Quarterly report pursuant to Section 13 or 15(d)

Derivatives (Tables)

v2.3.0.15
Derivatives (Tables)
 9 Months Ended
Sep. 30, 2011
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives Balances
The tables below identify derivative instruments included on the Corporation’s Consolidated Balance Sheet in derivative assets and liabilities at September 30, 2011 and December 31, 2010. Balances are presented on a gross basis, prior to the application of counterparty and 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 applied.

 
September 30, 2011
 
 
 
Gross Derivative Assets
 
Gross Derivative Liabilities
(Dollars in billions)
Contract/
Notional (1)
 
Trading
Derivatives
and
Economic
Hedges
 
Qualifying
Accounting
Hedges
 
Total
 
Trading
Derivatives
and
Economic
Hedges
 
Qualifying
Accounting
Hedges (2)
 
Total
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
$
44,392.2

 
$
1,713.0

 
$
16.1

 
$
1,729.1

 
$
1,690.8

 
$
15.1

 
$
1,705.9

Futures and forwards
12,062.5

 
3.7

 
—

 
3.7

 
4.3

 
—

 
4.3

Written options
2,803.1

 
—

 
—

 
—

 
116.0

 
—

 
116.0

Purchased options
2,834.3

 
120.8

 
—

 
120.8

 
—

 
—

 
—

Foreign exchange contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
2,326.5

 
65.6

 
3.0

 
68.6

 
75.4

 
2.0

 
77.4

Spot, futures and forwards
2,938.4

 
55.6

 
2.2

 
57.8

 
56.1

 
0.4

 
56.5

Written options
479.7

 
—

 
—

 
—

 
13.5

 
—

 
13.5

Purchased options
442.5

 
13.1

 
—

 
13.1

 
—

 
—

 
—

Equity contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
52.0

 
1.9

 
—

 
1.9

 
2.1

 
—

 
2.1

Futures and forwards
102.4

 
2.5

 
—

 
2.5

 
2.3

 
—

 
2.3

Written options
364.4

 
—

 
—

 
—

 
24.3

 
—

 
24.3

Purchased options
362.3

 
26.0

 
—

 
26.0

 
—

 
—

 
—

Commodity contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
78.4

 
6.0

 
0.1

 
6.1

 
6.2

 
—

 
6.2

Futures and forwards
554.0

 
3.8

 
—

 
3.8

 
2.6

 
—

 
2.6

Written options
137.8

 
—

 
—

 
—

 
8.3

 
—

 
8.3

Purchased options
138.3

 
8.3

 
—

 
8.3

 
—

 
—

 
—

Credit derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchased credit derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps
2,085.3

 
116.6

 
—

 
116.6

 
11.6

 
—

 
11.6

Total return swaps/other
27.5

 
0.8

 
—

 
0.8

 
0.3

 
—

 
0.3

Written credit derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps
2,005.0

 
12.3

 
—

 
12.3

 
111.9

 
—

 
111.9

Total return swaps/other
24.8

 
0.6

 
—

 
0.6

 
0.9

 
—

 
0.9

Gross derivative assets/liabilities
 
 
$
2,150.6

 
$
21.4

 
$
2,172.0

 
$
2,126.6

 
$
17.5

 
$
2,144.1

Less: Legally enforceable master netting agreements
 
 
 
 
 
 
(2,027.4
)
 
 
 
 
 
(2,027.4
)
Less: Cash collateral applied
 
 
 
 
 
 
(65.6
)
 
 
 
 
 
(57.4
)
Total derivative assets/liabilities
 
 
 
 
 
 
$
79.0

 
 
 
 
 
$
59.3

(1) 
Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2) 
Excludes $3.0 billion of long-term debt designated as a hedge of foreign currency risk.

