Quarterly report pursuant to Section 13 or 15(d)

Fair Value Disclosures

v2.4.0.8
Fair Value Disclosures
6 Months Ended
Jun. 30, 2013
Fair Value Disclosures [Abstract]  
Fair Value Disclosures
Note 4.  
Fair Value Disclosures

Fair Value Accounting

Fair Value Hierarchy

In accordance with Fair Value Accounting, Merrill Lynch has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

Financial assets and liabilities recorded on the Condensed Consolidated Balance Sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1.   Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that Merrill Lynch has the ability to access (examples include active exchange-traded equity securities, exchange-traded derivatives, U.S. Government securities, and certain other Non-U.S. government obligations).

Level 2.   Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

a)  Quoted prices for similar assets or liabilities in active markets (examples include restricted stock and U.S. agency securities);

b)  Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which can trade infrequently);

c)  Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and currency swaps); and

d)  Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability (examples include certain residential and commercial mortgage-related assets, including loans, securities and derivatives).

Level 3.   Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management's view about the assumptions a market participant would use in pricing the asset or liability (examples include certain private equity investments, certain residential and commercial mortgage-related assets and long-dated or complex derivatives).

As required by Fair Value Accounting, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Level 1 and 2) and unobservable (Level 3). Therefore gains and losses for such assets and liabilities categorized within the Level 3 reconciliation below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). Further, the following reconciliations do not take into consideration the offsetting effect of Level 1 and 2 financial instruments entered into by Merrill Lynch that economically hedge certain exposures to the Level 3 positions.

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications are reported as transfers in or transfers out of the Level as of the beginning of the quarter in which the reclassifications occur. Therefore, Level 3 gains and losses represent amounts recognized during the period in which the instrument was classified as Level 3. See the recurring and non-recurring sections within this Note for further information on transfers between levels.

Valuation Processes and Techniques

Merrill Lynch has various processes and controls in place to ensure that its fair value measurements are 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 to ensure that models are continuing to perform as designed. In addition, detailed reviews of trading gains and losses are analyzed 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. Merrill Lynch executes 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 Merrill Lynch 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 second quarter of 2013, there were no changes to Merrill Lynch's valuation techniques that had or are expected to have, a material impact on its condensed consolidated financial position or results of operations.

The following outlines the valuation methodologies for Merrill Lynch's material categories of assets and liabilities:

U.S. Government and agencies

U.S. Treasury securities U.S. Treasury securities are valued using quoted market prices and are generally classified as Level 1 in the fair value hierarchy.

U.S. agency securities U.S. agency securities are comprised of two main categories consisting of agency issued debt and mortgage pass-throughs. The fair value of agency issued debt securities is derived using market prices and recent trade activity gathered from independent dealer pricing services or brokers. Generally, the fair value of mortgage pass-throughs is based on market prices of comparable securities. Agency issued debt securities and mortgage pass-throughs are generally classified as Level 2 in the fair value hierarchy.

Non-U.S. governments and agencies

Non-U.S. government obligations Non-U.S. government obligations are valued using quoted prices in active markets when available. To the extent quoted prices are not available, fair value is determined based on reference to recent trading activity and quoted prices of similar securities. These securities are generally classified in Level 1 or Level 2 in the fair value hierarchy, primarily based on the issuing country.

Municipal debt

Municipal bonds The fair value of municipal bonds is calculated using recent trade activity, market price quotations and new issuance levels. In the absence of this information, fair value is calculated using comparable bond credit spreads. Current interest rates, credit events, and individual bond characteristics such as coupon, call features, maturity, and revenue purpose are considered in the valuation process. The majority of these bonds are classified as Level 2 in the fair value hierarchy.

Auction Rate Securities (“ARS”) Merrill Lynch holds investments in certain ARS, including student loan and municipal ARS. Student loan ARS are comprised of various pools of student loans. Municipal ARS are issued by states and municipalities for a wide variety of purposes, including but not limited to healthcare, industrial development, education and transportation infrastructure. The fair value of the student loan ARS is calculated based upon a number of assumptions including weighted average life, coupon, discount margin and liquidity discounts. The fair value of the municipal ARS is calculated based upon projected refinancing and spread assumptions. In both cases, recent trades and issuer tenders are considered in the valuations. Student loan ARS and municipal ARS are classified as Level 2 or Level 3 in the fair value hierarchy.

