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Investment Securities
6 Months Ended
Jun. 30, 2011
Investment Securities [Abstract]  
Investment Securities

6. Investment Securities

Investment securities include debt and equity securities and are classified as available for sale. The Company's investment securities, principally debt securities, are carried at fair value on the Consolidated Balance Sheets with unrealized gains (losses) recorded in Accumulated Other Comprehensive Income (AOCI), net of income tax provisions (benefits). Realized gains and losses are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer to Note 3 for a description of the Company's methodology for determining the fair value of its investment securities.

 

The following is a summary of investment securities as of June 30, 2011 and December 31, 2010:

    2011 2010
        Gross  Gross  Estimated     Gross  Gross  Estimated
       Unrealized Unrealized  Fair   Unrealized Unrealized  Fair
(Millions)  Cost Gains Losses  Value Cost Gains Losses  Value
State and municipal obligations $ 5,363 $ 40 $ (246) $ 5,157 $ 6,140 $ 24 $ (367) $ 5,797
U.S. Government agency                         
  obligations   352   5     357   3,402   12   (1)   3,413
U.S. Government treasury                         
  obligations   1,935   8     1,943   2,450   6     2,456
Corporate debt securities(a)   1,011   15     1,026   1,431   15   (1)   1,445
Mortgage-backed securities(b)   277   9   (1)   285   272   6   (2)   276
Equity securities(c)   98   386     484   98   377     475
Foreign government bonds and                         
  obligations   111   6     117   95   4     99
Other(d)   60       60   49       49
Total $ 9,207 $ 469 $ (247) $ 9,429 $13,937 $444 $(371) $14,010
                           

(a) The June 30, 2011 and December 31, 2010 balances include, on a cost basis, $0.9 billion and $1.3 billion, respectively, of corporate debt obligations issued under the Temporary Liquidity Guarantee Program (TLGP) that are guaranteed by the Federal Deposit Insurance Corporation (FDIC).

(b) Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.

(c) Represents the Company's investment in Industrial and Commercial Bank of China (ICBC).

(d) Other is comprised of investments in various mutual funds. 

Other-Than-Temporary Impairment

Realized losses are recognized upon management's determination that a decline in fair value is other than temporary. The determination of other-than-temporary impairment is a subjective process, requiring the use of judgments and assumptions regarding the amount and timing of recovery. The Company reviews and evaluates its investments at least quarterly and more often, as market conditions may require, to identify investments that have indications of other-than-temporary impairments. It is reasonably possible that a change in estimate could occur in the near term relating to other-than-temporary impairment. Accordingly, the Company considers several factors when evaluating debt securities for other-than-temporary impairment including the determination of the extent to which the decline in fair value of the security is due to increased default risk for the specific issuer or market interest rate risk. With respect to increased default risk, the Company assesses the collectibility of principal and interest payments by monitoring issuers' credit ratings, related changes to those ratings, specific credit events associated with the individual issuers as well as the credit ratings of a financial guarantor, where applicable, and the extent to which amortized cost exceeds fair value and the duration and size of that difference. With respect to market interest rate risk, including benchmark interest rates and credit spreads, the Company assesses whether it has the intent to sell the securities and whether it is more likely than not that the Company will not be required to sell the securities before recovery of any unrealized losses.

 

The following table provides information about the Company's investment securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2011 and December 31, 2010:

    2011 2010
(Millions) Less than 12 months 12 months or more Less than 12 months 12 months or more
        Gross     Gross     Gross     Gross
     Estimated Unrealized Estimated Unrealized  Estimated Unrealized Estimated Unrealized
Description of Securities  Fair Value Losses Fair Value Losses  Fair Value Losses Fair Value Losses
State and municipal obligations $ 1,601 $ (72) $ 1,094 $ (174) $ 2,535 $ (156) $ 1,076 $ (211)
U.S. Government agency obligations          299   (1)    
Corporate debt securities               3   (1)
Mortgage-backed securities   46   (1)       71   (2)    
Total $ 1,647 $ (73) $ 1,094 $ (174) $2,905 $(159) $1,079 $(212)

The following table summarizes the gross unrealized losses due to temporary impairments by ratio of fair value to amortized cost as of June 30, 2011 and December 31, 2010:

(Millions) Less than 12 months 12 months or more Total
        Gross       Gross       Gross
Ratio of Fair Value to Number of Estimated Unrealized Number of Estimated Unrealized Number of Estimated Unrealized
Amortized Cost Securities Fair Value Losses Securities Fair Value Losses Securities Fair Value Losses
2011:                        
90%–100%  280 $ 1,576 $ (61)  64 $ 353 $ (30)  344 $ 1,929 $ (91)
Less than 90%  11   71   (12)  73   741   (144)  84   812   (156)
Total as of June 30, 2011  291 $ 1,647 $ (73)  137 $ 1,094 $ (174)  428 $ 2,741 $ (247)
2010:                        
90%–100% 457 $2,554 $(113) 31 $79 $(7) 488 $2,633 $(120)
Less than 90% 48  351  (46) 115  1,000  (205) 163  1,351  (251)
Total as of December 31, 2010 505 $2,905 $(159) 146 $1,079 $(212) 651 $3,984 $(371)
                          

The gross unrealized losses on state and municipal securities and all other debt securities can be attributed to higher credit spreads generally for state and municipal securities, higher credit spreads for specific issuers, changes in market benchmark interest rates, or a combination thereof, all as compared to those prevailing when the investment securities were acquired.

 

In assessing default risk on these investment securities, the Company has qualitatively considered the key factors identified above and determined that it expects to collect all of the contractual cash flows due on the investment securities.

 

Overall, for the investment securities in gross unrealized loss positions identified above, (a) the Company does not intend to sell the investment securities, (b) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (c) the Company expects that the contractual principal and interest will be received on the investment securities. As a result, the Company recognized no other-than-temporary impairments during the six months ended June 30, 2011 or the year ended December 31, 2010.

 

Supplemental Information       

Gross realized gains on sales of investment securities, included in other non-interest revenues for the three and six months ended June 30, 2010, were $1 million and $2 million, respectively (there were no gross realized gains for the three and six months ended June 30, 2011). Gross realized losses on sales of investment securities, included in other non-interest revenues for both the three and six months ended June 30, 2010, were $6 million (there were no gross realized losses for the three and six months ended June 30, 2011).

Contractual maturities of investment securities, excluding equity securities and other securities, as of June 30, 2011 were as follows:

       Estimated
(Millions) Cost  Fair Value
Due within 1 year $ 2,549 $ 2,560
Due after 1 year but within 5 years   824   839
Due after 5 years but within 10 years   268   279
Due after 10 years   5,408   5,207
Total $ 9,049 $ 8,885

The expected payments on state and municipal obligations and mortgage-backed securities may not coincide with their contractual maturities because the issuers have the right to call or prepay certain obligations.