UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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X
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the
quarterly period ended September 30,
2011
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission file number:
1-7182
MERRILL LYNCH & CO., INC.
(Exact name of Registrant as specified in its charter)
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Delaware
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13-2740599
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina
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28255
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(Address of principal executive offices)
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(Zip Code)
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(704) 386-5681
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Registrants telephone number, including area code:
|
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
X YES NO
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such files).
X YES NO
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated filer
|
Accelerated filer
|
Non-accelerated
filer X
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Smaller reporting company
|
(Do not check if a smaller
reporting company)
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
YES X NO
As of the close of business on November 3, 2011, there were
1,000 shares of Common Stock outstanding, all of which were
held by Bank of America Corporation.
The registrant is a wholly-owned subsidiary of Bank of
America Corporation and meets the conditions set forth in
General Instructions H(1)(a) and (b) of
Form 10-Q
and is therefore filing this Form with the reduced disclosure
format as permitted by Instruction H(2).
QUARTERLY
REPORT ON
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011
TABLE OF CONTENTS
2
PART I
Financial Information
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Item 1.
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Financial
Statements (Unaudited)
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|
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Three Months Ended
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Three Months Ended
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(dollars in millions)
|
|
September 30, 2011
|
|
September 30, 2010
|
|
Revenues
|
|
|
|
|
|
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|
|
Principal transactions
|
|
$
|
2,781
|
|
|
$
|
1,243
|
|
Commissions
|
|
|
1,441
|
|
|
|
1,351
|
|
Managed account and other fee-based revenues
|
|
|
1,354
|
|
|
|
1,114
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|
Investment banking
|
|
|
1,016
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|
|
|
1,326
|
|
Earnings from equity method investments
|
|
|
70
|
|
|
|
281
|
|
Other revenues
|
|
|
(899
|
)
|
|
|
478
|
|
Other-than-temporary
impairment losses on
available-for-sale
debt securities:
|
|
|
|
|
|
|
|
|
Total
other-than-temporary
impairment losses
|
|
|
(12
|
)
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|
|
(45
|
)
|
Less: Portion of
other-than-temporary
impairment losses recognized in other comprehensive income
|
|
|
7
|
|
|
|
3
|
|
|
|
|
|
|
|
|
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Subtotal
|
|
|
5,758
|
|
|
|
5,751
|
|
Interest and dividend revenues
|
|
|
2,314
|
|
|
|
2,245
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|
Less interest expense
|
|
|
2,202
|
|
|
|
2,260
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
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|
|
112
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|
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|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Revenues, net of interest expense
|
|
|
5,870
|
|
|
|
5,736
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
3,638
|
|
|
|
3,507
|
|
Communications and technology
|
|
|
432
|
|
|
|
493
|
|
Occupancy and related depreciation
|
|
|
385
|
|
|
|
351
|
|
Brokerage, clearing, and exchange fees
|
|
|
279
|
|
|
|
227
|
|
Advertising and market development
|
|
|
122
|
|
|
|
114
|
|
Professional fees
|
|
|
266
|
|
|
|
265
|
|
Office supplies and postage
|
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|
31
|
|
|
|
38
|
|
Provision for representations and warranties
|
|
|
17
|
|
|
|
34
|
|
Other
|
|
|
1,090
|
|
|
|
973
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses
|
|
|
6,260
|
|
|
|
6,002
|
|
|
|
|
|
|
|
|
|
|
Pre-tax loss
|
|
|
(390
|
)
|
|
|
(266
|
)
|
Income tax (benefit) expense
|
|
|
(523
|
)
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
133
|
|
|
$
|
(380
|
)
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
-
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) applicable to common stockholder
|
|
$
|
133
|
|
|
$
|
(418
|
)
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed
Consolidated Financial Statements.
3
Merrill
Lynch & Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(Loss) (Unaudited)
|
|
|
|
|
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Nine Months Ended
|
|
Nine Months Ended
|
(dollars in millions)
|
|
September 30, 2011
|
|
September 30, 2010
|
|
Revenues
|
|
|
|
|
|
|
|
|
Principal transactions
|
|
$
|
6,125
|
|
|
$
|
7,381
|
|
Commissions
|
|
|
4,478
|
|
|
|
4,317
|
|
Managed account and other fee-based revenues
|
|
|
3,976
|
|
|
|
3,328
|
|
Investment banking
|
|
|
4,162
|
|
|
|
3,800
|
|
Earnings from equity method investments
|
|
|
328
|
|
|
|
658
|
|
Other revenues
|
|
|
2,337
|
|
|
|
2,758
|
|
Other-than-temporary
impairment losses on
available-for-sale
debt securities:
|
|
|
|
|
|
|
|
|
Total
other-than-temporary
impairment losses
|
|
|
(59
|
)
|
|
|
(168
|
)
|
Less: Portion of
other-than-temporary
impairment losses recognized in other comprehensive income
|
|
|
10
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
21,357
|
|
|
|
22,077
|
|
Interest and dividend revenues
|
|
|
6,220
|
|
|
|
6,985
|
|
Less interest expense
|
|
|
6,945
|
|
|
|
7,235
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(725
|
)
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
|
Revenues, net of interest expense
|
|
|
20,632
|
|
|
|
21,827
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
12,146
|
|
|
|
11,593
|
|
Communications and technology
|
|
|
1,338
|
|
|
|
1,465
|
|
Occupancy and related depreciation
|
|
|
1,056
|
|
|
|
1,053
|
|
Brokerage, clearing, and exchange fees
|
|
|
882
|
|
|
|
781
|
|
Advertising and market development
|
|
|
358
|
|
|
|
313
|
|
Professional fees
|
|
|
718
|
|
|
|
660
|
|
Office supplies and postage
|
|
|
95
|
|
|
|
118
|
|
Provision for representations and warranties
|
|
|
2,736
|
|
|
|
(145
|
)
|
Other
|
|
|
3,535
|
|
|
|
2,177
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses
|
|
|
22,864
|
|
|
|
18,015
|
|
|
|
|
|
|
|
|
|
|
Pre-tax (loss) earnings
|
|
|
(2,232
|
)
|
|
|
3,812
|
|
Income tax (benefit) expense
|
|
|
(1,329
|
)
|
|
|
1,286
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(903
|
)
|
|
$
|
2,526
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
-
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings applicable to common stockholder
|
|
$
|
(903
|
)
|
|
$
|
2,412
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed
Consolidated Financial Statements.
4
Merrill
Lynch & Co., Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets (Unaudited)
|
|
|
|
|
|
|
|
|
(dollars in millions, except per share amounts)
|
|
September 30, 2011
|
|
December 31, 2010
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,301
|
|
|
$
|
17,220
|
|
|
|
|
|
|
|
|
|
|
Cash and securities segregated for regulatory purposes or
deposited with clearing organizations
|
|
|
13,172
|
|
|
|
12,424
|
|
|
|
|
|
|
|
|
|
|
Securities financing transactions
|
|
|
|
|
|
|
|
|
Receivables under resale agreements (includes $89,119 in 2011
and $74,255 in 2010 measured at fair value in accordance with
the fair value option election)
|
|
|
175,640
|
|
|
|
138,219
|
|
Receivables under securities borrowed transactions (includes
$1,543 in 2011 and $1,672 in 2010 measured at fair value in
accordance with the fair value option election)
|
|
|
61,362
|
|
|
|
60,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237,002
|
|
|
|
198,677
|
|
|
|
|
|
|
|
|
|
|
Trading assets, at fair value (includes securities pledged as
collateral that can be sold or repledged of $42,251 in 2011 and
$33,933 in 2010):
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
|
39,233
|
|
|
|
39,371
|
|
Equities and convertible debentures
|
|
|
25,066
|
|
|
|
34,204
|
|
Non-U.S.
governments and agencies
|
|
|
28,345
|
|
|
|
22,248
|
|
Corporate debt and preferred stock
|
|
|
20,272
|
|
|
|
27,703
|
|
Mortgages, mortgage-backed, and asset-backed
|
|
|
7,240
|
|
|
|
10,994
|
|
U.S. Government and agencies
|
|
|
43,566
|
|
|
|
41,378
|
|
Municipals, money markets, physical commodities and other
|
|
|
15,089
|
|
|
|
14,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,811
|
|
|
|
190,657
|
|
|
|
|
|
|
|
|
|
|
Investment securities (includes $201 in 2011 and $310 in 2010
measured at fair value in accordance with the fair value option
election)
|
|
|
8,031
|
|
|
|
17,769
|
|
|
|
|
|
|
|
|
|
|
Securities received as collateral, at fair value
|
|
|
12,558
|
|
|
|
20,363
|
|
|
|
|
|
|
|
|
|
|
Receivables from Bank of America
|
|
|
55,658
|
|
|
|
60,655
|
|
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
|
|
|
|
|
|
Customers (net of allowance for doubtful accounts of $15 in 2011
and $8 in 2010)
|
|
|
23,253
|
|
|
|
22,080
|
|
Brokers and dealers
|
|
|
10,378
|
|
|
|
16,483
|
|
Interest and other
|
|
|
12,504
|
|
|
|
10,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,135
|
|
|
|
49,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, notes, and mortgages (net of allowances for loan losses
of $90 in 2011 and $170 in 2010) (includes $2,399 in 2011 and
$3,190 in 2010 measured at fair value in accordance with the
fair value option election)
|
|
|
21,916
|
|
|
|
25,803
|
|
|
|
|
|
|
|
|
|
|
Equipment and facilities, net
|
|
|
1,471
|
|
|
|
1,712
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangible assets
|
|
|
9,482
|
|
|
|
9,714
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
17,745
|
|
|
|
17,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
615,282
|
|
|
$
|
621,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets of Consolidated VIEs Included in Total Assets Above
(pledged as collateral)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets, excluding derivative contracts
|
|
$
|
8,766
|
|
|
$
|
10,838
|
|
Derivative contracts
|
|
|
-
|
|
|
|
41
|
|
Investment securities
|
|
|
264
|
|
|
|
309
|
|
Loans, notes, and mortgages (net)
|
|
|
108
|
|
|
|
221
|
|
Other assets
|
|
|
1,511
|
|
|
|
1,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets of Consolidated VIEs
|
|
$
|
10,649
|
|
|
$
|
13,006
|
|
|
|
|
|
|
|
|
|
|
5
Merrill
Lynch & Co., Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
(dollars in millions, except per share amounts)
|
|
September 30, 2011
|
|
December 31, 2010
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities financing transactions
|
|
|
|
|
|
|
|
|
Payables under repurchase agreements (includes $36,943 in 2011
and $37,394 in 2010 measured at fair value in accordance with
the fair value option election)
|
|
$
|
203,220
|
|
|
$
|
183,758
|
|
Payables under securities loaned transactions
|
|
|
14,795
|
|
|
|
15,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,015
|
|
|
|
199,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings (includes $5,527 in 2011 and $6,472 in
2010 measured at fair value in accordance with the fair value
option election)
|
|
|
7,104
|
|
|
|
15,248
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
12,277
|
|
|
|
12,826
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities, at fair value
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
|
29,538
|
|
|
|
32,197
|
|
Equities and convertible debentures
|
|
|
16,602
|
|
|
|
14,026
|
|
Non-U.S.
governments and agencies
|
|
|
16,702
|
|
|
|
15,705
|
|
Corporate debt and preferred stock
|
|
|
9,655
|
|
|
|
9,500
|
|
U.S. Government and agencies
|
|
|
16,677
|
|
|
|
24,747
|
|
Municipals, money markets and other
|
|
|
473
|
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,647
|
|
|
|
96,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to return securities received as collateral, at fair
value
|
|
|
12,558
|
|
|
|
20,363
|
|
Payables to Bank of America
|
|
|
33,587
|
|
|
|
23,021
|
|
|
|
|
|
|
|
|
|
|
Other payables
|
|
|
|
|
|
|
|
|
Customers
|
|
|
42,430
|
|
|
|
39,045
|
|
Brokers and dealers
|
|
|
11,211
|
|
|
|
12,895
|
|
Interest and other (includes $189 in 2011 and $165 in 2010
measured at fair value in accordance with the fair value option
election)
|
|
|
19,888
|
|
|
|
19,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,529
|
|
|
|
71,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings (includes $31,021 in 2011 and $39,214 in
2010 measured at fair value in accordance with the fair value
option election)
|
|
|
114,917
|
|
|
|
128,851
|
|
Junior subordinated notes (related to trust preferred securities)
|
|
|
3,594
|
|
|
|
3,576
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
565,228
|
|
|
|
571,480
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock (par value
$1.331/3
per share; authorized: 3,000,000,000 shares; issued:
1,000 shares)
|
|
|
-
|
|
|
|
-
|
|
Paid-in capital
|
|
|
41,257
|
|
|
|
40,416
|
|
Accumulated other comprehensive loss (net of tax)
|
|
|
(284
|
)
|
|
|
(254
|
)
|
Retained earnings
|
|
|
9,081
|
|
|
|
9,984
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
50,054
|
|
|
|
50,146
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
615,282
|
|
|
$
|
621,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities of Consolidated VIEs Included in Total
Liabilities Above
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
5,314
|
|
|
$
|
4,642
|
|
Derivative contracts
|
|
|
4
|
|
|
|
1
|
|
Payables to Bank of America
|
|
|
13
|
|
|
|
2
|
|
Other payables
|
|
|
180
|
|
|
|
53
|
|
Long-term borrowings
|
|
|
5,617
|
|
|
|
6,674
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities of Consolidated VIEs
|
|
$
|
11,128
|
|
|
$
|
11,372
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed
Consolidated Financial Statements.
6
Merrill
Lynch & Co., Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Nine Months Ended
|
(dollars in millions)
|
|
September 30, 2011
|
|
September 30, 2010
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(903
|
)
|
|
$
|
2,526
|
|
Adjustments to reconcile net earnings to cash provided by
operating activities
|
|
|
|
|
|
|
|
|
Provision for representations and warranties
|
|
|
2,736
|
|
|
|
(145
|
)
|
Depreciation and amortization
|
|
|
562
|
|
|
|
692
|
|
Share-based compensation expense
|
|
|
1,578
|
|
|
|
1,039
|
|
Deferred taxes
|
|
|
(204
|
)
|
|
|
673
|
|
Earnings from equity method investments
|
|
|
(328
|
)
|
|
|
(306
|
)
|
Other
|
|
|
2,435
|
|
|
|
1,744
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Trading assets
|
|
|
11,846
|
|
|
|
(17,876
|
)
|
Cash and securities segregated for regulatory purposes or
deposited with clearing organizations
|
|
|
(748
|
)
|
|
|
2,184
|
|
Receivables from Bank of America
|
|
|
4,997
|
|
|
|
(2,674
|
)
|
Receivables under resale agreements
|
|
|
(37,421
|
)
|
|
|
(75,377
|
)
|
Receivables under securities borrowed transactions
|
|
|
(904
|
)
|
|
|
5,632
|
|
Customer receivables
|
|
|
(1,180
|
)
|
|
|
12,191
|
|
Brokers and dealers receivables
|
|
|
6,106
|
|
|
|
4,999
|
|
Proceeds from loans, notes, and mortgages held for sale
|
|
|
3,928
|
|
|
|
4,989
|
|
Other changes in loans, notes, and mortgages held for sale
|
|
|
(2,428
|
)
|
|
|
(2,559
|
)
|
Trading liabilities
|
|
|
(7,129
|
)
|
|
|
31,664
|
|
Payables under repurchase agreements
|
|
|
19,462
|
|
|
|
43,268
|
|
Payables under securities loaned transactions
|
|
|
(456
|
)
|
|
|
(8,216
|
)
|
Payables to Bank of America
|
|
|
10,566
|
|
|
|
(2,209
|
)
|
Customer payables
|
|
|
3,385
|
|
|
|
385
|
|
Brokers and dealers payables
|
|
|
(1,684
|
)
|
|
|
(4,451
|
)
|
Other, net
|
|
|
(8,159
|
)
|
|
|
9,933
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
6,057
|
|
|
|
8,106
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from (payments for):
|
|
|
|
|
|
|
|
|
Maturities of
available-for-sale
securities
|
|
|
1,442
|
|
|
|
1,201
|
|
Sales of
available-for-sale
securities
|
|
|
3,876
|
|
|
|
14,966
|
|
Purchases of
available-for-sale
securities
|
|
|
(1,430
|
)
|
|
|
(771
|
)
|
Maturities of
held-to-maturity
securities
|
|
|
250
|
|
|
|
-
|
|
Equipment and facilities, net
|
|
|
(89
|
)
|
|
|
(294
|
)
|
Loans, notes, and mortgages held for investment
|
|
|
2,111
|
|
|
|
2,656
|
|
Other investments
|
|
|
5,480
|
|
|
|
2,459
|
|
|
|
|
|
|
|
|
|
|
Cash provided by investing activities
|
|
|
11,640
|
|
|
|
20,217
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from (payments for):
|
|
|
|
|
|
|
|
|
Commercial paper and short-term borrowings
|
|
|
(8,144
|
)
|
|
|
(5,031
|
)
|
Issuance and resale of long-term borrowings
|
|
|
7,657
|
|
|
|
6,440
|
|
Settlement and repurchases of long-term borrowings
|
|
|
(20,610
|
)
|
|
|
(29,452
|
)
|
Deposits
|
|
|
(549
|
)
|
|
|
(1,295
|
)
|
Derivative financing transactions
|
|
|
30
|
|
|
|
(1
|
)
|
Dividends
|
|
|
-
|
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
Cash used for financing activities
|
|
|
(21,616
|
)
|
|
|
(29,453
|
)
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(3,919
|
)
|
|
|
(1,130
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
17,220
|
|
|
|
15,142
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
13,301
|
|
|
$
|
14,012
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
147
|
|
|
$
|
2,460
|
|
Interest paid
|
|
|
5,716
|
|
|
|
5,471
|
|
Non-cash investing and financing activities:
During the nine months ended September 30, 2010, Merrill
Lynch received a non-cash capital contribution of approximately
$1 billion from Bank of America associated with certain
employee stock awards. In addition, as of January 1, 2010,
Merrill Lynch assumed assets and liabilities in connection with
the consolidation of certain variable interest entities.
