Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements (Tables)

v2.4.1.9
Fair Value Measurements (Tables)
12 Months Ended
Dec. 31, 2014
Fair Value Disclosures [Abstract]  
Assets and Liabilities Carried at Fair Value on a Recurring Basis
Assets and liabilities carried at fair value on a recurring basis at December 31, 2014 and 2013, including financial instruments which the Corporation accounts for under the fair value option, are summarized in the following tables.
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
Fair Value Measurements
 
 
 
 
(Dollars in millions)
Level 1
 
Level 2
 
Level 3
 
Netting Adjustments (1)
 
Assets/Liabilities at Fair Value
Assets
 

 
 

 
 

 
 

 
 

Federal funds sold and securities borrowed or purchased under agreements to resell
$

 
$
62,182

 
$

 
$

 
$
62,182

Trading account assets:
 

 
 

 
 

 
 

 
 

U.S. government and agency securities (2)
33,470

 
17,549

 

 

 
51,019

Corporate securities, trading loans and other
243

 
31,699

 
3,270

 

 
35,212

Equity securities
33,518

 
22,488

 
352

 

 
56,358

Non-U.S. sovereign debt
20,348

 
15,332

 
574

 

 
36,254

Mortgage trading loans and ABS

 
10,879

 
2,063

 

 
12,942

Total trading account assets
87,579

 
97,947

 
6,259

 

 
191,785

Derivative assets (3)
4,957

 
972,977

 
6,851

 
(932,103
)
 
52,682

AFS debt securities:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities
67,413

 
2,182

 

 

 
69,595

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

Agency

 
165,039

 

 

 
165,039

Agency-collateralized mortgage obligations

 
14,248

 

 

 
14,248

Non-agency residential

 
4,175

 
279

 

 
4,454

Commercial

 
4,000

 

 

 
4,000

Non-U.S. securities
3,191

 
3,029

 
10

 

 
6,230

Corporate/Agency bonds

 
368

 

 

 
368

Other taxable securities
20

 
9,104

 
1,667

 

 
10,791

Tax-exempt securities

 
8,950

 
599

 

 
9,549

Total AFS debt securities
70,624

 
211,095

 
2,555

 

 
284,274

Other debt securities carried at fair value:
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
1,541

 

 

 

 
1,541

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Agency

 
15,704

 

 

 
15,704

Non-agency residential

 
3,745

 

 

 
3,745

Non-U.S. securities
13,270

 
1,862

 

 

 
15,132

Other taxable securities

 
299

 

 

 
299

Total other debt securities carried at fair value
14,811

 
21,610

 

 

 
36,421

Loans and leases

 
6,698

 
1,983

 

 
8,681

Mortgage servicing rights

 

 
3,530

 

 
3,530

Loans held-for-sale

 
6,628

 
173

 

 
6,801

Other assets
11,581

 
1,381

 
911

 

 
13,873

Total assets (4)
$
189,552

 
$
1,380,518

 
$
22,262

 
$
(932,103
)
 
$
660,229

Liabilities
 

 
 

 
 

 
 

 
 

Interest-bearing deposits in U.S. offices
$

 
$
1,469

 
$

 
$

 
$
1,469

Federal funds purchased and securities loaned or sold under agreements to repurchase

 
35,357

 

 

 
35,357

Trading account liabilities:
 

 
 

 
 

 
 

 
 
U.S. government and agency securities
18,514

 
446

 

 

 
18,960

Equity securities
24,679

 
3,670

 

 

 
28,349

Non-U.S. sovereign debt
16,089

 
3,625

 

 

 
19,714

Corporate securities and other
189

 
6,944

 
36

 

 
7,169

Total trading account liabilities
59,471

 
14,685

 
36

 

 
74,192

Derivative liabilities (3)
4,493

 
969,502

 
7,771

 
(934,857
)
 
46,909

Short-term borrowings

 
2,697

 

 

 
2,697

Accrued expenses and other liabilities
10,795

 
1,250

 
10

 

 
12,055

Long-term debt

 
34,042

 
2,362

 

 
36,404

Total liabilities (4)
$
74,759

 
$
1,059,002

 
$
10,179

 
$
(934,857
)
 
$
209,083

(1) 
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2) 
Includes $17.2 billion of government-sponsored enterprise obligations.
(3) 
For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives.
(4) 
During 2014, the Corporation reclassified certain assets and liabilities within its fair value hierarchy based on a review of its inputs used to measure fair value. Accordingly, approximately $4.1 billion of assets related to U.S. government and agency securities, non-U.S. government securities and equity derivatives, and $570 million of liabilities related to equity derivatives were transferred from Level 1 to Level 2.
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
Fair Value Measurements
 
 
 
 
(Dollars in millions)
Level 1
 
Level 2
 
Level 3
 
Netting Adjustments (1)
 
Assets/Liabilities at Fair Value
Assets
 

 
 

 
 

 
 

 
 

Federal funds sold and securities borrowed or purchased under agreements to resell
$

 
$
68,656

 
$

 
$

 
$
68,656

Trading account assets:
 

 
 

 
 

 
 

 
 

U.S. government and agency securities (2)
34,222

 
14,625

 

 

 
48,847

Corporate securities, trading loans and other
1,147

 
27,746

 
3,559

 

 
32,452

Equity securities
41,324

 
22,741

 
386

 

 
64,451

Non-U.S. sovereign debt
24,357

 
12,399

 
468

 

 
37,224

Mortgage trading loans and ABS

 
13,388

 
4,631

 

 
18,019

Total trading account assets
101,050

 
90,899

 
9,044

 

 
200,993

Derivative assets (3)
2,374

 
910,602

 
7,277

 
(872,758
)
 
47,495

AFS debt securities:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities
6,591

 
2,363

 

 

 
8,954

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

Agency

 
164,935

 

 

 
164,935

Agency-collateralized mortgage obligations

 
22,492

 

 

 
22,492

Non-agency residential

 
6,239

 

 

 
6,239

Commercial

 
2,480

 

 

 
2,480

Non-U.S. securities
3,698

 
3,415

 
107

 

 
7,220

Corporate/Agency bonds

 
873

 

 

 
873

Other taxable securities
20

 
12,963

 
3,847

 

 
16,830

Tax-exempt securities

 
5,122

 
806

 

 
5,928

Total AFS debt securities
10,309

 
220,882

 
4,760

 

 
235,951

Other debt securities carried at fair value:
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
4,062

 

 

 

 
4,062

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Agency

 
16,500

 

 

 
16,500

Agency-collateralized mortgage obligations

 
218

 

 

 
218

Commercial

 
749

 

 

 
749

Non-U.S. securities
7,457

 
3,858

 

 

 
11,315

Total other debt securities carried at fair value
11,519

 
21,325

 

 

 
32,844

Loans and leases

 
6,985

 
3,057

 

