Quarterly report pursuant to Section 13 or 15(d)

Investment Securities

 v2.3.0.11
Investment Securities
 6 Months Ended
Jun. 30, 2011
Investment Securities [Abstract]  
Investment Securities
 
Note 8.  Investment Securities
 
Investment securities on the Condensed Consolidated Balance Sheets include:
 
•  Investments within the scope of Investment Accounting that are held by ML & Co. and certain of its non-broker-dealer subsidiaries consist of debt securities held-for-investment and liquidity and collateral management purposes that are classified as available-for-sale, and debt securities that Merrill Lynch intends to hold until maturity.
 
•  Non-qualifying investments are those that are not within the scope of Investment Accounting and consist principally of equity investments, including investments in partnerships and joint ventures. Included in non-qualifying investments are investments accounted for under the equity method of accounting, which consist of investments in (i) partnerships and certain limited liability corporations where Merrill Lynch has more than a minor influence (generally defined as three to five percent interest) and (ii) corporate entities where Merrill Lynch has the ability to exercise significant influence over the investee (generally defined as ownership and voting interest of 20% to 50%). Also included in non-qualifying investments are private equity investments that Merrill Lynch holds for capital appreciation and/or current income and which are accounted for at fair value in accordance with the Investment Company Guide, as well as private equity investments accounted for at fair value under the fair value option election. The fair value of such private equity investments reflects expected exit values based upon market prices or other valuation methodologies, including market comparables of similar companies and discounted expected cash flows.
 
Investment securities reported on the Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010 are presented below.
 
                 
(dollars in millions)
    June 30, 2011   December 31, 2010
 
 
Investment securities
               
Available-for-sale
  $ 2,067     $ 5,091  
Held-to-maturity
    -       245  
Non-qualifying(1)
               
Equity investments(2)
    8,170       10,437  
Other investments
    2,350       1,996  
                 
Total
  $ 12,587     $ 17,769  
                 
 
 
(1) Investments that are non-qualifying for Investment Accounting purposes.
 
(2) The December 31, 2010 balance includes Merrill Lynch’s investment in BlackRock, Inc., which consisted of approximately 13.6 million preferred shares. The carrying value and fair value of this investment was $2.2 billion and $2.6 billion, respectively, at December 31, 2010. During the second quarter of 2011, Merrill Lynch sold its remaining investment in BlackRock, Inc., resulting in a pre-tax gain of $377 million.
 
For the three and six months ended June 30, 2011, OTTI losses related to non-agency mortgage-backed available-for-sale securities were $10 million and $46 million, respectively. For the three and six months ended June 30, 2010, OTTI losses related to non-agency mortgage-backed available-for-sale securities were $39 million and $125 million, respectively. Net impairment losses recognized in earnings represent the credit component of OTTI losses on AFS debt securities and total OTTI losses for AFS debt securities that Merrill Lynch does not intend to hold to recovery. Those amounts were $8 million and $44 million for the three and six months ended June 30, 2011 and $37 million and $123 million for the three and six months ended June 30, 2010, respectively. Refer to Note 1 for Merrill Lynch’s accounting policy regarding other-than-temporary-impairment of investment securities.
 
Information regarding investment securities subject to Investment Accounting follows.
 
                                 
(dollars in millions)
    June 30, 2011
 
        Gross
 		  Gross
 		   
    Amortized
 		  Unrealized
 		  Unrealized
 		  Fair
    Cost   Gains   Losses   Value
 
 
Available-for-Sale
                               
Mortgage-backed securities:
                               
Agency residential mortgage backed securities
  $ 407     $ -     $ (10 )   $ 397  
Agency collateralized mortgage obligations
    55       -       -       55  
Non-agency
    560       34       (57 )     537  
                                 
Subtotal
    1,022       34       (67 )     989  
Non-U.S. securities
    594       -       -       594  
U.S. Government and agencies
    398       -       -       398  
Corporate bonds
    86       -       -       86  
                                 