Corporate and other debt

Corporate bonds Corporate bonds are valued based on either the most recent observable trade and/or external quotes, depending on availability. The most recent observable trade price is given highest priority as the valuation benchmark based on an evaluation of transaction date, size, frequency, and bid-offer. This price may be adjusted by bond or credit default swap spread movement. When credit default swap spreads are referenced, cash-to-synthetic basis magnitude and movement as well as maturity matching are incorporated into the value. When neither external quotes nor a recent trade is available, the bonds are valued using a discounted cash flow approach based on risk parameters of comparable securities. In such cases, the potential pricing difference in spread and/or price terms with the traded comparable is considered. Corporate bonds are generally classified as Level 2 or Level 3 in the fair value hierarchy.

Commercial loans and commitments The fair values of commercial loans and loan commitments are based on market prices and most recent transactions when available. When not available, a discounted cash flow valuation approach is applied using market-based credit spreads of comparable debt instruments, recent new issuance activity or relevant credit derivatives with appropriate cash-to-synthetic basis adjustments. Commercial loans and commitments are generally classified as Level 2 in the fair value hierarchy. Certain commercial loans, particularly those related to emerging market, leveraged and distressed companies have limited price transparency. These loans are generally classified as Level 3 in the fair value hierarchy.

Mortgages, mortgage-backed and asset-backed

Residential Mortgage-Backed Securities (“RMBS”), Commercial Mortgage-Backed Securities (“CMBS”), and other Asset-Backed Securities (“ABS”) RMBS, CMBS and other ABS are valued based on observable price or credit spreads for the particular security, or when price or credit spreads are not observable, the valuation is based on prices of comparable bonds or the present value of expected future cash flows. Valuation levels of RMBS and CMBS indices are used as an additional data point for benchmarking purposes or to price outright index positions.

When estimating the fair value based upon the present value of expected future cash flows, Merrill Lynch uses its best estimate of the key assumptions, including forecasted credit losses, prepayment rates, forward yield curves and discount rates commensurate with the risks involved, while also taking into account performance of the underlying collateral.

RMBS, CMBS and other ABS are classified as Level 3 in the fair value hierarchy if external prices or credit spreads are unobservable or if comparable trades/assets involve significant subjectivity related to property type differences, cash flows, performance and other inputs; otherwise, they are classified as Level 2 in the fair value hierarchy.

Collateralized loan obligations ("CLO") are valued based upon the present value of expected future cash flows, utilizing yields that are derived from those of comparable securities. CLOs are generally classified as Level 3 in the fair value hierarchy.

Equities

Exchange-Traded Equity Securities Exchange-traded equity securities are generally valued based on quoted prices from the exchange. These securities are classified as either Level 1 or Level 2 in the fair value hierarchy, primarily based on the exchange on which they are traded.

Convertible debentures Convertible debentures are valued based on observable trades and/or external quotes, depending on availability. When neither observable trades nor external quotes are available, the instruments are valued using a discounted cash flow approach based on risk parameters of comparable securities. In such cases, the potential pricing difference in spread and/or price terms with the traded comparable is considered. Convertible debentures are generally classified as Level 2 in the fair value hierarchy.

Derivative contracts

Listed Derivative Contracts Listed derivatives that are actively traded are generally valued based on quoted prices from the exchange and are classified as Level 1 in the fair value hierarchy. Listed derivatives that are not actively traded are valued using the same approaches as those applied to OTC derivatives; they are generally classified as Level 2 in the fair value hierarchy.

OTC Derivative Contracts OTC derivative contracts include forwards, swaps and options related to interest rate, foreign currency, credit, equity or commodity underlyings.