 
10,042

Mortgage servicing rights

 

 
5,042

 

 
5,042

Loans held-for-sale

 
5,727

 
929

 

 
6,656

Other assets
14,474

 
1,912

 
1,669

 

 
18,055

Total assets (4)
$
139,726

 
$
1,326,988

 
$
31,778

 
$
(872,758
)
 
$
625,734

Liabilities
 

 
 

 
 

 
 

 
 

Interest-bearing deposits in U.S. offices
$

 
$
1,899

 
$

 
$

 
$
1,899

Federal funds purchased and securities loaned or sold under agreements to repurchase

 
26,500

 

 

 
26,500

Trading account liabilities:
 

 
 

 
 

 
 

 
 
U.S. government and agency securities
26,915

 
348

 

 

 
27,263

Equity securities
23,874

 
3,711

 

 

 
27,585

Non-U.S. sovereign debt
20,755

 
1,387

 

 

 
22,142

Corporate securities and other
518

 
5,926

 
35

 

 
6,479

Total trading account liabilities
72,062

 
11,372

 
35

 

 
83,469

Derivative liabilities (3)
1,968

 
896,907

 
7,501

 
(868,969
)
 
37,407

Short-term borrowings

 
1,520

 

 

 
1,520

Accrued expenses and other liabilities
10,130

 
1,093

 
10

 

 
11,233

Long-term debt

 
45,045

 
1,990

 

 
47,035

Total liabilities (4)
$
84,160

 
$
984,336

 
$
9,536

 
$
(868,969
)
 
$
209,063


(1) 
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2) 
Includes $15.6 billion of government-sponsored enterprise obligations.
(3) 
For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives.
(4) 
During 2013, $500 million of other assets were transferred from Level 1 to Level 2 primarily due to a restriction that became effective for a private equity investment that was subsequently sold once the restriction was lifted.
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation
The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2014, 2013 and 2012, including net realized and unrealized gains (losses) included in earnings and accumulated OCI.
 
 
 
 
 
 
 
 
 
 
 
Level 3 – Fair Value Measurements (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014
 
 
 
 
Gross
 
 
 
(Dollars in millions)
Balance
January 1
2014
Gains
(Losses)
in Earnings
Gains
(Losses)
in OCI
Purchases
Sales
Issuances
Settlements
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
December 31
2014
Trading account assets:
 

 

 

 

 
 
 
 

 

 

U.S. government and agency securities
$

$

$

$
87

$
(87
)
$

$

$

$

$

Corporate securities, trading loans and other
3,559

180


1,675

(857
)

(938
)
1,275

(1,624
)
3,270

Equity securities
386



104

(86
)

(16
)
146

(182
)
352

Non-U.S. sovereign debt
468

30


120

(34
)

(19
)
11

(2
)
574

Mortgage trading loans and ABS
4,631

199


1,643

(1,259
)

(585
)
39

(2,605
)
2,063

Total trading account assets
9,044

409


3,629

(2,323
)

(1,558
)
1,471

(4,413
)
6,259

Net derivative assets (2)
(224
)
463


823

(1,738
)

(432
)
28

160

(920
)
AFS debt securities:
 

 

 

 

 

 

 

 

 

 

Non-agency residential MBS

(2
)

11




270


279

Non-U.S. securities
107

(7
)
(11
)
241



(147
)

(173
)
10

Corporate/Agency bonds







93

(93
)

Other taxable securities
3,847

9

(8
)
154



(1,381
)

(954
)
1,667

Tax-exempt securities
806

8



(16
)

(235
)
36


599

Total AFS debt securities
4,760

8

(19
)
406

(16
)

(1,763
)
399

(1,220
)
2,555

Loans and leases (3, 4)
3,057

69



(3
)
699

(1,591
)
25

(273
)
1,983

Mortgage servicing rights (4)
5,042

(1,231
)


(61
)
707

(927
)


3,530

Loans held-for-sale (3)
929

45


59

(725
)
23

(216
)
83

(25
)
173

Other assets (5)
1,669

(98
)


(430
)

(245
)
39

(24
)
911

Trading account liabilities – Corporate securities and other
(35
)
1


10

(13
)


(9
)
10

(36
)
Accrued expenses and other liabilities (3)
(10
)
2




(3
)


1

(10
)
Long-term debt (3)
(1,990
)
49


169


(615
)
540

(1,581
)
1,066

(2,362
)
(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Net derivatives include derivative assets of $6.9 billion and derivative liabilities of $7.8 billion.
(3) 
Amounts represent instruments that are accounted for under the fair value option.
(4) 
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole-loan sales.
(5) 
Other assets is primarily comprised of private equity investments and certain long-term fixed-rate margin loans that are accounted for under the fair value option.
 
 
 
 
 
 
 
 
 
 
 
Level 3 – Fair Value Measurements (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2012
 
 
 
 
Gross
 
 
 
(Dollars in millions)
Balance
January 1
2012
Gains
(Losses)
in Earnings
Gains
(Losses)
in OCI
Purchases
Sales
Issuances
Settlements
Gross Transfers
into
Level 3
Gross Transfers
out of
Level 3 
Balance
December 31
2012
Trading account assets:
 
 
 
 
 
 
 
 
 
 
Corporate securities, trading loans and other (2)
$
6,880

$
195

$

$
2,798

$
(4,556
)
$

$
(1,077
)
$
436

$
(950
)
$
3,726

Equity securities
544

31


201

(271
)

27

90

(77
)
545

Non-U.S. sovereign debt
342

8


388

(359
)

(5
)

(21
)
353

Mortgage trading loans and ABS (2)
3,689

215


2,574

(1,536
)

(678
)
844

(173
)
4,935

Total trading account assets
11,455

449


5,961

(6,722
)

(1,733
)
1,370

(1,221
)
9,559

Net derivative assets (3)
5,866

(221
)

893

(1,012
)

(3,328
)
(269
)
(461
)
1,468

AFS debt securities:
 

 

 

 

 
 
 
 
 
 

Mortgage-backed securities:
 

 

 

 

 
 
 
 
 

 

Agency
37






(4
)

(33
)

Non-agency residential
860

(69
)
19


(306
)

(2
)

(502
)

Non-agency commercial
40




(24
)

(6
)


10

Corporate/Agency bonds
162

(2
)

(2
)


(39
)

(27
)
92

Other taxable securities
4,265

23

26

3,196

(28
)

(3,345
)

(209
)
3,928

Tax-exempt securities
2,648

61

20


(133
)

(1,535
)


1,061

Total AFS debt securities
8,012

13

65

3,194

(491
)

(4,931
)

(771
)
5,091

Loans and leases (4, 5)
2,744

334


564

(1,520
)

(274
)
450

(11
)
2,287

Mortgage servicing rights (5)
7,378

(430
)