 
December 31, 2010
 
 
 
Gross Derivative Assets
 
Gross Derivative Liabilities
(Dollars in billions)
Contract/
Notional (1)
 
Trading
Derivatives
and
Economic
Hedges
 
Qualifying
Accounting
Hedges
 
Total
 
Trading
Derivatives
and
Economic
Hedges
 
Qualifying
Accounting
Hedges (2)
 
Total
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
$
42,719.2

 
$
1,193.9

 
$
14.9

 
$
1,208.8

 
$
1,187.9

 
$
2.2

 
$
1,190.1

Futures and forwards
9,939.2

 
6.0

 
—

 
6.0

 
4.7

 
—

 
4.7

Written options
2,887.7

 
—

 
—

 
—

 
82.8

 
—

 
82.8

Purchased options
3,026.2

 
88.0

 
—

 
88.0

 
—

 
—

 
—

Foreign exchange contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
630.1

 
26.5

 
3.7

 
30.2

 
28.5

 
2.1

 
30.6

Spot, futures and forwards
2,652.9

 
41.3

 
—

 
41.3

 
44.2

 
—

 
44.2

Written options
439.6

 
—

 
—

 
—

 
13.2

 
—

 
13.2

Purchased options
417.1

 
13.0

 
—

 
13.0

 
—

 
—

 
—

Equity contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
42.4

 
1.7

 
—

 
1.7

 
2.0

 
—

 
2.0

Futures and forwards
78.8

 
2.9

 
—

 
2.9

 
2.1

 
—

 
2.1

Written options
242.7

 
—

 
—

 
—

 
19.4

 
—

 
19.4

Purchased options
193.5

 
21.5

 
—

 
21.5

 
—

 
—

 
—

Commodity contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
90.2

 
8.8

 
0.2

 
9.0

 
9.3

 
—

 
9.3

Futures and forwards
413.7

 
4.1

 
—

 
4.1

 
2.8

 
—

 
2.8

Written options
86.3

 
—

 
—

 
—

 
6.7

 
—

 
6.7

Purchased options
84.6

 
6.6

 
—

 
6.6

 
—

 
—

 
—

Credit derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchased credit derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps
2,184.7

 
69.8

 
—

 
69.8

 
34.0

 
—

 
34.0

Total return swaps/other
26.0

 
0.9

 
—

 
0.9

 
0.2

 
—

 
0.2

Written credit derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps
2,133.5

 
33.3

 
—

 
33.3

 
63.2

 
—

 
63.2

Total return swaps/other
22.5

 
0.5

 
—

 
0.5

 
0.5

 
—

 
0.5

Gross derivative assets/liabilities
 
 
$
1,518.8

 
$
18.8

 
$
1,537.6

 
$
1,501.5

 
$
4.3

 
$
1,505.8

Less: Legally enforceable master netting agreements
 
 
 
 
 
 
(1,406.3
)
 
 
 
 
 
(1,406.3
)
Less: Cash collateral applied
 
 
 
 
 
 
(58.3
)
 
 
 
 
 
(43.6
)
Total derivative assets/liabilities
 
 
 
 
 
 
$
73.0

 
 
 
 
 
$
55.9

(1) 
Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2) 
Excludes $4.1 billion of long-term debt designated as a hedge of foreign currency risk.

Fair Value Derivative Hedges
The table below summarizes amounts recognized in revenue related to the Corporation’s derivatives designated as fair value hedges for the three and nine months ended September 30, 2011 and 2010.

 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2011
 
2011
(Dollars in millions)
Derivative
 
Hedged
Item
 
Hedge
Ineffectiveness
 
Derivative
 
Hedged
Item
 
Hedge
Ineffectiveness
Derivatives designated as fair value hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate risk on long-term debt (1)
$
4,055

 
$
(4,233
)
 
$
(178
)
 
$
4,494

 
$
(4,938
)
 
$
(444
)
Interest rate and foreign currency risk on long-term debt (1)
(870
)
 
759

 
(111
)
 
1,317

 
(1,534
)
 
