| Fair Value Measurements |
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NOTE 15 – Fair Value Measurements |
Under applicable accounting guidance, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Corporation determines the fair values of its financial instruments based on the fair value hierarchy established under applicable accounting guidance which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value. The Corporation conducts a review of its fair value hierarchy classifications on a quarterly basis. Transfers into or out of fair value hierarchy classifications are made if the significant inputs used in the financial models measuring the fair values of the assets and liabilities became unobservable or observable, respectively, in the current marketplace. These transfers are considered to be effective as of the beginning of the quarter in which they occur. For more information regarding the fair value hierarchy and how the Corporation measures fair value, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2011 Annual Report on Form 10-K. The Corporation accounts for certain financial instruments under the fair value option. For more information, see Note 16 – Fair Value Option.
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Valuation Processes and Techniques |
The Corporation has various processes and controls in place to ensure that fair value is reasonably estimated. A model validation policy governs the use and control of valuation models used to estimate fair value. This policy requires review and approval of models by personnel who are independent of the front office, and periodic re-assessments of models to ensure that they are continuing to perform as designed. In addition, detailed reviews of trading gains and losses are conducted on a daily basis by personnel who are independent of the front office. A price verification group, which is also independent of the front office, utilizes available market information including executed trades, market prices and market-observable valuation model inputs to ensure that fair values are reasonably estimated. The Corporation performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process. Where market information is not available to support internal valuations, independent reviews of the valuations are performed and any material exposures are escalated through a management review process.
While the Corporation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
During the nine months ended September 30, 2012, there were no changes to the Corporation's valuation techniques that had, or are expected to have, a material impact on its consolidated financial position or results of operations.
Level 1, 2 and 3 Valuation Techniques
Financial instruments are considered Level 1 when the valuation is based on quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or models using inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques, and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation.
Trading Account Assets and Liabilities and Available-for-Sale Debt Securities
The fair values of trading account assets and liabilities are primarily based on actively traded markets where prices are based on either direct market quotes or observed transactions. The fair values of AFS debt securities are generally based on quoted market prices or market prices for similar assets. Liquidity is a significant factor in the determination of the fair values of trading account assets and liabilities and AFS debt securities. Market price quotes may not be readily available for some positions, or positions within a market sector where trading activity has slowed significantly or ceased. Some of these instruments are valued using a discounted cash flow model, which estimates the fair value of the securities using internal credit risk, interest rate and prepayment risk models that incorporate management’s best estimate of current key assumptions such as default rates, loss severity and prepayment rates. Principal and interest cash flows are discounted using an observable discount rate for similar instruments with adjustments that management believes a market participant would consider in determining fair value for the specific security. Other instruments are valued using a net asset value approach which considers the value of the underlying securities. Underlying assets are valued using external pricing services, where available, or matrix pricing based on the vintages and ratings. Situations of illiquidity generally are triggered by the market’s perception of credit uncertainty regarding a single company or a specific market sector. In these instances, fair value is determined based on limited available market information and other factors, principally from reviewing the issuer’s financial statements and changes in credit ratings made by one or more rating agencies.
Derivative Assets and Liabilities
The fair values of derivative assets and liabilities traded in the OTC market are determined using quantitative models that utilize multiple market inputs including interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. When third-party pricing services are used, the methods and assumptions used are reviewed by the Corporation. Estimation risk is greater for derivative asset and liability positions that are either option-based or have longer maturity dates where observable market inputs are less readily available, or are unobservable, in which case, quantitative-based extrapolations of rate, price or index scenarios are used in determining fair values. The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality and other instrument-specific factors, where appropriate. In addition, the Corporation incorporates within its fair value measurements of OTC derivatives a valuation adjustment to reflect the credit risk associated with the net position. Positions are netted by counterparty, and fair value for net long exposures is adjusted for counterparty credit risk while the fair value for net short exposures is adjusted for the Corporation’s own credit risk. An estimate of severity of loss is also used in the determination of fair value, primarily based on market data.
Loans and Loan Commitments
The fair values of loans and loan commitments are based on market prices, where available, or discounted cash flow analyses using market-based credit spreads of comparable debt instruments or credit derivatives of the specific borrower or comparable borrowers. Results of discounted cash flow calculations may be adjusted, as appropriate, to reflect other market conditions or the perceived credit risk of the borrower.
Mortgage Servicing Rights
The fair values of MSRs are determined using models that rely on estimates of prepayment rates, the resultant weighted-average lives of the MSRs and the option adjusted spread (OAS) levels. For more information on MSRs, see Note 18 – Mortgage Servicing Rights.
Loans Held-for-Sale
The fair values of LHFS are based on quoted market prices, where available, or are determined by discounting estimated cash flows using interest rates approximating the Corporation’s current origination rates for similar loans adjusted to reflect the inherent credit risk.
Other Assets
The fair values of AFS marketable equity securities are generally based on quoted market prices or market prices for similar assets. However, non-public investments are initially valued at the transaction price and subsequently adjusted when evidence is available to support such adjustments.
Securities Financing Agreements
The fair values of certain reverse repurchase agreements, repurchase agreements and securities borrowed transactions are determined using quantitative models, including discounted cash flow models that require the use of multiple market inputs including interest rates and spreads to generate continuous yield or pricing curves, and volatility factors. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.
Deposits and Other Short-term Borrowings
The fair values of deposits and other short-term borrowings are determined using quantitative models, including discounted cash flow models that require the use of multiple market inputs including interest rates and spreads to generate continuous yield or pricing curves, and volatility factors. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. The Corporation considers the impact of its own credit spreads in the valuation of these liabilities. The credit risk is determined by reference to observable credit spreads in the secondary cash market.
Long-term Debt
The Corporation issues structured liabilities that have coupons or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities. The fair values of these structured liabilities are estimated using valuation models for the combined derivative and debt portions of the notes. These models incorporate observable and, in some instances, unobservable inputs including security prices, interest rate yield curves, option volatility, currency, commodity or equity rates and correlations between these inputs. The Corporation considers the impact of its own credit spreads in the valuation of these liabilities. The credit risk is determined by reference to observable credit spreads in the secondary bond market.
Asset-backed Secured Financings
The fair values of asset-backed secured financings are based on external broker bids, where available, or are determined by discounting estimated cash flows using interest rates approximating the Corporation’s current origination rates for similar loans adjusted to reflect the inherent credit risk.
Assets and liabilities carried at fair value on a recurring basis at September 30, 2012 and December 31, 2011, including financial instruments which the Corporation accounts for under the fair value option, are summarized in the following tables.
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September 30, 2012 |
|
Fair Value Measurements |
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|
(Dollars in millions) |
Level 1 (1)
|
|
Level 2 (1)
|
|
Level 3 |
|
Netting
Adjustments (2)
|
|
Assets/Liabilities
at Fair Value
|
Assets |
|
|
|
|
|
|
|
|
|
Federal funds sold and securities borrowed or purchased under agreements to resell |
$ |
— |
|
|
$ |
104,494 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
104,494 |
|
Trading account assets: |
|
|
|
|
|
|
|
|
|
U.S. government and agency securities |
42,933 |
|
|
24,606 |
|
|
— |
|
|
— |
|
|
67,539 |
|
Corporate securities, trading loans and other |
1,137 |
|
|
28,602 |
|
|
4,173 |
|
|
— |
|
|
33,912 |
|
Equity securities |
26,366 |
|
|
11,886 |
|
|
573 |
|
|
— |
|
|
38,825 |
|
Non-U.S. sovereign debt |
41,291 |
|
|
12,624 |
|
|
303 |
|
|
— |
|
|
54,218 |
|
Mortgage trading loans and ABS |
— |
|
|
11,690 |
|
|
4,906 |
|
|
— |
|
|
16,596 |
|
Total trading account assets |
111,727 |
|
|
89,408 |
|
|
9,955 |
|
|
— |
|
|
211,090 |
|
Derivative assets (3)
|
2,857 |
|
|
1,456,794 |
|
|
9,983 |
|
|
(1,411,769 |
) |
|
57,865 |
|
AFS debt securities: |
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and agency securities |
21,815 |
|
|
2,980 |
|
|
— |
|
|
— |
|
|
24,795 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
Agency |
— |
|
|
204,043 |
|
|
— |
|
|
— |
|
|
204,043 |
|
Agency-collateralized mortgage obligations |
— |
|
|
40,147 |
|
|
— |
|
|
— |
|
|
40,147 |
|
Non-agency residential |
— |
|
|
10,001 |
|
|
1 |
|
|
— |
|
|
10,002 |
|
Non-agency commercial |
— |
|
|
4,104 |
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|
23 |
|
|
— |
|
|
4,127 |
|
Non-U.S. securities |
3,322 |
|
|
2,426 |
|
|
— |
|
|
— |
|
|
5,748 |
|
Corporate/Agency bonds |
— |
|
|
1,990 |
|
|
93 |
|
|
— |
|
|
2,083 |
|
Other taxable securities |
20 |
|
|
7,056 |
|
|
5,121 |
|
|
— |
|
|
12,197 |
|
Tax-exempt securities |
— |
|
|
1,746 |
|
|
1,061 |
|
|
— |
|
|
2,807 |
|
Total AFS debt securities |
25,157 |
|
|
274,493 |
|
|
6,299 |
|
|
— |
|
|
305,949 |
|
Loans and leases |
— |
|
|
5,385 |
|
|
2,253 |
|
|
— |
|
|
7,638 |
|
Mortgage servicing rights |
— |
|
|
— |
|
|
5,087 |
|
|
— |
|
|
5,087 |
|
Loans held-for-sale |
— |
|
|
7,764 |
|
|
3,313 |
|
|
— |
|
|
11,077 |
|
Other assets |
18,651 |
|
|
10,923 |
|
|
2,978 |
|
|
— |
|
|
32,552 |
|
Total assets |
$ |
158,392 |
|
|
$ |
1,949,261 |
|
|
$ |
39,868 |
|
|
$ |
(1,411,769 |
) |
|
$ |
735,752 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in U.S. offices |
$ |
— |
|
|
$ |
2,449 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,449 |
|
Federal funds purchased and securities loaned or sold under agreements to repurchase |
— |
|
|
53,635 |
|
|
— |
|
|
— |
|
|
53,635 |
|
Trading account liabilities: |
|
|
|
|
|
|
|
|
|
U.S. government and agency securities |
18,055 |
|
|
596 |
|
|
— |
|
|
— |
|
|
18,651 |
|
Equity securities |
19,901 |
|
|
2,459 |
|
|
— |
|
|
— |
|
|
22,360 |
|
Non-U.S. sovereign debt |
21,036 |
|
|
1,165 |
|
|
— |
|
|
— |
|
|
22,201 |
|
Corporate securities and other |
403 |
|
|
8,399 |
|
|
165 |
|
|
— |
|
|
8,967 |
|
Total trading account liabilities |
59,395 |
|
|
12,619 |
|
|
165 |
|
|
— |
|
|
72,179 |
|
Derivative liabilities (3)
|
2,625 |
|
|
1,441,542 |
|
|
7,023 |
|
|
(1,399,821 |
) |
|
51,369 |
|
Other short-term borrowings |
— |
|
|
4,046 |
|
|
232 |
|
|
— |
|
|
4,278 |
|
Accrued expenses and other liabilities |
16,999 |
|
|
1,272 |
|
|
9 |
|
|
— |
|
|
18,280 |
|
Long-term debt |
— |
|
|
47,622 |
|
|
2,290 |
|
|
— |
|
|
49,912 |
|
Total liabilities |
$ |
79,019 |
|
|
$ |
1,563,185 |
|
|
$ |
9,719 |
|
|
$ |
(1,399,821 |
) |
|
$ |
252,102 |
|
|
|
(1) |
During the nine months ended September 30, 2012, $1.7 billion and $350 million of assets and liabilities were transferred from Level 1 to Level 2, and $785 million and $40 million of assets and liabilities were transferred from Level 2 to Level 1. Of the asset transfers from Level 1 to Level 2, $640 million were due to a restriction that became effective for a private equity investment during the first quarter of 2012, while $535 million of the transfers from Level 2 to Level 1 were due to the lapse of this restriction during the second quarter of 2012. The remaining transfers were the result of additional information associated with certain equities, derivative contracts and private equity investments.