(122
)
374

(1,484
)


5,716

Loans held-for-sale (4)
3,387

352


794

(834
)

(414
)
80

(632
)
2,733

Other assets (6)
4,235

(54
)

109

(1,039
)
270

(381
)

(11
)
3,129

Trading account liabilities – Corporate securities and other
(114
)
4


116

(136
)

80

(68
)
54

(64
)
Short-term borrowings (4)





(232
)
232




Accrued expenses and other liabilities (4)
(14
)
(4
)

8


(9
)


4

(15
)
Long-term debt (4)
(2,943
)
(307
)

290

(33
)
(259
)
1,239

(2,040
)
1,752

(2,301
)
(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
During 2012, approximately $900 million was reclassified from Trading account assets – Corporate securities, trading loans and other to Trading account assets – Mortgage trading loans and ABS. In the table above, this reclassification is presented as a sale of Trading account assets – Corporate securities, trading loans and other and as a purchase of Trading account assets – Mortgage trading loans and ABS.
(3) 
Net derivatives include derivative assets of $8.1 billion and derivative liabilities of $6.6 billion.
(4) 
Amounts represent instruments that are accounted for under the fair value option.
(5) 
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole-loan sales.
(6) 
Other assets is primarily comprised of net monoline exposure to a single counterparty and private equity investments.
 
 
 
 
 
 
 
 
 
 
 
Level 3 – Fair Value Measurements (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2013
 
 
 
 
Gross
 
 
 
(Dollars in millions)
Balance
January 1
2013
Gains
(Losses)
in Earnings
Gains
(Losses)
in OCI
Purchases
Sales
Issuances
Settlements
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
December 31
2013
Trading account assets:
 

 

 

 
 
 
 

 
 

 

Corporate securities, trading loans and other
$
3,726

$
242

$

$
3,848

$
(3,110
)
$
59

$
(651
)
$
890

$
(1,445
)
$
3,559

Equity securities
545

74


96

(175
)

(100
)
70

(124
)
386

Non-U.S. sovereign debt
353

50


122

(18
)

(36
)
2

(5
)
468

Mortgage trading loans and ABS
4,935

53


2,514

(1,993
)

(868
)
20

(30
)
4,631

Total trading account assets
9,559

419


6,580

(5,296
)
59

(1,655
)
982

(1,604
)
9,044

Net derivative assets (2)
1,468

(304
)

824

(1,467
)

(1,362
)
(10
)
627

(224
)
AFS debt securities:
 

 

 

 
 
 
 

 

 

 

Commercial MBS
10






(10
)



Non-U.S. securities

5

2

1

(1
)


100


107

Corporate/Agency bonds
92


4






(96
)

Other taxable securities
3,928

9

15

1,055



(1,155
)

(5
)
3,847

Tax-exempt securities
1,061

3

19




(109
)

(168
)
806

Total AFS debt securities
5,091

17

40

1,056

(1
)

(1,274
)
100

(269
)
4,760

Loans and leases (3, 4)
2,287

98


310

(128
)
1,252

(757
)
19

(24
)
3,057

Mortgage servicing rights (4)
5,716

1,941



(2,044
)
472

(1,043
)


5,042

Loans held-for-sale (3)
2,733

62


8

(402
)
4

(1,507
)
34

(3
)
929

Other assets (5)
3,129

(288
)

46

(383
)

(1,019
)
239

(55
)
1,669

Trading account liabilities – Corporate securities and other
(64
)
10


43

(54
)
(5
)

(9
)
44

(35
)
Accrued expenses and other liabilities (3)
(15
)
30




(751
)
724

(1
)
3

(10
)
Long-term debt (3)
(2,301
)
13


358

(4
)
(172
)
258

(1,331
)
1,189

(1,990
)
(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Net derivatives include derivative assets of $7.3 billion and derivative liabilities of $7.5 billion.
(3) 
Amounts represent instruments that are accounted for under the fair value option.
(4) 
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole-loan sales.
(5) 
Other assets is primarily comprised of private equity investments and certain long-term fixed-rate margin loans that are accounted for under the fair value option.
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
 
 
 
 
 
 
 
 
 
 
 
Level 3 – Fair Value Measurements (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2012
 
 
 
 
Gross
 
 
 
(Dollars in millions)
Balance
January 1
2012
Gains
(Losses)
in Earnings
Gains
(Losses)
in OCI
Purchases
Sales
Issuances
Settlements
Gross Transfers
into
Level 3
Gross Transfers
out of
Level 3 
Balance
December 31
2012
Trading account assets:
 
 
 
 
 
 
 
 
 
 
Corporate securities, trading loans and other (2)
$
6,880

$
195

$

$
2,798

$
(4,556
)
$

$
(1,077
)
$
436

$
(950
)
$
3,726

Equity securities
544

31


201

(271
)

27

90

(77
)
545

Non-U.S. sovereign debt
342

8


388

(359
)

(5
)

(21
)
353

Mortgage trading loans and ABS (2)
3,689

215


2,574

(1,536
)

(678
)
844

(173
)
4,935

Total trading account assets
11,455

449


5,961

(6,722
)

(1,733
)
1,370

(1,221
)
9,559

Net derivative assets (3)
5,866

(221
)

893

(1,012
)

(3,328
)
(269
)
(461
)
1,468

AFS debt securities:
 

 

 

 

 
 
 
 
 
 

Mortgage-backed securities:
 

 

 

 

 
 
 
 
 

 

Agency
37






(4
)

(33
)

Non-agency residential
860

(69
)
19


(306
)

(2
)

(502
)

Non-agency commercial
40




(24
)

(6
)


10

Corporate/Agency bonds
162

(2
)

(2
)


(39
)

(27
)
92

Other taxable securities
4,265

23

26

3,196

(28
)

(3,345
)

(209
)
3,928

Tax-exempt securities
2,648

61

20


(133
)

(1,535
)


1,061

Total AFS debt securities
8,012

13

65

3,194

(491
)

(4,931
)

(771
)
5,091

Loans and leases (4, 5)
2,744

334


564

(1,520
)

(274
)
450

(11
)
2,287

Mortgage servicing rights (5)
7,378

(430
)


(122
)
374

(1,484
)


5,716

Loans held-for-sale (4)
3,387

352


794

(834
)

(414
)
80

(632
)
2,733

Other assets (6)
4,235

(54
)

109

(1,039
)
270

(381
)

(11
)
3,129

Trading account liabilities – Corporate securities and other
(114
)
4


116

(136
)

80

(68
)
54

(64
)
Short-term borrowings (4)





(232
)
232




Accrued expenses and other liabilities (4)
(14
)
(4
)

8


(9
)


4

(15
)
Long-term debt (4)
(2,943
)
(307
)

290

(33
)
(259
)
1,239

(2,040
)
1,752

(2,301
)
(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
During 2012, approximately $900 million was reclassified from Trading account assets – Corporate securities, trading loans and other to Trading account assets – Mortgage trading loans and ABS. In the table above, this reclassification is presented as a sale of Trading account assets – Corporate securities, trading loans and other and as a purchase of Trading account assets – Mortgage trading loans and ABS.
(3) 
Net derivatives include derivative assets of $8.1 billion and derivative liabilities of $6.6 billion.
(4) 
Amounts represent instruments that are accounted for under the fair value option.
(5) 
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole-loan sales.
(6) 
Other assets is primarily comprised of net monoline exposure to a single counterparty and private equity investments.
The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2014, 2013 and 2012, including net realized and unrealized gains (losses) included in earnings and accumulated OCI.
 