The fair value of OTC derivatives is derived using market prices and other market based pricing parameters such as interest rates, currency rates and volatilities that are observed directly in the market or gathered from independent sources such as dealer consensus pricing services or brokers. Where models are used, they are used consistently and reflect the contractual terms of and specific risks inherent in the contracts. Generally, the models do not require a high level of subjectivity since the valuation techniques used in the models do not require significant judgment and inputs to the models are readily observable in active markets. When appropriate, valuations are adjusted for various factors such as liquidity and credit considerations based on available market evidence. In addition, for most collateralized interest rate and currency derivatives the requirement to pay interest on the collateral may be considered in the valuation. The majority of OTC derivative contracts are classified as Level 2 in the fair value hierarchy.

OTC derivative contracts that do not have readily observable market based pricing parameters are classified as Level 3 in the fair value hierarchy. Examples of derivative contracts classified within Level 3 include contractual obligations that have tenures that extend beyond periods in which inputs to the model would be observable, exotic derivatives with significant inputs into a valuation model that are less transparent in the market and certain credit default swaps (“CDS”) referenced to mortgage-backed securities. For example, derivative instruments, such as certain CDS referenced to RMBS, CMBS, other ABS and collateralized debt obligations (“CDOs”), may be valued based on the underlying mortgage risk where these instruments are not actively quoted. Inputs to the valuation will include available information on similar underlying loans or securities in the cash market. The prepayments and loss assumptions on the underlying loans or securities are estimated using a combination of historical data, prices on recent market transactions, relevant observable market indices such as the Asset Backed Securities Index (“ABX”) or Commercial Mortgage Backed Securities Index (“CMBX”) and prepayment and default scenarios and analyses.

CDOs The fair value of CDOs is derived from a referenced basket of CDS, the CDO's capital structure, and the default correlation, which is an input to a proprietary CDO valuation model. The underlying CDO portfolios typically contain investment grade as well as non-investment grade obligors. After adjusting for differences in risk profile, the correlation parameter for an actual transaction is estimated by benchmarking against observable standardized index tranches and other comparable transactions. CDOs are classified as either Level 2 or Level 3 in the fair value hierarchy.

Investment securities non-qualifying

Investments in Private Equity, Real Estate and Hedge Funds Merrill Lynch has investments in numerous asset classes, including: direct private equity, private equity funds, hedge funds and real estate funds. Valuing these investments requires significant management judgment due to the nature of the assets and the lack of quoted market prices and liquidity in these assets. Initially, the transaction price of the investment is generally considered to be the best indicator of fair value. Thereafter, valuation of direct investments is based on an assessment of each individual investment using various methodologies, which include publicly traded comparables derived by multiplying a key performance metric (e.g., earnings before interest, taxes, depreciation and amortization ("EBITDA")) of the portfolio company by the relevant valuation multiple observed for comparable companies, acquisition comparables, entry level multiples and discounted cash flows. These valuations are subject to appropriate discounts for lack of liquidity. Certain factors which may influence changes to fair value include but are not limited to, recapitalizations, subsequent rounds of financing, and offerings in the equity or debt capital markets. For fund investments, Merrill Lynch generally records the fair value of its proportionate interest in the fund's capital as reported by the fund's respective managers.

Investment securities non-qualifying include equity securities that have recently gone through initial public offerings or secondary sales of public positions. These investments are primarily classified as either Level 1 or Level 2 in the fair value hierarchy. Level 2 classifications generally include those publicly traded equity investments that have a legal or contractual transfer restriction. All other investments in private equity, real estate and hedge funds are classified as Level 3 in the fair value hierarchy due to infrequent trading and/or unobservable market prices.

Resale and repurchase agreements

Merrill Lynch elected the fair value option for certain resale and repurchase agreements. For such agreements, the fair value is estimated using a discounted cash flow model which incorporates inputs such as interest rate yield curves and option volatility. Resale and repurchase agreements for which the fair value option has been elected are generally classified as Level 2 in the fair value hierarchy.

