| Securities |
The table below presents the amortized cost, gross unrealized gains and losses in accumulated OCI, and fair value of AFS debt and marketable equity securities at September 30, 2011 and December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value |
Available-for-sale debt securities, September 30, 2011 |
|
|
|
|
|
|
|
U.S. Treasury and agency securities |
$ |
59,905 |
|
|
$ |
874 |
|
|
$ |
(748 |
) |
|
$ |
60,031 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
Agency |
155,008 |
|
|
5,106 |
|
|
(35 |
) |
|
160,079 |
|
Agency collateralized mortgage obligations |
52,197 |
|
|
1,156 |
|
|
(115 |
) |
|
53,238 |
|
Non-agency residential (1)
|
17,707 |
|
|
394 |
|
|
(507 |
) |
|
17,594 |
|
Non-agency commercial |
5,968 |
|
|
634 |
|
|
(3 |
) |
|
6,599 |
|
Non-U.S. securities |
4,914 |
|
|
61 |
|
|
(12 |
) |
|
4,963 |
|
Corporate bonds |
3,982 |
|
|
149 |
|
|
(15 |
) |
|
4,116 |
|
Other taxable securities, substantially all asset-backed securities |
12,444 |
|
|
51 |
|
|
(27 |
) |
|
12,468 |
|
Total taxable securities |
312,125 |
|
|
8,425 |
|
|
(1,462 |
) |
|
319,088 |
|
Tax-exempt securities |
5,299 |
|
|
16 |
|
|
(136 |
) |
|
5,179 |
|
Total available-for-sale debt securities |
$ |
317,424 |
|
|
$ |
8,441 |
|
|
$ |
(1,598 |
) |
|
$ |
324,267 |
|
Available-for-sale marketable equity securities, September 30, 2011 (2)
|
$ |
3,880 |
|
|
$ |
2,715 |
|
|
$ |
(25 |
) |
|
$ |
6,570 |
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities, December 31, 2010 |
|
|
|
|
|
|
|
U.S. Treasury and agency securities |
$ |
49,413 |
|
|
$ |
604 |
|
|
$ |
(912 |
) |
|
$ |
49,105 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
Agency |
190,409 |
|
|
3,048 |
|
|
(2,240 |
) |
|
191,217 |
|
Agency collateralized mortgage obligations |
36,639 |
|
|
401 |
|
|
(23 |
) |
|
37,017 |
|
Non-agency residential (1)
|
23,458 |
|
|
588 |
|
|
(929 |
) |
|
23,117 |
|
Non-agency commercial |
6,167 |
|
|
686 |
|
|
(1 |
) |
|
6,852 |
|
Non-U.S. securities |
4,054 |
|
|
92 |
|
|
(7 |
) |
|
4,139 |
|
Corporate bonds |
5,157 |
|
|
144 |
|
|
(10 |
) |
|
5,291 |
|
Other taxable securities, substantially all asset-backed securities |
15,514 |
|
|
39 |
|
|
(161 |
) |
|
15,392 |
|
Total taxable securities |
330,811 |
|
|
5,602 |
|
|
(4,283 |
) |
|
332,130 |
|
Tax-exempt securities |
5,687 |
|
|
32 |
|
|
(222 |
) |
|
5,497 |
|
Total available-for-sale debt securities |
$ |
336,498 |
|
|
$ |
5,634 |
|
|
$ |
(4,505 |
) |
|
$ |
337,627 |
|
Available-for-sale marketable equity securities, December 31, 2010 (2)
|
$ |
8,650 |
|
|
$ |
10,628 |
|
|
$ |
(13 |
) |
|
$ |
19,265 |
|
|
|
(1) |
At September 30, 2011, includes approximately 89 percent prime bonds, nine percent Alt-A bonds and two percent subprime bonds. At December 31, 2010, includes approximately 90 percent prime bonds, eight percent Alt-A bonds and two percent subprime bonds.
|
|
|
(2) |
Classified in other assets on the Corporation’s Consolidated Balance Sheet. |
At September 30, 2011, the accumulated net unrealized gains on AFS debt securities included in accumulated OCI were $4.3 billion, net of the related deferred taxes of $2.5 billion. At September 30, 2011 and December 31, 2010, the Corporation had nonperforming AFS debt securities with a fair value of $16 million and $44 million.