 
 
 
 
 
 
 
 
 
 
Level 3 – Fair Value Measurements (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014
 
 
 
 
Gross
 
 
 
(Dollars in millions)
Balance
January 1
2014
Gains
(Losses)
in Earnings
Gains
(Losses)
in OCI
Purchases
Sales
Issuances
Settlements
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
December 31
2014
Trading account assets:
 

 

 

 

 
 
 
 

 

 

U.S. government and agency securities
$

$

$

$
87

$
(87
)
$

$

$

$

$

Corporate securities, trading loans and other
3,559

180


1,675

(857
)

(938
)
1,275

(1,624
)
3,270

Equity securities
386



104

(86
)

(16
)
146

(182
)
352

Non-U.S. sovereign debt
468

30


120

(34
)

(19
)
11

(2
)
574

Mortgage trading loans and ABS
4,631

199


1,643

(1,259
)

(585
)
39

(2,605
)
2,063

Total trading account assets
9,044

409


3,629

(2,323
)

(1,558
)
1,471

(4,413
)
6,259

Net derivative assets (2)
(224
)
463


823

(1,738
)

(432
)
28

160

(920
)
AFS debt securities:
 

 

 

 

 

 

 

 

 

 

Non-agency residential MBS

(2
)

11




270


279

Non-U.S. securities
107

(7
)
(11
)
241



(147
)

(173
)
10

Corporate/Agency bonds







93

(93
)

Other taxable securities
3,847

9

(8
)
154



(1,381
)

(954
)
1,667

Tax-exempt securities
806

8



(16
)

(235
)
36


599

Total AFS debt securities
4,760

8

(19
)
406

(16
)

(1,763
)
399

(1,220
)
2,555

Loans and leases (3, 4)
3,057

69



(3
)
699

(1,591
)
25

(273
)
1,983

Mortgage servicing rights (4)
5,042

(1,231
)


(61
)
707

(927
)


3,530

Loans held-for-sale (3)
929

45


59

(725
)
23

(216
)
83

(25
)
173

Other assets (5)
1,669

(98
)


(430
)

(245
)
39

(24
)
911

Trading account liabilities – Corporate securities and other
(35
)
1


10

(13
)


(9
)
10

(36
)
Accrued expenses and other liabilities (3)
(10
)
2




(3
)


1

(10
)
Long-term debt (3)
(1,990
)
49


169


(615
)
540

(1,581
)
1,066

(2,362
)
(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Net derivatives include derivative assets of $6.9 billion and derivative liabilities of $7.8 billion.
(3) 
Amounts represent instruments that are accounted for under the fair value option.
(4) 
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole-loan sales.
(5) 
Other assets is primarily comprised of private equity investments and certain long-term fixed-rate margin loans that are accounted for under the fair value option.
 
 
 
 
 
 
 
 
 
 
 
Level 3 – Fair Value Measurements (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2013
 
 
 
 
Gross
 
 
 
(Dollars in millions)
Balance
January 1
2013
Gains
(Losses)
in Earnings
Gains
(Losses)
in OCI
Purchases
Sales
Issuances
Settlements
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
December 31
2013
Trading account assets:
 

 

 

 
 
 
 

 
 

 

Corporate securities, trading loans and other
$
3,726

$
242

$

$
3,848

$
(3,110
)
$
59

$
(651
)
$
890

$
(1,445
)
$
3,559

Equity securities
545

74


96

(175
)

(100
)
70

(124
)
386

Non-U.S. sovereign debt
353

50


122

(18
)

(36
)
2

(5
)
468

Mortgage trading loans and ABS
4,935

53


2,514

(1,993
)

(868
)
20

(30
)
4,631

Total trading account assets
9,559

419


6,580

(5,296
)
59

(1,655
)
982

(1,604
)
9,044

Net derivative assets (2)
1,468

(304
)

824

(1,467
)

(1,362
)
(10
)
627

(224
)
AFS debt securities:
 

 

 

 
 
 
 

 

 

 

Commercial MBS
10






(10
)



Non-U.S. securities

5

2

1

(1
)


100


107

Corporate/Agency bonds
92


4






(96
)

Other taxable securities
3,928

9

15

1,055



(1,155
)

(5
)
3,847

Tax-exempt securities
1,061

3

19




(109
)

(168
)
806

Total AFS debt securities
5,091

17

40

1,056

(1
)

(1,274
)
100

(269
)
4,760

Loans and leases (3, 4)
2,287

98


310

(128
)
1,252

(757
)
19

(24
)
3,057

Mortgage servicing rights (4)
5,716

1,941



(2,044
)
472

(1,043
)


5,042

Loans held-for-sale (3)
2,733

62


8

(402
)
4

(1,507
)
34

(3
)
929

Other assets (5)
3,129

(288
)

46

(383
)

(1,019
)
239

(55
)
1,669

Trading account liabilities – Corporate securities and other
(64
)
10


43

(54
)
(5
)

(9
)
44

(35
)
Accrued expenses and other liabilities (3)
(15
)
30




(751
)
724

(1
)
3

(10
)
Long-term debt (3)
(2,301
)
13


358

(4
)
(172
)
258

(1,331
)
1,189

(1,990
)
(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Net derivatives include derivative assets of $7.3 billion and derivative liabilities of $7.5 billion.
(3) 
Amounts represent instruments that are accounted for under the fair value option.
(4) 
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole-loan sales.
(5) 
Other assets is primarily comprised of private equity investments and certain long-term fixed-rate margin loans that are accounted for under the fair value option.
Fair Value, Measured on Recurring Basis, Gain (Loss) Included in Earnings
The following tables summarize gains (losses) due to changes in fair value, including both realized and unrealized gains (losses), recorded in earnings for Level 3 assets and liabilities during 2014, 2013 and 2012. These amounts include gains (losses) on loans, LHFS, loan commitments and structured liabilities that are accounted for under the fair value option.
 