See Notes to Condensed
Consolidated Financial Statements.
7
Merrill
Lynch & Co., Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
Three Months Ended
|
|
Nine Months Ended
|
(dollars in millions)
|
|
September 30, 2011
|
|
September 30, 2011
|
|
September 30, 2010
|
|
September 30, 2010
|
|
Net earnings (loss)
|
|
$
|
133
|
|
|
$
|
(903
|
)
|
|
$
|
(380
|
)
|
|
$
|
2,526
|
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(27
|
)
|
|
|
(25
|
)
|
|
|
28
|
|
|
|
(30
|
)
|
Net unrealized (loss) gain on investment securities
available-for-sale
|
|
|
(15
|
)
|
|
|
(3
|
)
|
|
|
68
|
|
|
|
(49
|
)
|
Net deferred gain (loss) on cash flow hedges
|
|
|
2
|
|
|
|
(5
|
)
|
|
|
10
|
|
|
|
18
|
|
Defined benefit pension and postretirement plans
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
2
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income, net of tax
|
|
|
(41
|
)
|
|
|
(30
|
)
|
|
|
108
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
92
|
|
|
$
|
(933
|
)
|
|
$
|
(272
|
)
|
|
$
|
2,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed
Consolidated Financial Statements.
8
September 30, 2011
Note 1. Summary of Significant Accounting
Policies
Merrill Lynch & Co. Inc. (ML &
Co.) and together with its subsidiaries (Merrill
Lynch), provides investment, financing and other related
services to individuals and institutions on a global basis
through its broker, dealer, banking and other financial services
subsidiaries. On January 1, 2009, ML & Co. was
acquired by Bank of America Corporation (Bank of
America) in exchange for common and preferred stock with a
value of $29.1 billion. ML & Co. is a
wholly-owned subsidiary of Bank of America.
Merger
with Banc of America Securities Holdings Corporation
(BASH)
On November 1, 2010, ML & Co. merged with BASH, a
wholly-owned subsidiary of Bank of America, with ML &
Co. as the surviving corporation in the merger. In addition, as
a result of the BASH merger, Banc of America Securities LLC
(BAS), a wholly-owned broker-dealer subsidiary of
BASH, became a wholly-owned broker-dealer subsidiary of
ML & Co. Subsequently, on November 1, 2010, BAS
was merged into Merrill Lynch, Pierce, Fenner & Smith
Incorporated (MLPF&S), a wholly-owned
broker-dealer subsidiary of ML & Co., with MLPF&S
as the surviving corporation in the merger. In accordance with
Accounting Standards Codification (ASC)
805-10,
Business Combinations (Business Combinations
Accounting), Merrill Lynchs Condensed Consolidated
Financial Statements for the three and nine month periods ended
September 30, 2011 and September 30, 2010 include the
historical results of BASH and subsidiaries as if the BASH
merger had occurred as of January 1, 2009, the date at
which both entities were first under the common control of Bank
of America. Merrill Lynch has recorded the assets and
liabilities acquired in connection with the BASH merger at their
historical carrying values.
Basis of
Presentation
The Condensed Consolidated Financial Statements include the
accounts of Merrill Lynch. The Condensed Consolidated Financial
Statements are presented in accordance with U.S. Generally
Accepted Accounting Principles (U.S. GAAP).
Intercompany transactions and balances within Merrill Lynch have
been eliminated. Transactions and balances with Bank of America
have not been eliminated. The interim Condensed Consolidated
Financial Statements are unaudited; however, all adjustments for
a fair presentation of the Condensed Consolidated Financial
Statements have been included.
These unaudited Condensed Consolidated Financial Statements
should be read in conjunction with the audited Consolidated
Financial Statements included in Merrill Lynchs Annual
Report on
Form 10-K
for the year ended December 31, 2010 (the 2010 Annual
Report). The nature of Merrill Lynchs business is
such that the results of any interim period are not necessarily
indicative of results for a full year. Certain prior-period
amounts have been reclassified to conform to the current period
presentation.
Consolidation
Accounting
Merrill Lynch determines whether it is required to consolidate
an entity by first evaluating whether the entity qualifies as a
voting rights entity (VRE) or as a variable interest
entity (VIE).
The Condensed Consolidated Financial Statements include the
accounts of Merrill Lynch, whose subsidiaries are generally
controlled through a majority voting interest or a controlling
financial interest. On January 1, 2010, Merrill Lynch
adopted accounting guidance on consolidation of VIEs,
9
which has been deferred for certain investment funds managed on
behalf of third parties if Merrill Lynch does not have an
obligation to fund losses that could potentially be significant
to these funds. Any funds meeting the deferral requirements will
continue to be evaluated for consolidation in accordance with
the prior guidance.
VREs VREs are defined to include entities that have
both equity at risk that is sufficient to fund future operations
and have equity investors that have a controlling financial
interest in the entity through their equity investments. In
accordance with ASC 810, Consolidation,
(Consolidation Accounting), Merrill Lynch
generally consolidates those VREs where it has the majority of
the voting rights. For investments in limited partnerships and
certain limited liability corporations that Merrill Lynch does
not control, Merrill Lynch applies ASC 323,
Investments Equity Method and Joint Ventures
(Equity Method Accounting), which requires use
of the equity method of accounting for investors that have more
than a minor influence, which is typically defined as an
investment of greater than 3% to 5% of the outstanding equity in
the entity. For more traditional corporate structures, in
accordance with Equity Method Accounting, Merrill Lynch applies
the equity method of accounting where it has the ability to
exercise significant influence over operating and financing
decisions of the investee. Significant influence can be
evidenced by a significant ownership interest (which is
generally defined as a voting interest of 20% to 50%),
significant board of director representation, or other contracts
and arrangements.
VIEs Those entities that do not meet the VRE
criteria are generally analyzed for consolidation as VIEs. A VIE
is an entity that lacks equity investors or whose equity
investors do not have a controlling financial interest in the
entity through their equity investments. Merrill Lynch
consolidates those VIEs for which it is the primary beneficiary.
In accordance with Consolidation Accounting guidance, Merrill
Lynch is considered the primary beneficiary when it has a
controlling financial interest in a VIE. Merrill Lynch has a
controlling financial interest when it has both the power to
direct the activities of the VIE that most significantly impact
the VIEs economic performance and an obligation to absorb
losses or the right to receive benefits that could potentially
be significant to the VIE. Merrill Lynch reassesses whether it
is the primary beneficiary of a VIE on a quarterly basis. The
quarterly reassessment process considers whether Merrill Lynch
has acquired or divested the power to direct the activities of
the VIE through changes in governing documents or other
circumstances. The reassessment also considers whether Merrill
Lynch has acquired or disposed of a financial interest that
could be significant to the VIE, or whether an interest in the
VIE has become significant or is no longer significant. The
consolidation status of the VIEs with which Merrill Lynch is
involved may change as a result of such reassessments.
Securitization
Activities
In the normal course of business, Merrill Lynch has securitized
commercial and residential mortgage loans; municipal,
government, and corporate bonds; and other types of financial
assets. Merrill Lynch may retain interests in the securitized
financial assets by holding notes or other debt instruments
issued by the securitization vehicle. In accordance with
ASC 860, Transfers and Servicing (Financial
Transfers and Servicing Accounting), Merrill Lynch
recognizes transfers of financial assets where it relinquishes
control as sales to the extent of cash and any other proceeds
received.
Revenue
Recognition
Principal transactions revenue includes both realized and
unrealized gains and losses on trading assets and trading
liabilities, investment securities classified as trading
investments and fair value changes associated with certain
structured debt. These instruments are recorded at fair value.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction
between market participants. Gains and losses on sales are
recognized on a trade date basis.
10
Commissions revenues include commissions, mutual fund
distribution fees and contingent deferred sales charge revenue,
which are all accrued as earned. Commissions revenues also
include mutual fund redemption fees, which are recognized at the
time of redemption. Commissions revenues earned from certain
customer equity transactions are recorded net of related
brokerage, clearing and exchange fees.
Managed account and other fee-based revenues primarily consist
of asset-priced portfolio service fees earned from the
administration of separately managed accounts and other
investment accounts for retail investors, annual account fees,
and certain other account-related fees.
Investment banking revenues include underwriting revenues and
fees for merger and acquisition and other advisory services,
which are accrued when services for the transactions are
substantially completed. Underwriting revenues are presented net
of transaction-related expenses.
Earnings from equity method investments include Merrill
Lynchs pro rata share of income and losses associated with
investments accounted for under the equity method of accounting.
Other revenues include gains (losses) on investment securities,
including sales and
other-than-temporary-impairment
(OTTI) losses associated with certain
available-for-sale
securities, gains (losses) on private equity investments and
other principal investments and gains (losses) on loans and
other miscellaneous items.
Contractual interest received and paid, and dividends received
on trading assets and trading liabilities, excluding
derivatives, are recognized on an accrual basis as a component
of interest and dividend revenues and interest expense. Interest
and dividends on investment securities are recognized on an
accrual basis as a component of interest and dividend revenues.
Interest related to loans, notes, and mortgages, securities
financing activities and certain short- and long-term borrowings
are recorded on an accrual basis as interest revenue or interest
expense, as applicable.
Use of
Estimates
In presenting the Condensed Consolidated Financial Statements,
management makes estimates including the following:
|
|
|
Valuations of assets and liabilities requiring fair value
estimates;
|
|
|
The allowance for credit losses;
|
|
|
Determination of
other-than-temporary
impairments for
available-for-sale
investment securities;
|
|
|
The outcome of litigation;
|
|
|
Determination of the liability for representations and
warranties made in connection with the sales of residential
mortgage and home equity loans;
|
|
|
Determination of whether VIEs should be consolidated;
|
|
|
The ability to realize deferred taxes and the recognition and
measurement of uncertain tax positions;
|
|
|
The carrying amount of goodwill and intangible assets;
|
|
|
The amortization period of intangible assets with definite lives;
|
|
|
Incentive-based compensation accruals and valuation of
share-based payment compensation arrangements; and
|
11
|
|
|
Other matters that affect the reported amounts and disclosure of
contingencies in the Condensed Consolidated Financial Statements.
|
Estimates, by their nature, are based on judgment and available
information. Therefore, actual results could differ from those
estimates and could have a material impact on the Condensed
Consolidated Financial Statements, and it is possible that such
changes could occur in the near term. A discussion of certain
areas in which estimates are a significant component of the
amounts reported in the Condensed Consolidated Financial
Statements follows:
Fair
Value Measurement
Merrill Lynch accounts for a significant portion of its
financial instruments at fair value or considers fair value in
their measurement. Merrill Lynch accounts for certain financial
assets and liabilities at fair value under various accounting
literature, including ASC 320, Investments
Debt and Equity Securities (Investment
Accounting), ASC 815, Derivatives and Hedging
(Derivatives Accounting), and the fair value
option election in accordance with
ASC 825-10-25,
Financial Instruments Recognition (the
fair value option election). Merrill Lynch also
accounts for certain assets at fair value under applicable
industry guidance, namely ASC 940, Financial
Services Broker and Dealers (Broker-Dealer
Guide) and ASC 946, Financial Services
Investment Companies (Investment Company Guide).
ASC 820, Fair Value Measurements and Disclosures
(Fair Value Accounting) defines fair value,
establishes a framework for measuring fair value, establishes a
fair value hierarchy based on the quality of inputs used to
measure fair value and enhances disclosure requirements for fair
value measurements.
Fair values for
over-the-counter
(OTC) derivative financial instruments, principally
forwards, options, and swaps, represent the present value of
amounts estimated to be received from or paid to a marketplace
participant in settlement of these instruments (i.e., the amount
Merrill Lynch would expect to receive in a derivative asset
assignment or would expect to pay to have a derivative liability
assumed). These derivatives are valued using pricing models
based on the net present value of estimated future cash flows
and directly observed prices from exchange-traded derivatives,
other OTC trades, or external pricing services, while taking
into account the counterpartys creditworthiness, or
Merrill Lynchs own creditworthiness, as appropriate.
Determining the fair value for OTC derivative contracts can
require a significant level of estimation and management
judgment.
New and/or
complex instruments may have immature or limited markets. As a
result, the pricing models used for valuation often incorporate
significant estimates and assumptions that market participants
would use in pricing the instrument, which may impact the
results of operations reported in the Condensed Consolidated
Financial Statements. For instance, on long-dated and illiquid
contracts extrapolation methods are applied to observed market
data in order to estimate inputs and assumptions that are not
directly observable. This enables Merrill Lynch to mark to fair
value all positions consistently when only a subset of prices
are directly observable. Values for OTC derivatives are verified
using observed information about the costs of hedging the risk
and other trades in the market. As the markets for these
products develop, Merrill Lynch continually refines its pricing
models to correlate more closely to the market price of these
instruments. The recognition of significant inception gains and
losses that incorporate unobservable inputs is reviewed by
management to ensure such gains and losses are derived from
observable inputs
and/or
incorporate reasonable assumptions about the unobservable
component, such as implied bid-offer adjustments.
Certain financial instruments recorded at fair value are
initially measured using mid-market prices which results in
gross long and short positions valued at the same pricing level
prior to the application of position netting. The resulting net
positions are then adjusted to fair value representing the exit
price as defined in Fair Value Accounting. The significant
adjustments include liquidity and counterparty credit risk.
12
Liquidity
Merrill Lynch makes adjustments to bring a position from a
mid-market to a bid or offer price, depending upon the net open
position. Merrill Lynch values net long positions at bid prices
and net short positions at offer prices. These adjustments are
based upon either observable or implied bid-offer prices.
Counterparty
Credit Risk
In determining fair value, Merrill Lynch considers both the
credit risk of its counterparties, as well as its own
creditworthiness. Merrill Lynch attempts to mitigate credit risk
to third parties by entering into netting and collateral
arrangements. Net counterparty exposure (counterparty positions
netted by offsetting transactions and both cash and securities
collateral) is then valued for counterparty creditworthiness and
this resultant value is incorporated into the fair value of the
respective instruments. Merrill Lynch generally calculates the
credit risk adjustment for derivatives based on observable
market credit spreads.
Fair Value Accounting also requires that Merrill Lynch consider
its own creditworthiness when determining the fair value of
certain instruments, including OTC derivative instruments and
certain structured notes carried at fair value under the fair
value option election (i.e., debit valuation adjustment or
DVA). Merrill Lynchs DVA is measured in the
same manner as third party counterparty credit risk. The impact
of Merrill Lynchs DVA is incorporated into the fair value
of instruments such as OTC derivative contracts even when credit
risk is not readily observable in the instrument. OTC derivative
liabilities are valued based on the net counterparty exposure as
described above.
Legal and
Representation and Warranty Reserves
Merrill Lynch is a party in various actions, some of which
involve claims for substantial amounts. Amounts are accrued for
the financial resolution of claims that have either been
asserted or are deemed probable of assertion if, in the opinion
of management, it is both probable that a liability has been
incurred and the amount of the loss can be reasonably estimated.
In many cases, it is not possible to determine whether a
liability has been incurred or to estimate the ultimate or
minimum amount of that liability until the case is close to
resolution, in which case no accrual is made until that time.
Accruals are subject to significant estimation by management,
with input from any outside counsel handling the matter.
In addition, Merrill Lynch and certain of its subsidiaries made
various representations and warranties in connection with the
sale of residential mortgage and home equity loans. Breaches of
these representations and warranties may result in the
requirement to repurchase mortgage loans or to otherwise make
whole or provide other remedies. Refer to Note 14 for
further information.
Income
Taxes
Merrill Lynch provides for income taxes on all transactions that
have been recognized in the Condensed Consolidated Financial
Statements in accordance with ASC 740, Income Taxes
(Income Tax Accounting). Accordingly, deferred
taxes are adjusted to reflect the tax rates at which future
taxable amounts will likely be settled or realized. The effects
of tax rate changes on deferred tax liabilities and deferred tax
assets, as well as other changes in income tax laws, are
recognized in net earnings in the period during which such
changes are enacted. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts that are
more-likely-than-not to be realized. Pursuant to Income Tax
Accounting, Merrill Lynch may consider various sources of
evidence in assessing the necessity of valuation allowances to
reduce deferred tax assets to amounts more-likely-than-not to be
realized, including the following: 1) past and projected
earnings, including losses, of
13
Merrill Lynch and Bank of America, as certain tax attributes
such as U.S. net operating losses (NOLs),
U.S. capital loss carryforwards and foreign tax credit
carryforwards can be utilized by Bank of America in certain
income tax returns, 2) tax carryforward periods, and
3) tax planning strategies and other factors of the legal
entities, such as the intercompany tax-allocation policy.