During the three months ended September 30, 2011, the Corporation purchased $26.2 billion of U.S. agency securities with contractual maturities greater than 10 years that were classified as held-to-maturity debt securities. At September 30, 2011, the amortized cost of held-to-maturity debt securities was $26.5 billion and the fair value approximated $26.5 billion. At December 31, 2010, both the amortized cost and fair value of held-to-maturity debt securities was $427 million. At September 30, 2011, the fair value of approximately $11.0 billion of the held-to-maturity debt securities was in a $38 million unrecognized holding loss position, all of which was for a period of less than 12 months. The fair value of the remaining held-to-maturity debt securities was in an $88 million unrecognized holding gain position. The net unrecognized holding gain position of the held-to-maturity debt securities was $50 million at September 30, 2011.
The Corporation recorded other-than-temporary impairment (OTTI) losses on debt securities for the three and nine months ended September 30, 2011 and 2010 as presented in the table below. A debt security is impaired when its fair value is less than its amortized cost. If the Corporation intends or will more-likely-than-not be required to sell the debt securities prior to recovery, the entire impairment is recorded in the Consolidated Statement of Income. For debt securities the Corporation does not intend or will not more-likely-than-not be required to sell, an analysis is performed to determine if any of the impairment is due to credit or whether it is due to other factors (e.g., interest rate). Credit losses are considered unrecoverable and are recorded in the Consolidated Statement of Income with the remaining portion recorded in accumulated OCI. In certain instances, the credit loss on a debt security may exceed the total impairment in which case, the portion of the credit loss that exceeds the total impairment is recorded as an unrealized gain in accumulated OCI. Balances in the table below exclude $2 million and $6 million of unrealized gains recorded in accumulated OCI related to such securities for the three and nine months ended September 30, 2011 and $18 million and $82 million for the same periods in 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2011 |
(Dollars in millions) |
Non-agency
Residential
MBS |
|
Non-agency
Commercial
MBS |
|
Non-U.S.
Securities |
|
Corporate
Bonds |
|
Other
Taxable
Securities |
|
Total |
Total OTTI losses |
$ |
(114 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(114 |
) |
OTTI losses recognized in accumulated OCI |
29 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
29 |
|
Net impairment losses recognized in earnings |
$ |
(85 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(85 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2010 |
|
|
Total OTTI losses |
$ |
(154 |
) |
|
$ |
— |
|
|
$ |
(2 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(156 |
) |
OTTI losses recognized in accumulated OCI |
33 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
33 |
|
Net impairment losses recognized in earnings |
$ |
(121 |
) |
|
$ |
— |
|
|
$ |
(2 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2011 |
Total OTTI losses |
$ |
(269 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(2 |
) |
|
$ |
(271 |
) |
OTTI losses recognized in accumulated OCI |
53 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
53 |
|
Net impairment losses recognized in earnings |
$ |
(216 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(2 |
) |
|
$ |
