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Investment Securities

12 Months Ended

Dec. 31, 2011

NOTE 6

investment securities

The following is a summary of investment securities as of December 31:

	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	$	4,968	$	103	$	(72)	$	4,999	$	6,140	$	24	$	(367)	$	5,797
U.S. Government agency obligations		352		2		―		354		3,402		12		(1)		3,413
U.S. Government treasury obligations		330		10		―		340		2,450		6		―		2,456
Corporate debt securities^(a)		626		9		(3)		632		1,431		15		(1)		1,445
Mortgage-backed securities^(b)		261		17		―		278		272		6		(2)		276
Equity securities^(c)		95		265		―		360		98		377		―		475
Foreign government bonds and obligations		120		10		―		130		95		4		―		99
Other		54		―		―		54		49		―		―		49
Total	$	6,806	$	416	$	(75)	$	7,147	$	13,937	$	444	$	(371)	$	14,010

The December 31, 2011 and 2010 balances include, on a cost basis, $0.6 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).
Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
Primarily represents the Company's investment in the Industrial and Commercial Bank of China (ICBC).

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 December 31:

	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	$	―	$	―	$	1,094	$	(72)	$	2,535	$	(156)	$	1,076	$	(211)
U.S. Government agency obligations		―		―		―		―		299		(1)		―		―
Corporate debt securities		15		(2)		2		(1)		―		―		3		(1)
Mortgage-backed securities		―		―		―		―		71		(2)		―		―
Total	$	15	$	(2)	$	1,096	$	(73)	$	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 December 31:

(Dollars in 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%	―	$	―	$	―	114	$	884	$	(35)	114	$	884	$	(35)
Less than 90%	1		15		(2)	22		212		(38)	23		227		(40)
Total as of December 31, 2011	1	$	15	$	(2)	136	$	1,096	$	(73)	137	$	1,111	$	(75)
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, (i) the Company does not intend to sell the investment securities, (ii) 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 (iii) 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 periods presented.

supplemental information

Gross realized gains and losses on the sales of investment securities, included in other non-interest revenues, were as follows:

supplemental information

Gross realized gains and losses on the sales of investment securities, included in other non-interest revenues, were as follows:

(Millions)	2011		2010		2009
Gains	$	16	$	1	$	226
Losses		―		(6)		(1)
Total	$	16	$	(5)	$	225

			Estimated
(Millions)	Cost		Fair Value
Due within 1 year	$	973	$	983
Due after 1 year but within 5 years		421		429
Due after 5 years but within 10 years		217		227
Due after 10 years		5,046		5,094
Total	$	6,657	$	6,733

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.

- Definition

Tabular disclosure of available-for-sale securities which consist of all investments in certain debt and equity securities neither classified as trading or held-to-maturity securities. A debt security represents a creditor relationship with an enterprise. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt.

+ References

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