Included within Merrill Lynchs net deferred tax assets are
carryforward amounts generated in the U.S. and the U.K.
that are deductible in the future as NOLs. Merrill Lynch has
concluded that these deferred tax assets are
more-likely-than-not to be fully utilized prior to expiration,
based on the projected level of future taxable income of Merrill
Lynch and Bank of America, which is relevant due to the
intercompany tax-allocation policy. For this purpose, future
taxable income was projected based on forecasts, historical
earnings after adjusting for the past market disruptions and the
anticipated impact of the differences between pre-tax earnings
and taxable income.
Merrill Lynch recognizes and measures its unrecognized tax
benefits in accordance with Income Tax Accounting. Merrill Lynch
estimates the likelihood, based on their technical merits, that
tax positions will be sustained upon examination considering the
facts and circumstances and information available at the end of
each period. Merrill Lynch adjusts the level of unrecognized tax
benefits when there is more information available, or when an
event occurs requiring a change. In accordance with Bank of
Americas policy, any new or subsequent change in an
unrecognized tax benefit related to a Bank of America state
consolidated, combined or unitary return in which Merrill Lynch
is a member will generally not be reflected in Merrill
Lynchs balance sheet. However, upon Bank of Americas
resolution of the item, any material impact determined to be
attributable to Merrill Lynch will be reflected in Merrill
Lynchs balance sheet. Merrill Lynch accrues
income-tax-related interest and penalties, if applicable, within
income tax expense.
Merrill Lynchs results of operations are included in the
U.S. federal income tax return and certain state income tax
returns of Bank of America. The method of allocating income tax
expense is determined under the intercompany tax allocation
policy of Bank of America. This policy specifies that income tax
expense will be computed for all Bank of America subsidiaries
generally on a separate pro forma return basis, taking into
account the tax position of the consolidated group and the pro
forma Merrill Lynch group. Under this policy, tax benefits
associated with NOLs (or other tax attributes) of Merrill Lynch
are payable to Merrill Lynch upon the earlier of the utilization
in Bank of Americas tax returns or the utilization in
Merrill Lynchs pro forma tax returns.
Securities
Financing Transactions
Merrill Lynch enters into repurchase and resale agreements and
securities borrowed and loaned transactions to accommodate
customers and earn interest rate spreads (also referred to as
matched book transactions), obtain securities for
settlement and finance inventory positions. Resale and
repurchase agreements are generally accounted for as
collateralized financing transactions and may be recorded at
their contractual amounts plus accrued interest or at fair value
under the fair value option election. In resale and repurchase
agreements, typically the termination date of the agreements is
before the maturity date of the underlying security. However, in
certain situations, Merrill Lynch may enter into agreements
where the termination date of the transaction is the same as the
maturity date of the underlying security. These transactions are
referred to as
repo-to-maturity
transactions. Merrill Lynch enters into
repo-to-maturity
sales only for high quality, very liquid securities such as
U.S. Treasury securities or securities issued by the
government-sponsored enterprises (GSEs). Merrill
Lynch accounts for
repo-to-maturity
transactions as sales and purchases in accordance with
applicable accounting guidance, and accordingly, removes or
recognizes the securities from the Condensed Consolidated
Balance Sheet and recognizes a gain or loss, as appropriate, in
the Condensed Consolidated Statement of Earnings.
Repo-to-maturity
transactions were not material for the periods presented.
Resale and repurchase agreements recorded at fair value are
generally valued based on pricing models that use inputs with
observable levels of price transparency. Where the fair value
option election has
14
been made, changes in the fair value of resale and repurchase
agreements are reflected in principal transactions revenues and
the contractual interest coupon is recorded as interest revenue
or interest expense, respectively. For further information refer
to Note 4.
Resale and repurchase agreements recorded at their contractual
amounts plus accrued interest approximate fair value, as the
fair value of these items is not materially sensitive to shifts
in market interest rates because of the short-term nature of
these instruments
and/or
variable interest rates or to credit risk because the resale and
repurchase agreements are substantially collateralized.
Merrill Lynch may use securities received as collateral for
resale agreements to satisfy regulatory requirements such as
Rule 15c3-3
of the Securities Exchange Act of 1934.
Securities borrowed and loaned transactions may be recorded at
the amount of cash collateral advanced or received plus accrued
interest or at fair value under the fair value option election.
Securities borrowed transactions require Merrill Lynch to
provide the counterparty with collateral in the form of cash,
letters of credit, or other securities. Merrill Lynch receives
collateral in the form of cash or other securities for
securities loaned transactions. For these transactions, the fees
received or paid by Merrill Lynch are recorded as interest
revenue or expense. The carrying value of securities borrowed
and loaned transactions, recorded at the amount of cash
collateral advanced or received, approximates fair value as
these items are not materially sensitive to shifts in market
interest rates because of their short-term nature
and/or
variable interest rates or to credit risk because securities
borrowed and loaned transactions are substantially
collateralized.
For securities financing transactions, Merrill Lynchs
policy is to obtain possession of collateral with a market value
equal to or in excess of the principal amount loaned under the
agreements. To ensure that the market value of the underlying
collateral remains sufficient, collateral is generally valued
daily and Merrill Lynch may require counterparties to deposit
additional collateral or may return collateral pledged when
appropriate. Securities financing agreements give rise to
negligible credit risk as a result of these collateral
provisions, and no allowance for loan losses is considered
necessary. These instruments therefore are managed based on
market risk rather than credit risk.
Substantially all securities financing activities are transacted
under master agreements that give Merrill Lynch the right, in
the event of default, to liquidate collateral held and to offset
receivables and payables with the same counterparty. Merrill
Lynch offsets certain repurchase and resale transactions with
the same counterparty on the Condensed Consolidated Balance
Sheets where it has such a master agreement, that agreement is
legally enforceable and the transactions have the same maturity
date.
All Merrill Lynch-owned securities pledged to counterparties
where the counterparty has the right, by contract or custom, to
sell or repledge the securities are disclosed parenthetically in
trading assets or in investment securities on the Condensed
Consolidated Balance Sheets.
In transactions where Merrill Lynch acts as the lender in a
securities lending agreement and receives securities that can be
pledged or sold as collateral, it recognizes an asset on the
Condensed Consolidated Balance Sheets carried at fair value,
representing the securities received (securities received as
collateral), and a liability for the same amount, representing
the obligation to return those securities (obligation to return
securities received as collateral). The amounts on the Condensed
Consolidated Balance Sheets result from such non-cash
transactions.
At the end of certain quarterly periods during the year ended
December 31, 2009, BAS, which was merged into MLPF&S
(see Merger with Banc of America Securities Holdings
Corporation in this Note for a description of the merger),
had recorded as sales certain transfers of agency
mortgage-backed securities (MBS) which, based on an
internal review and interpretation, should have been recorded as
secured financings. As a result of the merger with BASH, Merrill
Lynch has included the
15
effect of these transactions in its consolidated financial
statements. Merrill Lynch has recently completed a detailed
review to determine whether there are additional sales of agency
MBS that should have been recorded as secured financings and has
identified additional transactions. These transactions did not
have a material impact on Merrill Lynchs Condensed
Consolidated Financial Statements for any of the affected
periods.
Trading
Assets and Liabilities
Merrill Lynchs trading activities consist primarily of
securities brokerage and trading; derivatives dealing and
brokerage; commodities trading and futures brokerage; and
securities financing transactions. Trading assets and trading
liabilities consist of cash instruments (e.g., securities and
loans) and derivative instruments. Trading assets also include
commodities inventory. See Note 6 for additional
information on derivative instruments.
Trading assets and liabilities are generally recorded on a trade
date basis at fair value. Included in trading liabilities are
securities that Merrill Lynch has sold but did not own and will
therefore be obligated to purchase at a future date (short
sales). Commodities inventory is recorded at the lower of
cost or fair value. Changes in fair value of trading assets and
liabilities (i.e., unrealized gains and losses) are recognized
as principal transactions revenues in the current period.
Realized gains and losses and any related interest amounts are
included in principal transactions revenues and interest
revenues and expenses, depending on the nature of the instrument.
Derivatives
A derivative is an instrument whose value is derived from an
underlying instrument or index, such as interest rates, equity
security prices, currencies, commodity prices or credit spreads.
Derivatives include futures, forwards, swaps, option contracts
and other financial instruments with similar characteristics.
Derivative contracts often involve future commitments to
exchange interest payment streams or currencies based on a
notional or contractual amount (e.g., interest rate swaps or
currency forwards) or to purchase or sell other financial
instruments at specified terms on a specified date (e.g.,
options to buy or sell securities or currencies). Refer to
Note 6 for further information.
Investment
Securities
Investment securities consist of marketable investment
securities and non-qualifying investments. Refer to Note 8.
Marketable
Investment Securities
ML & Co. and certain of its non-broker-dealer
subsidiaries follow the guidance within Investment Accounting
for investments in debt and publicly traded equity securities.
Merrill Lynch classifies those debt securities that it does not
intend to sell as
held-to-maturity
securities.
Held-to-maturity
securities are carried at amortized cost unless a decline in
value is deemed
other-than-temporary,
in which case the carrying value is reduced. For Merrill Lynch,
the trading classification under Investment Accounting generally
includes those securities that are bought and held principally
for the purpose of selling them in the near term, securities
that are economically hedged, or securities that may contain a
bifurcatable embedded derivative as defined in Derivatives
Accounting. Securities classified as trading assets are marked
to fair value through earnings. All other qualifying securities
are classified as
available-for-sale
(AFS) and are held at fair value with unrealized
gains and losses reported in accumulated other comprehensive
income (loss) (OCI).
16
Realized gains and losses on investment securities are included
in current period earnings. For purposes of computing realized
gains and losses, the cost basis of each investment sold is
based on the specific identification method.
Merrill Lynch regularly (at least quarterly) evaluates each
held-to-maturity
and
available-for-sale
security whose fair value has declined below amortized cost to
assess whether the decline in fair value is
other-than-temporary.
A decline in a debt securitys fair value is considered to
be
other-than-temporary
if it is probable that all amounts contractually due will not be
collected or Merrill Lynch either plans to sell the security or
it is more likely than not that it will be required to sell the
security before recovery of its amortized cost. For unrealized
losses on debt securities that are deemed
other-than-temporary,
the credit component of an
other-than-temporary
impairment is recognized in earnings and the non-credit
component is recognized in OCI when Merrill Lynch does not
intend to sell the security and it is more likely than not that
Merrill Lynch will not be required to sell the security prior to
recovery.
Non-Qualifying
Investments
Non-qualifying investments are those investments that are not
within the scope of Investment Accounting and primarily include
private equity investments accounted for at fair value and other
equity securities carried at cost or under the equity method of
accounting.
Private equity investments that are held for capital
appreciation
and/or
current income are accounted for under the Investment Company
Guide and carried at fair value. Additionally, certain private
equity investments that are not accounted for under the
Investment Company Guide may be carried at fair value under the
fair value option election. The fair value of private equity
investments reflects expected exit values based upon market
prices or other valuation methodologies, including market
comparables of similar companies and discounted expected cash
flows.
Merrill Lynch has non-controlling investments in the common
shares of corporations and in partnerships that do not fall
within the scope of Investment Accounting or the Investment
Company Guide. Merrill Lynch accounts for these investments
using either the cost or the equity method of accounting based
on managements ability to influence the investees or
Merrill Lynch may elect the fair value option. See the
Consolidation Accounting section of this Note for more
information.
For investments accounted for using the equity method, income is
recognized based on Merrill Lynchs share of the earnings
or losses of the investee. Dividend distributions are generally
recorded as reductions in the investment balance. Impairment
testing is based on the guidance provided in Equity Method
Accounting, and the investment is reduced when an impairment is
deemed
other-than-temporary.
For investments accounted for at cost, income is recognized when
dividends are received, or the investment is sold. Instruments
are periodically tested for impairment based on the guidance
provided in Investment Accounting, and the cost basis is reduced
when impairment is deemed
other-than-temporary.
Loans,
Notes and Mortgages, Net
Merrill Lynchs lending and related activities include loan
originations, syndications and securitizations. Loan
originations include corporate and institutional loans,
residential and commercial mortgages, asset-backed loans, and
other loans to individuals and businesses. Merrill Lynch also
engages in secondary market loan trading (see the Trading Assets
and Liabilities section of this Note) and margin lending. Loans
included in loans, notes and mortgages are classified for
accounting purposes as loans held for investment and loans held
for sale. Upon completion of the acquisition of Merrill Lynch by
Bank of
17
America, certain loans carried by Merrill Lynch were subject to
the requirements of
ASC 310-30,
Loans and Debt Securities Acquired with Deteriorated Credit
Quality (Acquired Impaired Loan Accounting).
Loans held for investment are generally carried at amortized
cost, less an allowance for loan losses, which represents
Merrill Lynchs estimate of probable losses inherent in its
lending activities. The fair value option election has been made
for certain
held-for-investment
loans, notes and mortgages. Merrill Lynch performs periodic and
systematic detailed reviews of its lending portfolios to
identify credit risks and to assess overall collectability.
These reviews, which are updated on a quarterly basis, consider
a variety of factors including, but not limited to, historical
loss experience, estimated defaults, delinquencies, economic
conditions, credit scores and the fair value of any underlying
collateral. Provisions for loan losses are included in interest
and dividend revenue in the Condensed Consolidated Statements of
Earnings (Loss).
Merrill Lynchs estimate of loan losses includes judgment
about collectability based on available information at the
balance sheet date, and the uncertainties inherent in those
underlying assumptions. While management has based its estimates
on the best information available, future adjustments to the
allowance for loan losses may be necessary as a result of
changes in the economic environment or variances between actual
results and the original assumptions.
In general, loans that are past due 90 days or more as to
principal or interest, or where reasonable doubt exists as to
timely collection, including loans that are individually
identified as being impaired, are classified as non-performing
unless well-secured and in the process of collection. Loans,
primarily commercial, whose contractual terms have been
restructured in a manner which grants a concession to a borrower
experiencing financial difficulties are considered troubled debt
restructurings (TDRs) and are classified as
non-performing until the loans have performed for an adequate
period of time under the restructured agreement. Interest
accrued but not collected is reversed when a commercial loan is
considered non-performing. Interest collections on commercial
loans for which the ultimate collectability of principal is
uncertain are applied as principal reductions; otherwise, such
collections are credited to income when received. Commercial
loans may be restored to performing status when all principal
and interest is current and full repayment of the remaining
contractual principal and interest is expected, or when the loan
otherwise becomes well-secured and is in the process of
collection.
Loans held for sale are carried at lower of cost or fair value.
The fair value option election has been made for certain
held-for-sale
loans, notes and mortgages. Estimation is required in
determining these fair values. The fair value of loans made in
connection with commercial lending activity, consisting mainly
of senior debt, is primarily estimated using the market value of
publicly issued debt instruments when available or discounted
cash flows.
Nonrefundable loan origination fees, loan commitment fees, and
draw down fees received in conjunction with held for
investment loans are generally deferred and recognized over the
contractual life of the loan as an adjustment to the yield. If,
at the outset, or any time during the term of the loan, it
becomes probable that the repayment period will be extended, the
amortization is recalculated using the expected remaining life
of the loan. When the loan contract does not provide for a
specific maturity date, managements best estimate of the
repayment period is used. At repayment of the loan, any
unrecognized deferred fee is immediately recognized in earnings.
If the loan is accounted for as held for sale, the fees received
are deferred and recognized as part of the gain or loss on sale
in other revenues. If the loan is accounted for under the fair
value option election, the fees are included in the
determination of the fair value and included in other revenues.
New
Accounting Pronouncements
In April 2011, the Financial Accounting Standards Board
(FASB) issued new accounting guidance on TDRs,
including criteria to determine whether a loan modification
represents a concession and whether the debtor is experiencing
financial difficulties. This new accounting guidance was
effective for Merrill
18
Lynchs interim period ended September 30, 2011 with
retrospective application back to January 1, 2011. The new
accounting guidance was not material to Merrill Lynch.
In April 2011, the FASB issued new accounting guidance that
addresses effective control in repurchase agreements and
eliminates the requirement for entities to consider whether the
transferor has the ability to repurchase the financial assets in
a repurchase agreement. This new accounting guidance will be
effective, on a prospective basis, for new transactions or
modifications to existing transactions, on January 1, 2012.
The adoption of this guidance is not expected to have a material
impact on Merrill Lynchs consolidated financial position
or results of operations.
In May 2011, the FASB issued amendments to Fair Value
Accounting. The amendments clarify the application of the
highest and best use and valuation premise concepts, preclude
the application of blockage factors in the valuation of all
financial instruments and include criteria for applying the fair
value measurement principles to portfolios of financial
instruments. The amendments additionally prescribe enhanced
financial statement disclosures for Level 3 fair value
measurements. The new amendments will be effective for the three
months ended March 31, 2012. Merrill Lynch is currently
assessing the impact of this guidance on its consolidated
financial position and results of operations.
In June 2011, the FASB issued new accounting guidance on the
presentation of comprehensive income in financial statements.
The new guidance requires entities to report components of
comprehensive income in either a continuous statement of
comprehensive income or two separate but consecutive statements.
This new accounting guidance will be effective for Merrill Lynch
for the three months ended March 31, 2012. The adoption of
this guidance, which involves disclosures only, will not impact
Merrill Lynchs consolidated financial position or results
of operations.