(217
)
Interest rate risk on AFS securities (2)
(10,420
)
 
9,810

 
(610
)
 
(11,141
)
 
10,356

 
(785
)
Price risk on commodity inventory (3)
16

 
(16
)
 
—

 
32

 
(32
)
 
—

Total
$
(7,219
)
 
$
6,320

 
$
(899
)
 
$
(5,298
)
 
$
3,852

 
$
(1,446
)
 
 
2010
 
2010
Derivatives designated as fair value hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate risk on long-term debt (1)
$
2,128

 
$
(2,268
)
 
$
(140
)
 
$
6,214

 
$
(6,598
)
 
$
(384
)
Interest rate and foreign currency risk on long-term debt (1)
3,913

 
(3,867
)
 
46

 
630

 
(911
)
 
(281
)
Interest rate risk on AFS securities (2)
(3,073
)
 
2,842

 
(231
)
 
(8,342
)
 
8,024

 
(318
)
Price risk on commodity inventory (3)
25

 
(23
)
 
2

 
66

 
(69
)
 
(3
)
Total
$
2,993

 
$
(3,316
)
 
$
(323
)
 
$
(1,432
)
 
$
446

 
$
(986
)
(1) 
Amounts are recorded in interest expense on long-term debt and in other income.
(2) 
Amounts are recorded in interest income on AFS securities.
(3) 
Amounts relating to commodity inventory are recorded in trading account profits.
Cash Flow and Net Investment Hedges
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2011
 
2011
(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)
 
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)
Derivatives designated as cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate risk on variable rate portfolios (2)
$
(1,550
)
 
$
(464
)
 
$
26

 
$
(2,272
)
 
$
(1,212
)
 
$
(8
)
Commodity price risk on forecasted purchases and sales
5

 
2

 
2

 
(4
)
 
5

 
—

Price risk on restricted stock awards
(204
)
 
(75
)
 
—

 
(395
)
 
(145
)
 
—

Total
$
(1,749
)
 
$
(537
)
 
$
28

 
$
(2,671
)
 
$
(1,352
)
 
$
(8
)
Net investment hedges
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange risk
$
2,212

 
$
(16
)
 
$
(175
)
 
$
597

 
$
407

 
$
(425
)
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 
2010
Derivatives designated as cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate risk on variable rate portfolios
$
(1,577
)
 
$
(116
)
 
$
(9
)
 
$
(2,935
)
 
$
(302
)
 
$
(29
)
Commodity price risk on forecasted purchases and sales
20

 
3

 
4

 
47

 
16

 
6

Price risk on restricted stock awards
(58
)
 
(21
)
 
—

 
(96
)
 
(4
)
 
—

Price risk on equity investments included in AFS securities
—

 
—

 
—

 
186

 
(226
)
 
—

Total
$
(1,615
)
 
$
(134
)
 
$
(5
)
 
$
(2,798
)
 
$
(516
)
 
$
(23
)
Net investment hedges
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange risk
$
(2,162
)
 
$
—

 
$
(63
)
 
$
(278
)
 
$
—

 
$
(196
)
(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.
(2) 
Gains reclassified from accumulated OCI to income include $38 million related to the discontinuance of certain cash flow hedges because it was no longer probable that the original forecasted transaction would occur.

Economic Hedges
The table below presents gains (losses) on these derivatives for the three and nine months ended September 30, 2011 and 2010. These gains (losses) are largely offset by the income or expense that is recorded on the economically hedged item.