Long-term and short-term borrowings

Merrill Lynch and its consolidated VIEs issue structured notes that have coupons or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities. The fair value of structured notes is estimated using valuation models for the combined derivative and debt portions of the notes when the fair value option has been elected. 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 impact of Merrill Lynch's own credit spreads is also included based on Merrill Lynch's observed secondary bond market spreads. Structured notes are classified as either Level 2 or Level 3 in the fair value hierarchy.

Recurring Fair Value
The following tables present Merrill Lynch’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012, respectively.

(dollars in millions)
 
Fair Value Measurements on a Recurring Basis
 
as of June 30, 2013
 
Level 1
 
Level 2
 
Level 3
 
Netting
Adj(1)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Securities segregated for regulatory purposes or deposited with clearing organizations:
 
 
 
 
 
 
 
 
 
Non-U.S. governments and agencies
$
24

 
$
2,492

 
$

 
$

 
$
2,516

U.S. Government and agencies
4,976

 
573

 

 

 
5,549

Total securities segregated for regulatory purposes or deposited with clearing organizations
5,000

 
3,065

 

 

 
8,065

Receivables under resale agreements

 
99,001

 

 

 
99,001

Receivables under securities borrowed transactions

 
1,954

 

 

 
1,954

Trading assets, excluding derivative contracts:
 
 
 
 
 
 
 
 
 
Equities
22,323

 
11,081

 
216

 

 
33,620

Convertible debentures

 
3,569

 
17

 

 
3,586

Non-U.S. governments and agencies
28,574

 
2,805

 
401

 

 
31,780

Corporate debt

 
15,193

 
1,764

 

 
16,957

Preferred stock

 
269

 
137

 

 
406

Mortgages, mortgage-backed and asset-backed

 
5,302

 
4,586

 

 
9,888

U.S. Government and agencies
23,942

 
12,098

 

 

 
36,040

Municipals and money markets
1,333

 
6,595

 
204

 

 
8,132

Physical commodities and other

 
744

 

 

 
744

Total trading assets, excluding derivative contracts
76,172

 
57,656

 
7,325

 

 
141,153

Derivative contracts(2)
4,730

 
484,350

 
5,592

 
(467,039
)
 
27,633

Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
U.S. Government and agencies
402

 

 

 

 
402

Securities, mortgage-backed and asset backed
 
 
 
 
 
 
 
 
 
     Non-agency MBS

 
1

 

 

 
1

     Corporate ABS

 
201

 
8

 

 
209

Total investment securities available-for-sale
402

 
202

 
8

 

 
612

Other debt securities carried at fair value (3)
 
 
 
 
 
 
 
 
 
    Non-U.S. governments and agencies
8,288

 
460

 

 

 
8,748

Total other debt securities carried at fair value
8,288

 
460

 

 

 
8,748

Investment securities non-qualifying
1,880

 
1,115

 
288

 

 
3,283

Total investment securities
10,570

 
1,777

 
296

 

 
12,643

Securities received as collateral
11,311

 
1,271

 

 

 
12,582

Loans, notes and mortgages

 
486

 
815

 

 
1,301

   Other

 

 
267

 

 
267

Liabilities:
 
 
 
 
 
 
 
 
 
Payables under repurchase agreements

 
59,926

 

 

 
59,926

Short-term borrowings

 
1,389

 

 

 
1,389

Trading liabilities, excluding derivative contracts:
 
 
 
 
 
 
 
 
 
Equities
19,783

 
3,112

 

 

 
22,895

Convertible debentures

 
223

 

 

 
223

Non-U.S. governments and agencies
22,620

 
1,670

 

 

 
24,290

Corporate debt

 
8,483

 
9

 

 
8,492

Preferred stock

 
85

 

 

 
85

U.S. Government and agencies
18,794

 
411

 

 

 
19,205

Municipals, money markets and other
482

 
105

 
46

 

 
633

Total trading liabilities, excluding derivative contracts
61,679

 
14,089

 
55

 

 
75,823

 Derivative contracts(2)
4,644

 
483,697

 
3,917

 
(467,085
)
 
25,173

Obligation to return securities received as collateral
11,311

 
1,271

 

 

 
12,582

Other payables — interest and other

 
47

 
5

 

 
52

Long-term borrowings

 
26,882

 
1,082

 

 
27,964

 
 
 
 
 
 
 
 
 
 
(1) 
Represents counterparty and cash collateral netting.
(2) 
See Note 6 for product level detail.
(3) 
Certain assets that are used for liquidity management purposes were reclassified from Trading assets to Other debt securities carried at fair value during the six months ended June 30, 2013. Prior period amounts have been reclassified to conform with the current period presentation.