(218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2010 |
Total OTTI losses |
$ |
(925 |
) |
|
$ |
(1 |
) |
|
$ |
(213 |
) |
|
$ |
(2 |
) |
|
$ |
(475 |
) |
|
$ |
(1,616 |
) |
OTTI losses recognized in accumulated OCI |
460 |
|
|
— |
|
|
16 |
|
|
— |
|
|
290 |
|
|
766 |
|
Net impairment losses recognized in earnings |
$ |
(465 |
) |
|
$ |
(1 |
) |
|
$ |
(197 |
) |
|
$ |
(2 |
) |
|
$ |
(185 |
) |
|
$ |
(850 |
) |
The table below presents a rollforward of the credit losses recognized in earnings on debt securities that the Corporation does not have the intent to sell or will not more-likely-than-not be required to sell as of and for three and nine months ended September 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30 |
|
Nine Months Ended September 30 |
(Dollars in millions) |
2011 |
|
2010 |
|
2011 |
|
2010 |
Balance, beginning of period |
$ |
930 |
|
|
$ |
2,854 |
|
|
$ |
2,148 |
|
|
$ |
3,155 |
|
Additions for credit losses recognized on debt securities that had no previous impairment losses |
1 |
|
|
84 |
|
|
50 |
|
|
455 |
|
Additions for credit losses recognized on debt securities that had previously incurred impairment losses |
12 |
|
|
39 |
|
|
96 |
|
|
395 |
|
Reductions for debt securities sold or intended to be sold |
(672 |
) |
|
(437 |
) |
|
(2,023 |
) |
|
(1,465 |
) |
Balance, September 30 |
$ |
271 |
|
|
$ |
2,540 |
|
|
$ |
271 |
|
|
$ |
2,540 |
|
The Corporation estimates the portion of loss attributable to credit using a discounted cash flow model and estimates the expected cash flows of the underlying collateral using internal credit, interest rate and prepayment risk models that incorporate management’s best estimate of current key assumptions such as default rates, loss severity and prepayment rates. Assumptions used can vary widely from loan to loan and are influenced by such factors as loan interest rate, geographical location of the borrower, borrower characteristics and collateral type. The Corporation then uses a third-party vendor to determine how the underlying collateral cash flows will be distributed to each security issued from the structure. Expected principal and interest cash flows on an impaired debt security are discounted using the effective yield of each individual impaired debt security.
Significant assumptions used in the valuation of non-agency residential mortgage-backed securities (RMBS) were as follows at September 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
Range (1)
|
|
Weighted-average |
|
10th Percentile (2)
|
|
90th Percentile (2)
|
Annual prepayment speed |
9.7 |
% |
|
3.0 |
% |
|
20.7 |
% |
Loss severity |
49.5 |
|
|
16.4 |
|
|
62.0 |
|
Life default rate |
51.6 |
|
|
1.8 |
|
|
99.1 |
|
|
|
(1) |
Represents the range of inputs/assumptions based upon the underlying collateral. |
|
|
(2) |
The value of a variable below which the indicated percentile of observations will fall. |
Additionally, annual constant prepayment speed and loss severity rates are projected considering collateral characteristics such as loan-to-value (LTV), creditworthiness of borrowers as measured using FICO scores and geographic concentrations. The weighted-average severity by collateral type was 45 percent for prime bonds, 51 percent for Alt-A bonds and 56 percent for subprime bonds at September 30, 2011. Additionally, default rates are projected by considering collateral characteristics including, but not limited to LTV, FICO and geographic concentration. Weighted-average life default rates by collateral type were 37 percent for prime bonds, 66 percent for Alt-A bonds and 62 percent for subprime bonds at September 30, 2011.
