Quarterly report pursuant to Section 13 or 15(d)

Fair Value Option

v2.4.0.8
Fair Value Option
 6 Months Ended
Jun. 30, 2014
Fair Value Option [Abstract]  
Fair Value, Option
NOTE 15 – 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 21 – Fair Value Option to the Consolidated Financial Statements of the Corporation's 2013 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 June 30, 2014 and December 31, 2013.

Fair Value Option Elections
 
June 30, 2014
 
December 31, 2013
(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)
$
3,707

 
$
6,395

 
$
(2,688
)
 
$
2,406

 
$
4,541

 
$
(2,135
)
Trading inventory – other
5,478

 
n/a

 
n/a

 
5,475

 
n/a

 
n/a

Consumer and commercial loans
10,901

 
11,151

 
(250
)
 
10,042

 
10,423

 
(381
)
Loans held-for-sale
5,262

 
5,795

 
(533
)
 
6,656

 
6,996

 
(340
)
Securities financing agreements
103,282

 
103,391

 
(109
)
 
109,298

 
109,032

 
266

Other assets
259

 
270

 
(11
)
 
278

 
270

 
8

Long-term deposits
1,559

 
1,456

 
103

 
1,899

 
1,797

 
102

Unfunded loan commitments
330

 
n/a

 
n/a

 
354

 
n/a

 
n/a

Short-term borrowings
2,350

 
2,345

 
5

 
1,520

 
1,520

 
—

Long-term debt (2)
42,543

 
41,685

 
858

 
47,035

 
46,669

 
366

(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) 
Includes structured liabilities with a fair value of $37.6 billion and contractual principal outstanding of $36.5 billion at June 30, 2014 compared to $40.7 billion and $39.7 billion at December 31, 2013.
n/a = not applicable

The following tables provide 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 six months ended June 30, 2014 and 2013. Of the changes in fair value for LHFS, gains of $22 million and $49 million were attributable to changes in borrower-specific credit risk for the three and six months ended June 30, 2014 compared to losses of $39 million and gains of $67 million for the same periods in 2013. Of the changes in fair value for loans, gains of $43 million and $79 million were attributable to changes in borrower-specific credit risk for the three and six months ended June 30, 2014 compared to gains of $51 million and $124 million for the same periods in 2013. Changes to borrower-specific credit risk for loans reported as trading account assets were immaterial for the three and six months ended June 30, 2014 and 2013.

Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option
 
Three Months Ended June 30, 2014
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss)
 
Other
Income
(Loss)
 
Total
Loans reported as trading account assets
$
14

 
$
—

 
$
—

 
$
14

Trading inventory – other (1)
(122
)
 
—

 
—

 
(122
)
Consumer and commercial loans
13

 
—

 
53

 
66

Loans held-for-sale (2)
(3
)
 
197

 
30

 
224

Securities financing agreements
(13
)
 
—

 
—

 
(13
)
Other assets
—

 
—

 
2

 
2

Long-term deposits
(2
)
 
—

 
(3
)
 
(5
)
Unfunded loan commitments
—

 
—

 
5

 
5

Short-term borrowings
18

 
—

 
—

 
18

Long-term debt (3)
(259
)
 
—

 
68

 
(191
)
Total
$
(354
)
 
$
197

 
$
155

 
$
(2
)
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2013
Loans reported as trading account assets
$
10

 
$
—

 
$
—

 
$
10

Trading inventory – other (1)
213

 
—

 
—

 
213

Consumer and commercial loans
2

 
—

 
50

 
52

Loans held-for-sale (2)
(15
)
 
61

 
(31
)
 
15

Securities financing agreements
(39
)
 
—

 
—

 
(39
)
Other assets
—

 
—

 
(44
)
 
(44
)
Long-term deposits
36

 
—

 
35

 
71

Asset-backed secured financings
—

 
(7
)
 
—

 
(7
)
Unfunded loan commitments
—

 
—

 
(19
)
 
(19
)
Short-term borrowings
11

 
—

 
—

 
11

Accrued expenses and other liabilities
—

 
(7
)
 
—

 
(7
)
Long-term debt (3)
1,360

 
—

 
10

 
1,370

Total
$
1,578

 
$
47

 
$
1

 
$
1,626

(1) 
The gains in trading account profits (losses) are primarily offset by losses on trading liabilities that hedge these assets.
(2) 
Includes the value of interest rate lock commitments on loans funded, including those sold during the period.
(3) 
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 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
 
Six Months Ended June 30, 2014
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss)
 
Other
Income
(Loss)
 
Total
Loans reported as trading account assets
$
48

 
$
—

 
$
—

 
$
48

Trading inventory – other (1)
(290
)
 
—

 
—

 
(290
)
Consumer and commercial loans
18

 
—

 
105

 
123

Loans held-for-sale (2)
(4
)
 
383

 
70

 
449

Securities financing agreements
(35
)
 
—

 
—

 
(35
)
Long-term deposits
11

 
—

 
(12
)
 
(1
)
Unfunded loan commitments
—

 
—

 
14

 
14

Short-term borrowings
54

 
—

 
—

 
54

Long-term debt (3)
(627
)
 
—

 
265

 
(362
)
Total
$
(825
)
 
$
383

 
$
442

 
$
—

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2013
Loans reported as trading account assets
$
39

 
$
—

 
$
—

 
$
39

Trading inventory – other (1)
499

 
—

 
—

 
499

Consumer and commercial loans
1

 
—

 
152

 
153

Loans held-for-sale (2)
(7
)
 
528

 
(41
)
 
480

Securities financing agreements
(16
)
 
—

 
—

 
(16
)
Other assets
—

 
—

 
(39
)
 
(39
)
Long-term deposits
36

 
—

 
54

 
90

Asset-backed secured financings
—

 
(51
)
 
—

 
(51
)
Unfunded loan commitments
—

 
—

 
46

 
46

Short-term borrowings
(28
)
 
—

 
—

 
(28
)
Accrued expenses and other liabilities
—

 
22

 
—

 
22

Long-term debt (3)
91

 
—

 
(80
)
 
11

Total
$
615

 
$
499

 
$
92

 
$
1,206


(1) 
The gains (losses) in trading account profits (losses) are primarily offset by gains (losses) on trading liabilities that hedge these assets.
(2) 
Includes the value of interest rate lock commitments on loans funded, including those sold during the period.
(3) 
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.