Quarterly report pursuant to Section 13 or 15(d)

Derivatives (Tables)

v2.4.0.6
Derivatives (Tables)
9 Months Ended
Sep. 30, 2012
Derivatives [Abstract]  
Schedule of Derivative Instruments
The following tables present derivative instruments included on the Corporation’s Consolidated Balance Sheet in derivative assets and liabilities at September 30, 2012 and December 31, 2011. Balances are presented on a gross basis, prior to the application of counterparty and cash 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 received or paid.

 
September 30, 2012
 
 
 
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
 
Total
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
$
35,256.0

 
$
1,147.8

 
$
14.7

 
$
1,162.5

 
$
1,132.8

 
$
5.1

 
$
1,137.9

Futures and forwards
13,171.6

 
3.9

 

 
3.9

 
3.9

 

 
3.9

Written options
2,348.0

 

 

 

 
111.0

 

 
111.0

Purchased options
2,256.2

 
111.3

 

 
111.3

 

 

 

Foreign exchange contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
2,530.7

 
52.3

 
2.1

 
54.4

 
61.0

 
2.2

 
63.2

Spot, futures and forwards
3,066.8

 
26.2

 
0.3

 
26.5

 
27.5

 
1.2

 
28.7

Written options
446.0

 

 

 

 
6.9

 

 
6.9

Purchased options
373.7

 
6.6

 

 
6.6

 

 

 

Equity contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
120.8

 
2.0

 

 
2.0

 
2.3

 

 
2.3

Futures and forwards
52.8

 
1.5

 

 
1.5

 
1.4

 

 
1.4

Written options
367.0

 

 

 

 
20.7

 

 
20.7

Purchased options
334.4

 
20.0

 

 
20.0

 

 

 

Commodity contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
69.2

 
3.3

 

 
3.3

 
4.6

 

 
4.6

Futures and forwards
581.6

 
4.9

 

 
4.9

 
2.7

 

 
2.7

Written options
195.0

 

 

 

 
3.1

 

 
3.1

Purchased options
197.8

 
2.6

 

 
2.6

 

 

 

Credit derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchased credit derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps
1,654.5

 
45.1

 

 
45.1

 
19.8

 

 
19.8

Total return swaps/other
36.6

 
2.4

 

 
2.4

 
2.9

 

 
2.9

Written credit derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps
1,612.3

 
21.1

 

 
21.1

 
41.6

 

 
41.6

Total return swaps/other
60.2

 
1.6

 

 
1.6

 
0.5

 

 
0.5

Gross derivative assets/liabilities
 
 
$
1,452.6

 
$
17.1

 
$
1,469.7

 
$
1,442.7

 
$
8.5

 
$
1,451.2

Less: Legally enforceable master netting agreements
 
 
 
 
 
(1,351.7
)
 
 
 
 
 
(1,351.7
)
Less: Cash collateral received/paid
 
 
 
 
 
 
(60.0
)
 
 
 
 
 
(48.1
)
Total derivative assets/liabilities
 
 
 
 
 
 
$
57.9

 
 
 
 
 
$
51.4

(1) 
Represents the total contract/notional amount of derivative assets and liabilities outstanding.

 
December 31, 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
 
Total
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
$
40,473.7

 
$
1,490.7

 
$
15.9

 
$
1,506.6

 
$
1,473.0

 
$
12.3

 
$
1,485.3

Futures and forwards
12,105.8

 
2.9

 
0.2

 
3.1

 
3.4

 

 
3.4

Written options
2,534.0

 

 

 

 
117.8

 

 
117.8

Purchased options
2,467.2

 
120.0

 

 
120.0

 

 

 

Foreign exchange contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
2,381.6

 
48.3

 
2.6

 
50.9

 
58.9

 
2.2

 
61.1

Spot, futures and forwards
2,548.8

 
37.2

 
1.3

 
38.5

 
39.2

 
0.3

 
39.5

Written options
368.5

 

 

 

 
9.4

 

 
9.4

Purchased options
341.0

 
9.0

 

 
9.0

 

 

 

Equity contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
75.5

 
1.5

 

 
1.5

 
1.7

 

 
1.7

Futures and forwards
52.1

 
1.8

 

 
1.8

 
1.5

 

 
1.5

Written options
367.1

 

 

 

 
17.7

 

 
17.7

Purchased options
360.2

 
19.6

 

 
19.6

 

 

 

Commodity contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
73.8

 
4.9

 
0.1

 
5.0

 
5.9

 