 
Three Months Ended September 30
 
Nine Months Ended September 30
(Dollars in millions)
2011
 
2010
 
2011
 
2010
Price risk on mortgage banking production income (1, 2)
$
1,158

 
$
3,577

 
$
2,324

 
$
6,974

Interest rate risk on mortgage banking servicing income (1)
2,678

 
1,736

 
3,063

 
5,048

Credit risk on loans (3)
66

 
(44
)
 
38

 
(72
)
Interest rate and foreign currency risk on long-term debt and other foreign exchange transactions (4)
(3,616
)
 
7,613

 
1,604

 
(1,596
)
Other (5)
(288
)
 
(35
)
 
(384
)
 
(134
)
Total
$
(2
)
 
$
12,847

 
$
6,645

 
$
10,220

(1) 
Gains (losses) on these derivatives are recorded in mortgage banking income.
(2) 
Includes gains on interest rate lock commitments related to the origination of mortgage loans that are held-for-sale, which are considered derivative instruments, of $1.2 billion and $3.4 billion for the three and nine months ended September 30, 2011 compared to $2.9 billion and $7.6 billion for the same periods in 2010.
(3) 
Gains (losses) on these derivatives are recorded in other income.
(4) 
The majority of the balance is related to the revaluation of economic hedges of foreign currency-denominated debt which is offset with the revaluation of the debt in other income.
(5) 
Gains (losses) on these derivatives are recorded in other income or in personnel expense for hedges of certain RSUs.
Sales and Trading Revenue
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 GBAM, categorized by primary risk, for the three and nine months ended September 30, 2011 and 2010. The difference between total trading account profits in the table below and in the Consolidated Statement of Income relates to trading activities in business segments other than GBAM.

 
Three Months Ended September 30
 
2011
 
2010
(Dollars in millions)
Trading
Account
Profits
 
Other
Income (1, 2)
 
Net Interest
Income
 
Total
 
Trading
Account
Profits
 
Other
Income (1, 2)
 
Net Interest
Income
 
Total
Interest rate risk
$
1,241

 
$
8

 
$
256

 
$
1,505

 
$
471

 
$
25

 
$
134

 
$
630

Foreign exchange risk
333

 
(17
)
 
2

 
318

 
207

 
(28
)
 
(1
)
 
178

Equity risk
267

 
646

 
48

 
961

 
418

 
562

 
(15
)
 
965

Credit risk
(461
)
 
(408
)
 
687

 
(182
)
 
1,179

 
340

 
952

 
2,471

Other risk
201

 
(4
)
 
(63
)
 
134

 
151

 
27

 
(43
)
 
135

Total sales and trading revenue
$
1,581

 
$
225

 
$
930

 
$
2,736

 
$
2,426

 
$
926

 
$
1,027

 
$
4,379

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30
 
2011
 
2010
Interest rate risk
$
2,028

 
$
(5
)
 
$
672

 
$
2,695

 
$
1,958

 
$
65

 
$
460

 
$
2,483

Foreign exchange risk
825

 
(48
)
 
8

 
785

 
722

 
(46
)
 
—

 
676

Equity risk
1,326

 
1,904

 
77

 
3,307

 
1,494

 
1,892

 
(17
)
 
3,369

Credit risk
1,532

 
390

 
2,239

 
4,161

 
4,294

 
446

 
2,905

 
7,645

Other risk
486

 
(2
)
 
(126
)
 
358

 
201

 
111

 
(141
)
 
171

Total sales and trading revenue
$
6,197

 
$
2,239

 
$
2,870

 
$
11,306

 
$
8,669

 
$
2,468

 
$
3,207

 
$
14,344

(1) 
Represents investment and brokerage services and other income recorded in GBAM that the Corporation includes in its definition of sales and trading revenue.
(2) 
Other income includes commissions and brokerage fee revenue of $610 million and $1.9 billion for the three and nine months ended September 30, 2011 and $560 million and $1.8 billion for the same periods in 2010.

Credit Derivatives
Credit derivative instruments where the Corporation is the seller of credit protection and their expiration at September 30, 2011 and December 31, 2010 are summarized below. These instruments are classified as investment and non-investment grade based on the credit quality of the underlying reference obligation. The Corporation considers ratings of BBB- or higher as investment grade. Non-investment grade includes non-rated credit derivative instruments.
 
