Note 9. Commitments and Contingencies
Litigation
As of December 29, 2000, Merrill Lynch has been named as parties in various actions, some of which involve claims for substantial amounts. Although the results of legal actions cannot be predicted with certainty, it is the opinion of management that the resolution of these actions will not have a material adverse effect on the financial condition of Merrill Lynch as set forth in the Consolidated Financial Statements, but may be material to Merrill Lynch's operating results for any particular period.Lending and Guarantees
Merrill Lynch enters into commitments to extend credit, predominantly at variable interest rates, in connection with certain merchant banking, corporate finance, and loan syndication transactions. Customers may also be extended loans or lines of credit collateralized by first and second mortgages on real estate, certain liquid assets of small businesses, or securities. Merrill Lynch also issues various guarantees to counterparties in connection with certain leasing, securitization, and other transactions. These commitments and guarantees usually have a fixed expiration date and are contingent on certain contractual conditions that may require payment of a fee by the counterparty. Once commitments are drawn upon or guarantees are issued, Merrill Lynch may require the counterparty to post collateral depending upon creditworthiness and market conditions.The contractual amounts of these commitments and guarantees represent the amounts at risk should the contract be fully drawn upon, the client default, and the value of the existing collateral become worthless. The total amount of outstanding commitments and guarantees may not represent future cash requirements, as commitments and guarantees may expire without being drawn upon.
At December 29, 2000 and December 31, 1999, Merrill Lynch had the following commitments and guarantees:
The increase in commitments to extend credit relates to higher syndicated loan commitments and commercial paper backup lines of credit offered to institutional clients as well as increases in other commitments to extend credit.
Leases
Merrill Lynch has entered into various noncancellable long-term lease agreements for premises that expire through 2025. Merrill Lynch has also entered into various noncancellable short-term lease agreements, which are primarily commitments of less than one year under equipment leases.At December 29, 2000, future noncancellable minimum rental commitments under leases with remaining terms exceeding one year are as follows:
- World Financial Center Headquarters.
The minimum rental commitments shown above have not been reduced by $674 million of minimum sublease rentals to be received in the future under noncancellable subleases. Certain leases contain renewal or purchase options or escalation clauses providing for increased rental payments based upon maintenance, utility, and tax increases.
Net rent expense for each of the last three years is presented below:
Other Commitments
In the normal course of business, Merrill Lynch enters into commitments for underwriting transactions. Settlement of these transactions as of December 29, 2000 would not have a material effect on the consolidated financial condition of Merrill Lynch.In connection with trading activities, Merrill Lynch had commitments at December 29, 2000 and December 31, 1999 to enter into resale and repurchase agreements as follows:
Merrill Lynch also obtains letters of credit from issuing banks to satisfy various counterparty collateral requirements in lieu of depositing cash or securities collateral. Letters of credit aggregated $1,241 million and $1,486 million at December 29, 2000 and December 31, 1999, respectively.
In connection with merchant banking activities, Merrill Lynch has committed to purchase $670 million and $252 million of partnership interests at December 29, 2000 and December 31, 1999, respectively.
Merrill Lynch has entered into agreements with providers of market data, communications, and systems consulting services. At December 29, 2000 minimum fee commitments over the remaining life of these agreements aggregated $331 million.
Merrill Lynch has a long-term capital commitment of up to $600 million to Merrill Lynch HSBC, the 50/50-owned corporation created to provide global online investment and banking services to individual self-directed customers outside the United States. At December 29, 2000, $522 million of the total commitment remains unfunded. The timing of the funding of this commitment will be determined by the Board of Directors of Merrill Lynch HSBC, which has equal representation from Merrill Lynch and HSBC Holdings, plc ("HSBC").