During the six months ended June 30, 2013, approximately $500 million of assets were transferred from Level 1 to Level 2, primarily due to a restriction that became effective for a non-qualifying investment security.

(dollars in millions)
 
Fair Value Measurements on a Recurring Basis
 
as of December 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Netting
Adj
(1)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Securities segregated for regulatory purposes or deposited with clearing organizations:
 
 
 
 
 
 
 
 
 
Non-U.S. governments and agencies
$

 
$
1,833

 
$

 
$

 
$
1,833

U.S. Government and agencies
3,558

 
250

 

 

 
3,808

Total securities segregated for regulatory purposes or deposited with clearing organizations
3,558

 
2,083

 

 

 
5,641

Receivables under resale agreements

 
93,715

 

 

 
93,715

Receivables under securities borrowed transactions

 
961

 

 

 
961

Trading assets, excluding derivative contracts:
 
 
 
 
 
 
 
 
 
Equities
23,813

 
12,340

 
178

 

 
36,331

Convertible debentures

 
4,272

 
15

 

 
4,287

Non-U.S. governments and agencies
26,834

 
2,936

 
353

 

 
30,123

Corporate debt

 
16,068

 
1,900

 

 
17,968

Preferred stock

 
116

 
253

 

 
369

Mortgages, mortgage-backed and asset-backed

 
5,799

 
4,814

 

 
10,613

U.S. Government and agencies
26,201

 
28,363

 

 

 
54,564

Municipals and money markets
1,292

 
9,201

 
1,295

 

 
11,788

Physical commodities and other

 
692

 

 

 
692

 Total trading assets, excluding derivative contracts
78,140

 
79,787

 
8,808

 

 
166,735

  Derivative contracts(2)
2,691

 
657,621

 
5,677

 
(641,138
)
 
24,851

Investment securities available-for-sale:
 
 
 
 
 
 
 
 
 
U.S. Government and agencies
390

 

 

 

 
390

Securities, mortgage-backed and asset backed
 
 
 
 
 
 
 
 
 
     Non-agency MBS

 
40

 

 

 
40

     Corporate ABS

 
218

 
8

 

 
226

Total investment securities available-for-sale
390

 
258

 
8

 

 
656

Other debt securities carried at fair value (3)
 
 
 
 
 
 
 
 
 
    Non-U.S. governments and agencies
7,422

 
300

 

 

 
7,722

Total other debt securities carried at fair value
7,422

 
300

 

 

 
7,722

Investment securities non-qualifying
2,254

 
1,056

 
287

 

 
3,597

Total investment securities
10,066

 
1,614

 
295

 

 
11,975

Securities received as collateral
15,426

 
587

 

 

 
16,013

Loans, notes and mortgages

 
1,396

 
1,681

 

 
3,077

Other

 
12

 
1,534

 

 
1,546

Liabilities:
 
 
 
 
 
 
 
 
 
Payables under repurchase agreements

 
42,639

 

 

 
42,639

Short-term borrowings

 
3,283

 

 

 
3,283

Trading liabilities, excluding derivative contracts:
 
 
 
 
 
 
 
 
 
Equities
16,225

 
2,557

 

 

 
18,782

Convertible debentures

 
175

 

 

 
175

Non-U.S. governments and agencies
18,382

 
1,325

 

 

 
19,707

Corporate debt

 
7,912

 
31

 

 
7,943

Preferred stock

 
83

 

 