The table below presents the fair value and the associated gross unrealized losses on AFS securities with gross unrealized losses at September 30, 2011 and December 31, 2010, and whether these securities have had gross unrealized losses for less than twelve months or for twelve months or longer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than Twelve Months |
|
Twelve Months or Longer |
|
Total |
(Dollars in millions) |
Fair Value |
|
Gross
Unrealized
Losses
|
|
Fair Value |
|
Gross
Unrealized
Losses
|
|
Fair Value |
|
Gross
Unrealized
Losses
|
Temporarily-impaired available-for-sale debt securities at September 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency securities |
$ |
642 |
|
|
$ |
(3 |
) |
|
$ |
37,864 |
|
|
$ |
(745 |
) |
|
$ |
38,506 |
|
|
$ |
(748 |
) |
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
Agency |
4,960 |
|
|
(25 |
) |
|
1,273 |
|
|
(10 |
) |
|
6,233 |
|
|
(35 |
) |
Agency collateralized mortgage obligations |
7,930 |
|
|
(82 |
) |
|
1,027 |
|
|
(33 |
) |
|
8,957 |
|
|
(115 |
) |
Non-agency residential |
2,799 |
|
|
(88 |
) |
|
3,312 |
|
|
(341 |
) |
|
6,111 |
|
|
(429 |
) |
Non-agency commercial |
42 |
|
|
(1 |
) |
|
19 |
|
|
(2 |
) |
|
61 |
|
|
(3 |
) |
Non-U.S. securities |
359 |
|
|
(10 |
) |
|
102 |
|
|
(2 |
) |
|
461 |
|
|
(12 |
) |
Corporate bonds |
389 |
|
|
(12 |
) |
|
91 |
|
|
(3 |
) |
|
480 |
|
|
(15 |
) |
Other taxable securities |
2,525 |
|
|
(8 |
) |
|
3,789 |
|
|
(19 |
) |
|
6,314 |
|
|
(27 |
) |
Total taxable securities |
19,646 |
|
|
(229 |
) |
|
47,477 |
|
|
(1,155 |
) |
|
67,123 |
|
|
(1,384 |
) |
Tax-exempt securities |
1,289 |
|
|
(27 |
) |
|
3,504 |
|
|
(109 |
) |
|
4,793 |
|
|
(136 |
) |
Total temporarily-impaired available-for-sale debt securities |
20,935 |
|
|
(256 |
) |
|
50,981 |
|
|
(1,264 |
) |
|
71,916 |
|
|
(1,520 |
) |
Temporarily-impaired available-for-sale marketable equity securities |
43 |
|
|
(9 |
) |
|
22 |
|
|
(16 |
) |
|
65 |
|
|
(25 |
) |
Total temporarily-impaired available-for-sale securities |
20,978 |
|
|
(265 |
) |
|
51,003 |
|
|
(1,280 |
) |
|
71,981 |
|
|
(1,545 |
) |
Other-than-temporarily impaired available-for-sale debt securities (1)
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
Non-agency residential |
281 |
|
|
(43 |
) |
|
393 |
|
|
(35 |
) |
|
674 |
|
|
(78 |
) |
Total temporarily-impaired and other-than-temporarily impaired available-for-sale securities (2)
|
$ |
21,259 |
|
|
$ |
(308 |
) |
|
$ |
51,396 |
|
|
$ |
(1,315 |
) |
|
$ |
72,655 |
|
|
$ |
(1,623 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Temporarily-impaired available-for-sale debt securities at December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency securities |
$ |
27,384 |
|
|
$ |
(763 |
) |
|
2,382 |
|
|
(149 |
) |
|
$ |
29,766 |
|
|
$ |
(912 |
) |
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
Agency |
85,517 |
|
|
(2,240 |
) |
|
— |
|
|
— |
|
|
85,517 |
|
|
(2,240 |
) |
Agency collateralized mortgage obligations |
3,220 |
|
|
(23 |
) |
|
— |
|
|
— |
|
|
3,220 |
|
|
(23 |
) |
Non-agency residential |
6,385 |
|
|
(205 |
) |
|
2,245 |
|
|
(274 |
) |
|
8,630 |
|
|
(479 |
) |
Non-agency commercial |
47 |
|
|
(1 |
) |
|
— |
|
|
— |
|
|
47 |
|
|
(1 |
) |
Non-U.S. securities |
— |
|
|
— |
|
|
70 |
|
|
(7 |
) |
|
70 |
|
|
(7 |
) |
Corporate bonds |
465 |
|
|
(9 |
) |
|
22 |
|
|
(1 |
) |
|
487 |
|
|
(10 |
) |
Other taxable securities |
3,414 |
|
|
(38 |
) |
|
46 |
|
|
(7 |
) |
|
3,460 |
|
|
(45 |
) |
Total taxable securities |
126,432 |
|
|