September 30, 2011
 
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
$
640

 
$
5,991

 
$
19,676

 
$
12,475

 
$
38,782

Non-investment grade
3,092

 
15,416

 
21,595

 
33,055

 
73,158

Total
3,732

 
21,407

 
41,271

 
45,530

 
111,940

Total return swaps/other:
 
 
 
 
 
 
 
 
 
Investment grade
—

 
1

 
392

 
238

 
631

Non-investment grade
3

 
—

 
48

 
199

 
250

Total
3

 
1

 
440

 
437

 
881

Total credit derivatives
$
3,735

 
$
21,408

 
$
41,711

 
$
45,967

 
$
112,821

Credit-related notes: (1)
 
 
 
 
 
 
 
 
 
Investment grade
$
138

 
$
10

 
$
214

 
$
1,975

 
$
2,337

Non-investment grade
—

 
80

 
217

 
1,339

 
1,636

Total credit-related notes
$
138

 
$
90

 
$
431

 
$
3,314

 
$
3,973

 
Maximum Payout/Notional
Credit default swaps:
 
 
 
 
 
 
 
 
 
Investment grade
$
140,443

 
$
404,540

 
$
465,308

 
$
204,044

 
$
1,214,335

Non-investment grade
106,067

 
283,738

 
215,745

 
185,143

 
790,693

Total
246,510

 
688,278

 
681,053

 
389,187

 
2,005,028

Total return swaps/other:
 
 
 
 
 
 
 
 
 
Investment grade
13

 
130

 
18,781

 
2,942

 
21,866

Non-investment grade
197

 
629

 
1,438

 
686

 
2,950

Total
210

 
759

 
20,219

 
3,628

 
24,816

Total credit derivatives
$
246,720

 
$
689,037

 
$
701,272

 
$
392,815

 
$
2,029,844

 
 
 
 
 
 
 
 
 
 
 
December 31, 2010
 
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
$
158

 
$
2,607

 
$
7,331

 
$
14,880

 
$
24,976

Non-investment grade
598

 
6,630

 
7,854

 
23,106

 
38,188

Total
756

 
9,237

 
15,185

 
37,986

 
63,164

Total return swaps/other:
 
 
 
 
 
 
 
 
 
Investment grade
—

 
—

 
38

 
60

 
98

Non-investment grade
1

 
2

 
2

 
415

 
420

Total
1

 
2

 
40

 
475

 
518

Total credit derivatives
$
757

 
$
9,239

 
$
15,225

 
$
38,461

 
$
63,682

Credit-related notes: (1, 2)
 
 
 
 
 
 
 
 
 
Investment grade
$
—

 
$
136

 
$
—

 
$
3,525

 
$
3,661

Non-investment grade
9

 
33

 
174

 
2,423

 
2,639

Total credit-related notes
$
9

 
$
169

 
$
174

 
$
5,948

 
$
6,300

 
Maximum Payout/Notional
Credit default swaps:
 
 
 
 
 
 
 
 
 
Investment grade
$
133,691

 
$
466,565

 
$
475,715

 
$
275,434

 
$
1,351,405

Non-investment grade
84,851

 
314,422

 
178,880

 
203,930

 
782,083

Total
218,542

 
780,987

 
654,595

 
479,364

 
2,133,488

Total return swaps/other:
 
 
 
 
 
 
 
 
 
Investment grade
—

 
10

 
15,413

 
4,012

 
19,435

Non-investment grade
113

 
78

 
951

 
1,897

 
3,039

Total
113

 
88

 
16,364

 
5,909

 
22,474

Total credit derivatives
$
218,655

 
$
781,075

 
$
670,959

 
$
485,273

 
$
2,155,962

(1) 
For credit-related notes, maximum payout/notional is the same.
(2) 
For December 31, 2010, total credit-related note amounts have been revised from $3.6 billion (as previously reported) to $6.3 billion to reflect collateralized debt obligations and collateralized loan obligations held by certain consolidated VIEs.