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(2) |
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties. |
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(3) |
For further disaggregation of derivative assets and liabilities, see Note 3 – Derivatives.
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|
December 31, 2011 |
|
Fair Value Measurements |
|
|
|
|
(Dollars in millions) |
Level 1 (1)
|
|
Level 2 (1)
|
|
Level 3 |
|
Netting
Adjustments (2)
|
|
Assets/Liabilities
at Fair Value
|
Assets |
|
|
|
|
|
|
|
|
|
Federal funds sold and securities borrowed or purchased under agreements to resell |
$ |
— |
|
|
$ |
87,453 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
87,453 |
|
Trading account assets: |
|
|
|
|
|
|
|
|
|
U.S. government and agency securities |
30,540 |
|
|
22,073 |
|
|
— |
|
|
— |
|
|
52,613 |
|
Corporate securities, trading loans and other |
1,067 |
|
|
28,624 |
|
|
6,880 |
|
|
— |
|
|
36,571 |
|
Equity securities |
17,181 |
|
|
5,949 |
|
|
544 |
|
|
— |
|
|
23,674 |
|
Non-U.S. sovereign debt |
33,667 |
|
|
8,937 |
|
|
342 |
|
|
— |
|
|
42,946 |
|
Mortgage trading loans and ABS |
— |
|
|
9,826 |
|
|
3,689 |
|
|
— |
|
|
13,515 |
|
Total trading account assets |
82,455 |
|
|
75,409 |
|
|
11,455 |
|
|
— |
|
|
169,319 |
|
Derivative assets (3)
|
2,186 |
|
|
1,865,310 |
|
|
14,366 |
|
|
(1,808,839 |
) |
|
73,023 |
|
AFS debt securities: |
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and agency securities |
39,389 |
|
|
3,475 |
|
|
— |
|
|
— |
|
|
42,864 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
Agency |
— |
|
|
142,526 |
|
|
37 |
|
|
— |
|
|
142,563 |
|
Agency-collateralized mortgage obligations |
— |
|
|
44,999 |
|
|
— |
|
|
— |
|
|
44,999 |
|
Non-agency residential |
— |
|
|
13,907 |
|
|
860 |
|
|
— |
|
|
14,767 |
|
Non-agency commercial |
— |
|
|
5,482 |
|
|
40 |
|
|
— |
|
|
5,522 |
|
Non-U.S. securities |
1,664 |
|
|
3,256 |
|
|
— |
|
|
— |
|
|
4,920 |
|
Corporate/Agency bonds |
— |
|
|
2,873 |
|
|
162 |
|
|
— |
|
|
3,035 |
|
Other taxable securities |
20 |
|
|
8,593 |
|
|
4,265 |
|
|
— |
|
|
12,878 |
|
Tax-exempt securities |
— |
|
|
1,955 |
|
|
2,648 |
|
|
— |
|
|
4,603 |
|
Total AFS debt securities |
41,073 |
|
|
227,066 |
|
|
8,012 |
|
|
— |
|
|
276,151 |
|
Loans and leases |
— |
|
|
6,060 |
|
|
2,744 |
|
|
— |
|
|
8,804 |
|
Mortgage servicing rights |
— |
|
|
— |
|
|
7,378 |
|
|
— |
|
|
7,378 |
|
Loans held-for-sale |
— |
|
|
4,243 |
|
|
3,387 |
|
|
— |
|
|
7,630 |
|
Other assets |
18,963 |
|
|
13,886 |
|
|
4,235 |
|
|
— |
|
|
37,084 |
|
Total assets |
$ |
144,677 |
|
|
$ |
2,279,427 |
|
|
$ |
51,577 |
|
|
$ |
(1,808,839 |
) |
|
$ |
666,842 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
Interest-bearing deposits in U.S. offices |
$ |
— |
|
|
$ |
3,297 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,297 |
|
Federal funds purchased and securities loaned or sold under agreements to repurchase |
— |
|
|
34,235 |
|
|
— |
|
|
— |
|
|
34,235 |
|
Trading account liabilities: |
|
|
|
|
|
|
|
|
|
U.S. government and agency securities |
19,120 |
|
|
1,590 |
|
|
— |
|
|
— |
|
|
20,710 |
|
Equity securities |
13,259 |
|
|
1,335 |
|
|
— |
|
|
— |
|
|
14,594 |
|
Non-U.S. sovereign debt |
16,760 |
|
|
680 |
|
|
— |
|
|
— |
|
|
17,440 |
|
Corporate securities and other |
829 |
|
|
6,821 |
|
|
114 |
|
|
— |
|
|
7,764 |
|
Total trading account liabilities |
49,968 |
|
|
10,426 |
|
|
114 |
|
|
— |
|
|
60,508 |
|
Derivative liabilities (3)
|
2,055 |
|
|
1,850,804 |
|
|
8,500 |
|
|
(1,801,839 |
) |
|
59,520 |
|
Other short-term borrowings |
— |
|
|
6,558 |
|
|
— |
|
|
— |
|
|
6,558 |
|
Accrued expenses and other liabilities |
13,832 |
|
|
1,897 |
|
|
14 |
|
|
— |
|
|
15,743 |
|
Long-term debt |
— |
|
|
43,296 |
|
|
2,943 |
|
|
— |
|
|
46,239 |
|
Total liabilities |
$ |
65,855 |
|
|
$ |
1,950,513 |
|
|
$ |
11,571 |
|
|
$ |
(1,801,839 |
) |
|
$ |
226,100 |
|
|
|
(1) |
Gross transfers between Level 1 and Level 2 during 2011 were not significant.
|
|
|
(2) |
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties. |
|
|
(3) |
For further disaggregation of derivative assets and liabilities, see Note 3 – Derivatives.
|
The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and nine months ended September 30, 2012 and 2011, including net realized and unrealized gains (losses) included in earnings and accumulated OCI.