(3,279 |
) |
|
4,765 |
|
|
(438 |
) |
|
131,197 |
|
|
(3,717 |
) |
Tax-exempt securities |
2,325 |
|
|
(95 |
) |
|
568 |
|
|
(119 |
) |
|
2,893 |
|
|
(214 |
) |
Total temporarily-impaired available-for-sale debt securities |
128,757 |
|
|
(3,374 |
) |
|
5,333 |
|
|
(557 |
) |
|
134,090 |
|
|
(3,931 |
) |
Temporarily-impaired available-for-sale marketable equity securities |
7 |
|
|
(2 |
) |
|
19 |
|
|
(11 |
) |
|
26 |
|
|
(13 |
) |
Total temporarily-impaired available-for-sale securities |
128,764 |
|
|
(3,376 |
) |
|
5,352 |
|
|
(568 |
) |
|
134,116 |
|
|
(3,944 |
) |
Other-than-temporarily impaired available-for-sale debt securities (1)
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
Non-agency residential |
128 |
|
|
(11 |
) |
|
530 |
|
|
(439 |
) |
|
658 |
|
|
(450 |
) |
Other taxable securities |
— |
|
|
— |
|
|
223 |
|
|
(116 |
) |
|
223 |
|
|
(116 |
) |
Tax-exempt securities |
68 |
|
|
(8 |
) |
|
— |
|
|
— |
|
|
68 |
|
|
(8 |
) |
Total temporarily-impaired and other-than-temporarily impaired available-for-sale securities (2)
|
$ |
128,960 |
|
|
$ |
(3,395 |
) |
|
$ |
6,105 |
|
|
$ |
(1,123 |
) |
|
$ |
135,065 |
|
|
$ |
(4,518 |
) |
|
|
(1) |
Includes AFS debt securities on which OTTI losses were recognized and a portion of the OTTI loss was recorded as a credit loss in earnings and a portion as an unrealized loss in OCI. |
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(2) |
At September 30, 2011, the amortized cost of approximately 4,500 AFS securities exceeded their fair value by $1.6 billion. At December 31, 2010, the amortized cost of approximately 8,500 AFS securities exceeded their fair value by $4.5 billion.
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The amortized cost and fair value of the Corporation’s investment in AFS and held-to-maturity debt securities from Fannie Mae (FNMA), the Government National Mortgage Association (GNMA), Freddie Mac (FHLMC) and U.S. Treasury securities where the investment exceeded 10 percent of consolidated shareholders’ equity at September 30, 2011 and December 31, 2010 are presented in the table below.
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September 30, 2011 |
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December 31, 2010 |
(Dollars in millions) |
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
Fannie Mae |
$ |
112,836 |
|
|
$ |
115,155 |
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|
$ |
123,662 |
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|
$ |
123,107 |
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Government National Mortgage Association |
92,696 |
|
|
95,944 |
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|
72,863 |
|
|
74,305 |
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Freddie Mac |
27,822 |
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|
28,366 |
|
|
30,523 |
|
|
30,822 |
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U.S Treasury Securities |
56,480 |
|
|
56,391 |
|
|
46,576 |
|
|
46,081 |
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The expected maturity distribution of the Corporation’s MBS and the contractual maturity distribution of the Corporation’s other AFS debt securities, and the yields on the Corporation’s AFS debt securities portfolio at September 30, 2011 are summarized in the table below. Actual maturities may differ from the contractual or expected maturities since borrowers may have the right to prepay obligations with or without prepayment penalties.