In September 2011, the FASB issued new accounting guidance that
simplifies goodwill impairment testing. The new guidance permits
entities to make a qualitative assessment of whether it is
more-likely-than-not that the fair value of a reporting unit is
less than its carrying value before applying the two-step
impairment test. If it is not more-likely-than-not that the fair
value of a reporting unit is less than the carrying amount, an
entity would not be required to perform the two-step impairment
test. The guidance includes factors for entities to consider
when making the qualitative assessment, including macroeconomic
and company-specific factors as well as factors relating to a
specific reporting unit. Merrill Lynch early adopted the new
accounting guidance for the annual goodwill impairment test
completed during the three months ended September 30, 2011
and the adoption did not have a material impact on the results
of the goodwill impairment test.
Note 2. Transactions with Bank of America
Merrill Lynch has entered into various transactions with Bank of
America, primarily to integrate certain activities within either
Bank of America or Merrill Lynch. Transactions with Bank of
America also include various asset and liability transfers and
transactions associated with intercompany sales and trading and
financing activities.
Merger
with BASH
See Note 1 Merger with Banc of America
Securities Holdings Corporation (BASH) for
further information on this transaction.
Other
Related Party Transactions
Merrill Lynch has entered into various other transactions with
Bank of America, primarily in connection with certain sales and
trading and financing activities. Details on amounts receivable
from
19
and payable to Bank of America as of September 30, 2011 and
December 31, 2010 are presented below:
Receivables from Bank of America are comprised of:
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
September 30, 2011
|
|
December 31, 2010
|
|
|
Cash and cash equivalents
|
|
$
|
6,707
|
|
|
$
|
14,471
|
|
Cash and securities segregated for regulatory purposes
|
|
|
7,405
|
|
|
|
5,508
|
|
Receivables under resale agreements
|
|
|
29,106
|
|
|
|
31,053
|
|
Trading assets
|
|
|
1,475
|
|
|
|
643
|
|
Net intercompany funding receivable
|
|
|
9,264
|
|
|
|
7,305
|
|
Other receivables
|
|
|
1,701
|
|
|
|
1,460
|
|
Other assets
|
|
|
-
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
55,658
|
|
|
$
|
60,655
|
|
|
|
|
|
|
|
|
|
|
Payables to Bank of America are comprised of:
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
September 30, 2011
|
|
December 31, 2010
|
|
|
Payables under repurchase agreements
|
|
$
|
20,210
|
|
|
$
|
12,890
|
|
Payables under securities loaned transactions
|
|
|
2,359
|
|
|
|
2,352
|
|
Short-term borrowings
|
|
|
2,395
|
|
|
|
1,901
|
|
Deposits
|
|
|
90
|
|
|
|
33
|
|
Trading liabilities
|
|
|
2,334
|
|
|
|
520
|
|
Other payables
|
|
|
3,620
|
|
|
|
2,746
|
|
Long-term
borrowings(1)
|
|
|
2,579
|
|
|
|
2,579
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,587
|
|
|
$
|
23,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts are subordinated
borrowings from Bank of America (see Note 12). |
Total net revenues and non-interest expenses related to
transactions with Bank of America for the three months ended
September 30, 2011 were $288 million and
$537 million, respectively. Such revenues and expenses for
the nine months ended September 30, 2011 were
$822 million and $1,766 million, respectively. Total
net revenues and non-interest expenses related to transactions
with Bank of America for the three months ended
September 30, 2010 were net losses of $111 million and
expenses of $365 million, respectively. Such revenues and
expenses for the nine months ended September 30, 2010 were
net losses of $100 million and expenses of
$816 million, respectively. Non-interest expenses for the
three and nine months ended September 30, 2011 reflect
increased intercompany service fees resulting from the
integration of Bank of Americas and Merrill Lynchs
methodologies for allocating expenses associated with shared
services to their subsidiaries. The results for the nine months
ended September 30, 2011 and September 30, 2010
included gains of $5 million and $282 million,
respectively, from the sale of approximately $3.7 billion
and $11.2 billion, respectively, of
available-for-sale
securities to Bank of America. These transfers were made to
enable Bank of America or its non-Merrill Lynch subsidiaries to
more efficiently manage the existing portfolio of similar
available-for-sale
securities.
Bank of America and Merrill Lynch have entered into certain
intercompany lending and borrowing arrangements to facilitate
centralized liquidity management. Included in these arrangements
is a $50 billion one-year revolving line of credit that
allows Bank of America to borrow funds from Merrill Lynch at a
spread to LIBOR that is reset periodically and is consistent
with other intercompany agreements. The line of credit matures
on January 1, 2012 and will automatically be extended by
one year to the succeeding January 1st unless Merrill
Lynch provides written notice not to extend at least
45 days prior to the maturity date. Approximately
$7.1 billion and $6.1 billion were outstanding under
this line of credit as of September 30, 2011 and
December 31, 2010, respectively. In addition, in October
2011, Merrill Lynch
20
entered into a short-term revolving credit facility that will
allow Bank of America to borrow up to an additional
$25 billion. For information on Merrill Lynchs other
borrowing arrangements with Bank of America, including Bank of
Americas guarantees of certain debt securities, warrants
and/or other
certificates and obligations of certain subsidiaries of
ML & Co., refer to Note 12. Bank of America has
also guaranteed the performance of Merrill Lynch on certain
derivative transactions (see Note 6).
Note 3. Segment and Geographic Information
Segment
Information
Pursuant to ASC 280, Segment Reporting, operating
segments represent components of an enterprise for which
separate financial information is available that is regularly
evaluated by the chief operating decision maker in determining
how to allocate resources and in assessing performance. The
business activities of Merrill Lynch are included within certain
of the operating segments of Bank of America. Detailed financial
information related to the operations of Merrill Lynch, however,
is not provided to Merrill Lynchs chief operating decision
maker. As a result, Merrill Lynch does not contain any
identifiable operating segments under Segment Reporting, and
therefore the financial information of Merrill Lynch is
presented as a single segment.
Geographic
Information
Merrill Lynch conducts its business activities through offices
in the following five regions:
|
|
|
United States;
|
|
|
Europe, Middle East and Africa (EMEA);
|
|
|
Pacific Rim;
|
|
|
Latin America; and
|
|
|
Canada.
|
The principal methodologies used in preparing the geographic
information below are as follows:
|
|
|
Revenues are generally recorded based on the location of the
employee generating the revenue; and
|
|
|
Intercompany transfers are based primarily on service agreements.
|
21
The information that follows, in managements judgment,
provides a reasonable representation of each regions
contribution to the consolidated net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
Three Months Ended
|
|
Nine Months Ended
|
(dollars in millions)
|
|
September 30, 2011
|
|
September 30, 2011
|
|
September 30, 2010
|
|
September 30, 2010
|
|
|
Revenues, net of interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe, Middle East, and Africa
|
|
$
|
568
|
|
|
$
|
3,217
|
|
|
$
|
1,079
|
|
|
$
|
3,811
|
|
Pacific Rim
|
|
|
692
|
|
|
|
2,028
|
|
|
|
421
|
|
|
|
1,521
|
|
Latin America
|
|
|
312
|
|
|
|
1,039
|
|
|
|
203
|
|
|
|
783
|
|
Canada
|
|
|
74
|
|
|
|
227
|
|
|
|
49
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Non-U.S.
|
|
|
1,646
|
|
|
|
6,511
|
|
|
|
1,752
|
|
|
|
6,292
|
|
United
States(1)(2)
|
|
|
4,224
|
|
|
|
14,121
|
|
|
|
3,984
|
|
|
|
15,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues, net of interest
expense(3)
|
|
$
|
5,870
|
|
|
$
|
20,632
|
|
|
$
|
5,736
|
|
|
$
|
21,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
U.S. results for the three and
nine months ended September 30, 2011 included gains of
$2.9 billion and
$2.7 billion,
respectively, due to the impact of changes in Merrill
Lynchs credit spreads on the carrying values of certain
long-term borrowings, primarily structured notes. U.S. results
for the three and nine months ended September 30, 2010
included losses of $0.3 billion and gains of
$1.1 billion, respectively, due to the impact of changes in
Merrill Lynchs credit spreads on the carrying values of
certain long-term borrowings, primarily structured notes.
|
(2) |
|
Corporate net revenues and
adjustments are reflected in the U.S. region. |
(3) |
|
Results for the three and nine
months ended September 30, 2011 included gains of
$0.7 billion and $0.6 billion, respectively,
associated with the valuation of derivative liabilities due to
changes in Merrill Lynchs credit spreads. Results for the
three months ended September 30, 2010 included losses of
$0.1 billion associated with the valuation of derivative
liabilities due to changes in Merrill Lynchs credit
spreads; the impact on the results for the nine months ended
September 30, 2010 was not material. |
Note 4. Fair Value Disclosures
Fair
Value Accounting
Fair
Value Hierarchy
In accordance with Fair Value Accounting, Merrill Lynch has
categorized its financial instruments, based on the priority of
the inputs to the valuation technique, into a three-level fair
value hierarchy.
The fair value hierarchy gives the highest priority to quoted
prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable
inputs (Level 3).
Financial assets and liabilities recorded on the Condensed
Consolidated Balance Sheets are categorized based on the inputs
to the valuation techniques as follows:
|
|
Level 1.
|
Financial assets and liabilities whose values are based on
unadjusted quoted prices for identical assets or liabilities in
an active market that Merrill Lynch has the ability to access
(examples include active exchange-traded equity securities,
exchange-traded derivatives, U.S. Government securities,
and certain other sovereign government obligations).
|
|
Level 2.
|
Financial assets and liabilities whose values are based on
quoted prices in markets that are not active or model inputs
that are observable either directly or indirectly for
substantially the full term of the asset or liability.
Level 2 inputs include the following:
|
|
|
|
|
a)
|
Quoted prices for similar assets or liabilities in active
markets (examples include restricted stock and U.S. agency
securities);
|
22
|
|
|
|
b)
|
Quoted prices for identical or similar assets or liabilities in
non-active markets (examples include corporate and municipal
bonds, which can trade infrequently);
|
|
|
|
|
c)
|
Pricing models whose inputs are observable for substantially the
full term of the asset or liability (examples include most
over-the-counter
derivatives, including interest rate and currency
swaps); and
|
|
|
|
|
d)
|
Pricing models whose inputs are derived principally from or
corroborated by observable market data through correlation or
other means for substantially the full term of the asset or
liability (examples include certain residential and commercial
mortgage-related assets, including loans, securities and
derivatives).
|
|
|
Level 3. |
Financial assets and liabilities whose values are based on
prices or valuation techniques that require inputs that are both
unobservable and significant to the overall fair value
measurement. These inputs reflect managements view about
the assumptions a market participant would use in pricing the
asset or liability (examples include certain private equity
investments, certain residential and commercial mortgage-related
assets and long-dated or complex derivatives).
|
As required by Fair Value Accounting, when the inputs used to
measure fair value fall within different levels of the
hierarchy, the level within which the fair value measurement is
categorized is based on the lowest level input that is
significant to the fair value measurement in its entirety. For
example, a Level 3 fair value measurement may include
inputs that are observable (Level 1 and 2) and
unobservable (Level 3). Therefore gains and losses for such
assets and liabilities categorized within the Level 3
reconciliation below may include changes in fair value that are
attributable to both observable inputs (Levels 1 and
2) and unobservable inputs (Level 3). Further, the
following reconciliations do not take into consideration the
offsetting effect of Level 1 and 2 financial instruments
entered into by Merrill Lynch that economically hedge certain
exposures to the Level 3 positions.
A review of fair value hierarchy classifications is conducted on
a quarterly basis. Changes in the observability of valuation
inputs may result in a reclassification for certain financial
assets or liabilities. Level 3 gains and losses represent
amounts incurred during the period in which the instrument was
classified as Level 3. Reclassifications impacting
Level 3 of the fair value hierarchy are reported as
transfers in or transfers out of the Level 3 category as of
the beginning of the quarter in which the reclassifications
occur. Refer to the recurring and non-recurring sections within
this Note for further information on transfers in and out of
Level 3.
Valuation
Techniques
The following outlines the valuation methodologies for Merrill
Lynchs material categories of assets and liabilities:
U.S.
Government and agencies
U.S. Treasury securities U.S. Treasury
securities are valued using quoted market prices and are
generally classified as Level 1 in the fair value hierarchy.
U.S. agency securities U.S. agency securities
are comprised of two main categories consisting of agency issued
debt and mortgage pass-throughs. The fair value of agency issued
debt securities is derived using market prices and recent trade
activity gathered from independent dealer pricing services or
brokers. Mortgage pass-throughs include To-be-announced
(TBA) securities and mortgage pass-through
certificates. TBA securities are generally valued using quoted
market prices. Generally, the fair value of mortgage
pass-through certificates is based on market prices of
comparable securities. Agency
23
issued debt securities and mortgage pass-throughs are generally
classified as Level 2 in the fair value hierarchy.
Non-U.S.
governments and agencies
Sovereign government obligations Sovereign government
obligations are valued using quoted prices in active markets
when available. To the extent quoted prices are not available,
fair value is determined based on reference to recent trading
activity and quoted prices of similar securities. These
securities are generally classified in Level 1 or
Level 2 in the fair value hierarchy, primarily based on the
issuing country.
Municipal
debt
Municipal bonds The fair value of municipal bonds is
calculated using recent trade activity, market price quotations
and new issuance levels. In the absence of this information,
fair value is calculated using comparable bond credit spreads.
Current interest rates, credit events, and individual bond
characteristics such as coupon, call features, maturity, and
revenue purpose are considered in the valuation process. The
majority of these bonds are classified as Level 2 in the
fair value hierarchy.
Auction Rate Securities (ARS) Merrill Lynch
holds investments in certain ARS, including student loan and
municipal ARS. Student loan ARS are comprised of various pools
of student loans. Municipal ARS are issued by states and
municipalities for a wide variety of purposes, including but not
limited to healthcare, industrial development, education and
transportation infrastructure. The fair value of the student
loan ARS is calculated using a pricing model that relies upon a
number of assumptions including weighted average life, coupon,
discount margin and liquidity discounts. The fair value of the
municipal ARS is calculated based upon projected refinancing and
spread assumptions. In both cases, recent trades and issuer
tenders are considered in the valuations. Student loan ARS and
municipal ARS are classified as Level 3 in the fair value
hierarchy.
Corporate
and other debt
Corporate bonds Corporate bonds are valued based on
either the most recent observable trade
and/or
external quotes, depending on availability. The most recent
observable trade price is given highest priority as the
valuation benchmark based on an evaluation of transaction date,
size, frequency, and bid-offer. This price may be adjusted by
bond or credit default swap spread movement. When credit default
swap spreads are referenced,
cash-to-synthetic
basis magnitude and movement as well as maturity matching are
incorporated into the value. When neither external quotes nor a
recent trade is available, the bonds are valued using a
discounted cash flow approach based on risk parameters of
comparable securities. In such cases, the potential pricing
difference in spread
and/or price
terms with the traded comparable is considered. Corporate bonds
are generally classified as Level 2 or Level 3 in the
fair value hierarchy.
Corporate loans and commitments The fair values of
corporate loans and loan commitments are based on market prices
and most recent transactions when available. When not available,
a discounted cash flow valuation approach is applied using
market-based credit spreads of comparable debt instruments,
recent new issuance activity or relevant credit derivatives with
appropriate
cash-to-synthetic
basis adjustments. Corporate loans and commitments are generally
classified as Level 2 in the fair value hierarchy. Certain
corporate loans, particularly those related to emerging market,
leveraged and distressed companies have limited price
transparency. These loans are generally classified as
Level 3 in the fair value hierarchy.
24
Mortgages,
mortgage-backed and asset-backed
Residential Mortgage-Backed Securities (RMBS),
Commercial Mortgage-Backed Securities (CMBS), and
other Asset-Backed Securities (ABS) RMBS, CMBS
and other ABS are valued based on observable price or credit
spreads for the particular security, or when price or credit
spreads are not observable, the valuation is based on prices of
comparable bonds or the present value of expected future cash
flows. Valuation levels of RMBS and CMBS indices are used as an
additional data point for benchmarking purposes or to price
outright index positions.
When estimating the fair value based upon the present value of
expected future cash flows, Merrill Lynch uses its best estimate
of the key assumptions, including forecasted credit losses,
prepayment rates, forward yield curves and discount rates
commensurate with the risks involved, while also taking into
account performance of the underlying collateral.
RMBS, CMBS and other ABS are classified as Level 3 in the
fair value hierarchy if external prices or credit spreads are
unobservable or if comparable trades/assets involve significant
subjectivity related to property type differences, cash flows,
performance and other inputs; otherwise, they are classified as
Level 2 in the fair value hierarchy.
Equities
Exchange-Traded Equity Securities Exchange-traded equity
securities are generally valued based on quoted prices from the
exchange. To the extent these securities are actively traded,
they are classified as Level 1 in the fair value hierarchy,
otherwise they are classified as Level 2.
Derivative
contracts
Listed Derivative Contracts Listed derivatives that are
actively traded are generally valued based on quoted prices from
the exchange and are classified as Level 1 in the fair
value hierarchy. Listed derivatives that are not actively traded
are valued using the same approaches as those applied to OTC
derivatives; they are generally classified as Level 2 in
the fair value hierarchy.