 
83

U.S. Government and agencies
19,276

 
910

 

 

 
20,186

Municipals, money markets and other
487

 
43

 
32

 

 
562

Total trading liabilities, excluding derivative contracts
54,370

 
13,005

 
63

 

 
67,438

Derivative contracts(2)
2,449

 
659,271

 
4,133

 
(645,285
)
 
20,568

Obligation to return securities received as collateral
15,426

 
587

 

 

 
16,013

Other payables — interest and other

 
50

 
7

 

 
57

Long-term borrowings

 
29,559

 
1,316

 

 
30,875

 
 
 
 
 
 
 
 
 
 
(1) 
Represents counterparty and cash collateral netting.
(2) 
See Note 6 for product level detail.
(3) 
Certain assets that are used for liquidity management purposes were reclassified from Trading assets to Other debt securities carried at fair value during the six months ended June 30, 2013. Prior period amounts have been reclassified to conform with the current period presentation.

During the year ended December 31, 2012, $2,040 million and $350 million of assets and liabilities, respectively, were transferred from Level 1 to Level 2, and $785 million and $40 million of assets and liabilities, respectively, were transferred from Level 2 to Level 1.  Of the asset transfer from Level 1 to Level 2, $940 million was due to restrictions that became effective for non-qualifying investment securities during 2012, while $535 million of the asset transfer from Level 2 to Level 1 was due to the lapse of such restrictions during 2012.  The remaining transfers were the result of additional information associated with certain equities, derivative contracts and investment securities non-qualifying.
Level 3 Financial Instruments
The following tables provide a summary of changes in Merrill Lynch’s Level 3 financial assets and liabilities for the three and six months ended June 30, 2013 and June 30, 2012.

(dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 3 Financial Assets and Liabilities
Three Months Ended June 30, 2013
 
 
 
Total Realized and Unrealized
Gains or (Losses) included in Income
 
Total Realized
and Unrealized Gains
or (Losses)
included in Income
 
Unrealized
Gains or (Losses) to
OCI
 
Sales
 
Purchases
 
Issuances
 
Settlements
 
 
 
 
 
 
 
Beginning
Balance
 
Principal
Transactions
 
Other
Revenue
 
Interest
 
 
 
 
 
 
 
Transfers
In
 
Transfers
Out
 
Ending
Balance
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading assets, excluding derivative contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equities
$
175

 
$
14

 
$

 
$

 
$
14

 
$

 
(20
)
 
27

 
$

 

 
$
29

 
$
(9
)
 
$
216

Convertible debentures
14

 
(1
)
 

 

 
(1
)
 

 

 
6

 

 

 

 
(2
)
 
17

Non-U.S. governments and agencies
417

 
(6
)
 

 

 
(6
)
 

 

 
11

 

 
(22
)
 
1

 

 
401

Corporate debt
1,840

 
10

 

 

 
10

 

 
(250
)
 
176

 

 
(88
)
 
202

 
(126
)
 
1,764

Preferred stock
208

 
(3
)
 

 

 
(3
)
 

 
(15
)
 
1

 

 

 

 
(54
)
 
137

Mortgages, mortgage-backed and asset-backed
4,368

 
11

 

 

 
11

 

 
(676
)
 
972

 

 
(69
)
 

 
(20
)
 
4,586

Municipals and money markets
1,079

 
3

 

 

 
3

 

 
(429
)
 
76

 

 

 
2

 
(527
)
 
204

Total trading assets, excluding derivative contracts
8,101

 
28

 

 

 
28

 

 
(1,390
)
 
1,269

 

 
(179
)
 
234

 
(738
)
 
7,325

Derivative contracts, net
1,182

 
264

 

 

 
264

 

 
(143
)
 
179

 

 
4

 
(117
)
 
306

 
1,675

Investment securities available-for-sale :
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate ABS
8

 

 

 

 

 

 

 

 

 

 

 

 
8

Total investment securities available-for-sale
8

 

 

 

 

 

 

 

 

 

 

 

 
8

Investment securities non-qualifying
288

 

