes due 2014 (2014 Senior Notes). The 2014 Senior Notes were issued at par and bear interest at a rate equal to three-month LIBOR plus 0.95 percent per annum and will mature on June 6, 2014. Interest payments are due on the 6 ^th of March, June, September and December of each year, with the first interest payment on September 6, 2011.

On June 6, 2011, the Bank also issued $700 million in aggregate principal amount of 3.00 percent Senior Bank Notes due 2016 (2016 Senior Notes). The 2016 Senior Notes were issued to purchasers at a price of 99.733 percent, resulting in proceeds to the Bank, after dealer discount, of $698 million. The 2016 Senior Notes bear interest of 3.00 percent per annum payable on the 6^th of June and December of each year, with the first interest payment on December 6, 2011. These notes mature on June 6, 2016.

Both the 2014 Senior Notes and 2016 Senior Notes are not redeemable at the option of the Bank prior to maturity or subject to repayment at the option of the holders prior to maturity. The net proceeds from the sale of these notes were used by the Bank for general corporate purposes in the ordinary course of its business.

On December 16, 2010, the Bank issued $400 million in aggregate principal amount of 2.125 percent Senior Bank Notes due 2013 (2013 Senior Notes). The 2013 Senior Notes were issued to purchasers at a price of 99.752 percent, resulting in proceeds to the Bank, after dealer discount, of $399 million. The 2013 Senior Notes are not redeemable at the option of the Bank prior to maturity or subject to repayment at the option of the holders prior to maturity. The 2013 Senior Notes bear interest of 2.125 percent per annum payable on the 16^th of June and December of each year, with the first interest payment on June 16, 2011. The 2013 Senior Notes mature on December 16, 2013. The net proceeds from the sale of the 2013 Senior Notes will be used by the Bank for general corporate purposes in the ordinary course of its business.

Each of the 2013 Senior Notes, 2014 Senior Notes, and 2016 Senior Notes were issued as part of a $4 billion Bank note program under which the Bank may issue, from time to time, senior unsecured debt obligations with maturities of more than one year from their respective dates of issue and subordinated debt obligations with maturities of five years or more from their respective dates of issue. The remaining $1.2 billion is available for issuance under the program.

The Bank borrows periodically from the Federal Home Loan Bank of San Francisco (FHLB) on a medium-term basis. The advances are secured by certain of the Bank’s assets and bear either a fixed or floating interest rate. The floating rates are tied to the three-month LIBOR plus a spread, reset every 90 days. At December 31, 2011, the $3.6 billion in FHLB advances had a weighted average remaining maturity of approximately 24 months.

As of December 31, 2011 and 2010, the Company had pledged loans and securities of $39.7 billion and $33.9 billion, respectively, as collateral for short- and medium-term advances from the Federal Reserve Bank and FHLB.

In October 2008, the FDIC established the Temporary Liquidity Guarantee (TLG) Program. On March 16, 2009, the Bank issued $1.0 billion principal amount of Senior Floating Rate Notes under the TLG Program. The proceeds thereof were used for general corporate purposes. Of the $1.0 billion of senior notes, $500 million in principal amount bear interest at a rate equal to three-month LIBOR plus 0.08 percent per annum and matured on March 16, 2011 (2011 Notes). The remaining $500 million in principal amount bear interest at a rate equal to three-month LIBOR plus 0.20 percent per annum and mature on March 16, 2012 (2012 Notes). In connection with the FDIC guarantee under the TLG Program, a fee of 1 percent per annum is charged to the Bank on the senior notes. The interest on the 2012 Notes is payable and reset quarterly on the 16 ^th of March, June, September and December of each year.

Under the TLG Program, as amended on June 3, 2009, the Bank’s senior unsecured debt with a maturity of more than 30 days and issued between October 14, 2008 and October 31, 2009 is guaranteed by the full faith and credit of the United States. For debt issued prior to April 1, 2009, the FDIC guarantee expires upon the earlier of either the maturity date of the debt or June 30, 2012. For debt issued on or after April 1, 2009, the FDIC guarantee expires upon the earlier of either the maturity date of the debt or December 31, 2012.

