Annual report pursuant to Section 13 and 15(d)

Derivatives (Tables)

v2.4.0.6
Derivatives (Tables)
12 Months Ended
Dec. 31, 2012
Derivatives [Abstract]  
Schedule of Derivative Instruments
The following tables present derivative instruments included on the Corporation’s Consolidated Balance Sheet in derivative assets and liabilities at December 31, 2012 and 2011. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and have been reduced by the cash collateral received or paid.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
Gross Derivative Assets
 
Gross Derivative Liabilities
(Dollars in billions)
Contract/
Notional (1)
 
Trading Derivatives and Other Risk Management Derivatives
 
Qualifying
Accounting
Hedges
 
Total
 
Trading Derivatives and Other Risk Management Derivatives
 
Qualifying
Accounting
Hedges
 
Total
Interest rate contracts
 

 
 

 
 

 
 

 
 

 
 

 
 

Swaps
$
34,667.4

 
$
1,075.4

 
$
13.8

 
$
1,089.2

 
$
1,062.6

 
$
4.7

 
$
1,067.3

Futures and forwards
11,950.5

 
2.8

 

 
2.8

 
2.7

 

 
2.7

Written options
2,343.5

 

 

 

 
106.0

 

 
106.0

Purchased options
2,162.6

 
105.5

 

 
105.5

 

 

 

Foreign exchange contracts
 

 
 

 
 

 
 

 
 

 
 

 
 

Swaps
2,489.0

 
47.4

 
1.4

 
48.8

 
53.2

 
1.8

 
55.0

Spot, futures and forwards
3,023.0

 
31.5

 
0.4

 
31.9

 
30.5

 
0.8

 
31.3

Written options
363.3

 

 

 

 
7.3

 

 
7.3

Purchased options
321.8

 
6.5

 

 
6.5

 

 

 

Equity contracts
 

 
 

 
 

 
 

 
 

 
 

 
 

Swaps
127.1

 
1.6

 

 
1.6

 
2.0

 

 
2.0

Futures and forwards
58.4

 
1.0

 

 
1.0

 
1.0

 

 
1.0

Written options
295.3

 

 

 

 
20.2

 

 
20.2

Purchased options
271.0

 
20.4

 

 
20.4

 

 

 

Commodity contracts
 

 
 

 
 

 
 

 
 

 
 

 
 

Swaps
60.5

 
2.5

 
0.1

 
2.6

 
4.0

 

 
4.0

Futures and forwards
498.9

 
4.8

 

 
4.8

 
2.7

 

 
2.7

Written options
166.4

 

 

 

 
7.4

 

 
7.4

Purchased options
168.2

 
7.1

 

 
7.1

 

 

 

Credit derivatives
 

 
 

 
 

 
 

 
 

 
 

 
 

Purchased credit derivatives:
 

 
 

 
 

 
 

 
 

 
 

 
 

Credit default swaps
1,559.5

 
35.6

 

 
35.6

 
22.1

 

 
22.1

Total return swaps/other
43.5

 
2.5

 

 
2.5

 
2.9

 

 
2.9

Written credit derivatives:
 

 
 

 
 

 
 

 
 

 
 

 
 

Credit default swaps
1,531.5

 
23.0

 

 
23.0

 
32.6

 

 
32.6

Total return swaps/other
68.8

 
0.2

 

 
0.2

 
0.3

 

 
0.3

Gross derivative assets/liabilities
 

 
$
1,367.8

 
$
15.7

 
$
1,383.5

 
$
1,357.5

 
$
7.3

 
$
1,364.8

Less: Legally enforceable master netting agreements
 

 
 

 
 

 
(1,271.9
)
 
 

 
 

 
(1,271.9
)
Less: Cash collateral received/paid
 

 
 

 
 

 
(58.1
)
 
 

 
 

 
(46.9
)
Total derivative assets/liabilities
 

 
 

 
 

 
$
53.5

 
 

 
 

 
$
46.0

(1) 
Represents the total contract/notional amount of derivative assets and liabilities outstanding.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
 
 
Gross Derivative Assets
 
Gross Derivative Liabilities
(Dollars in billions)
Contract/
Notional (1)
 
Trading Derivatives and Other Risk Management Derivatives
 
Qualifying
Accounting
Hedges
 
Total
 
Trading Derivatives and Other Risk Management Derivatives
 
Qualifying
Accounting
Hedges
 
Total
Interest rate contracts
 

 
 