 
(3
)
 

 
(3
)
 

 

 
21

 

 
(18
)
 

 

 
288

Total investment securities
296

 

 
(3
)
 

 
(3
)
 

 

 
21

 

 
(18
)
 

 

 
296

Loans, notes and mortgages
1,436

 

 
12

 
7

 
19

 

 
(180
)
 
8

 

 
(465
)
 

 
(3
)
 
815

Other
1,086

 

 
(6
)
 

 
(6
)
 

 

 

 

 
(813
)
 

 

 
267

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading liabilities, excluding derivative contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt
16

 
2

 

 

 
2

 

 
4

 
(1
)
 

 

 
1

 
(9
)
 
9

Municipals, money markets and other
42

 
4

 

 

 
4

 

 
13

 
(10
)
 
5

 

 

 

 
46

Total trading liabilities, excluding derivative contracts
58

 
6

 

 

 
6

 

 
17

 
(11
)
 
5

 

 
1

 
(9
)
 
55

Other payables - interest and other
4

 

 

 

 

 

 

 

 

 

 
1

 

 
5

Long-term borrowings
1,285

 
58

 
(5
)
 

 
53

 

 

 
(154
)
 
52

 
(44
)
 
94

 
(98
)
 
1,082

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Transfers in and out related to corporate debt reflected changes in third party prices available for certain corporate loans. Transfers out for municipals and money markets reflected increased trading activity for certain ARS.  Transfers in for derivative contracts, net were primarily due to additional information related to certain total return swaps ("TRS").  Transfers out for derivative contracts, net related to additional market comparables on certain option contracts.  Transfers in and out related to long-term borrowings were primarily due to changes in the impact of unobservable inputs on the value of certain equity-linked structured notes.

 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 3 Financial Assets and Liabilities
Six Months Ended June 30, 2013
 
 
 
Total Realized and Unrealized
Gains or (Losses) included in Income
 
Total Realized
and Unrealized Gains
or (Losses)
included in Income
 
Unrealized
Gains or (Losses) to
OCI
 
Sales
 
Purchases
 
Issuances
 
Settlements
 
 
 
 
 
 
 
Beginning
Balance
 
Principal
Transactions
 
Other
Revenue
 
Interest
 
 
 
 
 
 
 
Transfers
In
 
Transfers
Out
 
Ending
Balance
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading assets, excluding derivative contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equities
$
178

 
$
34

 
$

 
$

 
$
34

 
$

 
(70
)
 
50

 
$

 

 
$
36

 
$
(12
)
 
$
216

Convertible debentures
15

 
(1
)
 

 

 
(1
)
 

 
(2
)
 
6

 

 

 
2

 
(3
)
 
17

Non-U.S. governments and agencies
353

 
45

 

 

 
45

 

 
(1
)
 
26

 

 
(22
)
 
1

 
(1
)
 
401

Corporate debt
1,900

 
64

 

 

 
64

 

 
(485
)
 
363

 

 
(209
)
 
360

 
(229
)
 
1,764

Preferred stock
253

 
19

 

 

 
19

 

 
(74
)
 
7

 

 

 
1

 
(69
)
 
137

Mortgages, mortgage-backed and asset-backed
4,814

 
173

 

 

 
173

 

 
(1,311
)
 
1,625

 

 
(698
)
 
3

 
(20
)
 
4,586

Municipals and money markets
1,295

 
28

 

 

 
28

 

 
(1,080
)
 
431

 

 
(1
)
 
58

 
(527
)
 
204

Total trading assets, excluding derivative contracts
8,808

 
362

 

 

 
362

 

 
(3,023
)
 
2,508

 

 
(930
)
 
461

 
(861
)
 
7,325

Derivative contracts, net
1,544

 
78

 

 

 
78

 

 
(369
)
 
271

 

 
(87
)
 
(41
)
 
279

 
1,675

Investment securities available-for-sale :
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate ABS
8

 

 

 

 

 

 

 

 

 

 

 

 
8

Total investment securities available-for-sale
8

 

