Quarterly report pursuant to Section 13 or 15(d)

Fair Value Option

v2.4.0.8
Fair Value Option
 9 Months Ended
Sep. 30, 2013
Fair Value Option [Abstract]  
Fair Value Option
NOTE 17 – Fair Value Option

The Corporation elects to account for certain financial instruments under the fair value option. For more information on the primary financial instruments for which the fair value option elections have been made, see Note 22 – Fair Value Option to the Consolidated Financial Statements of the Corporation's 2012 Annual Report on Form 10-K.

The table below provides information about the fair value carrying amount and the contractual principal outstanding of assets and liabilities accounted for under the fair value option at September 30, 2013 and December 31, 2012.

Fair Value Option Elections
 
September 30, 2013
 
December 31, 2012
(Dollars in millions)
Fair Value
Carrying
Amount
 
Contractual
Principal
Outstanding
 
Fair Value
Carrying
Amount
Less Unpaid
Principal
 
Fair Value
Carrying
Amount
 
Contractual
Principal
Outstanding
 
Fair Value
Carrying
Amount
Less Unpaid
Principal
Loans reported as trading account assets (1)
$
2,510

 
$
4,013

 
$
(1,503
)
 
$
1,663

 
$
2,879

 
$
(1,216
)
Trading inventory – other
3,106

 
n/a

 
n/a

 
2,170

 
n/a

 
n/a

Consumer and commercial loans
10,196

 
10,598

 
(402
)
 
9,002

 
9,576

 
(574
)
Loans held-for-sale
8,217

 
8,937

 
(720
)
 
11,659

 
12,676

 
(1,017
)
Securities financing agreements
164,816

 
164,556

 
260

 
141,309

 
140,791

 
518

Other assets
412

 
270

 
142

 
453

 
270

 
183

Long-term deposits
1,916

 
1,794

 
122

 
2,262

 
2,046

 
216

Asset-backed secured financings
762

 
1,105

 
(343
)
 
741

 
1,176

 
(435
)
Unfunded loan commitments
412

 
n/a

 
n/a

 
528

 
n/a

 
n/a

Short-term borrowings
2,082

 
2,082

 
—

 
3,333

 
3,333

 
—

Accrued expenses and other liabilities
20

 
20

 
—

 
—

 
—

 
—

Long-term debt (2, 3)
47,401

 
47,811

 
(410
)
 
49,161

 
50,792

 
(1,631
)
(1) 
A significant portion of the loans reported as trading account assets are distressed loans which trade and were purchased at a deep discount to par, and the remainder are loans with a fair value near contractual principal outstanding.
(2) 
The majority of the difference between the fair value carrying amount and contractual principal outstanding at September 30, 2013 and December 31, 2012 relates to the impact of the Corporation's credit spreads as well as the fair value of the embedded derivative, where applicable.
(3) 
Includes structured liabilities with a fair value of $36.1 billion and contractual principal outstanding of $35.9 billion at September 30, 2013 compared to $39.3 billion and $39.9 billion at December 31, 2012.
n/a = not applicable

The table below provides information about where changes in the fair value of assets and liabilities accounted for under the fair value option are included in the Consolidated Statement of Income for the three and nine months ended September 30, 2013 and 2012. Of the changes in fair value for LHFS, gains of $52 million and $119 million were attributable to changes in borrower-specific credit risk for the three and nine months ended September 30, 2013 compared to gains of $117 million and $281 million for the same periods in 2012. Of the changes in fair value for loans and loan commitments, gains of $62 million and $218 million were attributable to changes in borrower-specific credit risk for the three and nine months ended September 30, 2013 compared to gains of $487 million and $975 million for the same periods in 2012. Changes to borrower-specific credit risk for loans reported as trading account assets were not material for the three and nine months ended September 30, 2013 and 2012.

Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option
 
Three Months Ended September 30, 2013
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss)
 
Other
Income
(Loss)
 
Total
Loans reported as trading account assets
$
46

 
$
—

 
$
—

 
$
46

Consumer and commercial loans
1

 
(38
)
 
30

 
(7
)
Loans held-for-sale (1)
5

 
174

 
79

 
258

Securities financing agreements
(23
)
 
—

 
—

 
(23
)
Other assets
—

 
—

 
(47
)
 
(47
)
Long-term deposits
(6
)
 
—

 
13

 
7

Asset-backed secured financings
—

 
(20
)
 
—

 
(20
)
Unfunded loan commitments
—

 
—

 
76

 
76

Short-term borrowings
(1
)
 
—

 
—

 
(1
)
Accrued expenses and other liabilities
—

 
9

 
—

 
9

Long-term debt (2)
(191
)
 
—

 
(152
)
 
(343
)
Total
$
(169
)
 
$
125

 
$
(1
)
 
$
(45
)
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2012
Loans reported as trading account assets
$
64

 
$
—

 
$
—

 
$
64

Consumer and commercial loans
3

 
—

 
185

 
188

Loans held-for-sale (1)
20

 
675

 
87

 
782

Securities financing agreements
9

 
—

 
—

 
9

Long-term deposits
—

 
—

 
(20
)
 
(20
)
Asset-backed secured financings
—

 
(54
)
 
—

 
(54
)
Unfunded loan commitments
—

 
—

 
313

 
313

Short-term borrowings
(1
)
 
—

 
—

 
(1
)
Long-term debt (2)
(1,113
)
 
—

 
(1,289
)
 
(2,402
)
Total
$
(1,018
)
 
$
621

 
$
(724
)
 
$
(1,121
)
(1) 
Includes the value of interest rate lock commitments on loans funded, including those already sold during the period.
(2) 
The majority of the net gains (losses) in trading account profits (losses) relate to the embedded derivative in structured liabilities and are offset by gains (losses) on derivatives and securities that hedge these liabilities. The net gains (losses) in other income (loss) relate to the impact on structured liabilities of changes in the Corporation's credit spreads.
Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option
 
Nine Months Ended September 30, 2013
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss)
 
Other
Income
(Loss)
 
Total
Loans reported as trading account assets
$
85

 
$
—

 
$
—

 
$
85

Consumer and commercial loans
2

 
(38
)
 
182

 
146

Loans held-for-sale (1)
(2
)
 
685

 
38

 
721

Securities financing agreements
(39
)
 
—

 
—

 
(39
)
Other assets
—

 
—

 
(86
)
 
(86
)
Long-term deposits
30

 
—

 
67

 
97

Asset-backed secured financings
—

 
(71
)
 
—

 
(71
)
Unfunded loan commitments
—

 
—

 
122

 
122

Short-term borrowings
(29
)
 
—

 
—

 
(29
)
Accrued expenses and other liabilities
—

 
31

 
—

 
31

Long-term debt (2)
(100
)
 
—

 
(232
)
 
(332
)
Total
$
(53
)
 
$
607

 
$
91

 
$
645

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2012
Loans reported as trading account assets
$
198

 
$
—

 
$
—

 
$
198

Consumer and commercial loans
8

 
—

 
430

 
438

Loans held-for-sale (1)
69

 
2,136

 
167

 
2,372

Securities financing agreements
(58
)
 
—

 
—

 
(58
)
Other assets
—

 
—

 
7

 
7

Asset-backed secured financings
—

 
(109
)
 
—

 
(109
)
Unfunded loan commitments
—

 
—

 
605

 
605

Short-term borrowings
18

 
—

 
—

 
18

Long-term debt (2)
(1,086
)
 
—

 
(4,665
)
 
(5,751
)
Total
$
(851
)
 
$
2,027

 
$
(3,456
)
 
$
(2,280
)

(1) 
Includes the value of interest rate lock commitments on loans funded, including those already sold during the period.
(2) 
The majority of the net gains (losses) in trading account profits (losses) relate to the embedded derivative in structured liabilities and are offset by gains (losses) on derivatives and securities that hedge these liabilities. The net gains (losses) in other income (loss) relate to the impact on structured liabilities of changes in the Corporation's credit spreads.