 
 

 
 

 
 

 
 

 
 

Swaps
$
40,473.7

 
$
1,490.7

 
$
15.9

 
$
1,506.6

 
$
1,473.0

 
$
12.3

 
$
1,485.3

Futures and forwards
12,105.8

 
2.9

 
0.2

 
3.1

 
3.4

 

 
3.4

Written options
2,534.0

 

 

 

 
117.8

 

 
117.8

Purchased options
2,467.2

 
120.0

 

 
120.0

 

 

 

Foreign exchange contracts
 

 
 

 
 

 
 

 
 

 
 

 
 

Swaps
2,381.6

 
48.3

 
2.6

 
50.9

 
58.9

 
2.2

 
61.1

Spot, futures and forwards
2,548.8

 
37.2

 
1.3

 
38.5

 
39.2

 
0.3

 
39.5

Written options
368.5

 

 

 

 
9.4

 

 
9.4

Purchased options
341.0

 
9.0

 

 
9.0

 

 

 

Equity contracts
 

 
 

 
 

 
 

 
 

 
 

 
 

Swaps
75.5

 
1.5

 

 
1.5

 
1.7

 

 
1.7

Futures and forwards
52.1

 
1.8

 

 
1.8

 
1.5

 

 
1.5

Written options
367.1

 

 

 

 
17.7

 

 
17.7

Purchased options
360.2

 
19.6

 

 
19.6

 

 

 

Commodity contracts
 

 
 

 
 

 
 

 
 

 
 

 
 

Swaps
73.8

 
4.9

 
0.1

 
5.0

 
5.9

 

 
5.9

Futures and forwards
470.5

 
5.3

 

 
5.3

 
3.2

 

 
3.2

Written options
142.3

 

 

 

 
9.5

 

 
9.5

Purchased options
141.3

 
9.5

 

 
9.5

 

 

 

Credit derivatives
 

 
 

 
 

 
 

 
 

 
 

 
 

Purchased credit derivatives:
 

 
 

 
 

 
 

 
 

 
 

 
 

Credit default swaps
1,944.8

 
95.8

 

 
95.8

 
13.8

 

 
13.8

Total return swaps/other
17.5

 
0.6

 

 
0.6

 
0.3

 

 
0.3

Written credit derivatives:
 

 
 

 
 

 
 

 
 

 
 

 
 

Credit default swaps
1,885.9

 
14.1

 

 
14.1

 
90.5

 

 
90.5

Total return swaps/other
17.8

 
0.5

 

 
0.5

 
0.7

 

 
0.7

Gross derivative assets/liabilities
 

 
$
1,861.7

 
$
20.1

 
$
1,881.8

 
$
1,846.5

 
$
14.8

 
$
1,861.3

Less: Legally enforceable master netting agreements
 

 
 

 
 

 
(1,749.9
)
 
 

 
 

 
(1,749.9
)
Less: Cash collateral received/paid
 

 
 

 
 

 
(58.9
)
 
 

 
 

 
(51.9
)
Total derivative assets/liabilities
 

 
 

 
 

 
$
73.0

 
 

 
 

 
$
59.5

(1) 
Represents the total contract/notional amount of derivative assets and liabilities outstanding.
Schedule of Derivative Instruments in Statement of Financial Position, Fair Value
The table below summarizes certain information related to fair value hedges for 2012, 2011 and 2010, including hedges of interest rate risk on long-term debt that were acquired as part of a business combination and redesignated. At redesignation, the fair value of the derivatives was negative. As the derivatives mature, the fair value will approach zero. As a result, ineffectiveness may occur and the fair value changes in the derivatives and the long-term debt being hedged may be directionally the same in certain scenarios. Based on a regression analysis, the derivatives continue to be highly effective at offsetting changes in the fair value of the long-term debt attributable to interest rate risk.
 
