Derivatives, Hedging Activities, and Interest Expense

12 Months Ended

Mar. 31, 2014

Derivatives, Hedging Activities and Interest Expense [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 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 cash flows and fair value adjustments of assets and liabilities caused by market movements. All of our derivative activities are authorized and monitored by our Asset-Liability Committee which provides a framework for financial controls and governance to manage market risk. 

Credit Risk Related Contingent Features

Certain of our derivative contracts are governed by International Swaps and Derivatives Association 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 partybelow a specified threshold. As of March 31, 2014, we have daily valuation and collateral exchange arrangements with all of our counterparties. Our collateral agreements with substantially all our counterparties include a zero threshold, full collateralization arrangement.

The aggregate fair value of derivative instruments that contain credit risk related contingent features that were in a net liability position at March 31, 2014 was $6 million, excluding adjustments made for our own non-performance risk. Since we fully collateralize without regard to credit ratings, we would not be required to post additional collateral to the counterparties with which we were in a net liability position at March 31, 2014, even if our credit ratings were to decline. In order to settle all derivative instruments that were in a net liability position at March 31, 2014, excluding adjustments made for our own non-performance risk, we would be required to pay $6 million.

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 at March 31, 2014 and 2013.

		Hedge accounting				Non-hedge				Total
As of March 31, 2014		derivatives				accounting derivatives
		Notional		Fair		Notional		Fair		Notional		Fair
(Dollars in millions)					value				value				value
Other assets
Interest rate swaps		$	465	$	25	$	25,942	$	336	$	26,407	$	361
Foreign currency swaps			852		342		7,374		532		8,226		874
	Total	$	1,317	$	367	$	33,316	$	868	$	34,633	$	1,235
Counterparty netting and collateral													(1,186)
	Carrying value of derivative contracts – Other assets											$	49
Other liabilities
Interest rate swaps		$	-	$	-	$	57,689	$	553	$	57,689	$	553
Interest rate caps			-		-		50		-		50		-
Foreign currency swaps			157		14		3,822		238		3,979		252
	Total	$	157	$	14	$	61,561	$	791	$	61,718	$	805
Counterparty netting and collateral													(799)
	Carrying value of derivative contracts – Other liabilities											$	6

As of March 31, 2014, we held collateral of$718 million which offset derivative assets, and posted collateral of $331 million which offset derivative liabilities. We also held collateral of $5 million which we did not use to offset derivative assets, and we posted collateral of $3million which we did not use to offset derivative liabilities.

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

		Hedge accounting				Non-hedge				Total
As of March 31, 2013		derivatives				accounting derivatives
		Notional		Fair		Notional		Fair		Notional		Fair
(Dollars in millions)					value				value				value
Other Assets
Interest rate swaps		$	465	$	44	$	22,336	$	536	$	22,801	$	580
Foreign currency swaps			1,246		491		7,498		648		8,744		1,139
	Total	$	1,711	$	535	$	29,834	$	1,184	$	31,545	$	1,719
Counterparty netting and collateral													(1,661)
	Carrying value of derivative contracts – Other assets											$	58
Other liabilities
Interest rate swaps		$	-	$	-	$	51,342	$	766	$	51,342	$	766
Interest rate caps			-		-		50		-		50		-
Foreign currency swaps			790		29		3,103		102		3,893		131
Embedded derivatives			-		-		64		12		64		12
	Total	$	790	$	29	$	54,559	$	880	$	55,349	$	909
Counterparty netting and collateral													(892)
	Carrying value of derivative contracts – Other liabilities											$	17

As of March 31, 2013, we held collateral of $953 million which offset derivative assets, and posted collateral of $184million which offset derivative liabilities. We also held collateral of $3 million which we did not use to offset derivative assets, and we posted collateral of $6 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 or losses on derivative instruments and related hedged items, for fiscal 2014, 2013 and 2012as reported in our Consolidated Statement of Income:

				Years ended March 31,
(Dollars in millions)			2014		2013		2012
Interest expense on debt			$	1,262	$	1,330	$	1,677
Interest expense on hedge accounting derivatives				(85)		(103)		(221)
Interest expense on non-hedge accounting foreign currency
	swaps			(202)		(258)		(386)
Interest expense on non-hedge accounting interest rate swaps				210		359		606
		Interest expense on debt and derivatives		1,185		1,328		1,676
Loss (gain) on hedge accounting derivatives:
	Interest rate swaps			20		15		(6)
	Foreign currency swaps			8		274		23
		Loss on hedge accounting derivatives		28		289		17
Less hedged item: change in fair value of fixed rate debt				(31)		(299)		(38)
		Ineffectiveness related to hedge accounting derivatives		(3)		(10)		(21)
(Gain) loss from foreign currency transactions and non-hedge
accounting derivatives:
		(Gain) on foreign currency transactions		(45)		(430)		(182)
		Loss (gain) on foreign currency swaps		185		431		(84)
		Loss (gain) on interest rate swaps		18		(379)		(89)
Total interest expense			$	1,340	$	940	$	1,300

Interest expense on debt and derivatives represents net interest settlements and changes in accruals. Gains and losses from hedge accounting derivativesand foreign currency transactions exclude net interest settlements and changes in accruals.

The following table summarizes the relative fair value allocation of derivative credit valuation adjustments within interest expense:

	Years ended March 31,
(Dollars in millions)	2014		2013		2012
Gains related to hedge accounting derivatives	$	-	$	(2)	$	(3)
Gains on non-hedge accounting foreign currency swaps		-		-		(6)
Total credit valuation adjustment allocated to interest expense	$	-	$	(2)	$	(9)