| Loans, Notes and Mortgages |
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Note 10. |
Loans, Notes and Mortgages |
Loans, notes and mortgages include:
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Consumer loans, which are substantially secured, including residential mortgages, home equity loans, and other loans to individuals for household, family, or other personal expenditures; |
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Commercial loans, including corporate and institutional loans (including corporate and financial sponsor, non-investment grade lending commitments), commercial mortgages, asset-backed loans, small- and middle-market business loans, and other loans to businesses; and |
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Other loans, which include securities-backed loans and loans classified as held-for-sale. |
The table below presents information on Merrill Lynch’s loans outstanding at March 31, 2012 and December 31, 2011.
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Age Analysis of Outstanding Loans |
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(dollars in millions) |
March 31, 2012 |
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30-59 Days |
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60-89 Days |
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90 Days or more |
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Total Past |
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Total Current or Less Than |
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Nonperforming |
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Loans Measured at |
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Total |
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Past Due |
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Past Due |
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Past Due |
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Due |
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30 Days Past Due |
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Loans (1)
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Fair Value |
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Outstanding |
Consumer loans |
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Residential mortgage |
$ |
11 |
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$ |
6 |
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$ |
— |
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$ |
17 |
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$ |
421 |
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$ |
27 |
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$ |
— |
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$ |
465 |
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Home equity |
1 |
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1 |
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— |
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2 |
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110 |
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3 |
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— |
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115 |
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Total consumer |
12 |
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7 |
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— |
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19 |
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531 |
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30 |
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— |
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580 |
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Commercial |
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U.S. commercial |
— |
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— |
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1 |
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1 |
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3,589 |
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68 |
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— |
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3,658 |
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Commercial real estate |
— |
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— |
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— |
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— |
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628 |
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89 |
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— |
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717 |
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Non-U.S. commercial |
— |
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— |
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— |
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— |
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3,029 |
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62 |
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— |
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3,091 |
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Total commercial loans |
— |
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— |
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1 |
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1 |
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7,246 |
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219 |
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— |
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7,466 |
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Commercial loans measured at
fair value
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— |
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— |
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— |
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— |
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— |
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— |
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1,276 |
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1,276 |
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Total commercial |
— |
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— |
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1 |
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1 |
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7,246 |
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219 |
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1,276 |
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8,742 |
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Other (2)
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— |
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— |
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— |
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— |
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9,684 |
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— |
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1,498 |
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11,182 |
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Total loans |
$ |
12 |
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$ |
7 |
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$ |
1 |
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$ |
20 |
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$ |
17,461 |
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$ |
249 |
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$ |
2,774 |
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$ |
20,504 |
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Allowance for loan losses |
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(75 |
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Total loans, net |
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$ |
20,429 |
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Age Analysis of Outstanding Loans |
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(dollars in millions) |
December 31, 2011 |
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30-59 Days |
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60-89 Days |
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90 Days or more |
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Total Past |
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Total Current or Less Than |
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Nonperforming |
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Loans Measured at |
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Total |
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Past Due |
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Past Due |
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Past Due |
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Due |
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30 Days Past Due |
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Loans (1)
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Fair Value |
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Outstanding |
Consumer loans |
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Residential mortgage |
$ |
20 |
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$ |
4 |
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$ |
— |
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$ |
24 |
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$ |
420 |
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$ |
25 |
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$ |
— |
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$ |
469 |
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Home equity |
— |
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— |
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— |
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— |
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117 |
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4 |
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— |
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121 |
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Total consumer |
20 |
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4 |
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— |
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24 |
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537 |
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29 |
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— |
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590 |
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Commercial |
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U.S. commercial |
— |
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1 |
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2 |
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3 |
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3,753 |
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85 |
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— |
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3,841 |
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Commercial real estate |
— |
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— |
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— |
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— |
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667 |
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108 |
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— |
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775 |
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Non-U.S. commercial |
— |
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— |
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— |
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— |
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3,040 |
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65 |
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— |
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3,105 |
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Total commercial loans |
— |
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1 |
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2 |
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3 |
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7,460 |
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258 |
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— |
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7,721 |
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Commercial loans measured at
fair value
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— |
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— |
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— |
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— |
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— |
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— |
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909 |
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909 |
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Total commercial |
— |
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1 |
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2 |
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3 |
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7,460 |
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258 |
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909 |
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8,630 |
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Other (3)
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— |
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— |
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— |
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— |
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10,013 |
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— |
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1,413 |
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11,426 |
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Total loans |
$ |
20 |
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$ |
5 |
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$ |
2 |
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$ |
27 |
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$ |
18,010 |
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$ |
287 |
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$ |
2,322 |
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$ |
20,646 |
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Allowance for loan losses |
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(72 |
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Total loans, net |
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$ |
20,574 |
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(1) |
Excludes loans measured at fair value. |
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(2) |
Includes securities-backed loans and loans held-for-sale of $8.9 billion and $2.3 billion, respectively, as of March 31, 2012.