 
 
Derivatives Designated as Fair Value Hedges
 
 
 
 
 
 
 
 
 
 
 
Gains (losses)
2012
(Dollars in millions)
Derivative
 
Hedged
Item
 
Hedge
Ineffectiveness
Interest rate risk on long-term debt (1)
$
(195
)
 
$
(770
)
 
$
(965
)
Interest rate and foreign currency risk on long-term debt (1)
(1,482
)
 
1,225

 
(257
)
Interest rate risk on AFS securities (2)
(4
)
 
91

 
87

Commodity price risk on commodity inventory (3)
(6
)
 
6

 

Total
$
(1,687
)
 
$
552

 
$
(1,135
)
 
 
 
 
 
 
 
2011
Interest rate risk on long-term debt (1)
$
4,384

 
$
(4,969
)
 
$
(585
)
Interest rate and foreign currency risk on long-term debt (1)
780

 
(1,057
)
 
(277
)
Interest rate risk on AFS securities (2)
(11,386
)
 
10,490

 
(896
)
Commodity price risk on commodity inventory (3)
16

 
(16
)
 

Total
$
(6,206
)
 
$
4,448

 
$
(1,758
)
 
 
 
 
 
 
 
2010
Interest rate risk on long-term debt (1)
$
2,952

 
$
(3,496
)
 
$
(544
)
Interest rate and foreign currency risk on long-term debt (1)
(463
)
 
130

 
(333
)
Interest rate risk on AFS securities (2)
(2,577
)
 
2,667

 
90

Commodity price risk on commodity inventory (3)
19

 
(19
)
 

Total
$
(69
)
 
$
(718
)
 
$
(787
)
(1) 
Amounts are recorded in interest expense on long-term debt and in other income (loss).
(2) 
Amounts are recorded in interest income on debt securities.
(3) 
Amounts relating to commodity inventory are recorded in trading account profits.

Cash Flow and Net Investment Hedges
 
 
 
 
 
 
Derivatives Designated as Cash Flow and Net Investment Hedges
 
 
 
 
 
 
 
 
 
 
 
 
2012
(Dollars in millions, amounts pre-tax)
Gains (losses)
Recognized in
Accumulated OCI
on Derivatives
 
Gains (losses)
in Income
Reclassified from
Accumulated OCI
 
Hedge
Ineffectiveness and
Amounts Excluded
from Effectiveness
Testing (1)
Cash flow hedges
 

 
 

 
 

Interest rate risk on variable rate portfolios
$
10

 
$
(957
)
 
$

Price risk on restricted stock awards
420

 
(78
)
 

Total
$
430

 
$
(1,035
)
 
$

Net investment hedges
 

 
 

 
 

Foreign exchange risk
$
(771
)
 
$
(26
)
 
$
(269
)
 
 
 
 
 
 
 
2011
Cash flow hedges
 

 
 

 
 

Interest rate risk on variable rate portfolios
$
(2,079
)
 
$
(1,392
)
 
$
(8
)
Commodity price risk on forecasted purchases and sales
(3
)
 
6

 
(3
)
Price risk on restricted stock awards
(408
)
 
(231
)
 

Total
$
(2,490
)
 
$
(1,617
)
 
$
(11
)
Net investment hedges
 

 
 

 
 

Foreign exchange risk
$
1,055

 
$
384

 
$
(572
)
 
 
 
 
 
 
 
2010
Cash flow hedges
 

 
 

 
 

Interest rate risk on variable rate portfolios
$
(1,876
)
 
$
(410
)
 
$
(30
)
Commodity price risk on forecasted purchases and sales
32

 
25

 
11

Price risk on restricted stock awards
(97
)
 
(33
)
 

Price risk on equity investments included in AFS securities
186

 
(226
)
 

Total
$
(1,755
)
 
$
(644
)
 
$
(19
)
Net investment hedges
 

 
 

 
 

Foreign exchange risk
$
(482
)
 
$

 
$
(315
)
(1) 
Amounts related to derivatives designated as cash flow hedges represent hedge ineffectiveness and amounts related to net investment hedges represent amounts excluded from effectiveness testing.
Economic Hedges
The table below presents gains (losses) on these derivatives for 2012, 2011 and 2010. These gains (losses) are largely offset by the income or expense that is recorded on the hedged item.
 