 
5.9

Futures and forwards
470.5

 
5.3

 

 
5.3

 
3.2

 

 
3.2

Written options
142.3

 

 

 

 
9.5

 

 
9.5

Purchased options
141.3

 
9.5

 

 
9.5

 

 

 

Credit derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchased credit derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps
1,944.8

 
95.8

 

 
95.8

 
13.8

 

 
13.8

Total return swaps/other
17.5

 
0.6

 

 
0.6

 
0.3

 

 
0.3

Written credit derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps
1,885.9

 
14.1

 

 
14.1

 
90.5

 

 
90.5

Total return swaps/other
17.8

 
0.5

 

 
0.5

 
0.7

 

 
0.7

Gross derivative assets/liabilities
 
 
$
1,861.7

 
$
20.1

 
$
1,881.8

 
$
1,846.5

 
$
14.8

 
$
1,861.3

Less: Legally enforceable master netting agreements
 
 
 
 
 
(1,749.9
)
 
 
 
 
 
(1,749.9
)
Less: Cash collateral received/paid
 
 
 
 
 
 
(58.9
)
 
 
 
 
 
(51.9
)
Total derivative assets/liabilities
 
 
 
 
 
 
$
73.0

 
 
 
 
 
$
59.5

(1) 
Represents the total contract/notional amount of derivative assets and liabilities outstanding.

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value
The table below summarizes certain information related to fair value hedges for the three and nine months ended September 30, 2012 and 2011.

Derivatives Designated as Fair Value Hedges
Gains (losses)
Three Months Ended September 30
 
Nine Months Ended September 30
 
2012
 
2012
(Dollars in millions)
Derivative
 
Hedged
Item
 
Hedge
Ineffectiveness
 
Derivative
 
Hedged
Item
 
Hedge
Ineffectiveness
Interest rate risk on long-term debt (1)
$
109

 
$
(385
)
 
$
(276
)
 
$
518

 
$
(1,265
)
 
$
(747
)
Interest rate and foreign currency risk on long-term debt (1)
(716
)
 
647

 
(69
)
 
(1,455
)
 
1,259

 
(196
)
Interest rate risk on AFS securities (2)
349

 
(309
)
 
40

 
(593
)
 
659

 
66

Commodity price risk on commodity inventory (3)
(24
)
 
24

 

 
(10
)
 
10

 

Total
$
(282
)
 
$
(23
)
 
$
(305
)
 
$
(1,540
)
 
$
663

 
$
(877
)
 
 
 
 
 
 
 
 
 
 
 
 
 
2011
 
2011
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)
(871
)
 
759

 
(112
)
 
1,317

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

 
(610
)
 
(11,141
)
 
10,356

 
(785
)
Commodity price risk on commodity inventory (3)
16

 
(16
)
 

 
32

 
(32
)
 

Total
$
(7,220
)
 
$
6,320

 
$
(900
)
 
$
(5,298
)
 
$
3,852

 
$
(1,446
)
(1) 
Amounts are recorded in interest expense on long-term debt and in other income (loss).
(2) 
Amounts are recorded in interest income on AFS securities.
(3) 
Amounts relating to commodity inventory are recorded in trading account profits.

Schedule of Cash Flow and Net Investment Hedges
Derivatives Designated as Cash Flow and Net Investment Hedges
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2012
 
2012
(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)
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate risk on variable rate portfolios
$
21

 
$
(260
)
 
$

 
$
(32
)
 
$
(636
)
 
$

Commodity price risk on forecasted purchases and sales

 
3

 

 

 

 

Price risk on restricted stock awards
65

 
(28
)
 

 
156

 
(89
)
 

Total
$
86

 
$
(285
)
 
$

 
$
124

 
$
(725
)
 
$

Net investment hedges
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange risk
$
(1,149
)
 
$
11

 
$
(13
)
 
$
(1,021
)
 
$
(26
)
 
$
(180
)
 
 
 
 
 
 
 
 
 
 
 
 
 
2011
 
2011
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Interest rate risk on variable rate portfolios
$
(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
)
(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.
Schedule of Economic Hedges
The table below presents gains (losses) on these derivatives for the three and nine months ended September 30, 2012 and 2011. These gains (losses) are largely offset by the income or expense that is recorded on the economically hedged item.