 
 
 
 
 
 
 
Level 3 – Total Realized and Unrealized Gains (Losses) Included in Earnings
 
 
 
 
 
 
 
 
 
2014
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss) (1)
 
Other (2)
 
Total
Trading account assets:
 

 
 

 
 

 
 

Corporate securities, trading loans and other
$
180

 
$

 
$

 
$
180

Non-U.S. sovereign debt
30

 

 

 
30

Mortgage trading loans and ABS
199

 

 

 
199

Total trading account assets
409

 

 

 
409

Net derivative assets
(475
)
 
834

 
104

 
463

AFS debt securities:
 

 
 

 
 

 
 

Non-agency residential MBS

 

 
(2
)
 
(2
)
Non-U.S. securities

 

 
(7
)
 
(7
)
Other taxable securities

 

 
9

 
9

Tax-exempt securities

 

 
8

 
8

Total AFS debt securities

 

 
8

 
8

Loans and leases (3)

 

 
69

 
69

Mortgage servicing rights
(6
)
 
(1,225
)
 

 
(1,231
)
Loans held-for-sale (3)
(14
)
 

 
59

 
45

Other assets

 
(79
)
 
(19
)
 
(98
)
Trading account liabilities – Corporate securities and other
1

 

 

 
1

Accrued expenses and other liabilities (3)

 

 
2

 
2

Long-term debt (3)
78

 

 
(29
)
 
49

Total
$
(7
)
 
$
(470
)
 
$
194

 
$
(283
)
 
 
 
 
 
 
 
 
 
2013
Trading account assets:
 

 
 

 
 

 
 

Corporate securities, trading loans and other
$
242

 
$

 
$

 
$
242

Equity securities
74

 

 

 
74

Non-U.S. sovereign debt
50

 

 

 
50

Mortgage trading loans and ABS
53

 

 

 
53

Total trading account assets
419

 

 

 
419

Net derivative assets
(1,224
)
 
927

 
(7
)
 
(304
)
AFS debt securities:
 

 
 

 
 

 
 

Non-U.S. securities

 

 
5

 
5

Other taxable securities

 

 
9

 
9

Tax-exempt securities

 

 
3

 
3

Total AFS debt securities

 

 
17

 
17

Loans and leases (3)

 
(38
)
 
136

 
98

Mortgage servicing rights

 
1,941

 

 
1,941

Loans held-for-sale (3)

 
2

 
60

 
62

Other assets

 
122

 
(410
)
 
(288
)
Trading account liabilities – Corporate securities and other
10

 

 

 
10

Accrued expenses and other liabilities (3)

 
30

 

 
30

Long-term debt (3)
45

 

 
(32
)
 
13

Total
$
(750
)
 
$
2,984

 
$
(236
)
 
$
1,998

(1) 
Mortgage banking income (loss) does not reflect the impact of Level 1 and Level 2 hedges on MSRs.
(2) 
Amounts included are primarily recorded in other income (loss). Equity investment gains of $86 million and $77 million recorded on net derivative assets and other assets were also included for 2014 and 2013.
(3) 
Amounts represent instruments that are accounted for under the fair value option.
 
 
 
 
 
 
 
 
Level 3 – Total Realized and Unrealized Gains (Losses) Included in Earnings (continued)
 
 
 
 
 
 
 
 
 
2012
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss) (1)
 
Other (2)
 
Total
Trading account assets:
 

 
 

 
 

 
 

Corporate securities, trading loans and other
$
195

 
$

 
$

 
$
195

Equity securities
31

 

 

 
31

Non-U.S. sovereign debt
8

 

 

 
8

Mortgage trading loans and ABS
215

 

 

 
215

Total trading account assets
449

 

 

 
449

Net derivative assets
(3,208
)
 
2,987

 

 
(221
)
AFS debt securities:
 

 
 

 
 

 
 

Non-agency residential MBS

 

 
(69
)
 
(69
)
Corporate/Agency bonds

 

 
(2
)
 
(2
)
Other taxable securities
2

 

 
21

 
23

Tax-exempt securities

 

 
61

 
61

Total AFS debt securities
2

 

 
11

 
13

Loans and leases (3)

 

 
334

 
334

Mortgage servicing rights

 
(430
)
 

 
(430
)
Loans held-for-sale (3)

 
148

 
204

 
352

Other assets

 
(74
)
 
20

 
(54
)
Trading account liabilities – Corporate securities and other
4

 

 

 
4

Accrued expenses and other liabilities (3)

 

 
(4
)
 
(4
)
Long-term debt (3)
(133
)
 

 
(174
)
 
(307
)
Total
$
(2,886
)
 
$
2,631

 
$
391

 
$
136

(1) 
Mortgage banking income (loss) does not reflect the impact of Level 1 and Level 2 hedges on MSRs.
(2) 
Amounts included are primarily recorded in other income (loss). Equity investment gains of $97 million recorded on other assets were also included for 2012.
(3) 
Amounts represent instruments that are accounted for under the fair value option.
Level 3 Changes in Unrealized Gains (Losses) Relating to Assets and Liabilities Still Held at Reporting Date
The table below summarizes changes in unrealized gains (losses) recorded in earnings during 2014, 2013 and 2012 for Level 3 assets and liabilities that were still held at December 31, 2014, 2013 and 2012. These amounts include changes in fair value on loans, LHFS, loan commitments and structured liabilities that are accounted for under the fair value option.
 
 
 
 
 
 
 
 
Level 3 – Changes in Unrealized Gains (Losses) Relating to Assets and Liabilities Still Held at Reporting Date
 
 
 
 
 
 
 
 
 
2014
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss) (1)
 
Other (2)
 
Total
Trading account assets:
 

 
 

 
 

 
 

Corporate securities, trading loans and other
$
69

 
$

 
$

 
$
69

Equity securities
(8
)
 

 

 
(8
)
Non-U.S. sovereign debt
31

 

 

 
31

Mortgage trading loans and ABS
79

 

 

 
79

Total trading account assets
171

 

 

 
171

Net derivative assets
(276
)
 
85

 
104

 
(87
)
Loans and leases (3)

 

 
76

 
76

Mortgage servicing rights
(6
)
 
(1,747
)
 

 
(1,753
)
Loans held-for-sale (3)
(14
)
 

 
10

 
(4
)
Other assets

 
(50
)
 
102

 
52

Trading account liabilities – Corporate securities and other
1

 

 

 
1

Accrued expenses and other liabilities (3)

 

 
1

 
1

Long-term debt (3)
29

 

 
(37
)
 
(8
)
Total
$
(95
)
 
$
(1,712
)
 
$
256

 
$
(1,551
)
 
 
 
 
 
 
 
 
 
2013
Trading account assets:
 

 
 

 
 

 
 

Corporate securities, trading loans and other
$
(130
)
 
$

 
$

 
$
(130
)
Equity securities
40

 

 

 
40

Non-U.S. sovereign debt
80

 