 

 

 

 

 

 

 

 

 

 

 
8

Investment securities non-qualifying
287

 

 
(6
)
 

 
(6
)
 

 
(7
)
 
32

 

 
(18
)
 

 

 
288

Total investment securities
295

 

 
(6
)
 

 
(6
)
 

 
(7
)
 
32

 

 
(18
)
 

 

 
296

Loans, notes and mortgages
1,681

 

 
(40
)
 
14

 
(26
)
 

 
(366
)
 
8

 


 
(479
)
 

 
(3
)
 
815

Other
1,534

 

 
(454
)
 

 
(454
)
 

 

 

 

 
(813
)
 

 

 
267

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading liabilities, excluding derivative contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt
31

 
2

 

 

 
2

 

 
6

 
(6
)
 

 

 
9

 
(29
)
 
9

Municipals, money markets and other
32

 
4

 

 

 
4

 

 
24

 
(12
)
 
6

 

 

 

 
46

Total trading liabilities, excluding derivative contracts
63

 
6

 

 

 
6

 

 
30

 
(18
)
 
6

 

 
9

 
(29
)
 
55

Other payables - interest and other
7

 

 

 

 

 

 

 

 

 
(2
)
 
1

 
(1
)
 
5

Long-term borrowings
1,316

 
80

 
(9
)
 

 
71

 

 
4

 
(223
)
 
88

 
(91
)
 
279

 
(220
)
 
1,082

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Transfers in and out related to corporate debt reflected changes in third party prices available for certain corporate loans.  Transfers out for municipals and money markets reflected increased trading activity for certain ARS. Transfers out for derivative contracts, net related to additional market comparables on certain option contracts.  Transfers in and out related to long-term borrowings were primarily due to changes in the impact of unobservable inputs on the value of certain equity-linked structured notes.





(dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 3 Financial Assets and Liabilities
Three Months Ended June 30, 2012
 
 
 
Total Realized and Unrealized
Gains or (Losses) included in Income
 
Total Realized
and Unrealized Gains
or (Losses)
included in Income
 
Unrealized
Gains or (Losses) to
OCI
 
Sales
 
Purchases
 
Issuances
 
Settlements
 
 
 
 
 
 
 
Beginning
Balance
 
Principal
Transactions
 
Other
Revenue
 
Interest
 
 
 
 
 
 
 
Transfers
In
 
Transfers
Out
 
Ending
Balance
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading assets, excluding derivative contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equities
$
178

 
$
(6
)
 
$

 
$

 
$
(6
)
 
$

 
$
(13
)
 
$
1

 
$

 
$

 
$
25

 
$

 
$
185

Convertible debentures
43

 
(2
)
 

 

 
(2
)
 

 

 

 

 

 

 
(7
)
 
34

Non-U.S. governments and agencies
546

 
(26
)
 

 

 
(26
)
 

 
(164
)
 
35

 

 
(1
)
 

 
(1
)
 
389

Corporate debt (1)
3,418

 
6

 

 

 
6

 

 
(1,232
)
 
189

 

 
(285
)
 
92

 
(82
)
 
2,106

Preferred stock
207

 
(1
)
 

 

 
(1
)
 

 
(22
)
 
44

 

 

 

 

 
228

Mortgages, mortgage-backed and asset-backed (1)
3,768

 
(38
)
 

 

 
(38
)
 

 
(163
)
 
1,164

 

 
(153
)
 

 

 
4,578

Municipals and money markets
2,009

 
15

 

 

 
15

 

 
(187
)
 
73

 

 
(180
)
 

 

 
1,730

Total trading assets, excluding derivative contracts
10,169

 
(52
)
 

 

 
(52
)
 

 
(1,781
)
 
1,506

 

 
(619
)
 
117

 
(90
)
 
9,250

Derivative contracts, net
3,207

 
159

 

 

 
159

 

 
(121
)
 
207

 

 
29

 
(38
)
 
(29
)
 
3,414

Investment securities available-for-sale :
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate ABS
45