Subordinated Debt

On December 8, 2003, the Company issued $400 million of ten-year long-term subordinated debt due on December 16, 2013. For the year ended December 31, 2011, the weighted average interest rate of the long-term subordinated debt, including the impact of the deferred issuance costs, was 5.37 percent. The notes are junior obligations to the Company’s existing and future outstanding senior indebtedness.

At issuance, the Company had converted its 5.25 percent fixed rate on these notes to a floating rate of interest utilizing a $400 million notional interest rate swap, which qualified as a fair value hedge. This transaction met all of the requirements for utilizing the shortcut method for measuring effectiveness under US GAAP. In the first quarter of 2009, the $400 million notional swaps were terminated and not replaced. The Company received $52 million in cash, which was treated as a deferred gain and is being recognized over the remaining contractual life of the subordinated debt. At December 31, 2011, the carrying amount of the $400 million subordinated debt included a deferred gain of $13 million. The weighted average interest rate, including the impact of the hedge interest, the amortization of the deferred gain and the deferred issuance costs, was 2.86 percent for the year ended December 31, 2011.

On May 11, 2006, the Bank issued $700 million of ten-year subordinated notes due on May 11, 2016. The subordinated notes, which were issued at a discount price of 99.61 percent of their face value, bear a fixed interest rate of 5.95 percent, payable semi-annually on May 11 and November 11. For the year ended December 31, 2010, the weighted average interest rate of the long-term subordinated debt, including the impact of the deferred issuance costs and the fair value adjustment related to the Company’s privatization transaction, was 6.72 percent. The subordinated notes are junior obligations to the Bank’s existing and future outstanding senior indebtedness and the claims of depositors and general creditors of the Bank. The subordinated notes are not redeemable at the option of the Bank prior to maturity or subject to repayment at the option of the holders prior to maturity.

At issuance, the Bank had converted $700 million of its 5.95 percent fixed rate notes to a floating rate by utilizing interest rate swaps, which qualified as a fair value hedge. This transaction met all of the requirements for utilizing the shortcut method for measuring hedge effectiveness. By the first quarter of 2009, the total of $700 million notional swaps had been terminated and not replaced. The Bank received a total of $135 million in cash for these terminations, which were treated as deferred gains and are being recognized over the remaining contractual life of the subordinated debt. At December 31, 2011, the carrying amount of the $700 million subordinated debt included the deferred gain of $54 million. After including the impact of the amortization of the discount, the deferred issuance costs, the deferred gains, and the fair value adjustment related to the Company’s privatization transaction, the weighted average interest rate of the subordinated notes was 3.55 percent for the year ended December 31, 2011.

Both fixed rate subordinated debt issuances qualify as Tier 2 risk-based capital under the Federal Reserve Board guidelines for assessing regulatory capital. For the Company’s and the Bank’s total risk-based capital ratios, the amount of notes that qualify as capital is reduced as the notes approach maturity. As of December 31, 2011 and 2010, $0.6 billion and $0.8 billion, respectively, of the notes qualified as risk-based capital for the Company. As of December 31, 2011 and 2010, $0.5 billion and $0.7 billion, respectively, of the notes qualified as risk-based capital for the Bank.

Provisions of the subordinated notes restrict the Company’s ability to engage in mergers, consolidations and transfers of substantially all assets.

Junior subordinated debt payable to subsidiary grantor trust

On March 23, 2000, Business Capital Trust I issued $10 million preferred securities to the public and common securities to the Company. The proceeds of such issuances were invested by Business Capital Trust I in $10 million aggregate principal amount of the Company’s 10.875 percent debt securities due March 8, 2030 (the Trust Notes). The Trust Notes represented the sole asset of Business Capital Trust I.

On September 7, 2000, MCB Statutory Trust I completed an offering of 10.6 percent preferred securities of $3 million to the public. The proceeds of such issuance were invested by MCB Statutory Trust I in $3 million aggregate principal amount of the Company’s 10.6 percent debt securities due September 7, 2030 (the Trust Notes). The Trust Notes represented the sole assets of MCB Statutory Trust I.

The weighted average interest rate for all Trust Notes was 9.54 percent for the year ended December 31, 2010.

All of the Business Capital Trust I and the MCB Statutory Trust I preferred securities along with the corresponding Trust Notes were paid off in March 2011.