 

 
80

Mortgage trading loans and ABS
(174
)
 

 

 
(174
)
Total trading account assets
(184
)
 

 

 
(184
)
Net derivative assets
(1,375
)
 
42

 
(7
)
 
(1,340
)
Loans and leases (3)

 
(34
)
 
152

 
118

Mortgage servicing rights

 
1,541

 

 
1,541

Loans held-for-sale (3)

 
6

 
57

 
63

Other assets

 
166

 
14

 
180

Long-term debt (3)
(4
)
 

 
(32
)
 
(36
)
Total
$
(1,563
)
 
$
1,721

 
$
184

 
$
342

 
 
 
 
 
 
 
 
 
2012
Trading account assets:
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
(19
)
 
$

 
$

 
$
(19
)
Equity securities
17

 

 

 
17

Non-U.S. sovereign debt
20

 

 

 
20

Mortgage trading loans and ABS
36

 

 

 
36

Total trading account assets
54

 

 

 
54

Net derivative assets
(2,782
)
 
456

 

 
(2,326
)
AFS debt securities – Other taxable securities
2

 

 

 
2

Loans and leases (3)

 

 
214

 
214

Mortgage servicing rights

 
(1,100
)
 

 
(1,100
)
Loans held-for-sale (3)

 
112

 
168

 
280

Other assets

 
(71
)
 
50

 
(21
)
Trading account liabilities – Corporate securities and other
4

 

 

 
4

Accrued expenses and other liabilities (3)

 

 
(2
)
 
(2
)
Long-term debt (3)
(136
)
 

 
(173
)
 
(309
)
Total
$
(2,858
)
 
$
(603
)
 
$
257

 
$
(3,204
)
(1) 
Mortgage banking income (loss) does not reflect the impact of Level 1 and Level 2 hedges on MSRs.
(2) 
Amounts included are primarily recorded in other income (loss). Equity investment gains of $170 million and $53 million recorded on net derivative assets and other assets were included for 2014 and 2013, and gains of $141 million recorded on other assets were included for 2012.
(3) 
Amounts represent instruments that are accounted for under the fair value option.
Fair Value Inputs, Assets, Quantitative Information
The following tables present information about significant unobservable inputs related to the Corporation’s material categories of Level 3 financial assets and liabilities at December 31, 2014 and 2013.
 
 
 
 
 
 
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2014
 
 
 
 
 
 
(Dollars in millions)
 
 
Inputs
Financial Instrument
Fair
Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted Average
Loans and Securities (1)
 
 
 
 
 
Instruments backed by residential real estate assets
$
2,030

Discounted cash flow, Market comparables
Yield
0% to 25%

6
 %
Trading account assets – Mortgage trading loans and ABS
483

Prepayment speed
0% to 35% CPR

14
 %
Loans and leases
1,374

Default rate
2% to 15% CDR

7
 %
Loans held-for-sale
173

Loss severity
26% to 100%

34
 %
Commercial loans, debt securities and other
$
7,203

Discounted cash flow, Market comparables
Yield
0% to 40%

9
 %
Trading account assets – Corporate securities, trading loans and other
3,224

Enterprise value/EBITDA multiple
0x to 30x

6x

Trading account assets – Non-U.S. sovereign debt
574

Prepayment speed
1% to 30%

12
 %
Trading account assets – Mortgage trading loans and ABS
1,580

Default rate
1% to 5%

4
 %
AFS debt securities – Other taxable securities
1,216

Loss severity
25% to 40%

38
 %
Loans and leases
609

Duration
0 years to 5 years

3 years

 
 
Price
$0 to $107

$76
Auction rate securities
$
1,096

Discounted cash flow, Market comparables
Price
$60 to $100

$95
Trading account assets – Corporate securities, trading loans and other
46

 
 
 
AFS debt securities – Other taxable securities
451

 
 
 
AFS debt securities – Tax-exempt securities
599

 
 
 
Structured liabilities
 
 
 
 
 
Long-term debt
$
(2,362
)
Industry standard derivative pricing (2, 3)
Equity correlation
20% to 98%

65
 %
 
 
Long-dated equity volatilities
6% to 69%

24
 %
 
 
Long-dated volatilities (IR)
0% to 2%

1
 %
Net derivative assets
 
 
 
 
 
Credit derivatives
$
22

Discounted cash flow, Stochastic recovery correlation model
Yield
0% to 25%

14
 %
 
 
Upfront points
0 points to 100 points

65 points

 
 
Spread to index
25 bps to 450 bps

119 bps

 
 
Credit correlation
24% to 99%

51
 %
 
 
Prepayment speed
3% to 20% CPR

11
 %
 
 
Default rate
4% CDR

n/a

 
 
Loss severity
35
%
n/a

Equity derivatives
$
(1,560
)
Industry standard derivative pricing (2)
Equity correlation
20% to 98%

65
 %
 
 
Long-dated equity volatilities
6% to 69%

24
 %
Commodity derivatives
$
141

Discounted cash flow, Industry standard derivative pricing (2)
Natural gas forward price
$2/MMBtu to $7/MMBtu

$5/MMBtu

 
 
Correlation
82% to 93%

90
 %
 
 
Volatilities
16% to 98%

35
 %
Interest rate derivatives
$
477

Industry standard derivative pricing (3)
Correlation (IR/IR)
11% to 99%

55
 %
 
 
Correlation (FX/IR)
-48% to 40%

-5
 %
 
 
Long-dated inflation rates
0% to 3%

1
 %
 
 
Long-dated inflation volatilities
0% to 2%

1
 %
Total net derivative assets
$
(920
)
 
 
 
 
(1) 
The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 245: Trading account assets – Corporate securities, trading loans and other of $3.3 billion, Trading account assets – Non-U.S. sovereign debt of $574 million, Trading account assets – Mortgage trading loans and ABS of $2.1 billion, AFS debt securities – Other taxable securities of $1.7 billion, AFS debt securities – Tax-exempt securities of $599 million, Loans and leases of $2.0 billion and LHFS of $173 million.
(2) 
Includes models such as Monte Carlo simulation and Black-Scholes.
(3) 
Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
EBITDA = Earnings before interest, taxes, depreciation and amortization
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
n/a = not applicable
 
 
 
 
 
 
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2013
 
 
 
 
 
(Dollars in millions)
 
 
Inputs
Financial Instrument
Fair
Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted Average
Loans and Securities (1)
 
 
 
 
 
Instruments backed by residential real estate assets
$
3,443

Discounted cash flow, Market comparables
Yield
2% to 25%
6
 %
Trading account assets – Mortgage trading loans and ABS
363

Prepayment speed
0% to 35% CPR
9
 %
Loans and leases
2,151

Default rate
1% to 20% CDR
6
 %
Loans held-for-sale
929

Loss severity
21% to 80%
35
 %
Commercial loans, debt securities and other
$
12,135