OTC Derivative Contracts OTC derivative contracts include
forwards, swaps and options related to interest rate, foreign
currency, credit, equity or commodity underlyings.
The fair value of OTC derivatives is derived using market prices
and other market based pricing parameters such as interest
rates, currency rates and volatilities that are observed
directly in the market or gathered from independent sources such
as dealer consensus pricing services or brokers. Where models
are used, they are used consistently and reflect the contractual
terms of and specific risks inherent in the contracts.
Generally, the models do not require a high level of
subjectivity since the valuation techniques used in the models
do not require significant judgment and inputs to the models are
readily observable in active markets. When appropriate,
valuations are adjusted for various factors such as liquidity
and credit considerations based on available market evidence. In
addition, for most collateralized interest rate and currency
derivatives the requirement to pay interest on the collateral
may be considered in the valuation. The majority of OTC
derivative contracts are classified as Level 2 in the fair
value hierarchy.
OTC derivative contracts that do not have readily observable
market based pricing parameters are classified as Level 3
in the fair value hierarchy. Examples of derivative contracts
classified within Level 3 include contractual obligations
that have tenures that extend beyond periods in which inputs to
the model would be observable, exotic derivatives with
significant inputs into a valuation model that are less
transparent in the market and certain credit default swaps
(CDS) referenced to mortgage-backed securities. For
example, derivative instruments, such as certain CDS referenced
to RMBS,
25
CMBS, ABS and collateralized debt obligations
(CDOs), may be valued based on the underlying
mortgage risk where these instruments are not actively quoted.
Inputs to the valuation will include available information on
similar underlying loans or securities in the cash market. The
prepayments and loss assumptions on the underlying loans or
securities are estimated using a combination of historical data,
prices on recent market transactions, relevant observable market
indices such as the Asset Backed Securities Index
(ABX) or Commercial Mortgage Backed Securities Index
(CMBX) and prepayment and default scenarios and
analyses.
CDOs The fair value of CDOs is derived from a referenced
basket of CDS, the CDOs capital structure, and the default
correlation, which is an input to a proprietary CDO valuation
model. The underlying CDO portfolios typically contain
investment grade as well as non-investment grade obligors. After
adjusting for differences in risk profile, the correlation
parameter for an actual transaction is estimated by benchmarking
against observable standardized index tranches and other
comparable transactions. CDOs are classified as either
Level 2 or Level 3 in the fair value hierarchy.
Investment
securities non-qualifying
Investments in Private Equity, Real Estate and Hedge
Funds Merrill Lynch has investments in numerous asset
classes, including: direct private equity, private equity funds,
hedge funds and real estate funds. Valuing these investments
requires significant management judgment due to the nature of
the assets and the lack of quoted market prices and liquidity in
these assets. Initially, the transaction price of the investment
is generally considered to be the best indicator of fair value.
Thereafter, valuation of direct investments is based on an
assessment of each individual investment using various
methodologies, which include publicly traded comparables derived
by multiplying a key performance metric (e.g., earnings before
interest, taxes, depreciation and amortization) of the portfolio
company by the relevant valuation multiple observed for
comparable companies, acquisition comparables, entry level
multiples and discounted cash flows. These valuations are
subject to appropriate discounts for lack of liquidity or
marketability. Certain factors which may influence changes to
fair value include but are not limited to, recapitalizations,
subsequent rounds of financing, and offerings in the equity or
debt capital markets. For fund investments, Merrill Lynch
generally records the fair value of its proportionate interest
in the funds capital as reported by the funds
respective managers.
Investment securities non-qualifying include equity securities
that have recently gone through initial public offerings or
secondary sales of public positions. These investments are
primarily classified as either Level 1 or Level 2 in
the fair value hierarchy. Level 2 classifications generally
include those publicly traded equity investments that have a
legal or contractual transfer restriction. All other investments
in private equity, real estate and hedge funds are classified as
Level 3 in the fair value hierarchy due to infrequent
trading
and/or
unobservable market prices.
Resale
and repurchase agreements
Merrill Lynch elected the fair value option for certain resale
and repurchase agreements. For such agreements, the fair value
is estimated using a discounted cash flow model which
incorporates inputs such as interest rate yield curves and
option volatility. Resale and repurchase agreements for which
the fair value option has been elected are generally classified
as Level 2 in the fair value hierarchy.
Long-term
and short-term borrowings
Merrill Lynch and its consolidated VIEs issue structured notes
that have coupons or repayment terms linked to the performance
of debt or equity securities, indices, currencies or
commodities. The fair value of structured notes is estimated
using valuation models for the combined derivative and debt
portions of the notes when the fair value option has been
elected. These models incorporate observable, and in some
instances unobservable, inputs including security prices,
interest rate yield
26
curves, option volatility, currency, commodity or equity rates
and correlations between these inputs. The impact of Merrill
Lynchs own credit spreads is also included based on
Merrill Lynchs observed secondary bond market spreads.
Structured notes are classified as either Level 2 or
Level 3 in the fair value hierarchy.
Recurring
Fair Value
The following tables present Merrill Lynchs fair value
hierarchy for those assets and liabilities measured at fair
value on a recurring basis as of September 30, 2011 and
December 31, 2010, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements on a Recurring Basis
|
|
|
as of September 30, 2011
|
|
|
|
|
|
|
|
|
Netting
|
|
|
(dollars in millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Adj(1)
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities segregated for regulatory purposes or deposited with
clearing organizations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
$
|
-
|
|
|
$
|
319
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
319
|
|
Non-U.S.
governments and agencies
|
|
|
-
|
|
|
|
1,777
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,777
|
|
U.S. Government and agencies
|
|
|
982
|
|
|
|
765
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities segregated for regulatory purposes or deposited
with clearing organizations
|
|
|
982
|
|
|
|
2,861
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables under resale agreements
|
|
|
-
|
|
|
|
89,119
|
|
|
|
-
|
|
|
|
-
|
|
|
|
89,119
|
|
Receivables under securities borrowed transactions
|
|
|
-
|
|
|
|
1,543
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,543
|
|
Trading assets, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
|
13,339
|
|
|
|
7,078
|
|
|
|
164
|
|
|
|
-
|
|
|
|
20,581
|
|
Convertible debentures
|
|
|
-
|
|
|
|
4,331
|
|
|
|
154
|
|
|
|
-
|
|
|
|
4,485
|
|
Non-U.S.
governments and agencies
|
|
|
26,144
|
|
|
|
1,826
|
|
|
|
375
|
|
|
|
-
|
|
|
|
28,345
|
|
Corporate debt
|
|
|
-
|
|
|
|
15,661
|
|
|
|
4,314
|
|
|
|
-
|
|
|
|
19,975
|
|
Preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
297
|
|
|
|
-
|
|
|
|
297
|
|
Mortgages, mortgage-backed and asset-backed
|
|
|
-
|
|
|
|
4,020
|
|
|
|
3,220
|
|
|
|
-
|
|
|
|
7,240
|
|
U.S. Government and agencies
|
|
|
23,656
|
|
|
|
19,910
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43,566
|
|
Municipals and money markets
|
|
|
1,345
|
|
|
|
11,031
|
|
|
|
2,266
|
|
|
|
-
|
|
|
|
14,642
|
|
Physical commodities and other
|
|
|
-
|
|
|
|
447
|
|
|
|
-
|
|
|
|
-
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading assets, excluding derivative contracts
|
|
|
64,484
|
|
|
|
64,304
|
|
|
|
10,790
|
|
|
|
-
|
|
|
|
139,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
contracts(2)
|
|
|
4,524
|
|
|
|
803,294
|
|
|
|
10,895
|
|
|
|
(779,480
|
)
|
|
|
39,233
|
|
Investment securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities and agency debentures
|
|
|
393
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
393
|
|
Securities, mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and asset-backed Agency CMOs
|
|
|
-
|
|
|
|
-
|
|
|
|
55
|
|
|
|
-
|
|
|
|
55
|
|
Non-agency MBSs
|
|
|
-
|
|
|
|
404
|
|
|
|
86
|
|
|
|
-
|
|
|
|
490
|
|
Corporate ABS
|
|
|
-
|
|
|
|
-
|
|
|
|
242
|
|
|
|
-
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available-for-sale
|
|
|
393
|
|
|
|
404
|
|
|
|
383
|
|
|
|
-
|
|
|
|
1,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities non-qualifying
|
|
|
2,497
|
|
|
|
195
|
|
|
|
1,288
|
|
|
|
-
|
|
|
|
3,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
2,890
|
|
|
|
599
|
|
|
|
1,671
|
|
|
|
-
|
|
|
|
5,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities received as collateral
|
|
|
11,874
|
|
|
|
684
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,558
|
|
Loans, notes and mortgages
|
|
|
-
|
|
|
|
560
|
|
|
|
1,839
|
|
|
|
-
|
|
|
|
2,399
|
|
Other Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
1,578
|
|
|
|
-
|
|
|
|
1,578
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements on a Recurring Basis
|
|
|
as of September 30, 2011
|
|
|
|
|
|
|
|
|
Netting
|
|
|
(dollars in millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Adj(1)
|
|
Total
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables under repurchase agreements
|
|
|
-
|
|
|
|
36,943
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,943
|
|
Short-term borrowings
|
|
|
-
|
|
|
|
5,527
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,527
|
|
Trading liabilities, excluding derivative contracts: Equities
|
|
|
14,228
|
|
|
|
2,239
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,467
|
|
Convertible debentures
|
|
|
-
|
|
|
|
135
|
|
|
|
-
|
|
|
|
-
|
|
|
|
135
|
|
Non-U.S.
governments and agencies
|
|
|
16,092
|
|
|
|
610
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,702
|
|
Corporate debt
|
|
|
-
|
|
|
|
9,588
|
|
|
|
53
|
|
|
|
-
|
|
|
|
9,641
|
|
Preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
|
|
14
|
|
U.S. Government and agencies
|
|
|
14,216
|
|
|
|
2,461
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,677
|
|
Municipals, money markets and other
|
|
|
360
|
|
|
|
110
|
|
|
|
3
|
|
|
|
-
|
|
|
|
473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading liabilities, excluding derivative contracts
|
|
|
44,896
|
|
|
|
15,143
|
|
|
|
70
|
|
|
|
-
|
|
|
|
60,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
contracts(2)
|
|
|
4,044
|
|
|
|
800,649
|
|
|
|
6,442
|
|
|
|
(781,597
|
)
|
|
|
29,538
|
|
Obligation to return securities received as collateral
|
|
|
11,874
|
|
|
|
684
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,558
|
|
Other payables interest and other
|
|
|
-
|
|
|
|
182
|
|
|
|
7
|
|
|
|
-
|
|
|
|
189
|
|
Long-term borrowings
|
|
|
-
|
|
|
|
28,877
|
|
|
|
2,144
|
|
|
|
-
|
|
|
|
31,021
|
|
|
|
|
|
|
(1) |
|
Represents counterparty and
cash collateral netting. |
(2) |
|
Refer to Note 6 for
product level detail. |
Transfers between Level 1 and Level 2 assets and
liabilities were not significant for the three or nine month
periods ended September 30, 2011.
Level 3 derivative contracts (assets) relate to derivative
positions on U.S. ABS CDOs and other mortgage products of
$2.6 billion, $3.5 billion of other credit derivatives
that incorporate unobservable model valuation inputs, and
$4.7 billion of equity, currency, interest rate and
commodity derivatives that are long-dated
and/or have
unobservable model valuation inputs (e.g., unobservable
correlation).
Level 3 non-qualifying investment securities primarily
relate to certain private equity positions.
Level 3 loans, notes and mortgages primarily relate to
residential mortgage and corporate loans.
Level 3 other assets represent net monoline exposure to a
single counterparty. This exposure was reclassified from
derivative contracts (assets) during the third quarter of 2011
because of the inherent default risk and given that these
contracts no longer provide a hedge benefit (see Note 6).
Level 3 derivative contracts (liabilities) relate to
derivative positions on U.S. ABS CDOs and other mortgage
products of $1.7 billion, $1.0 billion of other credit
derivatives that incorporate unobservable model valuation
inputs, and $3.7 billion of equity, currency, interest rate
and commodity derivatives that are long-dated
and/or have
unobservable model valuation inputs (e.g., unobservable
correlation).
Level 3 long-term borrowings primarily relate to
equity-linked structured notes of $1.7 billion, which have
unobservable model valuation inputs (e.g., unobservable
correlation).
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements on a Recurring Basis
|
|
|
as of December 31, 2010
|
|
|
|
|
|
|
|
|
Netting
|
|
|
(dollars in millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Adj(1)
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities segregated for regulatory purposes or deposited with
clearing organizations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
$
|
-
|
|
|
$
|
306
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
306
|
|
Non-U.S.
governments and agencies
|
|
|
1,652
|
|
|
|
1,402
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,054
|
|
U.S. Government and agencies
|
|
|
1,419
|
|
|
|
1,413
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities segregated for regulatory purposes or deposited
with clearing organizations
|
|
|
3,071
|
|
|
|
3,121
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables under resale
agreements(2)
|
|
|
-
|
|
|
|
74,255
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,255
|
|
Receivables under securities borrowed transactions
|
|
|
-
|
|
|
|
1,672
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,672
|
|
Trading assets, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
|
20,458
|
|
|
|
7,673
|
|
|
|
170
|
|
|
|
-
|
|
|
|
28,301
|
|
Convertible debentures
|
|
|
-
|
|
|
|
5,903
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,903
|
|
Non-U.S.
governments and agencies
|
|
|
18,393
|
|
|
|
3,612
|
|
|
|
243
|
|
|
|
-
|
|
|
|
22,248
|
|
Corporate debt
|
|
|
-
|
|
|
|
22,300
|
|
|
|
4,605
|
|
|
|
-
|
|
|
|
26,905
|
|
Preferred stock
|
|
|
-
|
|
|
|
511
|
|
|
|
287
|
|
|
|
-
|
|
|
|
798
|
|
Mortgages, mortgage-backed and asset-backed
|
|
|
-
|
|
|
|
5,247
|
|
|
|
5,747
|
|
|
|
-
|
|
|
|
10,994
|
|
U.S. Government and
agencies(3)
|
|
|
17,742
|
|
|
|
23,636
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41,378
|
|
Municipals and money markets
|
|
|
732
|
|
|
|
11,102
|
|
|
|
2,327
|
|
|
|
-
|
|
|
|
14,161
|
|
Physical commodities and other
|
|
|
-
|
|
|
|
598
|
|
|
|
-
|
|
|
|
-
|
|
|
|
598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading assets, excluding derivative contracts
|
|
|
57,325
|
|
|
|
80,582
|
|
|
|
13,379
|
|
|
|
-
|
|
|
|
151,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
contracts(4)
|
|
|
1,622
|
|
|
|
590,020
|
|
|
|
14,359
|
|
|
|
(566,630
|
)
|
|
|
39,371
|
|
Investment securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and agency debentures
|
|
|
430
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
430
|
|
Mortgage-backed securities residential MBS
|
|
|
-
|
|
|
|
3,869
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,869
|
|
Mortgage-backed securities agency CMOs
|
|
|
-
|
|
|
|
61
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61
|
|
Mortgage-backed securities non-agency MBS
|
|
|
-
|
|
|
|
518
|
|
|
|
213
|
|
|
|
-
|
|
|
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available-for-sale
|
|
|
430
|
|
|
|
4,448
|
|
|
|
213
|
|
|
|
-
|
|
|
|
5,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities non-qualifying
|
|
|
2,792
|
|
|
|
690
|
|
|
|
3,394
|
|
|
|
|
|
|
|
6,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
3,222
|
|
|
|
5,138
|
|
|
|
3,607
|
|
|
|
-
|
|
|
|
11,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities received as collateral
|
|
|
19,471
|
|
|
|
892
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,363
|
|
Loans, notes and mortgages
|
|
|
-
|
|
|
|
1,423
|
|
|
|
1,891
|
|
|
|
-
|
|
|
|
3,314
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables under repurchase agreements
|
|
|
-
|
|
|
|
37,394
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,394
|
|
Short-term borrowings
|
|
|
-
|
|
|
|
6,472
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,472
|
|
Trading liabilities, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
|
11,706
|
|
|
|
914
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,620
|
|
Convertible debentures
|
|
|
-
|
|
|
|
1,406
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,406
|
|
Non-U.S.
governments and agencies
|
|
|
14,748
|
|
|
|
957
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,705
|
|
Corporate debt
|
|
|
-
|
|
|
|
9,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,500
|
|
U.S. Government and agencies
|
|
|
19,860
|
|
|
|
4,887
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,747
|
|
Municipals, money markets and other
|
|
|
224
|
|
|
|
347
|
|
|
|
-
|
|
|
|
-
|
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading liabilities, excluding derivative contracts
|
|
|
46,538
|
|
|
|
18,011
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
contracts(4)
|
|
|
1,142
|
|
|
|
590,138
|
|
|
|
7,991
|
|
|
|
(567,074
|
)
|
|
|
32,197
|
|
Obligation to return securities received as collateral
|
|
|
19,471
|
|
|
|
892
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,363
|
|
Other payables interest and other
|
|
|
-
|
|
|
|
39
|
|
|
|
126
|
|
|
|
-
|
|
|
|
165
|
|
Long-term borrowings
|
|
|
-
|
|
|
|
36,818
|
|
|
|
2,396
|
|
|
|
-
|
|
|
|
39,214
|
|
|
|
|
|
|
(1) |
|
Represents counterparty and
cash collateral netting. |
29
|
|
|
(2) |
|
Receivables under resale
agreements have been revised from approximately $51 billion
(as previously reported) to approximately $74 billion. A
similar revision has been made on the balance sheet to the
parenthetical disclosure of receivables under resale agreements
measured at fair value in accordance with the fair value option
election. |
(3) |
|
U.S. Government and agencies
trading asset amounts shown in Level 1 and Level 2
have been revised from approximately $7 billion and
$34 billion, respectively (as previously reported) to
approximately $18 billion and $24 billion,
respectively. |
(4) |
|
Refer to Note 6 for
product level detail. |
Level 3 derivative contracts (assets) relate to derivative
positions on U.S. ABS CDOs and other mortgage products of
$5.7 billion, $4.1 billion of other credit derivatives
that incorporate unobservable model valuation inputs, and
$4.5 billion of equity, currency, interest rate and
commodity derivatives that are long-dated
and/or have
unobservable model valuation inputs (e.g., unobservable
correlation).
