COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES
A) COMMITMENTS AND FINANCIAL GUARANTEES
The following table shows the maximum potential amount of future payments under guarantees and the contractual amount of commitments the Company has granted to third parties. These amounts represent the Company’s maximum cash outflows, without taking into account the amounts it could possibly recover through collateral held, insurance policies or other credit risk mitigation methods. They do not necessarily represent future cash requirements since several of them will expire or terminate without being funded. The maximum risk of loss in the event of complete default by third parties is substantially greater than the amount recognized in the Consolidated Balance Sheet.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS − 2015 FINANCIAL REVIEW − DESJARDINS FINANCIAL SECURITY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS − 2015 FINANCIAL REVIEW − DESJARDINS FINANCIAL SECURITY
NOTE 21 –
COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES (CONTINUED)
A) COMMITMENTS AND FINANCIAL GUARANTEES (CONTINUED)
The amounts shown in the following table represent the maximum exposure to credit risk for financial instruments whose maximum risk differs from the value recognized. Other financial instruments presented in the Consolidated Balance Sheet expose the Company to a credit risk. For such instruments, the maximum exposure to credit risk is equal to their carrying amount.
2015 2014
Financial guarantees
Credit default swaps $ 636.6 $ 562.6 Guarantees and letters of credit 36.0 33.0
Commitments
Credit commitments 74.6 26.0 $ 747.2 $ 621.6
Credit default swaps
In the normal course of its investment activities, the Company entered into credit default swaps on investment securities and undertook to assume the credit risk for the bonds that constitute the underlying assets for these swaps. The guarantee given is to provide partial or total payment for one security or a group of securities in the event of a payment default by the issuer. The maximum amount of this guarantee is equal to the notional amount of the swap. The amounts that could be required to be paid depend on the nature of the default and the recovery rates of the securities in collection. These swaps mature at various dates through 2020.
Guarantees and letters of credit
In the normal course of business, guarantees and letters of credit are irrevocable commitments issued, as a third party, by financial institutions on behalf of the Company should the Company not meet its financial obligations to third parties.
Credit commitments
Credit commitments represent unused portions of authorizations to extend credit in the form of loans, guarantees or letters of credit.
Indemnification commitments
In the normal course of its operations, the Company enters into agreements containing indemnification provisions. These indemnifications are normally related to purchasing contracts, service agreements, outsourcing agreements, lease agreements, netting agreements and asset or share transfer contracts as well as contracts entered into with directors or officers. Under these agreements, the Company may be liable for indemnifying a counterparty if certain events occur, such as amendments to statutes and regulations (including tax rules) as well as to disclosed financial positions, the existence of undisclosed liabilities, and losses resulting from third-party activities or as a result of third-party litigation. The indemnification provisions vary from one contract to the next. In several cases, no predetermined amount or limit is stated in the contract, and future events that would trigger a payment are difficult to foresee. Therefore, the maximum amount that the Company could be required to pay counterparties cannot be estimated. In the past, payments made under these indemnification agreements have been immaterial.
Indemnification of directors and officers
The Company will indemnify its directors and officers as well as any person who, at its request, acts in that capacity for another entity, in the event a claim or lawsuit is filed against them. The Company maintains liability insurance policies for its directors and officers. Due to the nature of these indemnities, it is not possible to give a reasonable estimate of the amount the Company could be required to pay. No specific liability has been recorded with respect to these indemnities.
B) FINANCIAL ASSETS PLEDGED AND HELD AS COLLATERAL
In the normal course of business, the Company pledges assets and enters into asset pledge agreements in accordance with the customary terms and conditions for its regular lending, borrowing and trading activities recognized in the Consolidated Balance Sheet. The following table shows the carrying amount of the Company’s financial assets pledged as collateral for liabilities or contingent liabilities as well as the fair value of assets from third parties held as collateral or repledged.
December 31, 2015 December 31, 2014 Financial assets of the Company pledged as collateral
Cash and money market securities $ 31.0 $ 243.0
Bonds 806.4 427.1
837.4 670.1
Assets from third parties
Assets held as collateral that may be sold or repledged 671,1 689.4 Less: Assets not sold or not repledged 394,4 394.9
276.7 294.5
1,114.1 964.6
Use of financial assets:
Commitments related to securities sold under repurchase
agreements and to securities lent or borrowed 758.1 656.6 Transactions on derivative financial instruments 79.3 28.6
Other 276.7 279.4
$ 1,114.1 $ 964.6
C) CONTINGENT LIABILITIES
The Company is involved in various litigation matters and lawsuits in the normal course of its insurance, savings and investment product distribution activities. In the past, such lawsuits were settled without incurring expenses in excess of the amounts set aside for this purpose. A class action has been filed against the Company with respect to guaranteed-capital savings products.
It is not currently possible to assess the outcome of the class action, certain of these litigation matters and certain of these lawsuits, the timing of such outcomes as well as the potential impact on the Company’s financial position. In management’s opinion, the fair value of the contingent liabilities resulting from such litigation matters and lawsuits, to the extent it can be measured, could have an impact on the Company’s profit or loss for a specific period, but would not have a significant adverse impact on its financial position.