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|
|
|
|
|
|
|
|
Level 3 – Fair Value Measurements (1)
|
|
Three Months Ended September 30, 2012 |
|
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|
|
Gross |
|
|
|
(Dollars in millions) |
Balance
July 1
2012
|
Gains
(Losses) in
Earnings
|
Gains
(Losses) in
OCI
|
Purchases |
Sales |
Issuances |
Settlements |
Gross
Transfers
into
Level 3
|
Gross
Transfers
out of
Level 3
|
Balance September 30
2012 |
Trading account assets: |
|
|
|
|
|
|
|
|
|
|
Corporate securities, trading loans and other (2)
|
$ |
4,459 |
|
$ |
69 |
|
$ |
— |
|
$ |
750 |
|
$ |
(848 |
) |
$ |
— |
|
$ |
(101 |
) |
$ |
158 |
|
$ |
(314 |
) |
$ |
4,173 |
|
Equity securities |
597 |
|
15 |
|
— |
|
43 |
|
(12 |
) |
— |
|
(9 |
) |
5 |
|
(66 |
) |
573 |
|
Non-U.S. sovereign debt |
389 |
|
7 |
|
— |
|
30 |
|
(112 |
) |
— |
|
(4 |
) |
— |
|
(7 |
) |
303 |
|
Mortgage trading loans and ABS |
4,818 |
|
111 |
|
— |
|
380 |
|
(279 |
) |
— |
|
(124 |
) |
3 |
|
(3 |
) |
4,906 |
|
Total trading account assets |
10,263 |
|
202 |
|
— |
|
1,203 |
|
(1,251 |
) |
— |
|
(238 |
) |
166 |
|
(390 |
) |
9,955 |
|
Net derivative assets (3)
|
4,601 |
|
(256 |
) |
— |
|
78 |
|
(211 |
) |
— |
|
(918 |
) |
(350 |
) |
16 |
|
2,960 |
|
AFS debt securities: |
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
Non-agency residential |
1 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1 |
|
Non-agency commercial |
24 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(1 |
) |
— |
|
— |
|
23 |
|
Corporate/Agency bonds |
93 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
93 |
|
Other taxable securities |
4,558 |
|
— |
|
28 |
|
600 |
|
— |
|
— |
|
(65 |
) |
— |
|
— |
|
5,121 |
|
Tax-exempt securities |
1,140 |
|
7 |
|
(7 |
) |
— |
|
(63 |
) |
— |
|
(16 |
) |
— |
|
— |
|
1,061 |
|
Total AFS debt securities |
5,816 |
|
7 |
|
21 |
|
600 |
|
(63 |
) |
— |
|
(82 |
) |
— |
|
— |
|
6,299 |
|
Loans and leases (2, 4)
|
1,635 |
|
69 |
|
— |
|
317 |
|
(150 |
) |
— |
|
(65 |
) |
450 |
|
(3 |
) |
2,253 |
|
Mortgage servicing rights (4)
|
5,708 |
|
(360 |
) |
— |
|
— |
|
(15 |
) |
100 |
|
(346 |
) |
— |
|
— |
|
5,087 |
|
Loans held-for-sale (2)
|
2,741 |
|
86 |
|
— |
|
596 |
|
(19 |
) |
— |
|
(104 |
) |
13 |
|
— |
|
3,313 |
|
Other assets (5)
|
3,136 |
|
24 |
|
— |
|
40 |
|
(183 |
) |
— |
|
(39 |
) |
— |
|
— |
|
2,978 |
|
Trading account liabilities – Corporate securities and other |
(143 |
) |
4 |
|
— |
|
17 |
|
(45 |
) |
— |
|
— |
|
— |
|
2 |
|
(165 |
) |
Other short-term borrowings (2)
|
— |
|
— |
|
— |
|
— |
|
— |
|
(232 |
) |
— |
|
— |
|
— |
|
(232 |
) |
Accrued expenses and other liabilities (2)
|
(2 |
) |
— |
|
— |
|
— |
|
— |
|
(7 |
) |
— |
|
— |
|
— |
|
(9 |
) |
Long-term debt (2)
|
(2,388 |
) |
(91 |
) |
— |
|
70 |
|
— |
|
(115 |
) |
391 |
|
(531 |
) |
374 |
|
(2,290 |
) |
|
|
(1) |
Assets (liabilities). For assets, increase / (decrease) to Level 3 and for liabilities, (increase) / decrease to Level 3. |
|
|
(2) |
Amounts represent items that are accounted for under the fair value option. |
|
|
(3) |
Net derivatives include derivative assets of $10.0 billion and derivative liabilities of $7.0 billion.
|
|
|
(4) |
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole loan sales. |
|
|
(5) |
Other assets is primarily comprised of net monoline exposure to a single counterparty and private equity investments. |
During the three months ended September 30, 2012, the transfers into Level 3 included $166 million of trading account assets, $350 million of net derivative assets, $450 million of loans and leases, and $531 million of long-term debt. Transfers into Level 3 for trading account assets primarily related to decreased liquidity for certain corporate loans. Transfers into Level 3 for net derivative assets primarily related to decreased price observability for certain long-dated equity derivative liabilities due to a lack of independent pricing. Transfers into Level 3 for loans and leases were driven by updated information related to certain commercial loans. Transfers into Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.
During the three months ended September 30, 2012, the transfers out of Level 3 included $390 million of trading account assets and $374 million of long-term debt. Transfers out of Level 3 for trading account assets primarily related to increased price observability for certain corporate loans due to improved liquidity in the secondary markets. Transfers out of Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 – Fair Value Measurements (1)
|
|
Three Months Ended September 30, 2011 |
|
|
|
|
Gross |
|
|
|
(Dollars in millions) |
Balance
July 1
2011
|
Gains
(Losses) in
Earnings
|
Gains
(Losses) in
OCI
|
Purchases |
Sales |
Issuances |
Settlements |
Gross
Transfers
into
Level 3
|
Gross
Transfers
out of
Level 3
|
Balance September 30
2011 |
Trading account assets: |
|
|
|
|
|
|
|
|
|
|
Corporate securities, trading loans and other (2)
|
$ |
7,452 |
|
$ |
(219 |
) |
$ |
— |
|
$ |
1,084 |
|
$ |
(757 |
) |
$ |
— |
|
$ |
(561 |
) |
$ |
635 |
|
$ |
(142 |
) |
$ |
7,492 |
|
Equity securities |
608 |
|
(8 |
) |
— |
|
103 |
|
(92 |
) |
— |
|
(25 |
) |
11 |
|
— |
|
597 |
|
Non-U.S. sovereign debt |
391 |
|
(17 |
) |
— |
|
3 |
|
(3 |
) |
— |
|
— |
|
1 |
|
— |
|
375 |
|
Mortgage trading loans and ABS |
5,519 |
|
(112 |
) |
— |
|
97 |
|
(1,378 |
) |
— |
|
(80 |
) |
18 |
|
(293 |
) |
3,771 |
|
Total trading account assets |
13,970 |
|
(356 |
) |
— |
|
1,287 |
|
(2,230 |
) |
— |
|
(666 |
) |
665 |
|
(435 |
) |
12,235 |
|
Net derivative assets (3)
|
5,418 |
|
3,211 |
|
— |
|
154 |
|
(200 |
) |
— |
|
(2,950 |
) |
285 |
|
374 |
|
6,292 |
|
AFS debt securities: |
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
Agency |
— |
|
— |
|
— |
|
13 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
13 |
|
Agency-collateralized mortgage obligations |
55 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
55 |
|
Non-agency residential |
1,094 |
|
(41 |
) |
52 |
|
9 |
|
(3 |
) |
— |
|
(32 |
) |
1 |
|
— |
|
1,080 |
|
Non-agency commercial |
18 |
|
— |
|
— |
|
17 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
35 |
|
Non-U.S. securities |
88 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(88 |
) |
— |
|
Corporate/Agency bonds |
224 |
|
(4 |
) |
(1 |
) |
162 |
|
(9 |
) |
— |
|
— |
|
— |
|
(8 |
) |
364 |
|
Other taxable securities |
10,374 |
|
(25 |
) |
(42 |
) |
2,068 |
|
(2,187 |
) |
— |
|
(846 |
) |
— |
|
— |
|
9,342 |
|
Tax-exempt securities |
1,609 |
|
8 |
|
(9 |
) |
2,179 |
|
(7 |
) |
— |
|
(234 |
) |
— |
|
(673 |
) |
2,873 |
|
Total AFS debt securities |
13,462 |
|
(62 |
) |
— |
|
4,448 |
|
(2,206 |
) |
— |
|
(1,112 |
) |
1 |
|
(769 |
) |
13,762 |
|
Loans and leases (2, 4)
|
9,597 |
|
(209 |
) |
— |
|
— |
|
— |
|
451 |
|
(194 |
) |
— |
|
(4,345 |
) |
5,300 |
|
Mortgage servicing rights (4)
|
12,372 |
|
(3,860 |
) |
— |
|
— |
|
(218 |
) |
251 |
|
(665 |
) |
— |
|
— |
|
7,880 |
|
Loans held-for-sale (2)
|
4,012 |
|
(142 |
) |
— |
|
15 |
|
(200 |
) |
— |
|
(112 |
) |
61 |
|
(4 |
) |
3,630 |
|
Other assets (5)
|
4,549 |
|
54 |
|
— |
|
1,703 |
|
(290 |
) |
— |
|
(266 |
) |
— |
|
— |
|
5,750 |
|
Trading account liabilities – Corporate securities and other |
(63 |
) |
2 |
|
— |
|
18 |
|
(3 |
) |
— |
|
— |
|
(24 |
) |
— |
|
(70 |
) |
Other short-term borrowings (2)
|
(744 |
) |
58 |
|
— |
|
— |
|
— |
|
— |
|
19 |
|
— |
|
— |
|
(667 |
) |
Accrued expenses and other liabilities (2)
|
(777 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
3 |
|
— |
|
761 |
|
(13 |
) |
Long-term debt (2)
|
(3,324 |
) |
388 |
|
— |
|
125 |
|
(17 |
) |
(218 |
) |
366 |
|
(679 |
) |
702 |
|
(2,657 |
) |
|
|
(1) |
Assets (liabilities). For assets, increase / (decrease) to Level 3 and for liabilities, (increase) / decrease to Level 3. |
|
|
(2) |
Amounts represent items that are accounted for under the fair value option. |
|
|
(3) |
Net derivatives include derivative assets of $16.0 billion and derivative liabilities of $9.8 billion.
|
|
|
(4) |
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole loan sales. |
|
|
(5) |
Other assets is primarily comprised of AFS marketable equity securities. |
During the three months ended September 30, 2011, the transfers into Level 3 included $665 million of trading account assets and $679 million of long-term debt. Transfers into Level 3 for trading account assets were driven by decreased price observability for certain corporate loans and bonds. Transfers into Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.