Derivatives Accounted for as Economic Hedges
Gains (losses)
Three Months Ended September 30
 
Nine Months Ended September 30
(Dollars in millions)
2012
 
2011
 
2012
 
2011
Price risk on mortgage banking production income (1, 2)
$
850

 
$
1,158

 
$
2,240

 
$
2,324

Market-related risk on mortgage banking servicing income (1)
822

 
2,678

 
1,970

 
3,063

Credit risk on loans (3)
(32
)
 
66

 
(71
)
 
38

Interest rate and foreign currency risk on long-term debt and other foreign exchange transactions (4)
(309
)
 
(3,616
)
 
(987
)
 
1,604

Price risk on restricted stock awards (5)
142

 
(392
)
 
392

 
(556
)
Other
16

 
104

 
105

 
172

Total
$
1,489

 
$
(2
)
 
$
3,649

 
$
6,645

(1) 
Net gains on these derivatives are recorded in mortgage banking income.
(2) 
Includes net gains on interest rate lock commitments related to the origination of mortgage loans that are held-for-sale, which are considered derivative instruments, of $1.0 billion and $2.4 billion for the three and nine months ended September 30, 2012 compared to $1.2 billion and $3.4 billion for the same periods in 2011.
(3) 
Net gains (losses) on these derivatives are recorded in other income (loss).
(4) 
The majority of the balance is related to the revaluation of economic hedges of foreign currency-denominated debt which is recorded in other income (loss). The offsetting revaluation of the foreign currency-denominated debt, while not included in the table above, is also recorded in other income (loss).
(5) 
Gains (losses) on these derivatives are recorded in personnel expense.

Schedule of Derivative Instruments Included in Trading Activities
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 Global Markets, categorized by primary risk, for the three and nine months ended September 30, 2012 and 2011. The difference between total trading account profits in the table below and in the Corporation's Consolidated Statement of Income represents trading activities in business segments other than Global Markets.

Sales and Trading Revenue
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2012
 
2012
(Dollars in millions)
Trading
Account
Profits
 
Net Interest Income
 
Other (1)
 
Total
 
Trading
Account
Profits
 
Net Interest Income
 
Other (1)
 
Total
Interest rate risk
$
67

 
$
267

 
$
7

 
$
341

 
$
522

 
$
752

 
$
28

 
$
1,302

Foreign exchange risk
192

 
1

 
2

 
195

 
658

 
5

 
(35
)
 
628

Equity risk
196

 
15

 
453

 
664

 
989

 
(90
)
 
1,432

 
2,331

Credit risk
661

 
552

 
130

 
1,343

 
2,359

 
1,632

 
862

 
4,853

Other risk
120

 
(45
)
 
(12
)
 
63

 
453

 
(169
)
 
30

 
314

Total sales and trading revenue
$
1,236

 
$
790

 
$
580

 
$
2,606

 
$
4,981

 
$
2,130

 
$
2,317

 
$
9,428

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2011
 
2011
Interest rate risk
$
1,237

 
$
256

 
$
24

 
$
1,517

 
$
2,029

 
$
672

 
$
21

 
$
2,722

Foreign exchange risk
332

 
2

 
(16
)
 
318

 
825

 
8

 
(48
)
 
785

Equity risk
280

 
48

 
628

 
956

 
1,341

 
77

 
1,854

 
3,272

Credit risk
(630
)
 
636

 
41

 
47

 
1,365

 
2,044

 
683

 
4,092

Other risk
201

 
(62
)
 
(8
)
 
131

 
488

 
(126
)
 
(16
)
 
346

Total sales and trading revenue
$
1,420

 
$
880

 
$
669

 
$
2,969

 
$
6,048

 
$
2,675

 
$
2,494

 
$
11,217

(1) 
Represents amounts in the investment and brokerage services and other income (loss) line items in the Consolidated Statement of Income that are recorded in Global Markets and included in the definition of sales and trading revenue. Includes investment and brokerage services revenue of $425 million and $1.4 billion for the three and nine months ended September 30, 2012 and $584 million and $1.8 billion for the same periods in 2011.

The Valuation Adjustments on Derivatives table presents CVA gains (losses) and DVA gains (losses) for the Corporation on a gross and net of hedge basis, which are recorded in trading account profits.