Discounted cash flow, Market comparables
Yield
0% to 45%
5
 %
Trading account assets – Corporate securities, trading loans and other
3,462

Enterprise value/EBITDA multiple
0x to 24x
7x

Trading account assets – Non-U.S. sovereign debt
468

Prepayment speed
5% to 40%
19
 %
Trading account assets – Mortgage trading loans and ABS
4,268

Default rate
1% to 5%
4
 %
AFS debt securities – Other taxable securities
3,031

Loss severity
25% to 42%
36
 %
Loans and leases
906

Duration
1 year to 5 years
4 years

Auction rate securities
$
1,719

Discounted cash flow, Market comparables
Projected tender price/Refinancing level
60% to 100%
96
 %
Trading account assets – Corporate securities, trading loans and other
97

 
 
AFS debt securities – Other taxable securities
816

 
 
 
AFS debt securities – Tax-exempt securities
806

 
 
 
Structured liabilities
 
 
 
 
 
Long-term debt
$
(1,990
)
Industry standard derivative pricing (2, 3)
Equity correlation
18% to 98%
70
 %
 
 
Long-dated equity volatilities
4% to 63%
27
 %
 
 
Long-dated volatilities (IR)
0% to 2%
1
 %
Net derivative assets
 
 
 
 
 
Credit derivatives
$
808

Discounted cash flow, Stochastic recovery correlation model
Yield
3% to 25%
14
 %
 
 
Upfront points
0 points to 100 points
63 points

 
 
Spread to index
-1,407 bps to 1,741 bps
91 bps

 
 
Credit correlation
14% to 99%
47
 %
 
 
Prepayment speed
3% to 40% CPR
13
 %
 
 
Default rate
1% to 5% CDR
3
 %
 
 
Loss severity
20% to 42%
35
 %
Equity derivatives
$
(1,596
)
Industry standard derivative pricing (2)
Equity correlation
18% to 98%
70
 %
 
 
Long-dated equity volatilities
4% to 63%
27
 %
Commodity derivatives
$
6

Discounted cash flow, Industry standard derivative pricing (2)
Natural gas forward price
$3/MMBtu to $11/MMBtu
$6/MMBtu

 
 
Correlation
47% to 89%
81
 %
 
 
Volatilities
9% to 109%
30
 %
Interest rate derivatives
$
558

Industry standard derivative pricing (3)
Correlation (IR/IR)
24% to 99%
60
 %
 
 
Correlation (FX/IR)
-30% to 40%
-4
 %
 
 
Long-dated inflation rates
0% to 3%
2
 %
 
 
Long-dated inflation volatilities
0% to 2%
1
 %
Total net derivative assets
$
(224
)
 
 
 
 

(1) 
The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 246: Trading account assets – Corporate securities, trading loans and other of $3.6 billion, Trading account assets – Non-U.S. sovereign debt of $468 million, Trading account assets – Mortgage trading loans and ABS of $4.6 billion, AFS debt securities – Other taxable securities of $3.8 billion, AFS debt securities – Tax-exempt securities of $806 million, Loans and leases of $3.1 billion and LHFS of $929 million.
(2) 
Includes models such as Monte Carlo simulation and Black-Scholes.
(3) 
Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
EBITDA = Earnings before interest, taxes, depreciation and amortization
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
Fair Value Inputs, Liabilities, Quantitative Information
The following tables present information about significant unobservable inputs related to the Corporation’s material categories of Level 3 financial assets and liabilities at December 31, 2014 and 2013.
 
 
 
 
 
 
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2014
 
 
 
 
 
 
(Dollars in millions)
 
 
Inputs
Financial Instrument
Fair
Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted Average
Loans and Securities (1)
 
 
 
 
 
Instruments backed by residential real estate assets
$
2,030

Discounted cash flow, Market comparables
Yield
0% to 25%

6
 %
Trading account assets – Mortgage trading loans and ABS
483

Prepayment speed
0% to 35% CPR

14
 %
Loans and leases
1,374

Default rate
2% to 15% CDR

7
 %
Loans held-for-sale
173

Loss severity
26% to 100%

34
 %
Commercial loans, debt securities and other
$
7,203

Discounted cash flow, Market comparables
Yield
0% to 40%

9
 %
Trading account assets – Corporate securities, trading loans and other
3,224

Enterprise value/EBITDA multiple
0x to 30x

6x

Trading account assets – Non-U.S. sovereign debt
574

Prepayment speed
1% to 30%

12
 %
Trading account assets – Mortgage trading loans and ABS
1,580

Default rate
1% to 5%

4
 %
AFS debt securities – Other taxable securities
1,216

Loss severity
25% to 40%

38
 %
Loans and leases
609

Duration
0 years to 5 years

3 years

 
 
Price
$0 to $107

$76
Auction rate securities
$
1,096

Discounted cash flow, Market comparables
Price
$60 to $100

$95
Trading account assets – Corporate securities, trading loans and other
46

 
 
 
AFS debt securities – Other taxable securities
451

 
 
 
AFS debt securities – Tax-exempt securities
599

 
 
 
Structured liabilities
 
 
 
 
 
Long-term debt
$
(2,362
)
Industry standard derivative pricing (2, 3)
Equity correlation
20% to 98%

65
 %
 
 
Long-dated equity volatilities
6% to 69%

24
 %
 
 
Long-dated volatilities (IR)
0% to 2%

1
 %
Net derivative assets
 
 
 
 
 
Credit derivatives
$
22

Discounted cash flow, Stochastic recovery correlation model
Yield
0% to 25%

14
 %
 
 
Upfront points
0 points to 100 points

65 points

 
 
Spread to index
25 bps to 450 bps

119 bps

 
 
Credit correlation
24% to 99%

51
 %
 
 
Prepayment speed
3% to 20% CPR

11
 %
 
 
Default rate
4% CDR

n/a

 
 
Loss severity
35
%
n/a

Equity derivatives
$
(1,560
)
Industry standard derivative pricing (2)
Equity correlation
20% to 98%

65
 %
 
 
Long-dated equity volatilities
6% to 69%

24
 %
Commodity derivatives
$
141

Discounted cash flow, Industry standard derivative pricing (2)
Natural gas forward price
$2/MMBtu to $7/MMBtu

$5/MMBtu

 
 
Correlation
82% to 93%

90
 %
 
 
Volatilities
16% to 98%

35
 %
Interest rate derivatives
$
477

Industry standard derivative pricing (3)
Correlation (IR/IR)
11% to 99%

55
 %
 
 
Correlation (FX/IR)
-48% to 40%

-5
 %
 
 
Long-dated inflation rates
0% to 3%

1
 %
 
 
Long-dated inflation volatilities
0% to 2%

1
 %
Total net derivative assets
$
(920
)
 
