Fitch reviewed 1Q'09 filings of 100 companies from a range of industries representing nearly US$6.4 trillion in aggregate outstanding debt and a total notional amount of derivative positions in excess of $296 trillion. Fitch sought to: ascertain the degree to which new disclosure practices provide insight into how entities are using derivatives and for what purpose; determine the effect of derivatives on the financial statements of reviewed entities; and compare disclosures across companies and industries to see if entities have achieved transparency, consistency, and comparability in their disclosures related to derivatives.
Fitch's analysis found that approximately 80% of the derivative assets and liabilities carried on the balance sheet of the companies reviewed were concentrated in five financial services firms: JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley. Approximately 52% of the companies reviewed disclosed the presence of credit risk-related contingent features in their derivative positions. These contingent features generally require a company to post collateral or settle any outstanding derivative liability in the event of a downgrade of the company's credit rating.
Fitch found limited use of both credit and equity derivatives as a proportion of total derivatives, with the primary concentration being among financial institutions. Also, non-financial companies appear to use derivatives only for hedging specific risks.