Level 3 non-qualifying investment securities primarily
relate to certain private equity positions.
Level 3 loans, notes and mortgages primarily relate to
residential mortgage and corporate loans.
Level 3 derivative contracts (liabilities) relate to
derivative positions on U.S. ABS CDOs and other mortgage
products of $2.2 billion, $2.0 billion of other credit
derivatives that incorporate unobservable model valuation
inputs, and $3.8 billion of equity, currency, interest rate
and commodity derivatives that are long-dated
and/or have
unobservable model valuation inputs (e.g., unobservable
correlation).
Level 3 long-term borrowings primarily relate to
equity-linked structured notes of $1.9 billion that are
long-dated
and/or have
unobservable model valuation inputs (e.g., unobservable
correlation).
30
The following tables provide a summary of changes in Merrill
Lynchs Level 3 financial assets and liabilities for
the three and nine months ended September 30, 2011 and
September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
Level 3 Financial Assets and Liabilities
|
|
|
Three Months Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
Total Realized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Realized and Unrealized Gains or (Losses)
|
|
and Unrealized
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included in Income
|
|
Gains or (Losses)
|
|
Gains or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
Principal
|
|
Other
|
|
|
|
included in
|
|
(Losses) to
|
|
|
|
|
|
|
|
|
|
Transfers
|
|
Transfers
|
|
Ending
|
|
|
Balance
|
|
Transactions
|
|
Revenue
|
|
Interest
|
|
Income
|
|
OCI
|
|
Sales
|
|
Purchases
|
|
Issuances
|
|
Settlements
|
|
In
|
|
Out
|
|
Balance
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
163
|
|
|
$
|
(9
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(9
|
)
|
|
$
|
-
|
|
|
$
|
(73
|
)
|
|
$
|
73
|
|
|
$
|
-
|
|
|
$
|
(1
|
)
|
|
$
|
11
|
|
|
$
|
-
|
|
|
$
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures
|
|
|
152
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
|
|
(12
|
)
|
|
|
154
|
|
Non-U.S.
governments and agencies
|
|
|
391
|
|
|
|
(17
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(17
|
)
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
375
|
|
Corporate debt
|
|
|
3,846
|
|
|
|
(199
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(199
|
)
|
|
|
-
|
|
|
|
(433
|
)
|
|
|
925
|
|
|
|
-
|
|
|
|
(238
|
)
|
|
|
516
|
|
|
|
(103
|
)
|
|
|
4,314
|
|
Preferred stock
|
|
|
307
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(17
|
)
|
|
|
30
|
|
|
|
-
|
|
|
|
(24
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
297
|
|
Mortgages, mortgage-backed and asset-backed
|
|
|
4,848
|
|
|
|
(98
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(98
|
)
|
|
|
-
|
|
|
|
(1,281
|
)
|
|
|
83
|
|
|
|
-
|
|
|
|
(51
|
)
|
|
|
-
|
|
|
|
(281
|
)
|
|
|
3,220
|
|
Municipals and money markets
|
|
|
2,486
|
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
|
|
(158
|
)
|
|
|
52
|
|
|
|
-
|
|
|
|
(189
|
)
|
|
|
54
|
|
|
|
(1
|
)
|
|
|
2,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading assets, excluding derivative contracts
|
|
|
12,193
|
|
|
|
(300
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(300
|
)
|
|
|
-
|
|
|
|
(1,978
|
)
|
|
|
1,175
|
|
|
|
-
|
|
|
|
(503
|
)
|
|
|
600
|
|
|
|
(397
|
)
|
|
|
10,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts, net
|
|
|
5,101
|
|
|
|
988
|
|
|
|
-
|
|
|
|
-
|
|
|
|
988
|
|
|
|
-
|
|
|
|
(114
|
)
|
|
|
109
|
|
|
|
-
|
|
|
|
(1,912
|
)
|
|
|
285
|
|
|
|
(4
|
)
|
|
|
4,453
|
|
Investment securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities agency CMOs
|
|
|
55
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55
|
|
Mortgage-backed securities non-agency MBSs
|
|
|
96
|
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
(13
|
)
|
|
|
(1
|
)
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
86
|
|
Corporate ABS
|
|
|
86
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
162
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available-for-sale
|
|
|
237
|
|
|
|
-
|
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
(11
|
)
|
|
|
(13
|
)
|
|
|
(1
|
)
|
|
|
171
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities non-qualifying
|
|
|
1,571
|
|
|
|
-
|
|
|
|
106
|
|
|
|
-
|
|
|
|
106
|
|
|
|
|
|
|
|
(286
|
)
|
|
|
6
|
|
|
|
-
|
|
|
|
(109
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
1,808
|
|
|
|
-
|
|
|
|
95
|
|
|
|
-
|
|
|
|
95
|
|
|
|
(13
|
)
|
|
|
(287
|
)
|
|
|
177
|
|
|
|
-
|
|
|
|
(109
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, notes and mortgages
|
|
|
1,940
|
|
|
|
-
|
|
|
|
(61
|
)
|
|
|
8
|
|
|
|
(53
|
)
|
|
|
-
|
|
|
|
(154
|
)
|
|
|
2
|
|
|
|
450
|
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
(326
|
)
|
|
|
1,839
|
|
Other Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,578
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,578
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
28
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
12
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
24
|
|
|
|
-
|
|
|
|
53
|
|
Preferred stock
|
|
|
23
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
Municipals, money markets and other
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading liabilities, excluding derivative contracts
|
|
|
54
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
12
|
|
|
|
(18
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
24
|
|
|
|
-
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables interest and other
|
|
|
108
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(100
|
)
|
|
|
7
|
|
Long-term borrowings
|
|
|
2,532
|
|
|
|
344
|
|
|
|
18
|
|
|
|
-
|
|
|
|
362
|
|
|
|
-
|
|
|
|
17
|
|
|
|
(120
|
)
|
|
|
164
|
|
|
|
(173
|
)
|
|
|
326
|
|
|
|
(240
|
)
|
|
|
2,144
|
|
|
|
Net gains in principal transactions related to derivative
contracts, net were primarily due to credit spreads widening on
short CDS baskets.
Sales of mortgages, mortgage-backed and asset-backed securities
primarily relates to the sale of CDO and collateralized loan
obligation (CLO) positions.
Purchases of corporate debt primarily relates to purchases of
non-investment grade and distressed corporate loans and bonds.
The purchases for other assets and settlements for derivative
contracts, net reflect the reclassification of approximately
$1.6 billion of net monoline exposure from derivative
contracts (assets) to other assets because of the inherent
default risk and given that these contracts no longer provide a
hedge benefit.
31
Transfers in for corporate debt are primarily due to decreased
observability (i.e., decreased market liquidity) for certain
corporate loans and bonds. Transfers out for mortgages,
mortgage-backed and asset-backed securities primarily relates to
increased observability (i.e., trading activity) for certain
CMBS positions. Transfers in for derivative contracts, net are
primarily due to certain equity derivative positions with
unobservable correlation. Transfers out for loans, notes and
mortgages and other payables interest and other
primarily relates to increased observability (i.e., liquid
comparables) for certain corporate loans and unfunded loan
commitments. Transfers in and out related to long-term
borrowings are primarily due to changes in the impact of
unobservable inputs on the value of certain equity-linked
structured notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
Level 3 Financial Assets and Liabilities
|
|
|
Nine Months Ended September 30, 2011
|
|
|
|
|
Total Realized and Unrealized
|
|
Total Realized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains or (Losses)
|
|
and Unrealized
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included in Income
|
|
Gains or (Losses)
|
|
Gains or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
Principal
|
|
Other
|
|
|
|
included in
|
|
(Losses) to
|
|
|
|
|
|
|
|
|
|
Transfers
|
|
Transfers
|
|
Ending
|
|
|
Balance
|
|
Transactions
|
|
Revenue
|
|
Interest
|
|
Income
|
|
OCI
|
|
Sales
|
|
Purchases
|
|
Issuances
|
|
Settlements
|
|
In
|
|
Out
|
|
Balance
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
170
|
|
|
$
|
26
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
26
|
|
|
$
|
-
|
|
|
$
|
(159
|
)
|
|
$
|
181
|
|
|
$
|
-
|
|
|
$
|
(64
|
)
|
|
$
|
11
|
|
|
$
|
(1
|
)
|
|
$
|
164
|
|
Convertible debentures
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
(97
|
)
|
|
|
238
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
|
|
(12
|
)
|
|
|
154
|
|
Non-U.S.
governments and agencies
|
|
|
243
|
|
|
|
68
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68
|
|
|
|
-
|
|
|
|
(18
|
)
|
|
|
125
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
4
|
|
|
|
(44
|
)
|
|
|
375
|
|
Corporate debt
|
|
|
4,605
|
|
|
|
128
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
|
|
-
|
|
|
|
(2,529
|
)
|
|
|
2,043
|
|
|
|
-
|
|
|
|
(346
|
)
|
|
|
763
|
|
|
|
(350
|
)
|
|
|
4,314
|
|
Preferred stock
|
|
|
287
|
|
|
|
29
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29
|
|
|
|
-
|
|
|
|
(123
|
)
|
|
|
60
|
|
|
|
-
|
|
|
|
(76
|
)
|
|
|
120
|
|
|
|
-
|
|
|
|
297
|
|
Mortgages, mortgage-backed and asset-backed
|
|
|
5,747
|
|
|
|
286
|
|
|
|
-
|
|
|
|
-
|
|
|
|
286
|
|
|
|
-
|
|
|
|
(3,689
|
)
|
|
|
1,596
|
|
|
|
-
|
|
|
|
(90
|
)
|
|
|
1
|
|
|
|
(631
|
)
|
|
|
3,220
|
|
Municipals and money markets
|
|
|
2,327
|
|
|
|
53
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53
|
|
|
|
-
|
|
|
|
(1,810
|
)
|
|
|
1,936
|
|
|
|
-
|
|
|
|
(361
|
)
|
|
|
126
|
|
|
|
(5
|
)
|
|
|
2,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading assets, excluding derivative contracts
|
|
|
13,379
|
|
|
|
597
|
|
|
|
-
|
|
|
|
-
|
|
|
|
597
|
|
|
|
-
|
|
|
|
(8,425
|
)
|
|
|
6,179
|
|
|
|
-
|
|
|
|
(940
|
)
|
|
|
1,043
|
|
|
|
(1,043
|
)
|
|
|
10,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts, net
|
|
|
6,368
|
|
|
|
1,015
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,015
|
|
|
|
-
|
|
|
|
(796
|
)
|
|
|
742
|
|
|
|
-
|
|
|
|
(2,774
|
)
|
|
|
584
|
|
|
|
(686
|
)
|
|
|
4,453
|
|
Investment securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities agency CMOs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
55
|
|
Mortgage-backed securities non-agency MBSs
|
|
|
213
|
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
(35
|
)
|
|
|
(83
|
)
|
|
|
11
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
86
|
|
Corporate ABS
|
|
|
-
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
248
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available-for-sale
|
|
|
213
|
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
(35
|
)
|
|
|
(83
|
)
|
|
|
315
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities non-qualifying
|
|
|
3,394
|
|
|
|
-
|
|
|
|
451
|
|
|
|
-
|
|
|
|
451
|
|
|
|
-
|
|
|
|
(1,138
|
)
|
|
|
52
|
|
|
|
-
|
|
|
|
(298
|
)
|
|
|
375
|
|
|
|
(1,548
|
)
|
|
|
1,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
3,607
|
|
|
|
-
|
|
|
|
425
|
|
|
|
-
|
|
|
|
425
|
|
|
|
(35
|
)
|
|
|
(1,221
|
)
|
|
|
367
|
|
|
|
-
|
|
|
|
(299
|
)
|
|
|
375
|
|
|
|
(1,548
|
)
|
|
|
1,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, notes and mortgages
|
|
|
1,891
|
|
|
|
-
|
|
|
|
168
|
|
|
|
25
|
|
|
|
193
|
|
|
|
-
|
|
|
|
(650
|
)
|
|
|
146
|
|
|
|
665
|
|
|
|
(175
|
)
|
|
|
135
|
|
|
|
(366
|
)
|
|
|
1,839
|
|
Other Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,578
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,578
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
84
|
|
|
|
(55
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
24
|
|
|
|
-
|
|
|
|
53
|
|
Preferred stock
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
23
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
Municipals, money markets and other
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
22
|
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading liabilities, excluding derivative contracts
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
129
|
|
|
|
(82
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
24
|
|
|
|
-
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables interest and other
|
|
|
126
|
|
|
|
-
|
|
|
|
26
|
|
|
|
-
|
|
|
|
26
|
|
|
|
-
|
|
|
|
4
|
|
|
|
(6
|
)
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(100
|
)
|
|
|
7
|
|
Long-term borrowings
|
|
|
2,396
|
|
|
|
242
|
|
|
|
3
|
|
|
|
-
|
|
|
|
245
|
|
|
|
-
|
|
|
|
72
|
|
|
|
(232
|
)
|
|
|
412
|
|
|
|
(499
|
)
|
|
|
855
|
|
|
|
(615
|
)
|
|
|
2,144
|
|
|
|
Net gains in principal transactions related to derivative
contracts, net were primarily due to credit spreads widening on
short CDS baskets in the third quarter of 2011.
32
Sales of corporate debt primarily relates to sales of corporate
ARS and distressed loans during the first quarter of 2011. Sales
of mortgages, mortgage-backed and asset-backed securities
primarily relates to the sale of CDO positions in conjunction
with the liquidation of a VIE and sales of CLO positions due to
the unwind of Merrill Lynchs proprietary trading business.
Purchases of corporate debt primarily relates to purchases of
non-investment grade and distressed corporate loans and bonds.
Purchases of mortgages, mortgage-backed and asset-backed
securities primarily relates to purchases of CDO and CLO
positions. Sales and purchases of municipal securities is
primarily due to dealer activity in student loan ARS. Sales of
investment securities non-qualifying primarily relates to the
sale of a private equity investment during the first quarter of
2011.
The purchases for other assets and settlements for derivative
contracts, net reflect the reclassification of approximately
$1.6 billion of net monoline exposure from derivative
contracts (assets) to other assets because of the inherent
default risk and given that these contracts no longer provide a
hedge benefit.
Transfers in for corporate debt are primarily due to decreased
observability (i.e., decreased market liquidity) for certain
corporate loans and bonds. Transfers out for corporate debt
primarily relates to increased price observability (e.g.,
trading comparables) for certain corporate bond positions.