 
 
 
(1) 
The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 245: Trading account assets – Corporate securities, trading loans and other of $3.3 billion, Trading account assets – Non-U.S. sovereign debt of $574 million, Trading account assets – Mortgage trading loans and ABS of $2.1 billion, AFS debt securities – Other taxable securities of $1.7 billion, AFS debt securities – Tax-exempt securities of $599 million, Loans and leases of $2.0 billion and LHFS of $173 million.
(2) 
Includes models such as Monte Carlo simulation and Black-Scholes.
(3) 
Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
EBITDA = Earnings before interest, taxes, depreciation and amortization
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
n/a = not applicable
 
 
 
 
 
 
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2013
 
 
 
 
 
(Dollars in millions)
 
 
Inputs
Financial Instrument
Fair
Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted Average
Loans and Securities (1)
 
 
 
 
 
Instruments backed by residential real estate assets
$
3,443

Discounted cash flow, Market comparables
Yield
2% to 25%
6
 %
Trading account assets – Mortgage trading loans and ABS
363

Prepayment speed
0% to 35% CPR
9
 %
Loans and leases
2,151

Default rate
1% to 20% CDR
6
 %
Loans held-for-sale
929

Loss severity
21% to 80%
35
 %
Commercial loans, debt securities and other
$
12,135

Discounted cash flow, Market comparables
Yield
0% to 45%
5
 %
Trading account assets – Corporate securities, trading loans and other
3,462

Enterprise value/EBITDA multiple
0x to 24x
7x

Trading account assets – Non-U.S. sovereign debt
468

Prepayment speed
5% to 40%
19
 %
Trading account assets – Mortgage trading loans and ABS
4,268

Default rate
1% to 5%
4
 %
AFS debt securities – Other taxable securities
3,031

Loss severity
25% to 42%
36
 %
Loans and leases
906

Duration
1 year to 5 years
4 years

Auction rate securities
$
1,719

Discounted cash flow, Market comparables
Projected tender price/Refinancing level
60% to 100%
96
 %
Trading account assets – Corporate securities, trading loans and other
97

 
 
AFS debt securities – Other taxable securities
816

 
 
 
AFS debt securities – Tax-exempt securities
806

 
 
 
Structured liabilities
 
 
 
 
 
Long-term debt
$
(1,990
)
Industry standard derivative pricing (2, 3)
Equity correlation
18% to 98%
70
 %
 
 
Long-dated equity volatilities
4% to 63%
27
 %
 
 
Long-dated volatilities (IR)
0% to 2%
1
 %
Net derivative assets
 
 
 
 
 
Credit derivatives
$
808

Discounted cash flow, Stochastic recovery correlation model
Yield
3% to 25%
14
 %
 
 
Upfront points
0 points to 100 points
63 points

 
 
Spread to index
-1,407 bps to 1,741 bps
91 bps

 
 
Credit correlation
14% to 99%
47
 %
 
 
Prepayment speed
3% to 40% CPR
13
 %
 
 
Default rate
1% to 5% CDR
3
 %
 
 
Loss severity
20% to 42%
35
 %
Equity derivatives
$
(1,596
)
Industry standard derivative pricing (2)
Equity correlation
18% to 98%
70
 %
 
 
Long-dated equity volatilities
4% to 63%
27
 %
Commodity derivatives
$
6

Discounted cash flow, Industry standard derivative pricing (2)
Natural gas forward price
$3/MMBtu to $11/MMBtu
$6/MMBtu

 
 
Correlation
47% to 89%
81
 %
 
 
Volatilities
9% to 109%
30
 %
Interest rate derivatives
$
558

Industry standard derivative pricing (3)
Correlation (IR/IR)
24% to 99%
60
 %
 
 
Correlation (FX/IR)
-30% to 40%
-4
 %
 
 
Long-dated inflation rates
0% to 3%
2
 %
 
 
Long-dated inflation volatilities
0% to 2%
1
 %
Total net derivative assets
$
(224
)
 
 
 
 

(1) 
The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 246: Trading account assets – Corporate securities, trading loans and other of $3.6 billion, Trading account assets – Non-U.S. sovereign debt of $468 million, Trading account assets – Mortgage trading loans and ABS of $4.6 billion, AFS debt securities – Other taxable securities of $3.8 billion, AFS debt securities – Tax-exempt securities of $806 million, Loans and leases of $3.1 billion and LHFS of $929 million.
(2) 
Includes models such as Monte Carlo simulation and Black-Scholes.
(3) 
Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
EBITDA = Earnings before interest, taxes, depreciation and amortization
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
Assets and Liabilities Measured at Fair Value on Nonrecurring Basis
The amounts below represent only balances measured at fair value during 2014, 2013 and 2012, and still held as of the reporting date.
 
 
 
 
 
 
 
 
Assets Measured at Fair Value on a Nonrecurring Basis
 
 
 
 
 
 
 
 
 
December 31
 
2014
 
2013
(Dollars in millions)
Level 2
 
Level 3
 
Level 2
 
Level 3
Assets
 

 
 

 
 
 
 

Loans held-for-sale
$
156

 
$
30

 
$
2,138

 
$
115

Loans and leases
5

 
4,636

 
18

 
5,240

Foreclosed properties (1)

 
1,197

 
12

 
1,258

Other assets
13

 

 
88

 

 
 
 
 
 
 
 
 
 
 
 
Gains (Losses)
 
 
 
2014
 
2013
 
2012
Assets
 
 
 

 
 

 
 

Loans held-for-sale
 
 
$
(19
)
 
$
(71
)
 
$
(24
)
Loans and leases
 
 
(1,132
)
 
(1,104
)
 
(3,116
)
Foreclosed properties (1)
 
 
(40
)
 
(39
)
 
(47
)
Other assets
 
 
(6
)
 
(20
)
 
(16
)
(1) 
Amounts are included in other assets on the Consolidated Balance Sheet and represent fair value of, and related losses on, foreclosed properties that were written down subsequent to their initial classification as foreclosed properties.
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques
The table below presents information about significant unobservable inputs related to the Corporation’s nonrecurring Level 3 financial assets and liabilities at December 31, 2014 and 2013.
 
 
 
 
 
 
Quantitative Information about Nonrecurring Level 3 Fair Value Measurements
 
 
 
 
 
 
 
December 31, 2014
(Dollars in millions)
 
 
Inputs
Financial Instrument
Fair Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted Average
Instruments backed by residential real estate assets
$
4,636

Market comparables
OREO discount
0% to 28%
8
%
Loans and leases
4,636

Cost to sell
7% to 14%
8
%
 
December 31, 2013
Instruments backed by residential real estate assets
$
5,240

Market comparables
OREO discount
0% to 19%

8
%
Loans and leases
5,240

Cost to sell
8
%
n/a


n/a = not applicable