Fair value option (Tables)

9 Months Ended

Sep. 30, 2015

Changes in fair value under the fair value option election

The following table presents the changes in fair value included in the Consolidated statements of income for the three and nine months ended September 30, 2015 and 2014, for items for which the fair value option was elected. The profit and loss information presented below only includes the financial instruments that were elected to be measured at fair value; related risk management instruments, which are required to be measured at fair value, are not included in the table.



	Three months ended September 30,
	2015									2014
(in millions)	Principal transactions			All other income			Total changes in fair value recorded			Principal transactions			All other income			Total changes in fair value recorded
Federal funds sold and securities purchased under resale agreements	$	63		$	—		$	63		$	(114	)	$	—		$	(114	)
Securities borrowed	(1		)	—			(1		)	(3		)	—			(3		)
Trading assets:
Debt and equity instruments, excluding loans	(144		)	—			(144		)	20			1		^(c)	21
Loans reported as trading assets:
Changes in instrument-specific credit risk	12			5		^(c)	17			140			10		^(c)	150
Other changes in fair value	94			277		^(c)	371			98			249		^(c)	347
Loans:
Changes in instrument-specific credit risk	31			—			31			3			—			3
Other changes in fair value	2			—			2			(2		)	—			(2		)
Other assets	54			—			54			6			21		^(d)	27
Deposits^(a)	(112		)	—			(112		)	117			—			117
Federal funds purchased and securities loaned or sold under repurchase agreements	(14		)	—			(14		)	15			—			15
Other borrowed funds^(a)	2,015			—			2,015			(56		)	—			(56		)
Trading liabilities	(6		)	—			(6		)	(2		)	—			(2		)
Beneficial interests issued by consolidated VIEs	29			—			29			(54		)	—			(54		)
Other liabilities	—			—			—			—			—			—
Long-term debt:
Changes in instrument-specific credit risk^(a)	299			—			299			162			—			162
Other changes in fair value^(b)	1,116			—			1,116			170			—			170



	Nine months ended September 30,
	2015									2014
(in millions)	Principal transactions			All other income			Total changes in fair value recorded			Principal transactions			All other income				Total changes in fair value recorded
Federal funds sold and securities purchased under resale agreements	$	37		$	—		$	37		$	(58	)	$	—			$	(58	)
Securities borrowed	(5		)	—			(5		)	(8		)	—				(8		)
Trading assets:
Debt and equity instruments, excluding loans	375			1		^(c)	376			495			2			^(c)	497
Loans reported as trading assets:
Changes in instrument-specific credit risk	223			18		^(c)	241			894			22			^(c)	916
Other changes in fair value	206			657		^(c)	863			200			941			^(c)	1,141
Loans:
Changes in instrument-specific credit risk	32			—			32			31			—				31
Other changes in fair value	2			—			2			29			—				29
Other assets	116			9		^(d)	125			18			(121		)	^(d)	(103		)
Deposits^(a)	(75		)	—			(75		)	(94		)	—				(94		)
Federal funds purchased and securities loaned or sold under repurchase agreements	(5		)	—			(5		)	(19		)	—				(19		)
Other borrowed funds^(a)	2,121			—			2,121			(1,227		)	—				(1,227		)
Trading liabilities	(20		)	—			(20		)	(11		)	—				(11		)
Beneficial interests issued by consolidated VIEs	73			—			73			(191		)	—				(191		)
Other liabilities	—			—			—			(27		)	—				(27		)
Long-term debt:
Changes in instrument-specific credit risk^(a)	624			—			624			167			—				167
Other changes in fair value^(b)	1,466			—			1,466			(621		)	—				(621		)

(a)

Total changes in instrument-specific credit risk (DVA) related to structured notes were $169 million and $190 million for the three months ended September 30, 2015 and 2014, respectively, and $492 million and $209 million for the nine months ended September 30, 2015 and 2014, respectively. These totals include such changes for structured notes classified within deposits and other borrowed funds, as well as long-term debt.


(b)	Structured notes are predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk. Although the risk associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such risk.


(c)	Reported in mortgage fees and related income.


(d)	Reported in other income.

Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of September 30, 2015, and December 31, 2014, for loans, long-term debt and long-term beneficial interests for which the fair value option has been elected.



	September 30, 2015								December 31, 2014
(in millions)	Contractual principal outstanding			Fair value		Fair value over/(under) contractual principal outstanding			Contractual principal outstanding			Fair value		Fair value over/(under) contractual principal outstanding
Loans^(a)
Nonaccrual loans
Loans reported as trading assets	$	4,048		$	1,067	$	(2,981	)	$	3,847		$	905	$	(2,942	)
Loans	7			7		—			7			7		—
Subtotal	4,055			1,074		(2,981		)	3,854			912		(2,942		)
All other performing loans
Loans reported as trading assets	34,765			32,756		(2,009		)	37,608			35,462		(2,146		)
Loans	2,988			2,967		(21		)	2,397			2,389		(8		)
Total loans	$	41,808		$	36,797	$	(5,011	)	$	43,859		$	38,763	$	(5,096	)
Long-term debt
Principal-protected debt	$	16,753	^(c)	$	15,520	$	(1,233	)	$	14,660	^(c)	$	15,484	$	824
Nonprincipal-protected debt^(b)	NA			15,640		NA			NA			14,742		NA
Total long-term debt	NA			$	31,160	NA			NA			$	30,226	NA
Long-term beneficial interests
Nonprincipal-protected debt^(b)	NA			$	1,199	NA			NA			$	2,162	NA
Total long-term beneficial interests	NA			$	1,199	NA			NA			$	2,162	NA


(a)	There were no performing loans that were ninety days or more past due as of September 30, 2015, and December 31, 2014, respectively.

(b)

Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes.


(c)	Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if applicable, the contractual principal payment at the Firm’s next call date.

Fair value option, structured notes by balance sheet classification and primary embedded derivative risk

The table below presents the fair value of the structured notes issued by the Firm, by balance sheet classification and the primary risk to which the structured notes’ embedded derivative relates.



	September 30, 2015								December 31, 2014
(in millions)	Long-term debt		Other borrowed funds		Deposits		Total		Long-term debt		Other borrowed funds		Deposits		Total
Risk exposure
Interest rate	$	11,506	$	50	$	3,762	$	15,318	$	10,858	$	460	$	2,119	$	13,437
Credit	3,256		95		—		3,351		4,023		450		—		4,473
Foreign exchange	1,853		150		11		2,014		2,150		211		17		2,378
Equity	13,086		8,523		5,074		26,683		12,348		12,412		4,415		29,175
Commodity	833		81		1,955		2,869		710		644		2,012		3,366
Total structured notes	$	30,534	$	8,899	$	10,802	$	50,235	$	30,089	$	14,177	$	8,563	$	52,829

- Definition

Tabular disclosure of the application of the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected, provide the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (b) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (c) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) for loans and other receivables held as assets, the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk; (c) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk, the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk; and (3) certain other disclosures as required or determined to be provided.

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