During the three months ended September 30, 2011, the transfers out of Level 3 included $769 million of AFS debt securities, $4.3 billion of loans and leases, $761 million of accrued expenses and other liabilities, and $702 million of long-term debt. Transfers out of Level 3 for AFS debt securities were driven by increased use of observable inputs in pricing certain municipal securities. Transfers out of Level 3 for loans and leases, and accrued expenses and other liabilities were driven by increased observable inputs, primarily liquid comparables, for certain corporate loans and unfunded loan commitments (included in other liabilities) accounted for under the fair value option. Transfers out of Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 – Fair Value Measurements (1)
|
|
Nine Months Ended September 30, 2012 |
|
|
|
|
Gross |
|
|
|
(Dollars in millions) |
Balance
January 1
2012
|
Gains
(Losses) in
Earnings
|
Gains
(Losses) in
OCI
|
Purchases |
Sales |
Issuances |
Settlements |
Gross
Transfers
into
Level 3
|
Gross
Transfers
out of
Level 3
|
Balance September 30
2012 |
Trading account assets: |
|
|
|
|
|
|
|
|
|
|
Corporate securities, trading loans and other (2, 3)
|
$ |
6,880 |
|
$ |
192 |
|
$ |
— |
|
$ |
1,995 |
|
$ |
(3,498 |
) |
$ |
— |
|
$ |
(846 |
) |
$ |
315 |
|
$ |
(865 |
) |
$ |
4,173 |
|
Equity securities |
544 |
|
24 |
|
— |
|
167 |
|
(159 |
) |
— |
|
27 |
|
38 |
|
(68 |
) |
573 |
|
Non-U.S. sovereign debt |
342 |
|
5 |
|
— |
|
338 |
|
(359 |
) |
— |
|
(4 |
) |
— |
|
(19 |
) |
303 |
|
Mortgage trading loans and ABS (3)
|
3,689 |
|
194 |
|
— |
|
1,747 |
|
(915 |
) |
— |
|
(386 |
) |
745 |
|
(168 |
) |
4,906 |
|
Total trading account assets |
11,455 |
|
415 |
|
— |
|
4,247 |
|
(4,931 |
) |
— |
|
(1,209 |
) |
1,098 |
|
(1,120 |
) |
9,955 |
|
Net derivative assets (4)
|
5,866 |
|
17 |
|
— |
|
791 |
|
(833 |
) |
— |
|
(2,228 |
) |
(283 |
) |
(370 |
) |
2,960 |
|
AFS debt securities: |
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
Agency |
37 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(4 |
) |
— |
|
(33 |
) |
— |
|
Non-agency residential |
860 |
|
(69 |
) |
19 |
|
— |
|
(305 |
) |
— |
|
(2 |
) |
— |
|
(502 |
) |
1 |
|
Non-agency commercial |
40 |
|
— |
|
— |
|
— |
|
(11 |
) |
— |
|
(6 |
) |
— |
|
— |
|
23 |
|
Corporate/Agency bonds |
162 |
|
(2 |
) |
— |
|
(2 |
) |
— |
|
— |
|
(38 |
) |
— |
|
(27 |
) |
93 |
|
Other taxable securities |
4,265 |
|
7 |
|
51 |
|
1,558 |
|
— |
|
— |
|
(551 |
) |
— |
|
(209 |
) |
5,121 |
|
Tax-exempt securities |
2,648 |
|
61 |
|
18 |
|
— |
|
(132 |
) |
— |
|
(1,534 |
) |
— |
|
— |
|
1,061 |
|
Total AFS debt securities |
8,012 |
|
(3 |
) |
88 |
|
1,556 |
|
(448 |
) |
— |
|
(2,135 |
) |
— |
|
(771 |
) |
6,299 |
|
Loans and leases (2, 5)
|
2,744 |
|
284 |
|
— |
|
317 |
|
(1,308 |
) |
— |
|
(229 |
) |
450 |
|
(5 |
) |
2,253 |
|
Mortgage servicing rights (5)
|
7,378 |
|
(1,297 |
) |
— |
|
— |
|
(113 |
) |
268 |
|
(1,149 |
) |
— |
|
— |
|
5,087 |
|
Loans held-for-sale (2)
|
3,387 |
|
265 |
|
— |
|
606 |
|
(40 |
) |
— |
|
(330 |
) |
57 |
|
(632 |
) |
3,313 |
|
Other assets (6)
|
4,235 |
|
(110 |
) |
— |
|
89 |
|
(950 |
) |
— |
|
(275 |
) |
— |
|
(11 |
) |
2,978 |
|
Trading account liabilities – Corporate securities and other |
(114 |
) |
4 |
|
— |
|
72 |
|
(114 |
) |
— |
|
— |
|
(65 |
) |
52 |
|
(165 |
) |
Other short-term borrowings (2)
|
— |
|
— |
|
— |
|
— |
|
— |
|
(232 |
) |
— |
|
— |
|
— |
|
(232 |
) |
Accrued expenses and other liabilities (2)
|
(14 |
) |
4 |
|
— |
|
5 |
|
— |
|
(7 |
) |
— |
|
— |
|
3 |
|
(9 |
) |
Long-term debt (2)
|
(2,943 |
) |
(239 |
) |
— |
|
188 |
|
(33 |
) |
(253 |
) |
1,099 |
|
(1,569 |
) |
1,460 |
|
(2,290 |
) |
|
|
(1) |
Assets (liabilities). For assets, increase / (decrease) to Level 3 and for liabilities, (increase) / decrease to Level 3. |
|
|
(2) |
Amounts represent items that are accounted for under the fair value option. |
|
|
(3) |
During the nine months ended September 30, 2012, approximately $900 million was reclassified from Trading account assets - Corporate securities, trading loans and other to Trading account assets - Mortgage trading loans and ABS. In the table above, this reclassification is presented as a sale of Trading account assets - Corporate securities, trading loans and other and as a purchase of Trading account assets - Mortgage trading loans and ABS.
|
|
|
(4) |
Net derivatives include derivative assets of $10.0 billion and derivative liabilities of $7.0 billion.
|
|
|
(5) |
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole loan sales. |
|
|
(6) |
Other assets is primarily comprised of net monoline exposure to a single counterparty and private equity investments. |
During the nine months ended September 30, 2012, the transfers into Level 3 included $1.1 billion of trading account assets, $283 million of net derivative assets, $450 million of loans and leases, and $1.6 billion of long-term debt. Transfers into Level 3 for trading account assets were primarily the result of decreased market liquidity for certain corporate loans and additional information related to certain CLOs. Transfers into Level 3 for net derivative assets primarily related to decreased price observability for certain long-dated equity derivative liabilities due to a lack of independent pricing. Transfers into Level 3 for loans and leases were driven by updated information related to certain commercial loans. Transfers into Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.
