Bank One Corporation - Page 36

                                        -123-                                         
          lag)42 and correspondingly reduced the value of assets on the               
          balance sheet.  Second, FNBC amortized the credit adjustment back           
          into income on a straight-line basis.  FNBC’s stated policy was             
          that, on schedules before June 1993, it would amortize the credit           
          adjustments into income over the average term of deals executed             
          during the quarter for the applicable product.43  For June 1993             
          and after, FNBC’s stated policy was that it would amortize the              
          credit adjustments into income over the weighted average term of            
          deals executed during the quarter for the applicable product in             
          the quarter.  FNBC actually computed the weighted average term              
          for the applicable product only in the fourth quarter of 1993.              
          For the remaining quarters of 1993, FNBC calculated the weighted            
          average term for all products combined.                                     
                         b.  Effect of Methodology                                    
               Under FNBC’s procedure, the credit adjustments for swaps               
          with shorter-than-average lives, relative to others originated in           
          the same quarter, were amortized into income over a longer term             
          than the life of the swap.  The converse was true for swaps with            
          longer-than-average lives.  For example, as to the first point,             
          FNBC had a swap with an individual amortization period of 4                 


          42 The December 1993 credit adjustment to the swap portfolio                
          did not include 32 swaps that FNBC actually originated in                   
          December 1993.  The inclusion of those swaps would have added               
          $106,769 to the credit adjustment calculation.                              
          43 Examples of FNBC’s applicable products were interest rate                
          derivatives, currency derivatives, and foreign exchange options.            




Page:  Previous  113  114  115  116  117  118  119  120  121  122  123  124  125  126  127  128  129  130  131  132  Next

Last modified: May 25, 2011