Quarterly report pursuant to Section 13 or 15(d)

Fair Value Option

v2.4.0.8
Fair Value Option
 6 Months Ended
Jun. 30, 2013
Fair Value Option [Abstract]  
Fair Value Option
NOTE 17 – Fair Value Option

The Corporation elects to account for certain financial instruments under the fair value option. For more information on the primary financial instruments for which the fair value option elections have been made, see Note 22 – Fair Value Option to the Consolidated Financial Statements of the Corporation's 2012 Annual Report on Form 10-K.

The table below provides information about the fair value carrying amount and the contractual principal outstanding of assets and liabilities accounted for under the fair value option at June 30, 2013 and December 31, 2012.

Fair Value Option Elections
 
June 30, 2013
 
December 31, 2012
(Dollars in millions)
Fair Value
Carrying
Amount
 
Contractual
Principal
Outstanding
 
Fair Value
Carrying
Amount
Less Unpaid
Principal
 
Fair Value
Carrying
Amount
 
Contractual
Principal
Outstanding
 
Fair Value
Carrying
Amount
Less Unpaid
Principal
Loans reported as trading account assets (1)
$
2,378

 
$
3,613

 
$
(1,235
)
 
$
1,663

 
$
2,879

 
$
(1,216
)
Trading inventory – other
2,809

 
n/a

 
n/a

 
2,170

 
n/a

 
n/a

Consumer and commercial loans
9,461

 
9,865

 
(404
)
 
9,002

 
9,576

 
(574
)
Loans held-for-sale
10,878

 
11,790

 
(912
)
 
11,659

 
12,676

 
(1,017
)
Securities financing agreements
163,198

 
162,887

 
311

 
141,309

 
140,791

 
518

Other assets
449

 
270

 
179

 
453

 
270

 
183

Long-term deposits
1,978

 
1,851

 
127

 
2,262

 
2,046

 
216

Asset-backed secured financings
758

 
1,124

 
(366
)
 
741

 
1,176

 
(435
)
Unfunded loan commitments
486

 
n/a

 
n/a

 
528

 
n/a

 
n/a

Short-term borrowings
1,389

 
1,389

 
—

 
3,333

 
3,333

 
—

Accrued expenses and other liabilities
217

 
217

 
—

 
—

 
—

 
—

Long-term debt (2, 3)
46,439

 
47,115

 
(676
)
 
49,161

 
50,792

 
(1,631
)
(1) 
A significant portion of the loans reported as trading account assets are distressed loans which trade and were purchased at a deep discount to par, and the remainder are loans with a fair value near contractual principal outstanding.
(2) 
The majority of the difference between the fair value carrying amount and contractual principal outstanding at June 30, 2013 and December 31, 2012 relates to the impact of the Corporation's credit spreads as well as the fair value of the embedded derivative, where applicable.
(3) 
Includes structured liabilities with a fair value of $36.1 billion and contractual principal outstanding of $36.2 billion at June 30, 2013 compared to $39.3 billion and $39.9 billion at December 31, 2012.
n/a = not applicable

The table below provides information about where changes in the fair value of assets and liabilities accounted for under the fair value option are included in the Consolidated Statement of Income for the three and six months ended June 30, 2013 and 2012. Of the changes in fair value for LHFS, losses of $39 million and gains of $67 million were attributable to changes in borrower-specific credit risk for the three and six months ended June 30, 2013 compared to gains of $34 million and $164 million for the same periods in 2012. Of the changes in fair value for loans and loan commitments, gains of $28 million and $156 million were attributable to changes in borrower-specific credit risk for the three and six months ended June 30, 2013 compared to losses of $115 million and gains of $488 million for the same periods in 2012. Changes to borrower-specific credit risk for loans reported as trading account assets were not material for the three and six months ended June 30, 2013 and 2012.

Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option
 
Three Months Ended June 30, 2013
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss)
 
Other
Income
(Loss)
 
Total
Loans reported as trading account assets
$
10

 
$
—

 
$
—

 
$
10

Consumer and commercial loans
2

 
—

 
50

 
52

Loans held-for-sale (1)
(15
)
 
61

 
(31
)
 
15

Securities financing agreements
(39
)
 
—

 
—

 
(39
)
Other assets
—

 
—

 
(44
)
 
(44
)
Long-term deposits
36

 
—

 
35

 
71

Asset-backed secured financings
—

 
(7
)
 
—

 
(7
)
Unfunded loan commitments
—

 
—

 
(19
)
 
(19
)
Short-term borrowings
11

 
—

 
—

 
11

Accrued expenses and other liabilities
—

 
(7
)
 
—

 
(7
)
Long-term debt (2, 3)
1,360

 
—

 
10

 
1,370

Total
$
1,365

 
$
47

 
$
1

 
$
1,413

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2012
Loans reported as trading account assets
$
56

 
$
—

 
$
—

 
$
56

Consumer and commercial loans
6

 
—

 
(5
)
 
1

Loans held-for-sale (1)
(7
)
 
526

 
(24
)
 
495

Securities financing agreements
23

 
—

 
14

 
37

Other assets
—

 
—

 
(11
)
 
(11
)
Long-term deposits
—

 
—

 
(1
)
 
(1
)
Asset-backed secured financings
—

 
(17
)
 
—

 
(17
)
Unfunded loan commitments
—

 
—

 
(112
)
 
(112
)
Short-term borrowings
12

 
—

 
—

 
12

Long-term debt (2, 3)
756

 
—

 
(62
)
 
694

Total
$
846

 
$
509

 
$
(201
)
 
$
1,154

(1) 
Includes the value of interest rate lock commitments on loans funded, including those already sold.
(2) 
The majority of the net gains (losses) in trading account profits (losses) relate to the embedded derivative in structured liabilities and are offset by gains (losses) on derivatives and securities that hedge these liabilities. The net gains (losses) in other income (loss) relate to the impact on structured liabilities of changes in the Corporation's credit spread.
(3) 
Includes positive fair value adjustments on structured liabilities of $10 million for the three months ended June 30, 2013 compared to negative adjustments of $62 million for the same period in 2012.

Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option
 
Six Months Ended June 30, 2013
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss)
 
Other
Income
(Loss)
 
Total
Loans reported as trading account assets
$
39

 
$
—

 
$
—

 
$
39

Consumer and commercial loans
1

 
—

 
152

 
153

Loans held-for-sale (1)
(7
)
 
528

 
(41
)
 
480

Securities financing agreements
(16
)
 
—

 
—

 
(16
)
Other assets
—

 
—

 
(39
)
 
(39
)
Long-term deposits
36

 
—

 
54

 
90

Asset-backed secured financings
—

 
(51
)
 
—

 
(51
)
Unfunded loan commitments
—

 
—

 
46

 
46

Short-term borrowings
(28
)
 
—

 
—

 
(28
)
Accrued expenses and other liabilities
—

 
22

 
—

 
22

Long-term debt (2, 3)
91

 
—

 
(80
)
 
11

Total
$
116

 
$
499

 
$
92

 
$
707

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2012
Loans reported as trading account assets
$
134

 
$
—

 
$
—

 
$
134

Consumer and commercial loans
5

 
—

 
297

 
302

Loans held-for-sale (1)
49

 
1,124

 
80

 
1,253

Securities financing agreements
23

 
—

 
(90
)
 
(67
)
Other assets
—

 
—

 
7

 
7

Long-term deposits
—

 
—

 
20

 
20

Asset-backed secured financings
—

 
(55
)
 
—

 
(55
)
Unfunded loan commitments
—

 
—

 
292

 
292

Short-term borrowings
19

 
—

 
—

 
19

Long-term debt (2, 3)
(35
)
 
—

 
(3,376
)
 
(3,411
)
Total
$
195

 
$
1,069

 
$
(2,770
)
 
$
(1,506
)

(1) 
Includes the value of interest rate lock commitments on loans funded, including those already sold.
(2) 
The majority of the net gains (losses) in trading account profits (losses) relate to the embedded derivative in structured liabilities and are offset by gains (losses) on derivatives and securities that hedge these liabilities. The net gains (losses) in other income (loss) relate to the impact on structured liabilities of changes in the Corporation's credit spread.
(3) 
Includes negative fair value adjustments on structured liabilities of $80 million for the six months ended June 30, 2013 compared to $3.4 billion for the same period in 2012.