During the nine months ended September 30, 2012, the transfers out of Level 3 included $1.1 billion of trading account assets, $370 million of net derivative assets, $771 million of AFS debt securities, $632 million of LHFS and $1.5 billion of long-term debt. Transfers out of Level 3 for trading account assets primarily related to increased market liquidity for certain corporate loans and loans backed by commercial real estate. Transfers out of Level 3 for net derivative assets primarily related to increased price observability (i.e., market comparables for the referenced instruments) for certain total return swaps and foreign exchange swaps. Transfers out of Level 3 for AFS debt securities primarily related to increased price observability for certain non-agency RMBS and ABS. Transfers out of Level 3 for LHFS primarily related to increased observable inputs, primarily liquid comparables. Transfers out of Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 – Fair Value Measurements (1)
|
|
Nine Months Ended September 30, 2011 |
|
|
|
|
|
Gross |
|
|
|
(Dollars in millions) |
Balance
January 1
2011
|
Consolidation of VIEs |
Gains
(Losses) in
Earnings
|
Gains
(Losses) in
OCI
|
Purchases |
Sales |
Issuances |
Settlements |
Gross
Transfers
into
Level 3
|
Gross
Transfers
out of
Level 3
|
Balance September 30
2011 |
Trading account assets: |
|
|
|
|
|
|
|
|
|
|
|
Corporate securities, trading loans and other (2)
|
$ |
7,751 |
|
$ |
— |
|
$ |
456 |
|
$ |
— |
|
$ |
4,664 |
|
$ |
(5,294 |
) |
$ |
— |
|
$ |
(1,080 |
) |
$ |
1,450 |
|
$ |
(455 |
) |
$ |
7,492 |
|
Equity securities |
557 |
|
— |
|
57 |
|
— |
|
278 |
|
(284 |
) |
— |
|
(140 |
) |
131 |
|
(2 |
) |
597 |
|
Non-U.S. sovereign debt |
243 |
|
— |
|
68 |
|
— |
|
125 |
|
(18 |
) |
— |
|
(3 |
) |
4 |
|
(44 |
) |
375 |
|
Mortgage trading loans and ABS |
6,908 |
|
— |
|
530 |
|
— |
|
1,929 |
|
(4,624 |
) |
— |
|
(308 |
) |
19 |
|
(683 |
) |
3,771 |
|
Total trading account assets |
15,459 |
|
— |
|
1,111 |
|
— |
|
6,996 |
|
(10,220 |
) |
— |
|
(1,531 |
) |
1,604 |
|
(1,184 |
) |
12,235 |
|
Net derivative assets (3)
|
7,745 |
|
— |
|
5,456 |
|
— |
|
1,040 |
|
(1,460 |
) |
— |
|
(7,010 |
) |
625 |
|
(104 |
) |
6,292 |
|
AFS debt securities: |
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
Agency |
4 |
|
— |
|
— |
|
— |
|
13 |
|
— |
|
— |
|
— |
|
— |
|
(4 |
) |
13 |
|
Agency-collateralized mortgage obligations |
— |
|
— |
|
— |
|
— |
|
56 |
|
— |
|
— |
|
(1 |
) |
— |
|
— |
|
55 |
|
Non-agency residential |
1,468 |
|
— |
|
(86 |
) |
24 |
|
11 |
|
(293 |
) |
— |
|
(321 |
) |
277 |
|
— |
|
1,080 |
|
Non-agency commercial |
19 |
|
— |
|
— |
|
— |
|
17 |
|
— |
|
— |
|
(1 |
) |
— |
|
— |
|
35 |
|
Non-U.S. securities |
3 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
88 |
|
(91 |
) |
— |
|
Corporate/Agency bonds |
137 |
|
— |
|
(2 |
) |
(2 |
) |
248 |
|
(16 |
) |
— |
|
— |
|
7 |
|
(8 |
) |
364 |
|
Other taxable securities |
13,018 |
|
— |
|
27 |
|
20 |
|
3,518 |
|
(2,240 |
) |
— |
|
(5,001 |
) |
2 |
|
(2 |
) |
9,342 |
|
Tax-exempt securities |
1,224 |
|
— |
|
14 |
|
(42 |
) |
2,862 |
|
(79 |
) |
— |
|
(471 |
) |
38 |
|
(673 |
) |
2,873 |
|
Total AFS debt securities |
15,873 |
|
— |
|
(47 |
) |
— |
|
6,725 |
|
(2,628 |
) |
— |
|
(5,795 |
) |
412 |
|
(778 |
) |
13,762 |
|
Loans and leases (2, 4)
|
3,321 |
|
5,194 |
|
— |
|
— |
|
21 |
|
(376 |
) |
3,118 |
|
(1,638 |
) |
5 |
|
(4,345 |
) |
5,300 |
|
Mortgage servicing rights (4)
|
14,900 |
|
— |
|
(6,060 |
) |
— |
|
— |
|
(452 |
) |
1,502 |
|
(2,010 |
) |
— |
|
— |
|
7,880 |
|
Loans held-for-sale (2)
|
4,140 |
|
— |
|
43 |
|
— |
|
138 |
|
(443 |
) |
— |
|
(704 |
) |
502 |
|
(46 |
) |
3,630 |
|
Other assets (5)
|
6,922 |
|
— |
|
356 |
|
— |
|
1,875 |
|
(1,486 |
) |
— |
|
(659 |
) |
375 |
|
(1,633 |
) |
5,750 |
|
Trading account liabilities – Corporate securities and other |
(7 |
) |
— |
|
2 |
|
— |
|
94 |
|
(135 |
) |
— |
|
— |
|
(24 |
) |
— |
|
(70 |
) |
Other short-term borrowings (2)
|
(706 |
) |
— |
|
(24 |
) |
— |
|
— |
|
— |
|
— |
|
63 |
|
— |
|
— |
|
(667 |
) |
Accrued expenses and other liabilities (2)
|
(828 |
) |
— |
|
64 |
|
— |
|
— |
|
(4 |
) |
(9 |
) |
3 |
|
— |
|
761 |
|
(13 |
) |
Long-term debt (2)
|
(2,986 |
) |
— |
|
245 |
|
— |
|
340 |
|
(72 |
) |
(467 |
) |
754 |
|
(1,709 |
) |
1,238 |
|
(2,657 |
) |
|
|
(1) |
Assets (liabilities). For assets, increase / (decrease) to Level 3 and for liabilities, (increase) / decrease to Level 3. |
|
|
(2) |
Amounts represent items that are accounted for under the fair value option. |
|
|
(3) |
Net derivatives include derivative assets of $16.0 billion and derivative liabilities of $9.8 billion.
|
|
|
(4) |
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole loan sales. |
|
|
(5) |
Other assets is primarily comprised of AFS marketable equity securities. |
During the nine months ended September 30, 2011, the transfers into Level 3 included $1.6 billion of trading account assets and $1.7 billion of long-term debt. Transfers into Level 3 for trading account assets were primarily certain CLOs, corporate loans and bonds that were transferred into Level 3 due to a lack of price transparency. Transfers into Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.
During the nine months ended September 30, 2011, the transfers out of Level 3 included $1.2 billion of trading account assets, $4.3 billion of loans and leases, $1.6 billion of other assets and $1.2 billion of long-term debt. Transfers out of Level 3 for trading account assets were primarily driven by increased price observability on certain RMBS, commercial mortgage-backed securities (CMBS) and consumer ABS portfolios. Transfers out of Level 3 for loans and leases were driven by increased observable inputs, primarily liquid comparables, for certain corporate loans. Transfers out of Level 3 for other assets were the result of an initial public offering of an equity investment. Transfers out of Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities.
The following tables summarize gains (losses) due to changes in fair value, including both realized and unrealized gains (losses), recorded in earnings for Level 3 assets and liabilities during the three and nine months ended September 30, 2012 and 2011. These amounts include gains (losses) on loans, LHFS, loan commitments and structured liabilities that are accounted for under the fair value option.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 – Total Realized and Unrealized Gains (Losses) Included in Earnings |
|
Three Months Ended September 30, 2012 |
(Dollars in millions) |
Equity
Investment
Income
(Loss)
|
|
Trading
Account
Profits
(Losses)
|
|
Mortgage
Banking
Income
(Loss) (1)
|
|
Other
Income
(Loss)
|
|
Total |
Trading account assets: |
|
|
|
|
|
|
|
|
|
Corporate securities, trading loans and other (2)
|
$ |
— |
|
|
$ |
69 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
69 |
|
Equity securities |
— |
|
|
15 |
|
|
— |
|
|
— |
|
|
15 |
|
Non-U.S. sovereign debt |
— |
|
|
7 |
|
|
— |
|
|
— |
|
|
7 |
|
Mortgage trading loans and ABS |
— |
|
|
111 |
|
|
— |
|
|
— |
|
|
111 |
|
Total trading account assets |
— |
|
|
202 |
|
|
— |
|
|
— |
|
|
202 |
|
Net derivative assets |
— |
|
|
(1,214 |
) |
|
958 |
|
|
— |
|
|
(256 |
) |
AFS debt securities – Tax-exempt securities |
— |
|
|
— |
|
|
— |
|
|
7 |
|
|
7 |
|
Loans and leases (2)
|
— |
|
|
— |
|
|
— |
|
|
69 |
|
|
69 |
|
Mortgage servicing rights |
— |
|
|
— |
|
|
(360 |
) |
|
— |
|
|
(360 |
) |
Loans held-for-sale (2)
|
— |
|
|
— |
|
|
10 |
|
|
76 |
|
|
86 |
|
Other assets |
39 |
|
|
— |
|
|
(15 |
) |
|
— |
|
|
24 |
|
Trading account liabilities – Corporate securities and other |