 
 
 
 
 
Other Risk Management Derivatives
 
 
 
 
 
 
 
 
 
 
 
Gains (losses)
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
2012
 
2011
 
2010
Price risk on mortgage banking production income (1, 2)
$
3,022

 
$
2,852

 
$
9,109

Market-related risk on mortgage banking servicing income (1)
2,000

 
3,612

 
3,878

Credit risk on loans (3)
(95
)
 
30

 
(121
)
Interest rate and foreign currency risk on long-term debt and other foreign exchange transactions (4)
424

 
(48
)
 
(2,080
)
Price risk on restricted stock awards (5)
1,008

 
(610
)
 
(151
)
Other
58

 
281

 
42

Total
$
6,417

 
$
6,117

 
$
10,677

(1) 
Net gains on these derivatives are recorded in mortgage banking income (loss).
(2) 
Includes net gains on interest rate lock commitments related to the origination of mortgage loans that are held-for-sale, which are considered derivative instruments, of $3.0 billion, $3.8 billion and $8.7 billion for 2012, 2011 and 2010, respectively.
(3) 
Net gains (losses) on these derivatives are recorded in other income (loss).
(4) 
The majority of the balance is related to the revaluation of derivatives used to mitigate risk related to foreign currency-denominated debt which is recorded in other income (loss). The offsetting revaluation of the foreign currency-denominated debt, while not included in the table above, is also recorded in other income (loss).
(5) 
Gains (losses) on these derivatives are recorded in personnel expense.
Disclosure of Credit Derivatives
Credit derivative instruments where the Corporation is the seller of credit protection and their expiration are summarized at December 31, 2012 and 2011 in the table below. These instruments are classified as investment and non-investment grade based on the credit quality of the underlying referenced obligation. The Corporation considers ratings of BBB- or higher as investment grade. Non-investment grade includes non-rated credit derivative instruments.
 
 
 
 
 
 
 
 
 
 
Credit Derivative Instruments
 
 
 
 
December 31, 2012
 
Carrying Value
(Dollars in millions)
Less than
One Year
 
One to
Three Years
 
Three to
Five Years
 
Over Five
Years
 
Total
Credit default swaps:
 

 
 

 
 

 
 

 
 

Investment grade
$
52

 
$
757

 
$
5,595

 
$
2,903

 
$
9,307

Non-investment grade
923

 
4,403

 
7,030

 
10,959

 
23,315

Total
975

 
5,160

 
12,625

 
13,862

 
32,622

Total return swaps/other:
 

 
 

 
 

 
 

 
 

Investment grade
39

 

 

 

 
39

Non-investment grade
57

 
104

 
39

 
37

 
237

Total
96

 
104

 
39

 
37

 
276

Total credit derivatives
$
1,071

 
$
5,264

 
$
12,664

 
$
13,899

 
$
32,898

Credit-related notes: (1)
 

 
 

 
 

 
 

 
 

Investment grade
$
4

 
$
12

 
$
441

 
$
3,849

 
$
4,306

Non-investment grade
116

 
161

 
314

 
1,425

 
2,016

Total credit-related notes
$
120

 
$
173

 
$
755

 
$
5,274

 
$
6,322

 
Maximum Payout/Notional
Credit default swaps:
 

 
 

 
 

 
 

 
 

Investment grade
$
260,177

 
$
349,125

 
$
500,038

 
$
90,453

 
$
1,199,793

Non-investment grade
79,861

 
99,043

 
110,248

 
42,559

 
331,711

Total
340,038

 
448,168

 
610,286

 
133,012

 
1,531,504

Total return swaps/other:
 

 
 

 
 

 
 

 
 

Investment grade
43,536

 
15

 

 

 
43,551

Non-investment grade
5,566

 
11,028

 
7,631

 
1,035

 
25,260

Total
49,102

 
11,043

 
7,631

 
1,035

 
68,811

Total credit derivatives
$
389,140

 
$
459,211

 
$
617,917

 
$
134,047

 
$
1,600,315

 
December 31, 2011
(Dollars in millions)
Carrying Value
Credit default swaps:
 

 
 

 
 

 
 

 
 

Investment grade
$
795

 
$
5,011

 
$
17,271

 
$
7,325

 
$
30,402

Non-investment grade
4,236

 
11,438

 
18,072

 
26,339

 
60,085

Total
5,031

 
16,449

 
35,343

 
33,664

 
90,487

Total return swaps/other:
 

 
 

 
 

 
 

 
 

Investment grade

 

 
30

 
1

 
31

Non-investment grade
522

 
2

 
33

 
128

 
685

Total
522

 
2

 
63

 
129

 
716

Total credit derivatives
$
5,553

 
$
16,451

 
$
35,406

 
$
33,793

 
$
91,203

Credit-related notes: (1)
 

 
 

 
 

 
 

 
 