Transfers out for mortgages, mortgage-backed and asset-backed
securities primarily relates to increased price observability
for certain RMBS, CMBS and consumer ABS portfolios. Transfers in
for derivative contracts, net primarily relates to changes in
the valuation methodology for certain CDO positions, in addition
to certain equity derivative positions with unobservable
correlation. Transfers out for derivative contracts, net
primarily relates to increased price observability for certain
equity and credit derivative positions. Transfers in for
investment securities non-qualifying are due to a change in the
valuation methodology for a private equity fund. Transfers out
related to investment securities non-qualifying are due to a
private equity investment that underwent an initial public
offering during the first quarter of 2011. Transfers out for
loans, notes and mortgages and other payables
interest and other primarily relates to increased observability
(i.e., liquid comparables) for certain corporate loans and
unfunded loan commitments. Transfers in and out related to
long-term borrowings are primarily due to changes in the impact
of unobservable inputs on the value of certain equity-linked
structured notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
Level 3 Financial Assets and Liabilities
|
|
|
Three Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
Total Realized and Unrealized Gains or (Losses)
|
|
Total Realized and
|
|
Unrealized
|
|
Sales,
|
|
|
|
|
|
|
|
|
|
|
Included in Income
|
|
Unrealized Gains
|
|
Gains or
|
|
Issuances
|
|
|
|
|
|
|
|
|
Beginning
|
|
Principal
|
|
Other
|
|
|
|
or (Losses)
|
|
(Losses) to
|
|
and
|
|
Transfers
|
|
Transfers
|
|
Ending
|
|
|
Balance
|
|
Transactions
|
|
Revenue
|
|
Interest
|
|
included in Income
|
|
OCI
|
|
Settlements
|
|
In
|
|
out
|
|
Balance
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
345
|
|
|
$
|
(20
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(20
|
)
|
|
$
|
-
|
|
|
$
|
5
|
|
|
$
|
2
|
|
|
$
|
(4
|
)
|
|
$
|
328
|
|
Non-U.S.
governments and agencies
|
|
|
940
|
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
|
|
(52
|
)
|
|
|
11
|
|
|
|
(653
|
)
|
|
|
268
|
|
Corporate debt
|
|
|
5,580
|
|
|
|
202
|
|
|
|
-
|
|
|
|
-
|
|
|
|
202
|
|
|
|
-
|
|
|
|
(442
|
)
|
|
|
260
|
|
|
|
(555
|
)
|
|
|
5,045
|
|
Preferred stock
|
|
|
188
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
205
|
|
Mortgages, mortgage-backed and asset-backed
|
|
|
6,874
|
|
|
|
111
|
|
|
|
-
|
|
|
|
-
|
|
|
|
111
|
|
|
|
-
|
|
|
|
(226
|
)
|
|
|
20
|
|
|
|
-
|
|
|
|
6,779
|
|
Municipals and money markets
|
|
|
3,116
|
|
|
|
28
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28
|
|
|
|
-
|
|
|
|
(221
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading assets, excluding derivative contracts
|
|
|
17,043
|
|
|
|
345
|
|
|
|
-
|
|
|
|
-
|
|
|
|
345
|
|
|
|
-
|
|
|
|
(921
|
)
|
|
|
293
|
|
|
|
(1,212
|
)
|
|
|
15,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts, net
|
|
|
6,591
|
|
|
|
(246
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(246
|
)
|
|
|
-
|
|
|
|
818
|
|
|
|
182
|
|
|
|
(551
|
)
|
|
|
6,794
|
|
Investment securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities residential non-agency
MBSs
|
|
|
352
|
|
|
|
-
|
|
|
|
(27
|
)
|
|
|
-
|
|
|
|
(27
|
)
|
|
|
23
|
|
|
|
(33
|
)
|
|
|
21
|
|
|
|
-
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available-for-sale
|
|
|
352
|
|
|
|
-
|
|
|
|
(27
|
)
|
|
|
-
|
|
|
|
(27
|
)
|
|
|
23
|
|
|
|
(33
|
)
|
|
|
21
|
|
|
|
-
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities non-qualifying
|
|
|
4,128
|
|
|
|
-
|
|
|
|
(249
|
)
|
|
|
-
|
|
|
|
(249
|
)
|
|
|
-
|
|
|
|
(104
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
4,480
|
|
|
|
-
|
|
|
|
(276
|
)
|
|
|
-
|
|
|
|
(276
|
)
|
|
|
23
|
|
|
|
(137
|
)
|
|
|
21
|
|
|
|
-
|
|
|
|
4,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, notes and mortgages
|
|
|
3,152
|
|
|
|
-
|
|
|
|
289
|
|
|
|
32
|
|
|
|
321
|
|
|
|
-
|
|
|
|
(196
|
)
|
|
|
11
|
|
|
|
(66
|
)
|
|
|
3,222
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
governments and agencies
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading liabilities, excluding derivative contracts
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities interest and other
|
|
|
154
|
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
138
|
|
Long-term borrowings
|
|
|
4,006
|
|
|
|
(120
|
)
|
|
|
(102
|
)
|
|
|
-
|
|
|
|
(222
|
)
|
|
|
-
|
|
|
|
(254
|
)
|
|
|
390
|
|
|
|
(441
|
)
|
|
|
3,923
|
|
|
|
33
Transfers out for
non-U.S. governments
and agencies primarily relates to increased price testing
coverage for certain positions.
Increase in purchases, sales, issuances and settlements related
to derivatives contracts, net primarily relates to the
termination of certain total return swaps in a liability
position.
Transfers out for derivatives contracts, net primarily relates
to $1.3 billion of derivatives assets and $700 million
of derivative liabilities transferred to Level 2 as a
result of increase price observability and price testing
coverage for certain positions.
Transfers in and transfers out related to long-term borrowings
are primarily due to changes in the impact of unobservable
inputs on the value of certain equity-linked structured notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
Level 3 Financial Assets and Liabilities
|
|
|
Nine Months Ended September 30, 2010
|
|
|
|
|
Total Realized and Unrealized Gains or (Losses)
|
|
Total Realized and
|
|
Unrealized
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
Included in Income
|
|
Unrealized Gains
|
|
Gains or
|
|
Sales,
|
|
|
|
|
|
|
|
|
Beginning
|
|
Principal
|
|
Other
|
|
|
|
or (Losses)
|
|
(Losses) to
|
|
Issuances and
|
|
Transfers
|
|
Transfers
|
|
Ending
|
|
|
Balance
|
|
Transactions
|
|
Revenue
|
|
Interest
|
|
Included in Income
|
|
OCI
|
|
Settlements
|
|
In
|
|
Out
|
|
Balance
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
351
|
|
|
$
|
(31
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(31
|
)
|
|
$
|
-
|
|
|
$
|
10
|
|
|
$
|
74
|
|
|
$
|
(76
|
)
|
|
$
|
328
|
|
Non-U.S.
governments and agencies
|
|
|
1,142
|
|
|
|
(133
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(133
|
)
|
|
|
-
|
|
|
|
(131
|
)
|
|
|
102
|
|
|
|
(712
|
)
|
|
|
268
|
|
Corporate debt
|
|
|
6,790
|
|
|
|
453
|
|
|
|
-
|
|
|
|
-
|
|
|
|
453
|
|
|
|
-
|
|
|
|
(1,958
|
)
|
|
|
912
|
|
|
|
(1,152
|
)
|
|
|
5,045
|
|
Preferred stock
|
|
|
562
|
|
|
|
(23
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(23
|
)
|
|
|
-
|
|
|
|
(333
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
205
|
|
Mortgages, mortgage-backed and asset-backed
|
|
|
7,294
|
|
|
|
187
|
|
|
|
-
|
|
|
|
-
|
|
|
|
187
|
|
|
|
-
|
|
|
|
(661
|
)
|
|
|
404
|
|
|
|
(445
|
)
|
|
|
6,779
|
|
Municipals and money markets
|
|
|
2,148
|
|
|
|
44
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44
|
|
|
|
-
|
|
|
|
(390
|
)
|
|
|
1,234
|
|
|
|
(113
|
)
|
|
|
2,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading assets, excluding derivative contracts
|
|
|
18,287
|
|
|
|
497
|
|
|
|
-
|
|
|
|
-
|
|
|
|
497
|
|
|
|
-
|
|
|
|
(3,463
|
)
|
|
|
2,726
|
|
|
|
(2,499
|
)
|
|
|
15,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts, net
|
|
|
6,866
|
|
|
|
(882
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(882
|
)
|
|
|
-
|
|
|
|
665
|
|
|
|
692
|
|
|
|
(547
|
)
|
|
|
6,794
|
|
Investment securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities residential non-agency
MBSs
|
|
|
473
|
|
|
|
-
|
|
|
|
(94
|
)
|
|
|
24
|
|
|
|
(70
|
)
|
|
|
(29
|
)
|
|
|
(102
|
)
|
|
|
76
|
|
|
|
(12
|
)
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available-for-sale
|
|
|
473
|
|
|
|
-
|
|
|
|
(94
|
)
|
|
|
24
|
|
|
|
(70
|
)
|
|
|
(29
|
)
|
|
|
(102
|
)
|
|
|
76
|
|
|
|
(12
|
)
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities non-qualifying
|
|
|
3,696
|
|
|
|
-
|
|
|
|
962
|
|
|
|
-
|
|
|
|
962
|
|
|
|
-
|
|
|
|
(748
|
)
|
|
|
-
|
|
|
|
(135
|
)
|
|
|
3,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
4,169
|
|
|
|
-
|
|
|
|
868
|
|
|
|
24
|
|
|
|
892
|
|
|
|
(29
|
)
|
|
|
(850
|
)
|
|
|
76
|
|
|
|
(147
|
)
|
|
|
4,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, notes and mortgages
|
|
|
4,115
|
|
|
|
-
|
|
|
|
148
|
|
|
|
123
|
|
|
|
271
|
|
|
|
-
|
|
|
|
(1,109
|
)
|
|
|
11
|
|
|
|
(66
|
)
|
|
|
3,222
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
governments and agencies
|
|
|
386
|
|
|
|
21
|
|
|
|
2
|
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
|
|
17
|
|
|
|
-
|
|
|
|
(380
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading liabilities, excluding derivative contracts
|
|
|
386
|
|
|
|
21
|
|
|
|
2
|
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
|
|
17
|
|
|
|
-
|
|
|
|
(380
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities interest and other
|
|
|
186
|
|
|
|
-
|
|
|
|
27
|
|
|
|
-
|
|
|
|
27
|
|
|
|
-
|
|
|
|
(21
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
138
|
|
Long-term borrowings
|
|
|
4,683
|
|
|
|
475
|
|
|
|
90
|
|
|
|
-
|
|
|
|
565
|
|
|
|
-
|
|
|
|
(51
|
)
|
|
|
1,206
|
|
|
|
(1,350
|
)
|
|
|
3,923
|
|
|
|
Other revenue related to investment securities non-qualifying
primarily represents net gains on certain private equity
investments.
Decreases in purchases, sales, issuances and settlements related
to corporate debt primarily relates to the sale of certain
positions (e.g., ARS) during the first and second quarter of
2010. Decreases in purchases, sales, issuances and settlements
related to loans, notes and mortgages primarily relates to sales
and repayments of sizable positions and portfolios during the
first and second quarter of 2010.
34
Transfers in for municipals and money markets relates to reduced
price transparency (e.g., lower trading activity) for municipal
ARS. Transfers out for corporate debt primarily relates to
increased price testing coverage for certain positions.
Transfers in and transfers out related to long-term borrowings
are primarily due to changes in the impact of unobservable
inputs on the value of certain equity-linked structured notes.
The following tables provide the portion of gains or losses
included in income for the three and nine months ended
September 30, 2011 and September 30, 2010 attributable
to unrealized gains or losses relating to those Level 3
assets and liabilities held at September 30, 2011 and
September 30, 2010, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
Unrealized Gains or (Losses) for Level 3 Assets and
Liabilities Still Held
|
|
|
Three Months Ended September 30, 2011
|
|
Nine Months Ended September 30, 2011
|
|
|
Principal
|
|
Other
|
|
|
|
|
|
Principal
|
|
Other
|
|
|
|
|
|
|
Transactions
|
|
Revenue
|
|
Interest
|
|
Total
|
|
Transactions
|
|
Revenue
|
|
Interest
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
(9
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(9
|
)
|
|
$
|
(55
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(55
|
)
|
Convertible debentures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
Non-U.S.
governments and agencies
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
|
|
86
|
|
|
|
-
|
|
|
|
-
|
|
|
|
86
|
|
Corporate debt
|
|
|
(206
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(206
|
)
|
|
|
(52
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(52
|
)
|
Preferred stock
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(11
|
)
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
|
Mortgages, mortgage-backed and asset-backed
|
|
|
(116
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(116
|
)
|
|
|
85
|
|
|
|
-
|
|
|
|
-
|
|
|
|
85
|
|
Municipals and money markets
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading assets, excluding derivative contracts
|
|
|
(325
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(325
|
)
|
|
|
96
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts, net
|
|
|
875
|
|
|
|
-
|
|
|
|
-
|
|
|
|
875
|
|
|
|
1,144
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,144
|
|
Investment securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities non-agency MBSs
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
(30
|
)
|
|
|
-
|
|
|
|
(30
|
)
|
Corporate/Agency bonds
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available-for-sale
|
|
|
-
|
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
(36
|
)
|
|
|
-
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities non-qualifying
|
|
|
-
|
|
|
|
(54
|
)
|
|
|
-
|
|
|
|
(54
|
)
|
|
|
-
|
|
|
|
38
|
|
|
|
-
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
-
|
|
|
|
(65
|
)
|
|
|
-
|
|
|
|
(65
|
)
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, notes and mortgages
|
|
|
-
|
|
|
|
(61
|
)
|
|
|
-
|
|
|
|
(61
|
)
|
|
|
-
|
|
|
|
124
|
|
|
|
-
|
|
|
|
124
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Preferred stock
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
Municipals, money markets and other
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading liabilities, excluding derivative contracts
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables interest and other
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
Long-term borrowings
|
|
|
331
|
|
|
|
18
|
|
|
|
-
|
|
|
|
349
|
|
|
|
229
|
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
220
|
|
|
|
35
Net unrealized gains in principal transactions related to
derivative contracts, net were primarily due to credit spreads
widening on short CDS baskets in the third quarter of 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
Unrealized Gains or (Losses) for Level 3 Assets and
Liabilities Still Held
|
|
|
Three Months Ended September 30, 2010
|
|
Nine Months Ended September 30, 2010
|
|
|
Principal
|
|
Other
|
|
|
|
|
|
Principal
|
|
Other
|
|
|
|
|
|
|
Transactions
|
|
Revenue
|
|
Interest
|
|
Total
|
|
Transactions
|
|
Revenue
|
|
Interest
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
(3
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(3
|
)
|
|
$
|
(6
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(6
|
)
|
Non-U.S.
governments and agencies
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
|
|
(133
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(133
|
)
|
Corporate debt
|
|
|
82
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82
|
|
|
|
175
|
|
|
|
-
|
|
|
|
-
|
|
|
|
175
|
|
Preferred stock
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
(23
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(23
|
)
|
Mortgages, mortgage-backed and asset-backed
|
|
|
78
|
|
|
|
-
|
|
|
|
-
|
|
|
|
78
|
|
|
|
116
|
|
|
|
-
|
|
|
|
-
|
|
|
|
116
|
|
Municipals and money markets
|
|
|
28
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28
|
|
|
|
44
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading assets, excluding derivative contracts
|
|
|
209
|
|
|
|
-
|
|
|
|
-
|
|
|
|
209
|
|
|
|
173
|
|
|
|
-
|
|
|
|
-
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts, net
|
|
|
(189
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(189
|
)
|
|
|
(779
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(779
|
)
|
Investment securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - non-agency MBSs
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
(42
|
)
|
|
|
24
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available-for-sale
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
(42
|
)
|
|
|
24
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities non-qualifying
|
|
|
-
|
|
|
|
(249
|
)
|
|
|
-
|
|
|
|
(249
|
)
|
|
|
-
|
|
|
|
233
|
|
|
|
-
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
-
|
|
|
|
(269
|
)
|
|
|
-
|
|
|
|
(269
|
)
|
|
|
-
|
|
|
|
191
|
|
|
|
24
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, notes and mortgages
|
|
|
-
|
|
|
|
287
|
|
|
|
-
|
|
|
|
287
|
|
|
|
-
|
|
|
|
248
|
|
|
|
-
|
|
|
|
248
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities, excluding derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
governments and agencies
|
|
|
29
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29
|
|
|
|
52
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading liabilities, excluding derivative contracts
|
|
|
29
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29
|
|
|
|
52
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables interest and other
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
27
|
|
|
|
-
|
|
|
|
27
|
|
Long-term borrowings
|
|
|
(113
|
)
|
|
|
(103
|
)
|
|
|
-
|
|
|
|
(216
|
)
|
|
|
381
|
|
|
|
88
|
|
|
|
-
|
|
|
|
469
|
|
|
|
Non-recurring
Fair Value
Certain assets and liabilities are measured at fair value on a
non-recurring basis and are not included in the tables above.
These assets and liabilities primarily include loans and loan
commitments held for sale that are reported at lower of cost or
fair value and loans held for investment that were initially
measured at cost and have been written down to fair value as a
result of an impairment. The following tables show the fair
value hierarchy for those assets and liabilities measured at
fair value on a non-recurring basis as of September 30,
2011 and December 31, 2010, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
Gains/(Losses)
|
|
Gains/(Losses)
|
|
Gains/(Losses)
|
|
Gains/(Losses)
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Nine Months
|
|
Three Months
|
|
Nine Months
|
|
|
Non-Recurring Basis
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
|
as of September 30, 2011
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
2011
|
|
2011
|
|
2010
|
|
2010
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities non-qualifying
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
34
|
|
|
$
|
34
|
|
|
$
|
-
|
|
|
$
|
(5
|
)
|
|
$
|
-
|
|
|
$
|
(13
|
)
|
Loans, notes and mortgages
|
|
|
-
|
|
|
|
565
|
|
|
|
322
|
|
|
|
887
|
|
|
|
(43
|
)
|
|
|
1
|
|
|
|
113
|
|
|
|
(79
|
)
|
Other assets
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
|
15
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
(20
|
)
|
|
|
(25
|
)
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables interest and other
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
|
|
19
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
7
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
Non-Recurring Basis
|
|
|
as of December 31, 2010
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities non-qualifying
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
85
|
|
|
$
|
85
|
|
Loans, notes and mortgages
|
|
|
-
|
|
|
|
25
|
|
|
|
1,280
|
|
|
|
1,305
|
|
Other assets
|
|
|
-
|
|
|
|
10
|
|
|
|
35
|
|
|
|
45
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables interest and other
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
|
|
31
|
|
|
|
Loans, notes and mortgages includes held for sale loans that are
carried at the lower of cost or fair value and for which the
fair value was below the cost basis at September 30, 2011
and December 31, 2010. It also includes certain impaired
held for investment loans where an allowance for loan losses has
been calculated based upon the fair value of the loans or
collateral. Level 3 assets as of September 30, 2011
and December 31, 2010 primarily relate to commercial real
estate loans that are classified as held for sale where there
continues to be significant illiquidity in the loan trading and
securitization markets.