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September 30, 2011 |
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Due in One
Year or Less
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Due after One Year
through Five Years
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Due after Five
Years through Ten Years
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Due after
Ten Years
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Total |
(Dollars in millions) |
Amount |
Yield (1)
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|
Amount |
Yield (1)
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|
Amount |
Yield (1)
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|
Amount |
Yield (1)
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|
Amount |
Yield (1)
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Amortized cost of AFS debt securities |
|
|
|
|
|
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|
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|
|
|
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U.S. Treasury and agency securities |
$ |
552 |
|
4.90 |
% |
|
$ |
2,377 |
|
1.70 |
% |
|
$ |
12,675 |
|
2.40 |
% |
|
$ |
44,301 |
|
2.80 |
% |
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$ |
59,905 |
|
2.70 |
% |
Mortgage-backed securities: |
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Agency |
90 |
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3.50 |
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|
53,639 |
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3.60 |
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|
47,509 |
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3.90 |
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|
53,770 |
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3.40 |
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|
155,008 |
|
3.60 |
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Agency-collateralized mortgage obligations |
58 |
|
0.70 |
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|
36,243 |
|
2.30 |
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|
15,839 |
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4.10 |
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|
57 |
|
1.00 |
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|
52,197 |
|
2.80 |
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Non-agency residential |
3,573 |
|
4.50 |
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|
11,142 |
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5.30 |
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|
2,184 |
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5.20 |
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|
808 |
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5.20 |
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|
17,707 |
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5.10 |
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Non-agency commercial |
449 |
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4.30 |
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|
5,239 |
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6.60 |
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|
66 |
|
6.90 |
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|
214 |
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6.70 |
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|
5,968 |
|
6.50 |
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Non-U.S. securities |
2,625 |
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0.50 |
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|
2,109 |
|
4.90 |
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|
180 |
|
2.60 |
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|
— |
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— |
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|
4,914 |
|
4.70 |
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Corporate bonds |
255 |
|
3.80 |
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|
2,449 |
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1.80 |
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|
1,125 |
|
2.50 |
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|
153 |
|
1.00 |
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|
3,982 |
|
2.00 |
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Other taxable securities |
2,248 |
|
1.20 |
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|
6,444 |
|
1.20 |
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|
2,200 |
|
1.70 |
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|
1,552 |
|
1.00 |
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|
12,444 |
|
1.50 |
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Total taxable securities |
9,850 |
|
2.64 |
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|
119,642 |
|
3.31 |
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|
81,778 |
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3.66 |
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|
100,855 |
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3.12 |
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|
312,125 |
|
3.35 |
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Tax-exempt securities |
98 |
|
4.80 |
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|
915 |
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4.50 |
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|
782 |
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4.50 |
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|
3,504 |
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0.30 |
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|
5,299 |
|
1.73 |
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Total amortized cost of AFS debt securities |
$ |
9,948 |
|
2.67 |
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$ |
120,557 |
|
3.32 |
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$ |
82,560 |
|
3.67 |
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$ |
104,359 |
|
3.02 |
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$ |
317,424 |
|
3.32 |
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Fair value of AFS debt securities |
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U.S. Treasury and agency securities |
$ |
554 |
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$ |
2,438 |
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$ |
13,178 |
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$ |
43,861 |
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|
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$ |
60,031 |
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Mortgage-backed securities: |
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Agency |
92 |
|
|
|
55,292 |
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|
|
49,723 |
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|
|
54,972 |
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|
|
160,079 |
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Agency-collateralized mortgage obligations |
58 |
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|
36,625 |
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|
16,497 |
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|
58 |
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|
53,238 |
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Non-agency residential |
3,562 |
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|
11,153 |
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|
2,115 |
|
|
|
764 |
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|
17,594 |
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Non-agency commercial |
451 |
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|
5,838 |
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|
68 |
|
|
|
242 |
|
|
|
6,599 |
|
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Non-U.S. securities |
2,552 |
|
|
|
2,226 |
|
|
|
185 |
|
|
|
— |
|
|
|
4,963 |
|
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Corporate bonds |
258 |
|
|
|
2,515 |
|
|
|
1,192 |
|
|
|
151 |
|
|
|
4,116 |
|
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Other taxable securities |
2,250 |
|
|
|
6,931 |
|
|
|
1,731 |
|
|
|
1,556 |
|
|
|
12,468 |
|
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Total taxable securities |
9,777 |
|
|
|
123,018 |
|
|
|
84,689 |
|
|
|
101,604 |
|
|
|
319,088 |
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Tax-exempt securities |
99 |
|
|
|
909 |
|
|
|
780 |
|
|
|
3,391 |
|
|
|
5,179 |
|
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Total fair value of AFS debt securities |
$ |
9,876 |
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|
|
$ |
123,927 |
|
|
|
$ |
85,469 |
|
|
|
$ |
104,995 |
|
|
|
$ |
324,267 |
|
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(1) |
Average yield is computed using the effective yield of each security at the end of the period, weighted based on the amortized cost of each security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts and excludes the effect of related hedging derivatives.