Valuation Adjustments on Derivatives
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2012
 
2011
 
2012
 
2011
(Dollars in millions)
Gross
Net
 
Gross
Net
 
Gross
Net
 
Gross
Net
Derivative assets (CVA) (1)
$
525

$
75

 
$
(1,570
)
$
(81
)
 
$
725

$
237

 
$
(2,014
)
$
(698
)
Derivative liabilities (DVA) (2)
(606
)
(583
)
 
1,767

1,710

 
(1,899
)
(2,200
)
 
1,664

1,474

(1) 
At September 30, 2012 and December 31, 2011, the cumulative CVA reduced the derivative assets balance by $2.7 billion and $2.8 billion.
(2) 
At September 30, 2012 and December 31, 2011, the Corporation’s cumulative DVA reduced the derivative liabilities balance by $1.1 billion and $2.4 billion.
Disclosure of Credit Derivatives
Credit derivative instruments where the Corporation is the seller of credit protection and their expiration are summarized at September 30, 2012 and December 31, 2011 in the table 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.

Credit Derivative Instruments
 
 
 
September 30, 2012
 
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
$
53

 
$
1,423

 
$
8,197

 
$
4,000

 
$
13,673

Non-investment grade
1,028

 
4,859

 
8,067

 
13,935

 
27,889

Total
1,081

 
6,282

 
16,264

 
17,935

 
41,562

Total return swaps/other:
 
 
 
 
 
 
 
 
 
Investment grade
42

 

 

 

 
42

Non-investment grade
159

 
71

 
230

 
18

 
478

Total
201

 
71

 
230

 
18

 
520

Total credit derivatives
$
1,282

 
$
6,353

 
$
16,494

 
$
17,953

 
$
42,082

Credit-related notes: (1)
 
 
 
 
 
 
 
 
 
Investment grade
$
4

 
$
31

 
$
324

 
$
3,638

 
$
3,997

Non-investment grade
161

 
132

 
144

 
1,745

 
2,182

Total credit-related notes
$
165

 
$
163

 
$
468

 
$
5,383

 
$
6,179

 
Maximum Payout/Notional
Credit default swaps:
 
 
 
 
 
 
 
 
 
Investment grade
$
252,973

 
$
387,360

 
$
449,827

 
$
135,761

 
$
1,225,921

Non-investment grade
88,386

 
115,839

 
123,365

 
58,752

 
386,342

Total
341,359

 
503,199

 
573,192

 
194,513

 
1,612,263

Total return swaps/other:
 
 
 
 
 
 
 
 
 
Investment grade
16,994

 
15

 

 

 
17,009

Non-investment grade
29,704

 
7,575

 
5,557

 
338

 
43,174

Total
46,698

 
7,590

 
5,557

 
338

 
60,183

Total credit derivatives
$
388,057

 
$
510,789

 
$
578,749

 
$
194,851

 
$
1,672,446

 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
Carrying Value
Credit default swaps:
 
 
 
 
 
 
 
 
 
Investment grade
$
795

 
$
5,011

 
$
17,271

 
$
7,325

 
$
30,402

Non-investment grade
4,236

 
11,438

 
18,072

 
26,339

 
60,085

Total
5,031

 
16,449

 
35,343

 
33,664

 
90,487

Total return swaps/other:
 
 
 
 
 
 
 
 
 
Investment grade

 

 
30

 
1

 
31

Non-investment grade
522

 
2

 
33

 
128

 
685

Total
522

 
2

 
63

 
129

 
716

Total credit derivatives
$
5,553

 
$
16,451

 
$
35,406

 
$
33,793

 
$
91,203

Credit-related notes: (1)
 
 
 
 
 
 
 
 
 
Investment grade
$

 
$
7

 
$
208

 
$
2,947

 
$
3,162

Non-investment grade
127

 
85

 
132

 
1,732

 
2,076

Total credit-related notes
$
127

 
$
92

 
$
340

 
$
4,679

 
$
5,238

 
Maximum Payout/Notional
Credit default swaps:
 
 
 
 
 
 
 
 
 
Investment grade
$
182,137

 
$
401,914

 
$
477,924

 
$
127,570

 
$
1,189,545

Non-investment grade
133,624

 
228,327

 
186,522

 
147,926

 
696,399

Total
315,761

 
630,241

 
664,446

 
275,496

 
1,885,944

Total return swaps/other:
 
 
 
 
 
 
 
 
 
Investment grade

 

 
9,116

 

 
9,116

Non-investment grade
305

 
2,023

 
4,918

 
1,476

 
8,722

Total
305

 
2,023

 
14,034

 
1,476

 
17,838

Total credit derivatives
$
316,066

 
$
632,264

 
$
678,480

 
$
276,972

 
$
1,903,782

(1) 
For credit-related notes, maximum payout/notional is the same as carrying value.