— |
|
|
4 |
|
|
— |
|
|
— |
|
|
4 |
|
Long-term debt (2)
|
— |
|
|
(45 |
) |
|
— |
|
|
(46 |
) |
|
(91 |
) |
Total |
$ |
39 |
|
|
$ |
(1,053 |
) |
|
$ |
593 |
|
|
$ |
106 |
|
|
$ |
(315 |
) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2011 |
Trading account assets: |
|
|
|
|
|
|
|
|
|
Corporate securities, trading loans and other (2)
|
$ |
— |
|
|
$ |
(219 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(219 |
) |
Equity securities |
— |
|
|
(8 |
) |
|
— |
|
|
— |
|
|
(8 |
) |
Non-U.S. sovereign debt |
— |
|
|
(17 |
) |
|
— |
|
|
— |
|
|
(17 |
) |
Mortgage trading loans and ABS |
— |
|
|
(112 |
) |
|
— |
|
|
— |
|
|
(112 |
) |
Total trading account assets |
— |
|
|
(356 |
) |
|
— |
|
|
— |
|
|
(356 |
) |
Net derivative assets |
— |
|
|
2,056 |
|
|
1,155 |
|
|
— |
|
|
3,211 |
|
AFS debt securities: |
|
|
|
|
|
|
|
|
|
Non-agency residential MBS |
— |
|
|
— |
|
|
— |
|
|
(41 |
) |
|
(41 |
) |
Corporate/Agency bonds |
— |
|
|
— |
|
|
— |
|
|
(4 |
) |
|
(4 |
) |
Other taxable securities |
— |
|
|
4 |
|
|
— |
|
|
(29 |
) |
|
(25 |
) |
Tax-exempt securities |
— |
|
|
— |
|
|
— |
|
|
8 |
|
|
8 |
|
Total AFS debt securities |
— |
|
|
4 |
|
|
— |
|
|
(66 |
) |
|
(62 |
) |
Loans and leases (2)
|
— |
|
|
— |
|
|
— |
|
|
(209 |
) |
|
(209 |
) |
Mortgage servicing rights |
— |
|
|
— |
|
|
(3,860 |
) |
|
— |
|
|
(3,860 |
) |
Loans held-for-sale (2)
|
— |
|
|
— |
|
|
(90 |
) |
|
(52 |
) |
|
(142 |
) |
Other assets |
(72 |
) |
|
— |
|
|
(32 |
) |
|
158 |
|
|
54 |
|
Trading account liabilities – Corporate securities and other |
— |
|
|
2 |
|
|
— |
|
|
— |
|
|
2 |
|
Other short-term borrowings (2)
|
— |
|
|
— |
|
|
58 |
|
|
— |
|
|
58 |
|
Long-term debt (2)
|
— |
|
|
344 |
|
|
— |
|
|
44 |
|
|
388 |
|
Total |
$ |
(72 |
) |
|
$ |
2,050 |
|
|
$ |
(2,769 |
) |
|
$ |
(125 |
) |
|
$ |
(916 |
) |
|
|
(1) |
Mortgage banking income does not reflect the impact of Level 1 and Level 2 hedges on MSRs. |
|
|
(2) |
Amounts represent instruments that are accounted for under the fair value option. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 – Total Realized and Unrealized Gains (Losses) Included in Earnings |
|
Nine Months Ended September 30, 2012 |
(Dollars in millions) |
Equity
Investment
Income
(Loss)
|
|
Trading
Account
Profits
(Losses)
|
|
Mortgage
Banking
Income
(Loss) (1)
|
|
Other
Income
(Loss)
|
|
Total |
Trading account assets: |
|
|
|
|
|
|
|
|
|
Corporate securities, trading loans and other (2)
|
$ |
— |
|
|
$ |
192 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
192 |
|
Equity securities |
— |
|
|
24 |
|
|
— |
|
|
— |
|
|
24 |
|
Non-U.S. sovereign debt |
— |
|
|
5 |
|
|
— |
|
|
— |
|
|
5 |
|
Mortgage trading loans and ABS |
— |
|
|
194 |
|
|
— |
|
|
— |
|
|
194 |
|
Total trading account assets |
— |
|
|
415 |
|
|
— |
|
|
— |
|
|
415 |
|
Net derivative assets |
— |
|
|
(2,358 |
) |
|
2,375 |
|
|
— |
|
|
17 |
|
AFS debt securities: |
|
|
|
|
|
|
|
|
|
Non-agency residential MBS |
— |
|
|
— |
|
|
— |
|
|
(69 |
) |
|
(69 |
) |
Corporate/Agency bonds |
— |
|
|
— |
|
|
— |
|
|
(2 |
) |
|
(2 |
) |
Other taxable securities |
— |
|
|
— |
|
|
— |
|
|
7 |
|
|
7 |
|
Tax-exempt securities |
— |
|
|
— |
|
|
— |
|
|
61 |
|
|
61 |
|
Total AFS debt securities |
— |
|
|
— |
|
|
— |
|
|
(3 |
) |
|
(3 |
) |
Loans and leases (2)
|
— |
|
|
— |
|
|
— |
|
|
284 |
|
|
284 |
|
Mortgage servicing rights |
— |
|
|
— |
|
|
(1,297 |
) |
|
— |
|
|
(1,297 |
) |
Loans held-for-sale (2)
|
— |
|
|
— |
|
|
105 |
|
|
160 |
|
|
265 |
|
Other assets |
28 |
|
|
— |
|
|
(57 |
) |
|
(81 |
) |
|
(110 |
) |
Trading account liabilities – Corporate securities and other |
— |
|
|
4 |
|
|
— |
|
|
— |
|
|
4 |
|
Accrued expenses and other liabilities (2)
|
— |
|
|
— |
|
|
— |
|
|
4 |
|
|
4 |
|
Long-term debt (2)
|
— |
|
|
(104 |
) |
|
— |
|
|
(135 |
) |
|
(239 |
) |
Total |
$ |
28 |
|
|
$ |
(2,043 |
) |
|
$ |
1,126 |
|
|
$ |
229 |
|
|
$ |
(660 |
) |
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2011 |
Trading account assets: |
|
|
|
|
|
|
|
|
|
Corporate securities, trading loans and other (2)
|
$ |
— |
|
|
$ |
456 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
456 |
|
Equity securities |
— |
|
|
57 |
|
|
— |
|
|
— |
|
|
57 |
|
Non-U.S. sovereign debt |
— |
|
|
68 |
|
|
— |
|
|
— |
|
|
68 |
|
Mortgage trading loans and ABS |
— |
|
|
530 |
|
|
— |
|
|
— |
|
|
530 |
|
Total trading account assets |
— |
|
|
1,111 |
|
|
— |
|
|
— |
|
|
1,111 |
|
Net derivative assets |
— |
|
|
2,153 |
|
|
3,303 |
|
|
— |
|
|
5,456 |
|
AFS debt securities: |
|
|
|
|
|
|
|
|
|
Non-agency residential MBS |
— |
|
|
— |
|
|
— |
|
|
(86 |
) |
|
(86 |
) |
Corporate/Agency bonds |
— |
|
|
— |
|
|
— |
|
|
(2 |
) |
|
(2 |
) |
Other taxable securities |
— |
|
|
16 |
|
|
— |
|
|
11 |
|
|
27 |
|
Tax-exempt securities |
— |
|
|
(3 |
) |
|
— |
|
|
17 |
|
|
14 |
|
Total AFS debt securities |
— |
|
|
13 |
|
|
— |
|
|
(60 |
) |
|
(47 |
) |
Loans and leases (2)
|
— |
|
|
— |
|
|
(13 |
) |
|
13 |
|
|
— |
|
Mortgage servicing rights |
— |
|
|
— |
|
|
(6,060 |
) |
|
— |
|
|
(6,060 |
) |
Loans held-for-sale (2)
|
— |
|
|
— |
|
|
(101 |
) |
|
144 |
|
|
43 |
|
Other assets |
242 |
|
|
— |
|
|
(44 |
) |
|
158 |
|
|
356 |
|
Trading account liabilities – Corporate securities and other |
— |
|
|
2 |
|
|
— |
|
|
— |
|
|
2 |
|
Other short-term borrowings (2)
|
— |
|
|
— |
|
|
(24 |
) |
|
— |
|
|
(24 |
) |
Accrued expenses and other liabilities (2)
|
— |
|
|
(10 |
) |
|
74 |
|
|
— |
|
|
64 |
|
Long-term debt (2)
|
— |
|
|
242 |
|
|
— |
|
|
3 |
|
|
245 |
|
Total |
$ |
242 |
|
|
$ |
3,511 |
|
|
$ |
(2,865 |
) |
|
$ |
258 |
|
|
$ |
1,146 |
|
|
|
(1) |
Mortgage banking income does not reflect the impact of Level 1 and Level 2 hedges on MSRs. |
|
|
(2) |
Amounts represent instruments that are accounted for under the fair value option. |
The following tables summarize changes in unrealized gains (losses) recorded in earnings during the three and nine months ended September 30, 2012 and 2011 for Level 3 assets and liabilities that were still held at September 30, 2012 and 2011. These amounts include changes in fair value on loans, LHFS, loan commitments and structured liabilities that are accounted for under the fair value option.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 – Changes in Unrealized Gains (Losses) Relating to Assets and Liabilities Still Held at Reporting Date |
|
Three Months Ended September 30, 2012 |
(Dollars in millions) |
Equity
Investment
Income
(Loss)
|
|
Trading
Account
Profits
(Losses)
|
|
Mortgage
Banking
Income
(Loss) (1)
|
|
Other
Income
(Loss)
|
|
Total |
Trading account assets: |
|
|
|
|
|
|
|
|
|
Corporate securities, trading loans and other (2)
|
$ |
— |
|
|
$ |
36 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
36 |
|
Equity securities |
— |
|
|
13 |
|
|
— |
|
|
— |
|
|
13 |
|
Non-U.S. sovereign debt |
— |
|
|
8 |
|
|
— |
|
|
— |
|
|
8 |
|
Mortgage trading loans and ABS |
— |
|
|
89 |
|
|
— |
|
|
— |
|
|
89 |
|
Total trading account assets |
— |
|
|
146 |
|
|
— |
|
|
— |
|
|
146 |
|
Net derivative assets |
— |
|
|
(1,202 |
) |
|
691 |
|
|
— |
|
|
(511 |
) |
Loans and leases (2)
|
— |
|
|
— |
|
|
— |
|
|
71 |
|
|
71 |
|
Mortgage servicing rights |
— |
|
|
— |
|
|
(552 |
) |
|
— |
|
|
(552 |
) |
Loans held-for-sale (2)
|
— |
|
|
— |
|
|
17 |
|
|
68 |
|
|
85 |
|
Other assets |
115 |
|
|
— |
|
|
(14 |
) |
|
4 |
|
|
105 |
|
Accrued expenses and other liabilities (2)
|
— |
|
|
— |
|
|
— |
|
|
(2 |
) |
|
(2 |
) |
Long-term debt (2)
|
— |
|
|
(46 |
) |
|
— |
|
|
(46 |
) |
|
(92 |
) |
Total |
$ |
115 |
|
|
$ |
(1,102 |
) |
|
$ |
142 |
|
|
$ |
95 |
|
|
$ |
(750 |
) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2011 |
Trading account assets: |