Other payables interest and other includes amounts
recorded for loan commitments at lower of cost or fair value
where the funded loan will be held for sale.
Fair
Value Option Election
The fair value option election allows companies to irrevocably
elect fair value as the initial and subsequent measurement
attribute for certain financial assets and liabilities. Changes
in fair value for assets and liabilities for which the election
is made will be recognized in earnings as they occur. The fair
value option election is permitted on an
instrument-by-instrument
basis at initial recognition of an asset or liability or upon an
event that gives rise to a new basis of accounting for that
instrument. As discussed above, certain of Merrill Lynchs
financial instruments are required to be accounted for at fair
value under Investment Accounting and Derivatives Accounting, as
well as industry level guidance. For certain financial
instruments that are not accounted for at fair value under other
applicable accounting guidance, the fair value option election
has been made.
The following tables provide information about the line items in
the Condensed Consolidated Statements of Earnings where changes
in fair values of assets and liabilities, for which the fair
value
37
option election has been made, are included for the three and
nine months ended September 30, 2011 and September 30,
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
Changes in Fair Value For the
|
|
Changes in Fair Value For the
|
|
|
Three Months Ended September 30, 2011,
|
|
Nine Months Ended September 30, 2011,
|
|
|
for Items Measured
|
|
for Items Measured
|
|
|
at Fair Value Pursuant
|
|
at Fair Value Pursuant
|
|
|
to the Fair Value Option Election
|
|
to the Fair Value Option Election
|
|
|
Gains/
|
|
Gains/
|
|
Total
|
|
Gains/
|
|
Gains/
|
|
Total
|
|
|
(Losses)
|
|
(Losses)
|
|
Changes
|
|
(Losses)
|
|
(Losses)
|
|
Changes
|
|
|
Principal
|
|
Other
|
|
in Fair
|
|
Principal
|
|
Other
|
|
in Fair
|
|
|
Transactions
|
|
Revenues
|
|
Value
|
|
Transactions
|
|
Revenues
|
|
Value
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables under resale agreements
|
|
$
|
169
|
|
|
$
|
-
|
|
|
$
|
169
|
|
|
$
|
197
|
|
|
$
|
-
|
|
|
$
|
197
|
|
Investment securities
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
4
|
|
|
|
4
|
|
Loans(1)
|
|
|
(23
|
)
|
|
|
(114
|
)
|
|
|
(137
|
)
|
|
|
(23
|
)
|
|
|
25
|
|
|
|
2
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables under repurchase agreements
|
|
|
(16
|
)
|
|
|
-
|
|
|
|
(16
|
)
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
(13
|
)
|
Short-term borrowings
|
|
|
214
|
|
|
|
-
|
|
|
|
214
|
|
|
|
307
|
|
|
|
-
|
|
|
|
307
|
|
Other payables interest and other
|
|
|
-
|
|
|
|
(65
|
)
|
|
|
(65
|
)
|
|
|
-
|
|
|
|
(49
|
)
|
|
|
(49
|
)
|
Long-term borrowings
|
|
|
4,568
|
|
|
|
134
|
|
|
|
4,702
|
|
|
|
4,062
|
|
|
|
134
|
|
|
|
4,196
|
|
|
|
|
|
|
(1) |
|
Effective July 1, 2011,
includes certain loans accounted for under the fair value option
that were reclassified from loans held for sale to trading
assets because they are risk managed on that basis. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
Changes in Fair Value For the
|
|
Changes in Fair Value For the
|
|
|
Three Months Ended September 30, 2010
|
|
Nine Months Ended September 30, 2010
|
|
|
for Items Measured
|
|
for Items Measured
|
|
|
at Fair Value Pursuant
|
|
at Fair Value Pursuant
|
|
|
to the Fair Value Option Election
|
|
to the Fair Value Option Election
|
|
|
Gains/
|
|
Gains/
|
|
Total
|
|
Gains/
|
|
Gains/
|
|
Total
|
|
|
(Losses)
|
|
(Losses)
|
|
Changes
|
|
(Losses)
|
|
(Losses)
|
|
Changes
|
|
|
Principal
|
|
Other
|
|
in Fair
|
|
Principal
|
|
Other
|
|
in Fair
|
|
|
Transactions
|
|
Revenues
|
|
Value
|
|
Transactions
|
|
Revenues
|
|
Value
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables under resale
agreements(1)
|
|
$
|
54
|
|
|
$
|
-
|
|
|
$
|
54
|
|
|
$
|
73
|
|
|
$
|
-
|
|
|
$
|
73
|
|
Investment securities
|
|
|
-
|
|
|
|
16
|
|
|
|
16
|
|
|
|
-
|
|
|
|
62
|
|
|
|
62
|
|
Loans, notes and mortgages
|
|
|
-
|
|
|
|
302
|
|
|
|
302
|
|
|
|
-
|
|
|
|
396
|
|
|
|
396
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables under repurchase agreements
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
18
|
|
|
|
-
|
|
|
|
18
|
|
Short-term borrowings
|
|
|
5
|
|
|
|
-
|
|
|
|
5
|
|
|
|
112
|
|
|
|
-
|
|
|
|
112
|
|
Other payables interest and other
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
4
|
|
|
|
4
|
|
Long-term
borrowings(2)
|
|
|
(1,243
|
)
|
|
|
(82
|
)
|
|
|
(1,325
|
)
|
|
|
1,238
|
|
|
|
(102
|
)
|
|
|
1,136
|
|
|
|
|
|
|
(1) |
|
Changes in fair value for the
three months ended September 30, 2010 were revised from
approximately $49 million (as previously reported) to
approximately $54 million. Changes in fair value for the
nine months ended September 30, 2010 were revised from
approximately $50 million (as previously reported) to
approximately $73 million. |
38
|
|
|
(2) |
|
Other revenues primarily
represent fair value changes on non-recourse long-term
borrowings issued by consolidated VIEs. |
The following describes the rationale for electing to account
for certain financial assets and liabilities at fair value, as
well as the impact of instrument-specific credit risk on the
fair value.
Resale
and repurchase agreements
Merrill Lynch elected the fair value option for certain resale
and repurchase agreements. The fair value option election was
made based on the tenor of the resale and repurchase agreements,
which reflects the magnitude of the interest rate risk. The
majority of resale and repurchase agreements collateralized by
U.S. Government securities were excluded from the fair
value option election as these contracts are generally
short-dated and therefore the interest rate risk is not
considered significant. Amounts loaned under resale agreements
require collateral with a market value equal to or in excess of
the principal amount loaned, resulting in minimal credit risk
for such transactions.
Loans and
loan commitments
Merrill Lynch made the fair value option election for certain
loans that are risk managed on a fair value basis. Upon the
acquisition of Merrill Lynch by Bank of America, Merrill Lynch
also made the fair value option election for certain mortgage,
corporate, and leveraged loans and loan commitments. The changes
in the fair value of loans and commitments, for which the fair
value option was elected, that were attributable to changes in
borrower-specific credit risk were not material for the three
and nine months ended September 30, 2011 and
September 30, 2010.
As of September 30, 2011 and December 31, 2010, the
aggregate fair value of loans for which the fair value option
election has been made that were 90 days or more past due
was $26 million and $32 million, respectively, and the
aggregate fair value of loans that were in non-accrual status
was $26 million and $32 million, respectively. As of
September 30, 2011 and December 31, 2010, the unpaid
principal amount due exceeded the aggregate fair value of such
loans that are 90 days or more past due
and/or in
non-accrual status by $129 million and $173 million,
respectively.
Short-term
and long-term borrowings
Merrill Lynch made the fair value option election for certain
short-term and long-term borrowings that are risk managed on a
fair value basis (e.g., structured notes)
and/or for
which hedge accounting under Derivatives Accounting had been
difficult to obtain. The majority of the fair value changes on
long-term borrowings are from structured notes with coupon or
repayment terms that are linked to the performance of debt and
equity securities, indices, currencies or commodities. Excluding
gains (losses) for the three and nine months ended
September 30, 2011 and September 30, 2010 related to
changes in Merrill Lynchs credit spreads, the majority of
the gains (losses) for the respective periods are offset by
gains (losses) on derivatives that economically hedge these
borrowings and that are accounted for at fair value under
Derivatives Accounting. The changes in the fair value of
liabilities for which the fair value option election was made
that were attributable to changes in Merrill Lynchs credit
spreads were gains of approximately $2.9 billion and
$2.7 billion for the three and nine months ended
September 30, 2011, respectively, and losses of
approximately $0.3 billion and gains of approximately
$1.1 billion for the three and nine months ended
September 30, 2010, respectively. Changes in Merrill Lynch
specific credit risk are derived by isolating fair value changes
due to changes in Merrill Lynchs credit spreads as
observed in the secondary cash market.
The fair value option election was also made for certain
non-recourse long-term borrowings and secured borrowings issued
by consolidated VIEs. The fair value of these borrowings is not
materially affected by changes in Merrill Lynchs
creditworthiness.
39
The following tables present the difference between fair values
and the aggregate contractual principal amounts of receivables
under resale agreements, receivables under securities borrowed
transactions, loans and long-term borrowings for which the fair
value option election has been made as of September 30,
2011 and December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
Principal
|
|
|
|
|
Fair Value
|
|
Amount
|
|
|
|
|
at
|
|
Due Upon
|
|
|
|
|
September 30,
2011
|
|
Maturity
|
|
Difference
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables under resale agreements
|
|
$
|
89,119
|
|
|
$
|
88,644
|
|
|
$
|
475
|
|
Receivables under securities borrowed transactions
|
|
|
1,543
|
|
|
|
1,735
|
|
|
|
(192
|
)
|
Loans(1)
|
|
|
2,892
|
|
|
|
4,230
|
|
|
|
(1,338
|
)
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings(2)
|
|
|
31,021
|
|
|
|
38,554
|
|
|
|
(7,533
|
)
|
|
|
|
|
|
(1) |
|
Includes $493 million of
loans held for sale accounted for under the fair value option
that were reclassified to trading assets because they are risk
managed on that basis. |
|
(2) |
|
The majority of the difference
between the fair value and principal amount due upon maturity at
September 30, 2011 relates to the impact of widening of
Merrill Lynchs credit spreads, as well as the fair value
of the embedded derivative, where applicable. |
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
Principal
|
|
|
|
|
Fair Value
|
|
Amount
|
|
|
|
|
at
|
|
Due Upon
|
|
|
|
|
December 31,
2010
|
|
Maturity
|
|
Difference
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables under resale
agreements(1)
|
|
$
|
74,255
|
|
|
$
|
73,941
|
|
|
$
|
314
|
|
Receivables under securities borrowed transactions
|
|
|
1,672
|
|
|
|
1,672
|
|
|
|
-
|
|
Loans, notes and mortgages
|
|
|
3,190
|
|
|
|
4,518
|
|
|
|
(1,328
|
)
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings(2)
|
|
|
39,214
|
|
|
|
43,014
|
|
|
|
(3,800
|
)
|
|
|
|
|
|
(1) |
|
The fair value and principal
amount due upon maturity of receivables under resale agreements
have been revised from approximately $51 billion for each
(as previously reported) to approximately
$74 billion. |
|
(2) |
|
The majority of the difference
relates to the impact of the widening of Merrill Lynchs
credit spreads since issuance and the change in fair value of
non-recourse debt issued by consolidated VIEs. |
Note 5. Fair Value of Financial Instruments
The fair values of financial instruments have been derived, in
part, by managements assumptions, the estimated amount and
timing of future cash flows and estimated discount rates.
Different assumptions could significantly affect these estimated
fair values. Accordingly, the net realizable values could be
materially different from the estimates presented below. In
addition, the estimates are only indicative of the value of
individual financial instruments and should not be considered an
indication of the fair value of Merrill Lynch.
The following disclosures represent financial instruments for
which the ending balances at September 30, 2011 and
December 31, 2010 are not carried at fair value in their
entirety on Merrill Lynchs Condensed Consolidated
Balance Sheets.
40
Short-term
Financial Instruments
The carrying value of short-term financial instruments,
including cash and cash equivalents, cash and securities
segregated for regulatory purposes or deposited with clearing
organizations, certain securities financing transactions,
customer and broker-dealer receivables and payables, and other
short-term borrowings, approximates the fair value of these
instruments. These financial instruments generally expose
Merrill Lynch to limited credit risk and have no stated
maturities or have short-term maturities and carry interest
rates that approximate market interest rates.
Loans,
Notes and Mortgages
Fair values were generally determined by discounting both
principal and interest cash flows expected to be collected using
an observable discount rate for similar instruments with
adjustments that Merrill Lynch believes a market participant
would consider in determining fair value. Merrill Lynch
estimates the cash flows expected to be collected using internal
credit risk, interest rate and prepayment risk models that
incorporate its best estimate of current key assumptions, such
as default rates, loss severity and prepayment speeds for the
life of the loan. Merrill Lynch made the fair value option
election for certain loans and loan commitments. See Note 4
for additional information.
Deposits
The fair value for certain deposits with stated maturities was
calculated by discounting contractual cash flows using current
market rates for instruments with similar maturities. For
deposits with no stated maturities, the carrying amount was
considered to approximate fair value and does not take into
account the significant value of the cost advantage and
stability of Merrill Lynchs long-term relationships with
depositors.
Long-term
Borrowings
Merrill Lynch uses quoted market prices for its long-term
borrowings when available. When quoted market prices are not
available, fair value is estimated based on current market
interest rates and credit spreads for Merrill Lynch debt with
similar maturities. Merrill Lynch made the fair value option
election for certain long-term borrowings, including structured
notes. See Note 4 for additional information.
The book and fair values of certain financial instruments at
September 30, 2011 and December 31, 2010 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
September 30, 2011
|
|
December 31, 2010
|
|
|
Book Value
|
|
Fair Value
|
|
Book Value
|
|
Fair Value
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, notes and
mortgages(1)
|
|
$
|
21,916
|
|
|
$
|
21,150
|
|
|
$
|
25,803
|
|
|
$
|
24,383
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
12,277
|
|
|
|
12,277
|
|
|
|
12,826
|
|
|
|
12,826
|
|
Long-term
borrowings(2)
|
|
|
118,511
|
|
|
|
111,781
|
|
|
|
132,427
|
|
|
|
131,694
|
|
|
|
|
|
|
(1) |
|
Loans are presented net of the
allowance for loan losses. |
|
(2) |
|
Includes junior subordinated
notes (related to trust preferred securities). |
A derivative is an instrument whose value is derived from an
underlying instrument or index, such as interest rates, equity
security prices, currencies, commodity prices or credit spreads.
Derivatives include futures, forwards, swaps, option contracts,
and other financial instruments with similar characteristics.
Derivative contracts often involve future commitments to
exchange interest payment streams or currencies based on a
notional or contractual amount (e.g., interest rate swaps or
currency forwards) or
41
to purchase or sell other financial instruments at specified
terms on a specified date (e.g., options to buy or sell
securities or currencies).
Derivatives Accounting establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts
(embedded derivatives) and for hedging activities.
Derivatives Accounting requires that an entity recognize all
derivatives as either assets or liabilities and measure those
instruments at fair value. The fair value of all derivatives is
recorded on a
net-by-counterparty
basis on the Condensed Consolidated Balance Sheets where Merrill
Lynch believes a legal right of setoff exists under an
enforceable netting agreement. All derivatives, including
bifurcated embedded derivatives within structured notes, are
reported on the Condensed Consolidated Balance Sheets as trading
assets and liabilities.
The accounting for changes in fair value of a derivative
instrument depends on its intended use and if it is designated
and qualifies as an accounting hedging instrument under
Derivatives Accounting.
Trading
derivatives
Merrill Lynch enters into derivatives to facilitate client
transactions, for trading and financing purposes, and to manage
risk exposures arising from trading assets and liabilities.
Changes in fair value for these derivatives are reported in
current period earnings as principal transactions revenues.
Derivatives
that contain a significant financing element
In the ordinary course of trading activities, Merrill Lynch
enters into certain transactions that are documented as
derivatives where a significant cash investment is made by one
party. Certain derivative instruments that contain a significant
financing element at inception and where Merrill Lynch is deemed
to be the borrower are included in financing activities in the
Condensed Consolidated Statements of Cash Flows. The cash flows
from all other derivative transactions that do not contain a
significant financing element at inception are included in
operating activities.
Non-trading
derivatives
Merrill Lynch also enters into derivatives in order to manage
risk exposures arising from assets and liabilities not carried
at fair value as follows:
|
|
1. |
Merrill Lynchs debt was issued in a variety of maturities
and currencies to achieve the lowest cost financing possible.
Merrill Lynch enters into derivative transactions to hedge these
liabilities. Derivatives used most frequently include swap
agreements that:
|
|
|
|
|
|
Convert fixed-rate interest payments into variable-rate interest
payments;
|
|
|
|
Change the underlying interest rate basis or reset
frequency; and
|
|
|
|
Change the settlement currency of a debt instrument.
|
Changes in the fair value of interest rate and foreign currency
derivatives are reported in interest expense or other revenues
when hedge accounting is applied; otherwise changes in fair
value are reported in other revenue.
|
|
2. |
Merrill Lynch uses foreign-exchange forward contracts,
foreign-exchange options, and currency swaps to hedge its net
investments in foreign operations, a |