Total Available-for-Sale Securities
  $ 2,100     $ 34     $ (67 )   $ 2,067  
                                 
 
 
 
                                 
(dollars in millions)
    December 31, 2010
 
        Gross
 		  Gross
 		   
    Amortized
 		  Unrealized
 		  Unrealized
 		  Fair
    Cost   Gains   Losses   Value
 
 
Available-for-Sale
                               
Mortgage-backed securities:
                               
Agency residential mortgage backed securities
  $ 3,918     $ -     $ (49 )   $ 3,869  
Agency collateralized mortgage obligations
    61       -       -       61  
Non-agency
    739       68       (76 )     731  
                                 
Subtotal
    4,718       68       (125 )     4,661  
U.S. Government and agencies
    430       -       -       430  
                                 
Total Available-for-Sale Securities
    5,148       68       (125 )     5,091  
                                 
Held-to-Maturity
                               
Corporate debt and municipal
    245       -       -       245  
                                 
Total
  $ 5,393     $ 68     $ (125 )   $ 5,336  
                                 
 
 
 
The following table presents fair value and unrealized losses, after hedges, for available-for-sale securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at June 30, 2011.
 
                                                 
(dollars in millions)
    Less Than 1 Year   More than 1 Year   Total
        Unrealized
 		      Unrealized
 		      Unrealized
Asset Category   Fair Value   Losses   Fair Value   Losses   Fair Value   Losses
 
 
Agency residential mortgage backed securities
  $ 397     $ (10 )   $ -     $ -     $ 397     $ (10 )
Non-agency
    92       (6 )     127       (51 )     219       (57 )
                                                 
Total
  $ 489     $ (16 )   $ 127     $ (51 )   $ 616     $ (67 )
                                                 
 
 
 
The following table presents fair value and unrealized losses, after hedges, for available-for-sale securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2010.
 
                                                 
(dollars in millions)
    Less than 1 Year   More than 1 Year   Total
        Unrealized
 		      Unrealized
 		      Unrealized
Asset Category   Fair Value   Losses   Fair Value   Losses   Fair Value   Losses
 
 
Agency residential mortgage backed securities
  $ 3,869     $ (49 )   $ -     $ -     $ 3,869     $ (49 )
Non-agency
    53       (3 )     230       (73 )     283       (76 )
                                                 
Total
  $ 3,922     $ (52 )   $ 230     $ (73 )   $ 4,152     $ (125 )
                                                 
 
 
 
The amortized cost and fair value of available-for-sale debt securities by expected maturity for mortgage-backed securities and contractual maturity for other debt securities at June 30, 2011 are as follows:
 
                 
(dollars in millions)
    Available-for-Sale
    Amortized
 		  Fair
    Cost   Value
 
 
Due in one year or less
  $ 1,147     $ 1,136  
Due after one year through five years
    308       308  
Due after five years through ten years
    78       65  
Due after ten years
    567       558  
                 
Total(1)
  $ 2,100     $ 2,067  
                 
 
 
(1) Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay their obligations with or without prepayment penalties.
 
The proceeds and gross realized gains (losses) from the sale of available-for-sale securities during the three and six months ended June 30, 2011 and June 30, 2010 are as follows:
 
                                 
(dollars in millions)
    Three Months
 		  Six Months
 		  Three Months
 		  Six Months
    Ended
 		  Ended
 		  Ended
 		  Ended
    June 30, 2011   June 30, 2011   June 30, 2010   June 30, 2010
 
 
Proceeds
  $ 1,866     $ 3,453     $ 1,400     $ 14,827  
Gross realized gains
    -       44       60       406  
Gross realized losses
    4       4       (253 )     (255 )
 
 
 
At June 30, 2011 and December 31, 2010, Merrill Lynch held certain investments that were accounted for under the equity method of accounting, none of which were individually material.