Derivative Instruments and Other Financial Instruments

6 Months Ended

Jun. 30, 2013

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Instruments and Other Financial Instruments

Note 10—Derivative Instruments and Other Financial Instruments

        The Company enters into certain derivative and other financial instruments for trading purposes, which includes customer accommodation derivative contracts, and for other-than-trading purposes, which are predominantly used for risk management.

        Credit and market risks are inherent in derivative instruments. Credit risk is defined as the possibility that a loss may occur from the failure of another party to perform in accordance with the terms of the contract, which exceeds the value of the existing collateral, if any. The Company utilizes master netting and collateral support annex (CSA) agreements in order to reduce its exposure to credit risk. Additionally, the Company considers the potential loss in the event of counterparty default in estimating the fair value amount of the derivative instrument. Market risk is defined as the risk of loss arising from an adverse change in the market value of financial instruments caused by fluctuations in market prices or rates.

        Derivatives are primarily used to manage exposure to interest rate, commodity, foreign currency and credit risk, and to assist customers with their risk management objectives. The Company designates derivative instruments as those used for trading or other-than-trading purposes. All derivative instruments are recognized as assets or liabilities on the consolidated balance sheet at fair value.

        The tables below present the notional amounts, and the location and fair value amounts of the Company's derivative instruments reported on the consolidated balance sheet, segregated between derivative instruments designated and qualifying as hedging instruments and all other derivative instruments as of June 30, 2013 and December 31, 2012. Asset and liability values are presented gross, excluding the impact of legally enforceable master netting and CSA agreements.

	June 30, 2013
			Asset Derivatives			Liability Derivatives
(Dollars in millions)	Notional Amount		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as other than trading
Designated as hedging instruments:
Interest rate contracts	$	2,000	Other assets	$	1	Other liabilities	$	7
Not designated as hedging instruments:
Other contracts	$	176	Other assets	$	2	Other liabilities	$	5
Total derivatives designated as other than trading	$	2,176		$	3		$	12
Trading derivatives:
Interest rate contracts	$	43,941	Trading account assets	$	793	Trading account liabilities	$	697
Commodity contracts		6,249	Trading account assets		118	Trading account liabilities		106
Foreign exchange contracts		4,597	Trading account assets		63	Trading account liabilities		28
Equity contracts		3,746	Trading account assets		167	Trading account liabilities		168
Total trading derivatives	$	58,533		$	1,141		$	999
Total derivative instruments	$	60,709		$	1,144		$	1,011

	December 31, 2012
			Asset Derivatives			Liability Derivatives
(Dollars in millions)	Notional Amount		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as other than trading
Designated as hedging instruments:
Interest rate contracts	$	8,400	Other assets	$	28	Other liabilities	$	—
Not designated as hedging instruments:
Other contracts	$	109	Other assets	$	1	Other liabilities	$	3
Total derivatives designated as other than trading	$	8,509		$	29		$	3
Trading derivatives:
Interest rate contracts	$	37,790	Trading account assets	$	1,075	Trading account liabilities	$	1,009
Commodity contracts		5,595	Trading account assets		167	Trading account liabilities		140
Foreign exchange contracts		4,593	Trading account assets		69	Trading account liabilities		65
Equity contracts		3,631	Trading account assets		103	Trading account liabilities		103
Total trading derivatives	$	51,609		$	1,414		$	1,317
Total derivative instruments	$	60,118		$	1,443		$	1,320

• Derivatives Used for Other-Than-Trading Purposes

        The Company uses interest rate derivatives to manage the financial impact on the Company from changes in market interest rates. These instruments are used to manage interest rate risk relating to specified groups of assets and liabilities, primarily LIBOR-based commercial loans, certificates of deposit (CDs), borrowings, and future debt issuances. Derivatives that qualify for hedge accounting are designated as either fair value or cash flow hedges. For the six months ended June 2013 and 2012, the Company did not have fair value hedges. For further information related to the Company's hedging strategy, see Note 17 to the consolidated financial statements in the Company's 2012 Form 10-K.

• Cash Flow Hedges

        The Company used interest rate swaps with a notional amount of $2.0 billion at June 30, 2013 to hedge the risk of changes in cash flows attributable to changes in the designated benchmark interest rate on LIBOR indexed loans. To the extent effective, payments received (or paid) under the swap contract offset fluctuations in interest income on loans caused by changes in the relevant LIBOR index. At June 30, 2013, the weighted average remaining life of the currently active cash flow hedges was approximately 3.65 years.

        For cash flow hedges, the effective portion of the gain or loss on the hedging instruments is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged cash flows are recognized in net interest income. Gains and losses representing hedge ineffectiveness are recognized in earnings in the period in which they arise. At June 30, 2013, the Company expects to reclassify approximately $33 million of income from accumulated other comprehensive income to net interest income during the twelve months ending June 30, 2014. This amount could differ from amounts actually realized due to changes in interest rates and the addition of other hedges subsequent to June 30, 2013.

