Annual report pursuant to Section 13 and 15(d)

Investment Securities

v2.4.0.6
Investment Securities
 12 Months Ended
Dec. 31, 2012
Investments, Debt and Equity Securities [Abstract]  
Investment Securities
Note 8.
Investment Securities

Investment securities on the Consolidated Balance Sheets include:

•
Investments within the scope of Investment Accounting that are held by ML & Co. and certain of its non-broker-dealer subsidiaries consist of debt securities, which are classified as available-for-sale, and are used for investment, liquidity management, and/or collateral management purposes.

•
Non-qualifying investments are those that are not within the scope of Investment Accounting and consist principally of equity investments, including investments in partnerships and joint ventures. Included in non-qualifying investments are investments accounted for under the equity method of accounting, which consist of investments in (i) partnerships and certain limited liability corporations where Merrill Lynch has more than a minor influence (generally defined as three to five percent interest) and (ii) corporate entities where Merrill Lynch has the ability to exercise significant influence over the investee (generally defined as ownership and voting interest of 20% to 50%). Also included in non-qualifying investments are private equity investments that Merrill Lynch holds for capital appreciation and/or current income and which are accounted for at fair value in accordance with the Investment Company Guide, as well as private equity investments accounted for at fair value under the fair value option election.
Investment securities reported on the Consolidated Balance Sheets at December 31, 2012 and December 31, 2011 are presented below.
(dollars in millions)
 
December 31, 2012
 
 
December 31, 2011
Investment securities
 

 
 
 

Available-for-sale
$
656

 
 
$
694

Non-qualifying
 
 
 
 
Equity investments
2,627

 
 
3,810

 Other investments
2,620

 
 
2,180

Total
$
5,903

 
 
$
6,684


For the years ended December 31, 2012, December 31, 2011 and December 31, 2010, other-than-temporary impairment ("OTTI") losses related to non-agency mortgage-backed available-for-sale securities were $6 million, $69 million, $174 million respectively. Net impairment losses recognized in earnings represent the credit component of OTTI losses on available-for-sale debt securities and total OTTI losses for available-for-sale debt securities that Merrill Lynch does not intend to hold to recovery. Those amounts were $6 million, $59 million and $172 million for the years ended December 31, 2012, December 31, 2011 and December 31, 2010, respectively. Refer to Note 1 for Merrill Lynch's accounting policy regarding OTTI of investment securities.
Information regarding investment securities subject to Investment Accounting follows.
(dollars in millions)
 
December 31, 2012
 
Amortized
Cost
 
Fair
Value
Available-for-Sale
 

 
 

Securities, mortgage-backed and asset-backed:
 

 
 

Corporate ABS
$
226

 
$
226

Non-agency mortgage backed securities
40

 
40

Subtotal
266

 
266

U.S. Government and agencies
390

 
390

Total available-for-sale securities
$
656

 
$
656

 
 
 
 


(dollars in millions)
 
December 31, 2011
 
Amortized
Cost
 
Fair
Value
Available-for-Sale
 

 
 

Securities, mortgage-backed and asset-backed:
 

 
 

Corporate ABS
$
47

 
$
47

Non-agency mortgage backed securities
249

 
249

Subtotal
296

 
296

U.S. Government and agencies
398

 
398

Total available-for-sale securities
$
694

 
$
694


There were no material gross unrealized gains or losses associated with available-for-sale securities as of December 31, 2012 or December 31, 2011. Additionally, there were no individual securities that had been in a continuous unrealized loss position for a year or more as of December 31, 2012 or December 31, 2011.
The amortized cost and fair value of available-for-sale debt securities by expected maturity for mortgage-backed securities and contractual maturity for other debt securities at December 31, 2012 are as follows:
(dollars in millions)
 
Available-for-Sale
 
 
Amortized
Cost
 
Fair
Value
 
Due in one year or less
$
428

 
$
428

 
Due after one year through five years
120

 
120

 
Due after five years through ten years
108

 
108

 
Total(1)
$
656

 
$
656

 
 
 
 
 
 
(1)
Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay their obligations with or without prepayment penalties.
The proceeds and gross realized gains (losses) from the sale of available-for-sale securities during the years ended December 31, 2012, December 31, 2011 and December 31, 2010 are as follows:
(dollars in millions)
 
Year Ended
December 31, 2012
 
Year Ended
December 31, 2011
 
Year Ended
December 31, 2010
Proceeds
$
22

 
$
4,290

 
$
15,472

Gross realized gains
5

 
69

 
531

Gross realized losses
—

 
(76
)
 
(272
)
 
 
 
 
 
 

Equity Method Investments
At December 31, 2012 and December 31, 2011, Merrill Lynch held certain investments that were accounted for under the equity method of accounting, none of which were individually material.

In 2012, Merrill Lynch sold its investment in a Japanese brokerage joint venture, which resulted in a gain of approximately $370 million (see Note 20). Such gain is included within Other Revenues in the Consolidated Statement of Earnings (Loss) for the year ended December 31, 2012.
On November 15, 2010, Merrill Lynch sold 51.2 million shares of BlackRock, Inc. ("BlackRock") common stock. The net proceeds to Merrill Lynch from the sale of these shares, after underwriting discounts and before offering expenses payable by Merrill Lynch, were approximately $8.2 billion. As a result of the sale, Merrill Lynch owned shares of BlackRock Series B Preferred Stock only, and Merrill Lynch’s economic interest in BlackRock was reduced from approximately 34% to approximately 7%. Merrill Lynch recorded a pre-tax gain of approximately $90 million from this transaction, which is included within Earnings from equity method investments in the Consolidated Statement of Earnings (Loss) for the year ended December 31, 2010.
In June 2011, Merrill Lynch sold the remaining shares of BlackRock's Series B preferred stock, resulting in a pre-tax gain of $377 million, which is included within Other Revenues in the Consolidated Statement of (Loss) Earnings for the year ended December 31, 2011. As of December 31, 2011, Merrill Lynch no longer held an economic interest in BlackRock.
Summarized financial information for Merrill Lynch's most significant equity method investee for the year ended December 31, 2010 (BlackRock) is presented below. There were no individually material equity method investees for the years ended December 31, 2012 or December 31, 2011:
(dollars in millions)
 
 
For the Year Ended
 
December 31, 2010 (1)
Revenues
$
8,612

Operating income
2,998

Earnings before income taxes
3,021

Net earnings
2,063

(1) Consists of the results of BlackRock for the year ended December 31, 2010. BlackRock was accounted for under the equity method of accounting through November 15, 2010.