|
|
|
|
|
|
|
|
|
Corporate securities, trading loans and other (2)
|
$ |
— |
|
|
$ |
(251 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(251 |
) |
Equity securities |
— |
|
|
(20 |
) |
|
— |
|
|
— |
|
|
(20 |
) |
Non-U.S. sovereign debt |
— |
|
|
16 |
|
|
— |
|
|
— |
|
|
16 |
|
Mortgage trading loans and ABS |
— |
|
|
(136 |
) |
|
— |
|
|
— |
|
|
(136 |
) |
Total trading account assets |
— |
|
|
(391 |
) |
|
— |
|
|
— |
|
|
(391 |
) |
Net derivative assets |
— |
|
|
1,998 |
|
|
616 |
|
|
— |
|
|
2,614 |
|
AFS debt securities: |
|
|
|
|
|
|
|
|
|
Non-agency residential MBS |
— |
|
|
— |
|
|
— |
|
|
(42 |
) |
|
(42 |
) |
Corporate/Agency bonds |
— |
|
|
— |
|
|
— |
|
|
(6 |
) |
|
(6 |
) |
Other taxable securities |
— |
|
|
(2 |
) |
|
— |
|
|
(44 |
) |
|
(46 |
) |
Total AFS debt securities |
— |
|
|
(2 |
) |
|
— |
|
|
(92 |
) |
|
(94 |
) |
Loans and leases (2)
|
— |
|
|
— |
|
|
— |
|
|
(208 |
) |
|
(208 |
) |
Mortgage servicing rights |
— |
|
|
— |
|
|
(4,112 |
) |
|
— |
|
|
(4,112 |
) |
Loans held-for-sale (2)
|
— |
|
|
— |
|
|
(88 |
) |
|
(73 |
) |
|
(161 |
) |
Other assets |
(265 |
) |
|
— |
|
|
(32 |
) |
|
158 |
|
|
(139 |
) |
Trading account liabilities – Corporate securities and other |
— |
|
|
2 |
|
|
— |
|
|
— |
|
|
2 |
|
Other short-term borrowings (2)
|
— |
|
|
— |
|
|
50 |
|
|
— |
|
|
50 |
|
Long-term debt (2)
|
— |
|
|
331 |
|
|
— |
|
|
44 |
|
|
375 |
|
Total |
$ |
(265 |
) |
|
$ |
1,938 |
|
|
$ |
(3,566 |
) |
|
$ |
(171 |
) |
|
$ |
(2,064 |
) |
|
|
(1) |
Mortgage banking income does not reflect the impact of Level 1 and Level 2 hedges on MSRs. |
|
|
(2) |
Amounts represent instruments that are accounted for under the fair value option. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 – Changes in Unrealized Gains (Losses) Relating to Assets and Liabilities Still Held at Reporting Date |
|
Nine Months Ended September 30, 2012 |
(Dollars in millions) |
Equity
Investment
Income
(Loss)
|
|
Trading
Account
Profits
(Losses)
|
|
Mortgage
Banking
Income
(Loss) (1)
|
|
Other
Income
(Loss)
|
|
Total |
Trading account assets: |
|
|
|
|
|
|
|
|
|
Corporate securities, trading loans and other (2)
|
$ |
— |
|
|
$ |
95 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
95 |
|
Equity securities |
— |
|
|
24 |
|
|
— |
|
|
— |
|
|
24 |
|
Non-U.S. sovereign debt |
— |
|
|
16 |
|
|
— |
|
|
— |
|
|
16 |
|
Mortgage trading loans and ABS |
— |
|
|
119 |
|
|
— |
|
|
— |
|
|
119 |
|
Total trading account assets |
— |
|
|
254 |
|
|
— |
|
|
— |
|
|
254 |
|
Net derivative assets |
— |
|
|
(2,526 |
) |
|
1,624 |
|
|
— |
|
|
(902 |
) |
Loans and leases (2)
|
— |
|
|
— |
|
|
— |
|
|
242 |
|
|
242 |
|
Mortgage servicing rights |
— |
|
|
— |
|
|
(1,804 |
) |
|
— |
|
|
(1,804 |
) |
Loans held-for-sale (2)
|
— |
|
|
— |
|
|
76 |
|
|
127 |
|
|
203 |
|
Other assets |
90 |
|
|
— |
|
|
(54 |
) |
|
(78 |
) |
|
(42 |
) |
Trading account liabilities – Corporate securities and other |
— |
|
|
3 |
|
|
— |
|
|
— |
|
|
3 |
|
Long-term debt (2)
|
— |
|
|
(105 |
) |
|
— |
|
|
(134 |
) |
|
(239 |
) |
Total |
$ |
90 |
|
|
$ |
(2,374 |
) |
|
$ |
(158 |
) |
|
$ |
157 |
|
|
$ |
(2,285 |
) |
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2011 |
Trading account assets: |
|
|
|
|
|
|
|
|
|
Corporate securities, trading loans and other (2)
|
$ |
— |
|
|
$ |
(13 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(13 |
) |
Equity securities |
— |
|
|
(84 |
) |
|
— |
|
|
— |
|
|
(84 |
) |
Non-U.S. sovereign debt |
— |
|
|
86 |
|
|
— |
|
|
— |
|
|
86 |
|
Mortgage trading loans and ABS |
— |
|
|
104 |
|
|
— |
|
|
— |
|
|
104 |
|
Total trading account assets |
— |
|
|
93 |
|
|
— |
|
|
— |
|
|
93 |
|
Net derivative assets |
— |
|
|
2,037 |
|
|
1,232 |
|
|
— |
|
|
3,269 |
|
AFS debt securities: |
|
|
|
|
|
|
|
|
|
Non-agency residential MBS |
— |
|
|
— |
|
|
— |
|
|
(140 |
) |
|
(140 |
) |
Corporate/Agency bonds |
— |
|
|
— |
|
|
— |
|
|
(6 |
) |
|
(6 |
) |
Other taxable securities |
— |
|
|
(2 |
) |
|
— |
|
|
(44 |
) |
|
(46 |
) |
Total AFS debt securities |
— |
|
|
(2 |
) |
|
— |
|
|
(190 |
) |
|
(192 |
) |
Loans and leases (2)
|
— |
|
|
— |
|
|
— |
|
|
(105 |
) |
|
(105 |
) |
Mortgage servicing rights |
— |
|
|
— |
|
|
(7,129 |
) |
|
— |
|
|
(7,129 |
) |
Loans held-for-sale (2)
|
— |
|
|
3 |
|
|
(135 |
) |
|
10 |
|
|
(122 |
) |
Other assets |
(132 |
) |
|
— |
|
|
(43 |
) |
|
158 |
|
|
(17 |
) |
Trading account liabilities – Corporate securities and other |
— |
|
|
2 |
|
|
— |
|
|
— |
|
|
2 |
|
Other short-term borrowings (2)
|
— |
|
|
— |
|
|
(11 |
) |
|
— |
|
|
(11 |
) |
Long-term debt (2)
|
— |
|
|
229 |
|
|
— |
|
|
(9 |
) |
|
220 |
|
Total |
$ |
(132 |
) |
|
$ |
2,362 |
|
|
$ |
(6,086 |
) |
|
$ |
(136 |
) |
|
$ |
(3,992 |
) |
|
|
(1) |
Mortgage banking income does not reflect the impact of Level 1 and Level 2 hedges on MSRs. |
|
|
(2) |
Amounts represent instruments that are accounted for under the fair value option. |
The following tables present information about significant unobservable inputs related to the Corporation's material categories of Level 3 financial assets and liabilities at September 30, 2012. The level of aggregation and span of products disclosed result in certain ranges of inputs being wide and unevenly distributed across asset and liability categories.
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements |
(Dollars in millions) |
|
|
Inputs |
Financial Instrument |
Fair Value |
Valuation Technique |
Significant Unobservable Inputs |
Ranges of Inputs |
Loans and Securities (1)
|
|
|
|
|
Instruments backed by residential real estate assets |
$ |
5,405 |
|
Discounted cash flow, Market comparables |
Yield |
2% to 25% |
Trading account assets – Mortgage trading loans and ABS |
789 |
|
Prepayment speed |
1% to 30% CPR |
Loans and leases |
1,517 |
|
Default rate |
0% to 57% CDR |
Loans held-for-sale |
3,099 |
|
Loss severity |
6% to 80% |
Instruments backed by commercial real estate assets |
$ |
2,121 |
|
Discounted cash flow |
Yield |
4% to 13% |
Trading account assets – Mortgage trading loans and ABS |
246 |
|
Loss severity |
22% to 100% |
Loans held-for-sale |
214 |
|
|
|
Other assets |
1,661 |
|
|
|
Commercial loans, debt securities and other |
$ |
11,028 |
|
Discounted cash flow, Market comparables |
Yield |
0% to 20% |
Trading account assets – Corporate securities, trading loans and other |
2,564 |
|
Enterprise value/EBITDA multiple |
3x to 7x |
Trading account assets – Mortgage trading loans and ABS |
3,871 |
|
Prepayment speed |
5% to 25% |
AFS debt securities – Other taxable securities |
3,857 |
|
Default rate |
1% to 5% |
Loans and leases |
736 |
|
Loss severity |
25% to 40% |
Auction rate securities |
$ |
3,934 |
|
Discounted cash flow, Market comparables |
Discount rate |
1% to 10% |
Trading account assets – Corporate securities, trading loans and other |
1,609 |
|
Projected tender price/Re-financing level |
50% to 100% |
AFS debt securities – Other taxable securities |
1,264 |
|
|
AFS debt securities – Tax-exempt securities |
1,061 |
|
|
|
Structured liabilities |
|
|
|
|
Long-term debt |
$ |
(2,290 |
) |
Industry standard derivative pricing (2)
|
Equity correlation |
30% to 97% |
|
|
Long-dated volatilities |
20% to 70% |
|
|
|
|
|
|
(1) |
The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 236: Trading account assets – Corporate securities, trading loans and other of $4.2 billion, Trading account assets – Mortgage trading loans and ABS of $4.9 billion, AFS debt securities – Other taxable securities of $5.1 billion, AFS debt securities – Tax-exempt securities of $1.1 billion, Loans and leases of $2.3 billion, LHFS of $3.3 billion and Other assets of $1.7 billion.
