Quarterly report pursuant to Section 13 or 15(d)

Securities Financing Transactions

v2.4.0.8
Securities Financing Transactions
 6 Months Ended
Jun. 30, 2013
Securities Financing Transactions Disclosures [Abstract]  
Securities Financing Transactions
Note 7.  
Securities Financing Transactions
Merrill Lynch enters into secured borrowing and lending transactions in order to meet customers’ needs and earn residual interest rate spreads, obtain securities for settlement and finance trading inventory positions.
Under these transactions, Merrill Lynch either receives or provides collateral, including U.S. Government and agency securities, asset-backed, corporate debt, equity, and non-U.S. government and agency securities. Merrill Lynch receives collateral in connection with resale agreements, securities borrowed transactions, customer margin loans and other loans. Under most agreements, Merrill Lynch is permitted to sell or repledge the securities received (e.g., use the securities to secure repurchase agreements, enter into securities lending transactions, or deliver to counterparties to cover short positions). At June 30, 2013 and December 31, 2012, the fair value of securities received as collateral where Merrill Lynch is permitted to sell or repledge the securities was $512 billion and $500 billion, respectively, and the fair value of the portion that had been sold or repledged was $404 billion and $405 billion, respectively. Merrill Lynch may use securities received as collateral for resale agreements to satisfy regulatory requirements such as Rule 15c3-3 of the Securities Exchange Act of 1934.
Merrill Lynch pledges assets to collateralize repurchase agreements and other secured financings. Pledged securities that can be sold or repledged by the secured party are parenthetically disclosed in trading assets on the Condensed Consolidated Balance Sheets. The carrying value and classification of securities owned by Merrill Lynch that have been pledged to counterparties where those counterparties do not have the right to sell or repledge at June 30, 2013 and December 31, 2012 are as follows:
(dollars in millions)
 
June 30, 2013
 
 
December 31, 2012
Trading asset category
 

 
 
 

Equities and convertible debentures
$
13,234

 
 
$
11,732

Corporate debt and preferred stock
5,358

 
 
8,368

U.S. Government and agencies
9,531

 
 
41,236

Non-U.S. governments and agencies
2,164

 
 
1,707

Mortgages, mortgage-backed, and asset-backed securities
1,813

 
 
4,547

Municipals and money markets
282

 
 
2,469

Total
$
32,382

 
 
$
70,059


In certain cases, Merrill Lynch has transferred assets to consolidated VIEs where those restricted assets serve as collateral for the interests issued by the VIEs. These assets, which are not included in the table above, are disclosed on the Condensed Consolidated Balance Sheet as Assets of Consolidated VIEs. These transactions are also described in Note 9.
Generally, when Merrill Lynch transfers financial instruments that are not recorded as sales (i.e., secured borrowing transactions), the liability is recorded as either payables under repurchase agreements or payables under securities loaned transactions; however, in instances where Merrill Lynch transfers financial assets to a consolidated VIE, the liabilities of the consolidated VIE will be reflected in long or short-term borrowings (see Note 9). In either case, at the time of transfer, the related liability is equal to the cash received in the transaction. In most cases the lenders in secured borrowing transactions have full recourse to Merrill Lynch (i.e., recourse beyond the assets pledged).

Offsetting of Securities Financing Agreements

A significant majority of repurchase and resale activities are transacted under legally enforceable master repurchase agreements that give Merrill Lynch, in the event of default by the counterparty, the right to liquidate securities held and to offset receivables and payables with the same counterparty. Merrill Lynch offsets repurchase and resale transactions with the same counterparty on Merrill Lynch's Condensed Consolidated Balance Sheet where it has such a legally enforceable master netting agreement and the transactions have the same maturity date.

Substantially all securities borrowing and lending activities are transacted under legally enforceable master securities lending agreements that give Merrill Lynch, in the event of default by the counterparty, the right to liquidate securities held and to offset receivables and payables with the same counterparty. In certain instances, Merrill Lynch offsets securities borrowing and lending transactions with the same counterparty on Merrill Lynch's Condensed Consolidated Balance Sheet where it has such a legally enforceable master netting agreement and the transactions have the same maturity date.