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(3) |
Includes securities-backed loans and loans held-for-sale of $8.9 billion and $2.5 billion, respectively, as of December 31, 2011.
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Merrill Lynch monitors the credit quality of its loans on an ongoing basis. Merrill Lynch’s commercial loans are evaluated using the internal classifications of pass rated or reservable criticized as the primary credit quality indicators. The term reservable criticized refers to those commercial loans that are internally classified or listed by Merrill Lynch as Special Mention, Substandard or Doubtful, which are asset categories defined by regulatory authorities. These assets have an elevated level of risk and may have a high probability of default or total loss. Pass rated refers to all loans not considered reservable criticized. In addition to these primary credit quality indicators, Merrill Lynch uses other credit quality indicators for certain types of loans. The table below presents credit quality indicators for Merrill Lynch’s commercial loan portfolio, excluding loans accounted for under the fair value option, at March 31, 2012 and December 31, 2011.
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(dollars in millions) |
March 31, 2012 |
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U.S Commercial |
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Commercial Real Estate |
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Non-U.S. Commercial |
Risk Ratings |
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Pass rated |
$ |
3,454 |
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$ |
478 |
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$ |
2,949 |
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Reservable criticized |
204 |
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239 |
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142 |
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Total Commercial Credit |
$ |
3,658 |
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$ |
717 |
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$ |
3,091 |
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(dollars in millions) |
December 31, 2011 |
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U.S. Commercial |
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Commercial Real Estate |
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Non-U.S. Commercial |
Risk Ratings |
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Pass rated |
$ |
3,594 |
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$ |
511 |
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$ |
2,967 |
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Reservable criticized |
247 |
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264 |
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138 |
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Total Commercial Credit |
$ |
3,841 |
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$ |
775 |
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$ |
3,105 |
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Activity in the allowance for loan losses, which is primarily associated with commercial loans, is presented below:
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(dollars in millions) |
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For the Three Months Ended
March 31, 2012 |
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For the Three Months Ended
March 31, 2011 |
Allowance for loan losses, at beginning of period |
$ |
72 |
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$ |
170 |
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Provision for loan losses |
3 |
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(28 |
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Charge-offs |
(3 |
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(66 |
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Recoveries |
3 |
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1 |
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Net charge-offs |
— |
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(65 |
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Other |
— |
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1 |
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Allowance for loan losses, at end of period |
$ |
75 |
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$ |
78 |
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Consumer loans, substantially all of which are collateralized, consisted of approximately 23,000 individual loans at March 31, 2012. Commercial loans consisted of approximately 1,000 separate loans.
Merrill Lynch’s outstanding loans include $2.2 billion and $2.5 billion of loans held for sale at March 31, 2012 and December 31, 2011, respectively. Loans held for sale are loans that Merrill Lynch expects to sell prior to maturity. At March 31, 2012, such loans consisted of $0.9 billion of consumer loans, primarily residential mortgages, and $1.3 billion of commercial loans. At December 31, 2011, such loans consisted of $1.0 billion of consumer loans, primarily residential mortgages, and $1.5 billion of commercial loans.
In some cases, Merrill Lynch enters into single name and index credit default swaps to mitigate credit exposure related to funded and unfunded commercial loans. The notional value of these swaps totaled $3.2 billion and $3.4 billion at March 31, 2012 and December 31, 2011, respectively.
The following tables provide information regarding Merrill Lynch’s net credit default protection associated with its funded and unfunded commercial loans as of March 31, 2012 and December 31, 2011:
Net Credit Default Protection by Maturity Profile
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March 31,
2012 |
December 31,
2011 |
Less than or equal to one year |
14 |
% |
16 |
% |
Greater than one year and less than or equal to five years |
84 |
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82 |
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Greater than five years |
2 |
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2 |
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Total net credit default protection |
100 |
% |
100 |
% |
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Net Credit Default Protection by Credit Exposure Debt Rating
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(dollars in millions) |
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March 31, 2012 |
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December 31, 2011 |
Ratings(1)
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Net
Notional |
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Percent |
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Net
Notional |
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Percent |
AA |
$ |
(565 |
) |
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17.5 |
% |
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$ |
(661 |
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19.4 |
% |
A |
(1,588 |
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49.1 |
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(1,542 |
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45.1 |
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BBB |
(659 |
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20.4 |
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(637 |
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18.6 |
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BB |
(181 |
) |
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5.6 |
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(190 |
) |
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5.6 |
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B |
(85 |
) |
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2.6 |
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(190 |
) |
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5.6 |
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CCC and below |
(155 |
) |
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4.8 |
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(195 |
) |
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5.7 |
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Total net credit default protection |
$ |
(3,233 |
) |
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100 |
% |
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$ |
(3,415 |
) |
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100.0 |
% |
(1)Merrill Lynch considers ratings of BBB- or higher to meet the definition of investment grade.
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