        The following tables present the amount and location of the net gains and losses recorded in the Company's consolidated statements of income and changes in stockholder's equity for derivatives designated as cash flow hedges for the three and six months ended June 30, 2013 and 2012:

	Amount of Gain or (Loss) Recognized in OCI on Derivative Instruments (Effective Portion)				Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)							Gain or (Loss) Recognized in Income on Derivative Instruments (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	For the Three Months Ended June 30,					For the Three Months Ended June 30,							For the Three Months Ended June 30,
(Dollars in millions)	2013		2012		Location	2013			2012			Location	2013		2012
Derivatives in cash flow hedging relationships
					Interest income		8			4
Interest rate contracts	$	3	$	28	Interest expense	$	(1	)	$	(1	)	Noninterest expense(1)	$	—	$	—
Total	$	3	$	28		$	7		$	3			$	—	$	—

	Amount of Gain or (Loss) Recognized in OCI on Derivative Instruments (Effective Portion)				Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)							Gain or (Loss) Recognized in Income on Derivative Instruments (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	For the Six Months Ended June 30,					For the Six Months Ended June 30,							For the Six Months Ended June 30,
(Dollars in millions)	2013		2012		Location	2013			2012			Location	2013		2012
Derivatives in cash flow hedging relationships
					Interest income		15			6
Interest rate contracts	$	9	$	38	Interest expense	$	(1	)	$	(1	)	Noninterest expense(1)	$	—	$	—
Total	$	9	$	38		$	14		$	5			$	—	$	—

(1)

Amount recognized was less than $1 million.

• Trading Derivatives

        Derivative instruments classified as trading include both derivatives entered into for the Company's own account and as an accommodation for customers. Trading derivatives are included in trading assets or trading liabilities with changes in fair value reflected in income from trading account activities. The majority of the Company's derivative transactions for customers were essentially offset by contracts with third parties that reduce or eliminate market risk exposures.

        The Company offers market-linked CDs, which allow the client to earn the higher of either a minimum fixed rate of interest or a return tied to either equity, commodity or currency indices. The Company hedges its exposure to the embedded derivative contained in market-linked CDs with a matched over-the-counter option. Both the embedded derivative and hedge options are recorded at fair value with the realized and unrealized changes in fair value recorded in noninterest income within trading account activities.

        The following table presents the amount of the net gains and losses reported in the consolidated statement of income under the heading trading account activities for derivative instruments classified as trading for the three and six months ended June 30, 2013 and 2012:

	Gain or (Loss) Recognized in Income on Derivative Instruments				Gain or (Loss) Recognized in Income on Derivative Instruments
	For the Three Months Ended				For the Six Months Ended
(Dollars in millions)	June 30, 2013		June 30, 2012		June 30, 2013		June 30, 2012
Trading derivatives:
Interest rate contracts	$	10	$	7	$	9	$	21
Equity contracts		3		4		6		9
Foreign exchange contracts		5		6		8		13
Commodity contracts		1		4		—		4
Other contracts		—		—		1		—
Total	$	19	$	21	$	24	$	47

• Offsetting Assets and Liabilities

        During the first quarter of 2013, the Company adopted ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, which establishes new disclosures about an entity's rights of setoff and arrangements associated with its financial instruments and derivative instruments. The Company primarily enters into derivative contracts and repurchase agreements with counterparties utilizing a standard International Swaps and Derivatives Association master netting agreement (ISDA MNA) or master repurchase agreements, which generally establish the terms and conditions of the transactions, including a legal right to set-off amounts payable and receivable between the Company and a counterparty, regardless of whether or not such amounts have matured or have contingency features.

        The following tables present the offsetting of financial assets and liabilities as of June 30, 2013 and December 31, 2012:

	June 30, 2013
							Gross Amounts Not Offset in Balance Sheet
(Dollars in millions)	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts Offset in Balance Sheet		Net Amounts Presented in Balance Sheet		Financial Instruments		Cash Collateral Received/Pledged		Net Amount
Financial Assets:
Derivative Assets	$	1,144	$	444	$	700	$	62	$	—	$	638
Securities purchased under resale agreements		15		—		15		15		—		—
Total	$	1,159	$	444	$	715	$	77	$	—	$	638
Financial Liabilities:
Derivative Liabilities	$	1,011	$	448	$	563	$	249	$	2	$	312
Securities sold under repurchase agreements		4		—		4		4		—		—
Total	$	1,015	$	448	$	567	$	253	$	2	$	312

	December 31, 2012
							Gross Amounts Not Offset in Balance Sheet
(Dollars in millions)	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts Offset in Balance Sheet		Net Amounts Presented in Balance Sheet		Financial Instruments		Cash Collateral Received/Pledged		Net Amount
Financial Assets:
Derivative Assets	$	1,443	$	370	$	1,073	$	21	$	2	$	1,050
Securities purchased under resale agreements		19		—		19		19		—		—
Total	$	1,462	$	370	$	1,092	$	40	$	2	$	1,050
Financial Liabilities:
Derivative Liabilities	$	1,320	$	449	$	871	$	491	$	121	$	259
Securities sold under repurchase agreements		5		—		5		5		—		—
Total	$	1,325	$	449	$	876	$	496	$	121	$	259