The tables below present securities financing agreements included on Merrill Lynch's Condensed Consolidated Balance Sheet at June 30, 2013 and December 31, 2012. Balances are presented on a gross basis, prior to the application of counterparty netting. Gross assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements. For information on the offsetting of derivatives, see Note 6.

The "Other" amount in the tables below relates to transactions where Merrill Lynch acts as the lender in a securities lending agreement and receives securities that can be pledged or sold as collateral. In these transactions, Merrill Lynch recognizes an asset on the Condensed Consolidated Balance Sheet at fair value, representing the securities received, and a liability for the same amount, representing the obligation to return those securities. The "Other" amount is included on Merrill Lynch's Condensed Consolidated Balance Sheet in securities received as collateral, at fair value and obligation to return securities received as collateral, at fair value.

The column entitled "Financial Instruments" in the tables below includes securities collateral received or pledged under repurchase or securities lending agreements where there is a legally enforceable master netting agreement. These amounts are not offset in the Condensed Consolidated Balance Sheet but are shown as a reduction to the net balance sheet amount in the table to derive a net asset or liability. Securities collateral received or pledged where the legal enforceability of the master netting agreements is not certain is not included.

Gross assets and liabilities include activity where uncertainty exists as to the enforceability of certain master netting agreements under bankruptcy laws in some countries or industries and, accordingly, are reported on a gross basis.


Offsetting of Securities Financing Agreements
 
Assets
 
June 30, 2013
(dollars in millions)
Gross Assets
 
Amounts Offset
 
Net Balance Sheet Amount
 
Financial Instruments
 
Net Asset
Receivables under resale agreements
$
217,062

 
$
(74,745
)
 
$
142,317

 
$
(112,136
)
 
$
30,181

Receivables under securities borrowed transactions
93,591

 
(19,792
)
 
73,799

 
(54,917
)
 
18,882

Total
$
310,653

 
$
(94,537
)
 
$
216,116

 
$
(167,053
)
 
$
49,063

 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
Gross Assets
 
Amounts Offset
 
Net Balance Sheet Amount
 
Financial Instruments
 
Net Asset
Receivables under resale agreements
$
276,275

 
$
(127,458
)
 
$
148,817

 
$
(121,422
)
 
$
27,395

Receivables under securities borrowed transactions
71,309

 
(10,317
)
 
60,992

 
(43,660
)
 
17,332

Total
$
347,584

 
$
(137,775
)
 
$
209,809

 
$
(165,082
)
 
$
44,727



 
Liabilities
 
June 30, 2013
(dollars in millions)
Gross Liabilities
 
Amounts Offset
 
Net Balance Sheet Amount
 
Financial Instruments
 
Net Liability
Payables under repurchase agreements
$
260,605

 
$
(74,745
)
 
$
185,860

 
$
(129,439
)
 
$
56,421

Payables under securities loaned transactions
39,989

 
(19,792
)
 
20,197

 
(14,590
)
 
5,607

Other
12,582

 
—

 
12,582

 
(12,575
)
 
7

Total
$
313,176

 
$
(94,537
)
 
$
218,639

 
$
(156,604
)
 
$
62,035

 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
Gross Liabilities
 
Amounts Offset
 
Net Balance Sheet Amount
 
Financial Instruments
 
Net Liability
Payables under repurchase agreements
$
347,168

 
$
(127,458
)
 
$
219,710

 
$
(153,414
)
 
$
66,296

Payables under securities loaned transactions
28,622

 
(10,317
)
 
18,305

 
(14,598
)
 
3,707

Other
16,013

 
—

 
16,013

 
(16,009
)
 
4

Total
$
391,803

 
$
(137,775
)
 
$
254,028

 
$
(184,021
)
 
$
70,007