|
|
|
(2) |
Includes models such as Monte Carlo simulation and Black-Scholes. |
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
EBITDA = Earnings before interest, taxes, depreciation and amortization
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements (continued) |
(Dollars in millions) |
|
|
Inputs |
Financial Instrument |
Fair Value |
Valuation Technique |
Significant Unobservable Inputs |
Ranges of Inputs |
Net derivatives assets |
|
|
|
|
Credit derivatives |
$ |
3,729 |
|
Discounted cash flow, Stochastic recovery correlation model |
Yield |
2% to 25% |
|
|
Credit spreads |
71 bps to 600 bps |
|
|
Upfront points |
30 points to 99 points |
|
|
Spread to index |
-1,874 bps to 2,708 bps |
|
|
Credit correlation |
30% to 80% |
|
|
Prepayment speed |
5% to 30% CPR |
|
|
Default rate |
1% to 5% CDR |
|
|
Loss severity |
25% to 75% |
Equity derivatives |
$ |
(1,047 |
) |
Industry standard derivative pricing (1)
|
Equity correlation |
30% to 97% |
|
|
Long-dated volatilities |
20% to 70% |
|
|
|
|
Commodity derivatives |
$ |
(1 |
) |
Discounted cash flow |
Long-term natural gas basis curve |
-$0.27 to $0.31 |
Interest rate derivatives |
$ |
279 |
|
Industry standard derivative pricing (1)
|
Correlation (IR/IR) |
15% to 99% |
|
|
Correlation (FX/IR) |
-65% to 50% |
|
|
Long-dated inflation rates |
1% to 3% |
|
|
Long-dated inflation volatilities |
0% to 2% |
|
|
Long-dated volatilities (FX) |
5% to 36% |
|
|
Long-dated swap rates |
3% to 10% |
Total net derivative assets |
$ |
2,960 |
|
|
|
|
|
|
(1) |
Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates. |
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
IR = Interest Rate
FX = Foreign Exchange
In the tables above, instruments backed by residential and commercial real estate assets include RMBS, CMBS, whole loans, mortgage CDOs and net monoline exposure. Commercial loans, debt securities and other includes corporate CLOs and CDOs, commercial loans and bonds, and securities backed by non-real estate assets. Structured liabilities primarily includes equity-linked notes that are accounted for under the fair value option.
In addition to the instruments in the tables above, the Corporation holds $1.3 billion of instruments consisting primarily of certain direct private equity investments and private equity funds that are classified as Level 3 and reported within other assets. Valuations of direct private equity investments are prepared internally based on the most recent company financial information. Inputs generally include market and acquisition comparables, entry level multiples, as well as other variables. The Corporation selects a valuation methodology (e.g., market comparables) for each investment and, in certain instances, multiple inputs are weighted to derive the most representative value. Discounts are applied as appropriate to consider the lack of liquidity and marketability versus publicly-traded companies. For private equity funds, fair value is determined using the net asset value as provided by the individual fund's general partner.
For information on the inputs and techniques used in the valuation of MSRs, see Note 18 – Mortgage Servicing Rights.
The Corporation uses multiple market approaches in valuing certain of its Level 3 financial instruments. For example, market comparables and discounted cash flows are used together. For a given product, such as corporate debt securities, market comparables may be used to estimate some of the unobservable inputs and then these inputs are incorporated into a discounted cash flow model. Therefore, the balances disclosed encompass both of these techniques.
The level of aggregation and diversity within the products disclosed in the table result in certain ranges of inputs being wide and unevenly distributed across asset and liability categories. For instruments backed by residential real estate assets, diversity in the portfolio is reflected in a wide range for loss severity due to varying levels of default. The lower end of the range represents high performing loans with a low probability of default while the higher end of the range relates to more distressed loans with a greater risk of default.
For credit derivatives, the range of credit spreads represents positions with varying levels of risk. The lower end of the credit spread range typically represents shorter-dated instruments and those with better perceived credit risk. The higher end of the range comprises longer-dated instruments and those referencing nonperforming or impaired reference issuers. Similarly, the spread to index can vary significantly based on the risk of the instrument. The spread will be positive for instruments that have a higher risk of default than the index (which is based on a weighted average of its components) and negative for instruments that have a lower risk of default than the index.
For interest rate derivatives, the diversity in the portfolio is reflected in wide ranges of inputs because varying currencies and tenors result in the use of numerous foreign exchange and interest rate curves. Since foreign exchange and interest rate correlations are measured between curves and across the various tenors on the same curve, the range of potential values can include both negative and positive values.
Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs
Loans and Securities
For instruments backed by residential real estate assets, commercial real estate assets, and commercial loans, debt securities and other, a significant increase in market yields, default rates or loss severities would result in a significantly lower fair value for long positions. Short positions would be impacted in a directionally opposite way. The impact of changes in prepayment speeds would have differing impacts depending on the seniority of the instrument and, in the case of CLOs, whether prepayments can be reinvested.
For closed-end auction rate securities (ARS), a significant increase in discount rates would result in a significantly lower fair value. For student loan and municipal ARS, a significant increase in projected tender price/refinancing levels would result in a significantly higher fair value.
Structured Liabilities and Derivatives
For credit derivatives, a significant increase in market yield, including spreads to indices, upfront points (i.e., a single upfront payment made by a protection buyer at inception), credit spreads, default rates or loss severities would result in a significantly lower fair value for protection sellers and higher fair value for protection buyers. The impact of changes in prepayment speeds would have differing impacts depending on the seniority of the instrument and, in the case of CLOs, whether prepayments can be reinvested.
Structured credit derivatives, which include tranched portfolio CDS and derivatives with derivative product company (DPC) and monoline counterparties, are impacted by credit correlation, including default and wrong-way correlation. Default correlation is a parameter that describes the degree of dependence among credit default rates within a credit portfolio that underlies a credit derivative instrument. The sensitivity of this input on the fair value varies depending on the level of subordination of the tranche. For senior tranches that are net purchases of protection, a significant increase in default correlation would result in a significantly higher fair value. Net short protection positions would be impacted in a directionally opposite way. Wrong-way correlation is a parameter that describes the probability that as exposure to a counterparty increases, the credit quality of the counterparty decreases. A significantly higher degree of wrong-way correlation between a DPC counterparty and underlying derivative exposure would result in a significantly lower fair value.
For equity derivatives, equity-linked long-term debt (structured liabilities) and interest rate derivatives, a significant change in long-dated rates and volatilities and correlation inputs (e.g., the degree of correlation between an equity security and an index, between two different interest rates, or between interest rates and foreign exchange rates) would result in a significant impact to the fair value; however, the magnitude and direction of the impact depends on whether the Corporation is long or short the exposure.
The Corporation holds certain assets that are measured at fair value, but only in certain situations (for example, impairment) and these measurements are referred to herein as nonrecurring. These assets primarily include LHFS, certain loans and leases, and foreclosed properties. The amounts below represent only balances measured at fair value during the three and nine months ended September 30, 2012 and 2011, and still held as of the reporting date.
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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis |
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September 30, 2012 |
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Three Months Ended September 30, 2012 |
|
Nine Months Ended September 30, 2012 |
(Dollars in millions) |
Level 2 |
|
Level 3 |
|
Gains (Losses) |
Assets |
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|
|
Loans held-for-sale |
$ |
3,551 |
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|
$ |
1,006 |
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|
$ |
1 |
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|
$ |
6 |
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Loans and leases (1)
|
16 |
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|
8,576 |
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|
(1,548 |
) |
|
(3,422 |
) |
Foreclosed properties (2)
|
64 |
|
|
1,436 |
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(23 |
) |
|
(179 |
) |
Other assets |
32 |
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|
111 |
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|
9 |
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11 |
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September 30, 2011 |
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Three Months Ended September 30, 2011 |
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Nine Months Ended September 30, 2011 |
(Dollars in millions) |
Level 2 |
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Level 3 |
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Gains (Losses) |
Assets |
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|
Loans held-for-sale |
$ |
9,284 |
|
|
$ |
1,465 |
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|
$ |
(85 |
) |
|
$ |
(19 |
) |
Loans and leases (1)
|
6 |
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10,368 |
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(1,445 |
) |
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(4,153 |
) |
Foreclosed properties (2)
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— |
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2,556 |
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(87 |
) |
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(233 |
) |
Other assets |
20 |
|
|
861 |
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(20 |
) |
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(43 |
) |
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(1) |
Losses represent charge-offs on real estate-secured loans. |
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(2) |
Amounts are included in other assets on the Corporation's Consolidated Balance Sheet and represent fair value and related losses on foreclosed properties that were written down subsequent to their initial classification as foreclosed properties. |
The table below presents information about significant unobservable inputs related to the Corporation's nonrecurring Level 3 financial assets and liabilities at September 30, 2012.
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Quantitative Information about Nonrecurring Level 3 Fair Value Measurements |
(Dollars in millions) |
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Inputs |
Financial Instrument |
Fair Value |
Valuation Technique |
Significant Unobservable Inputs |
Ranges of Inputs |
Instruments backed by residential real estate assets |
$ |
9,277 |
|
Discounted cash flows, Market comparables |
Yield |
3% to 6% |
Loans held-for-sale |
701 |
|
Prepayment speed |
2% to 27% |
Loans and leases |
8,576 |
|
Default rate |
0% to 67% |
|
|
Loss severity |
6% to 72% |
|
|
OREO discount |
0% to 29% |
|
|
Cost to sell |
8% |
Instruments backed by commercial real estate assets |
$ |
305 |
|
Discounted cash flows |
Yield |
4% to 13% |
Loans held-for-sale |
305 |
|
Loss severity |
22% to 100% |
Instruments backed by residential real estate assets represent residential mortgages where the loan has been written down to the fair value of the underlying collateral or, in the case of LHFS, are carried at the lower of cost or fair value.
In addition to the instruments disclosed in the table above, the Corporation holds foreclosed residential properties where the fair value is based on unadjusted third-party appraisals or broker price opinions. Appraisals are conducted every 90 days. Factors considered in determining the fair value include geographic sales trends, the value of comparable surrounding properties as well as the condition of the property.
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