Investment grade
$

 
$
7

 
$
208

 
$
2,947

 
$
3,162

Non-investment grade
127

 
85

 
132

 
1,732

 
2,076

Total credit-related notes
$
127

 
$
92

 
$
340

 
$
4,679

 
$
5,238

 
Maximum Payout/Notional
Credit default swaps:
 

 
 

 
 

 
 

 
 

Investment grade
$
182,137

 
$
401,914

 
$
477,924

 
$
127,570

 
$
1,189,545

Non-investment grade
133,624

 
228,327

 
186,522

 
147,926

 
696,399

Total
315,761

 
630,241

 
664,446

 
275,496

 
1,885,944

Total return swaps/other:
 

 
 

 
 

 
 

 
 

Investment grade

 

 
9,116

 

 
9,116

Non-investment grade
305

 
2,023

 
4,918

 
1,476

 
8,722

Total
305

 
2,023

 
14,034

 
1,476

 
17,838

Total credit derivatives
$
316,066

 
$
632,264

 
$
678,480

 
$
276,972

 
$
1,903,782

(1) 
For credit-related notes, maximum payout/notional is the same as carrying value.

Schedule of Derivative Instruments Included in Trading Activities
The table below, which includes both derivatives and non-derivative cash instruments, identifies the amounts in the respective income statement line items attributable to the Corporation’s sales and trading revenue in Global Markets, categorized by primary risk, for 2012, 2011 and 2010. The difference between total trading account profits in the table below and in the Corporation’s Consolidated Statement of Income represents trading activities in business segments other than Global Markets. Global Markets results in Note 26 – Business Segment Information are presented on a fully taxable-equivalent (FTE) basis. The table below is not presented on a FTE basis.
 
 
 
 
 
 
 
 
Sales and Trading Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2012
(Dollars in millions)
Trading Account Profits
 
Net Interest Income
 
Other (1)
 
Total
Interest rate risk
$
580

 
$
1,040

 
$
(5
)
 
$
1,615

Foreign exchange risk
909

 
5

 
7

 
921

Equity risk
1,181

 
(57
)
 
1,890

 
3,014

Credit risk
2,496

 
2,321

 
961

 
5,778

Other risk
540

 
(219
)
 
(42
)
 
279

Total sales and trading revenue
$
5,706

 
$
3,090

 
$
2,811

 
$
11,607

 
 
 
 
 
 
 
 
 
2011
Interest rate risk
$
2,118

 
$
923

 
$
(63
)
 
$
2,978

Foreign exchange risk
1,088

 
8

 
(10
)
 
1,086

Equity risk
1,482

 
128

 
2,346

 
3,956

Credit risk
1,096

 
2,604

 
553

 
4,253

Other risk
633

 
(184
)
 
(72
)
 
377

Total sales and trading revenue
$
6,417

 
$
3,479

 
$
2,754

 
$
12,650

 
 
 
 
 
 
 
 
 
2010
Interest rate risk
$
2,032

 
$
659

 
$
38

 
$
2,729

Foreign exchange risk
903

 

 
(9
)
 
894

Equity risk
1,650

 
16

 
2,447

 
4,113

Credit risk
4,592

 
3,557

 
266

 
8,415

Other risk
447

 
(172
)
 
(4
)
 
271

Total sales and trading revenue
$
9,624

 
$
4,060

 
$
2,738

 
$
16,422

(1) 
Represents amounts in investment and brokerage services and other income (loss) that are recorded in Global Markets and included in the definition of sales and trading revenue. Includes investment and brokerage services revenue of $1.8 billion, $2.2 billion and $2.3 billion for 2012, 2011 and 2010, respectively, primarily included in equity risk.
The table below presents CVA and DVA gains (losses) for the Corporation on a gross and net of hedge basis, which are recorded in trading account profits.
 
 
 
 
 
 
Valuation Adjustments on Derivatives
 
 
 
 
 
 
 
2012
 
2011
(Dollars in millions)
Gross
Net
 
Gross
Net
Derivative assets (CVA) (1)
$
1,022

$
291

 
$
(1,863
)
$
(606
)
Derivative liabilities (DVA) (2)
(2,212
)
(2,477
)
 
1,385

1,000

(1) 
At December 31, 2012 and 2011, the cumulative CVA reduced the derivative assets balance by $2.4 billion and $2.8 billion.
(2) 
At December 31, 2012 and 2011, the Corporation’s cumulative DVA reduced the derivative liabilities balance by $807 million and $2.4 billion.