XML 88 R12.htm IDEA: XBRL DOCUMENT v3.20.1
DERIVATIVE ASSETS AND DERIVATIVE LIABILITIES
 6 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE ASSETS AND DERIVATIVE LIABILITIES DERIVATIVE ASSETS AND DERIVATIVE LIABILITIES

Our derivative assets and derivative liabilities are recorded at fair value and are included in “Derivative assets” and “Derivative liabilities” on our Condensed Consolidated Statements of Financial Condition. Cash flows related to our derivatives are included within operating activities on the Condensed Consolidated Statements of Cash Flows. The significant accounting policies governing our derivatives, including our methodologies for determining fair value, are described in Note 2 of our 2019 Form 10-K.

Derivative balances included on our financial statements

The following table presents the gross fair value and notional amount of derivatives by product type, the amounts of counterparty and cash collateral netting on our Condensed Consolidated Statements of Financial Condition, as well as collateral posted and received under credit support agreements that do not meet the criteria for netting under GAAP.
 
 
March 31, 2020
 
September 30, 2019
$ in millions
 
Derivative assets
 
Derivative liabilities
 
Notional amount
 
Derivative assets
 
Derivative liabilities
 
Notional amount
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate - matched book
 
$
351

 
$
351

 
$
2,265

 
$
280

 
$
280

 
$
2,296

Interest rate - other (1)
 
359

 
286

 
16,686

 
184

 
146

 
10,690

Foreign exchange
 
—

 
3

 
576

 
—

 
1

 
573

Equity
 
—

 
1

 
1

 
—

 
6

 
6

Subtotal
 
710


641


19,528


464


433


13,565

Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
 
—

 
1

 
850

 
1

 
—

 
850

Foreign exchange
 
—

 
3

 
816

 
—

 
1

 
856

Subtotal
 
—


4


1,666


1


1


1,706

Total gross fair value/notional amount
 
710


645


$
21,194


465


434


$
15,271

Offset on the Condensed Consolidated Statements of Financial Condition
 
 
 
 
 
 
 
 
 
 
 
 
Counterparty netting
 
(93
)
 
(93
)
 
 
 
(24
)
 
(24
)
 
 
Cash collateral netting
 
(170
)
 
(125
)
 
 
 
(103
)
 
(97
)
 
 
Total amounts offset
 
(263
)
 
(218
)
 
 
 
(127
)
 
(121
)
 
 
Net amounts presented on the Condensed Consolidated Statements of Financial Condition
 
447


427

 
 
 
338

 
313

 
 
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition
 
 
 
 
 
 
 
 
 
 
 
 
Financial instruments (2)
 
(372
)
 
(351
)
 
 
 
(297
)
 
(280
)
 
 
Total
 
$
75

 
$
76

 
 
 
$
41

 
$
33

 
 


(1)
Substantially all relates to interest rate derivatives entered into as part of our fixed income business operations, including to be announced (“TBA”) security contracts that are accounted for as derivatives.

(2)
Although the matched book derivative arrangements do not meet the definition of a master netting arrangement as specified by GAAP, the agreement with the third-party intermediary includes terms that are similar to a master netting agreement. As a result, we present the matched book amounts net in the preceding table.

The following table details the gains/(losses) included in accumulated other comprehensive income (“AOCI”), net of income taxes, on derivatives designated as hedging instruments. These gains/(losses) included any amounts reclassified from AOCI to net income during the period. See Note 16 for additional information.
 
 
Three months ended March 31,
 
Six months ended March 31,
$ in millions
 
2020
 
2019
 
2020
 
2019
Interest rate (cash flow hedges)
 
$
(43
)
 
$
(13
)
 
$
(33
)
 
$
(30
)
Foreign exchange (net investment hedges)
 
52

 
(11
)
 
39

 
26

Total gains/(losses) in AOCI, net of taxes
 
$
9

 
$
(24
)
 
$
6

 
$
(4
)


There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness for each of the three and six months ended March 31, 2020 and 2019. We expect to reclassify $12 million of interest expense out of AOCI and into earnings within the next 12 months. The maximum length of time over which forecasted transactions are or will be hedged is 8 years.

The following table details the gains/(losses) on derivatives not designated as hedging instruments recognized on the Condensed Consolidated Statements of Income and Comprehensive Income.
$ in millions
 
 
 
Three months ended March 31,
 
Six months ended March 31,
 
Location of gain/(loss)
 
2020
 
2019
 
2020
 
2019
Interest rate
 
Principal transactions/other revenues
 
$
—

 
$
—

 
$
5

 
$
2

Foreign exchange
 
Other revenues
 
$
43

 
$
(4
)
 
$
32

 
$
22

Equity
 
Compensation, commissions and benefits expense
 
$
(1
)
 
$
—

 
$
(1
)
 
$
5



Risks associated with our derivatives and related risk mitigation

Credit risk

We are exposed to credit losses in the event of nonperformance by the counterparties to forward foreign exchange derivative agreements and interest rate derivatives that are not cleared through a clearing organization. Where we are subject to credit exposure, we perform a credit evaluation of counterparties prior to entering into derivative transactions and we monitor their credit standings.  We may require initial margin or collateral from counterparties in the form of cash deposits or other marketable securities to support certain of these obligations as established by the credit threshold specified by the agreement and/or as a result of monitoring the credit standing of the counterparties.

Our only exposure to credit risk in the matched book derivatives operations is related to our uncollected derivative transaction fee revenues, which were insignificant as of both March 31, 2020 and September 30, 2019. We are not exposed to market risk on these derivatives due to the pass-through transaction structure described in Note 2 of our 2019 Form 10-K.

Interest rate and foreign exchange risk

We are exposed to interest rate risk related to certain of our interest rate derivatives. We are also exposed to foreign exchange risk related to our forward foreign exchange derivatives.  On a daily basis, we monitor our risk exposure on our derivatives based on established limits with respect to a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis and volatility risks, both for the total portfolio and by maturity period.

Derivatives with credit-risk-related contingent features

Certain of our derivative contracts contain provisions that require our debt to maintain an investment-grade rating from one or more of the major credit rating agencies. If our debt were to fall below investment-grade, the counterparties to the derivative instruments could terminate and request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that were in a liability position was insignificant as of both March 31, 2020 and September 30, 2019.