Quarterly report pursuant to Section 13 or 15(d)

Fair Value Option

v2.4.0.8
Fair Value Option
9 Months Ended
Sep. 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 September 30, 2014 and December 31, 2013.

Fair Value Option Elections
 
September 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)
$
3,735

 
$
6,514

 
$
(2,779
)
 
$
2,406

 
$
4,541

 
$
(2,135
)
Trading inventory – other
5,639

 
n/a

 
n/a

 
5,475

 
n/a

 
n/a

Consumer and commercial loans
8,183

 
8,427

 
(244
)
 
10,042

 
10,423

 
(381
)
Loans held-for-sale
5,455

 
5,512

 
(57
)
 
6,656

 
6,996

 
(340
)
Securities financing agreements
93,818

 
93,232

 
586

 
109,298

 
109,032

 
266

Other assets
255

 
270

 
(15
)
 
278

 
270

 
8

Long-term deposits
1,520

 
1,429

 
91

 
1,899

 
1,797

 
102

Unfunded loan commitments
322

 
n/a

 
n/a

 
354

 
n/a

 
n/a

Short-term borrowings
2,418

 
2,418

 

 
1,520

 
1,520

 

Long-term debt (2)
40,048

 
40,513

 
(465
)
 
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 $39.0 billion and contractual principal outstanding of $39.4 billion at September 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 nine months ended September 30, 2014 and 2013. Of the changes in fair value for LHFS, losses of $3 million and gains $46 million were attributable to changes in borrower-specific credit risk for the three and nine months ended September 30, 2014 compared to gains of $52 million and $119 million for the same periods in 2013. Of the changes in fair value for loans, gains of $1 million and $80 million were attributable to changes in borrower-specific credit risk for the three and nine months ended September 30, 2014 compared to losses of $13 million and gains of $111 million for the same periods in 2013. Of the changes in fair value for loans reported as trading account assets, gains of $30 million and $31 million were attributable to changes in borrower-specific credit risk for the three and nine months ended September 30, 2014 and 2013 compared to gains of $36 million and $55 million for the same periods in 2013.

Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option
 
Three Months Ended September 30, 2014
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss)
 
Other
Income
(Loss)
 
Total
Loans reported as trading account assets
$
(89
)
 
$

 
$

 
$
(89
)
Trading inventory – other (1)
82

 

 

 
82

Consumer and commercial loans
(62
)
 

 
5

 
(57
)
Loans held-for-sale (2)
(32
)
 
119

 
(16
)
 
71

Securities financing agreements
(40
)
 

 

 
(40
)
Long-term deposits
13

 

 
3

 
16

Unfunded loan commitments

 

 
6

 
6

Short-term borrowings
(2
)
 

 

 
(2
)
Long-term debt (3)
725

 

 
137

 
862

Total
$
595

 
$
119

 
$
135

 
$
849

 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2013
Loans reported as trading account assets
$
46

 
$

 
$

 
$
46

Trading inventory – other (1)
150

 

 

 
150

Consumer and commercial loans
1

 
(38
)
 
30

 
(7
)
Loans held-for-sale (2)
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 (3)
(191
)
 

 
(152
)
 
(343
)
Total
$
(19
)
 
$
125

 
$
(1
)
 
$
105

(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.
Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option
 
Nine Months Ended September 30, 2014
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss)
 
Other
Income
(Loss)
 
Total
Loans reported as trading account assets
$
(41
)
 
$

 
$

 
$
(41
)
Trading inventory – other (1)
(208
)
 

 

 
(208
)
Consumer and commercial loans
(44
)
 

 
110

 
66

Loans held-for-sale (2)
(36
)
 
555

 
54

 
573

Securities financing agreements
(75
)
 

 

 
(75
)
Long-term deposits
24

 

 
(9
)
 
15

Unfunded loan commitments

 

 
20

 
20

Short-term borrowings
52

 

 

 
52

Long-term debt (3)
98

 

 
402

 
500

Total
$
(230
)
 
$
555

 
$
577

 
$
902

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2013
Loans reported as trading account assets
$
85

 
$

 
$

 
$
85

Trading inventory – other (1)
649

 

 

 
649

Consumer and commercial loans
2

 
(38
)
 
182

 
146

Loans held-for-sale (2)
(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 (3)
(100
)
 

 
(232
)
 
(332
)
Total
$
596

 
$
607

 
$
91

 
$
1,294


(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.