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The gross realized gains and losses on sales of debt securities for the three and nine months ended September 30, 2011 and 2010 are presented in the table below.
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Three Months Ended September 30 |
|
Nine Months Ended September 30 |
(Dollars in millions) |
2011 |
|
2010 |
|
2011 |
|
2010 |
Gross gains |
$ |
745 |
|
|
$ |
990 |
|
|
$ |
2,200 |
|
|
$ |
2,838 |
|
Gross losses |
(8 |
) |
|
(107 |
) |
|
(18 |
) |
|
(1,184 |
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Net gains on sales of debt securities |
$ |
737 |
|
|
$ |
883 |
|
|
$ |
2,182 |
|
|
$ |
1,654 |
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Income tax expense attributable to realized net gains on sales of debt securities |
$ |
273 |
|
|
$ |
327 |
|
|
$ |
807 |
|
|
$ |
612 |
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Certain Corporate and Strategic Investments |
During the three months ended September 30, 2011, the Corporation sold 13.1 billion common shares in China Construction Bank Corporation (CCB) in a private transaction with a group of investors. In connection with the sale, the Corporation recorded a pre-tax gain of $3.6 billion. At September 30, 2011 and December 31, 2010, the Corporation owned 12.5 billion shares and 25.6 billion shares representing approximately five percent and 10 percent of CCB. Of the Corporation’s investment in CCB at September 30, 2011, 10.5 billion shares are classified as AFS. Sales restrictions on the remaining two billion CCB shares continue until August 2013 and accordingly these shares are carried at cost. At September 30, 2011 and December 31, 2010, the cost basis of the Corporation’s total investment in CCB was $4.5 billion and $9.2 billion, the carrying value was $7.2 billion and $19.7 billion and the fair value was $7.7 billion and $20.8 billion. This investment is recorded in other assets. Dividend income on this investment is recorded in equity investment income and during the nine months ended September 30, 2011 and 2010, the Corporation recorded dividends of $836 million and $535 million from CCB. The Corporation remains a significant shareholder in CCB and intends to continue the important long-term strategic alliance with CCB originally entered into in 2005.
During the nine months ended September 30, 2011, the Corporation sold its remaining ownership interest of approximately 13.6 million preferred shares, or seven percent of BlackRock, Inc. The investment was recorded in other assets at cost. In connection with the sale, the Corporation recorded a pre-tax gain of $377 million.
In 2009, the Corporation formed a joint venture with First Data Corporation (First Data) creating Banc of America Merchant Services, LLC. Under the terms of the joint venture agreement, the Corporation contributed its merchant processing business to the joint venture and First Data contributed certain merchant processing contracts and personnel resources. The Corporation's investment in the joint venture, which was initially recorded at a fair value of $4.7 billion, is accounted for under the equity method of accounting with income recorded in equity investment income. During the nine months ended September 30, 2011, the Corporation recorded $1.1 billion of impairment write-downs on the joint venture including $630 million in the three months ended September 30, 2011. The joint venture had a carrying value at September 30, 2011 and December 31, 2010 of $3.4 billion and $4.7 billion with the reduction in carrying value primarily the result of the impairment write-downs. The impairment write-downs were based on the ongoing financial performance of the joint venture and updated forecasts of its long-term financial performance.
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