FAIR VALUE (Tables)

9 Months Ended

Jun. 30, 2020

Assets and Liabilities Measured at Fair Value on a Recurring and Nonrecurring Basis

The following tables present assets and liabilities measured at fair value on a recurring basis. Netting adjustments represent the impact of counterparty and collateral netting on our derivative balances included on our Condensed Consolidated Statements of Financial Condition. See Note 5 for additional information.


$ in millions	Level 1		Level 2		Level 3		Netting adjustments		Balance as of June 30, 2020
Assets at fair value on a recurring basis:
Trading instruments
Municipal and provincial obligations	$	5	$	77	$	—	$	—	$	82
Corporate obligations	6		46		—		—		52
Government and agency obligations	16		66		—		—		82
Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)	—		102		—		—		102
Non-agency CMOs and asset-backed securities (“ABS”)	—		7		—		—		7
Total debt securities	27		298		—		—		325
Equity securities	9		—		—		—		9
Brokered certificates of deposit	—		12		—		—		12
Other	—		—		15		—		15
Total trading instruments	36		310		15		—		361
Available-for-sale securities ⁽¹⁾	16		5,614		—		—		5,630
Derivative assets
Interest rate - matched book	—		351		—		—		351
Interest rate - other	15		239		—		(153)		101

Total derivative assets	15		590		—		(153)		452
Other investments - private equity - not measured at net asset value (“NAV”)	—		—		30		—		30
All other investments	201		1		22		—		224
Subtotal	268		6,515		67		(153)		6,697
Other investments - private equity - measured at NAV									73
Total assets at fair value on a recurring basis	$	268	$	6,515	$	67	$	(153)	$	6,770

Liabilities at fair value on a recurring basis:
Trading instruments sold but not yet purchased
Municipal and provincial obligations	$	1	$	—	$	—	$	—	$	1
Corporate obligations	—		3		—		—		3
Government and agency obligations	105		—		—		—		105
Non-agency CMOs and ABS	—		3		—		—		3
Total debt securities	106		6		—		—		112
Equity securities	42		—		—		—		42

Total trading instruments sold but not yet purchased	148		6		—		—		154
Derivative liabilities
Interest rate - matched book	—		351		—		—		351
Interest rate - other	17		154		—		(141)		30
Foreign exchange	—		12		—		—		12
Other	—		1		—		—		1
Total derivative liabilities	17		518		—		(141)		394
Total liabilities at fair value on a recurring basis	$	165	$	524	$	—	$	(141)	$	548

(1) Substantially all of our available-for-sale securities consist of agency MBS and CMOs. See Note 4 for further information.


$ in millions	Level 1		Level 2		Level 3		Netting adjustments		Balance as of September 30, 2019
Assets at fair value on a recurring basis:
Trading instruments
Municipal and provincial obligations	$	—	$	267	$	—	$	—	$	267
Corporate obligations	8		95		—		—		103
Government and agency obligations	12		67		—		—		79
Agency MBS and CMOs	—		147		—		—		147
Non-agency CMOs and ABS	—		51		—		—		51
Total debt securities	20		627		—		—		647
Equity securities	12		1		—		—		13
Brokered certificates of deposit	—		45		—		—		45
Other	—		—		3		—		3
Total trading instruments	32		673		3		—		708
Available-for-sale securities ⁽¹⁾	10		3,083		—		—		3,093
Derivative assets
Interest rate - matched book	—		280		—		—		280
Interest rate - other	3		182		—		(127)		58

Total derivative assets	3		462		—		(127)		338
Other investments - private equity - not measured at NAV	—		—		63		—		63
All other investments	194		1		24		—		219
Subtotal	239		4,219		90		(127)		4,421
Other investments - private equity - measured at NAV									83
Total assets at fair value on a recurring basis	$	239	$	4,219	$	90	$	(127)	$	4,504

Liabilities at fair value on a recurring basis:
Trading instruments sold but not yet purchased

Corporate obligations	$	2	$	20	$	—	$	—	$	22
Government and agency obligations	269		—		—		—		269

Total debt securities	271		20		—		—		291
Equity securities	4		—		—		—		4
Other	—		—		1		—		1
Total trading instruments sold but not yet purchased	275		20		1		—		296
Derivative liabilities
Interest rate - matched book	—		280		—		—		280
Interest rate - other	4		142		—		(121)		25
Foreign exchange	—		2		—		—		2
Other	—		6		—		—		6
Total derivative liabilities	4		430		—		(121)		313
Total liabilities at fair value on a recurring basis	$	279	$	450	$	1	$	(121)	$	609

(1) Substantially all of our available-for-sale securities consist of agency MBS and CMOs. See Note 4 for further information.

Level 3 Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis, Roll Forward Table of Change in Balances

The following tables present the changes in fair value for Level 3 assets and liabilities measured at fair value on a recurring basis. The realized and unrealized gains and losses in the tables may include changes in fair value that were attributable to both observable and unobservable inputs. In the following tables, gains/(losses) on trading instruments are reported in “Principal transactions” and gains/(losses) on other investments are reported in “Other” revenues.


Three months ended June 30, 2020 Level 3 instruments at fair value
	Financial assets									Financial liabilities
	Trading instruments		Other investments						Trading instruments
$ in millions	Other		Private equity investments		All other		Other
Fair value beginning of period	$	21	$	30	$	22	$	—
Total gains/(losses) included in earnings	(5)		—		—		—
Purchases and contributions	11		—		—		—
Sales and distributions	(12)		—		—		—
Transfers:
Into Level 3	—		—		—		—
Out of Level 3	—		—		—		—
Fair value end of period	$	15	$	30	$	22	$	—
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period	$	2	$	—	$	—	$	—


Nine Months Ended June 30, 2020 Level 3 instruments at fair value
	Financial assets									Financial liabilities
	Trading instruments		Other investments						Trading instruments
$ in millions	Other		Private equity investments		All other		Other
Fair value beginning of period	$	3	$	63	$	24	$	(1)
Total gains/(losses) included in earnings	(2)		(32)		(2)		—
Purchases and contributions	64		—		—		2
Sales and distributions	(50)		(1)		—		(1)
Transfers:
Into Level 3	—		—		—		—
Out of Level 3	—		—		—		—
Fair value end of period	$	15	$	30	$	22	$	—
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period	$	1	$	(32)	$	(2)	$	—


Three months ended June 30, 2019 Level 3 instruments at fair value
	Financial assets									Financial liabilities
	Trading instruments		Other investments						Trading instruments
$ in millions	Other		Private equity investments		All other		Other
Fair value beginning of period	$	2	$	59	$	67	$	(7)
Total gains/(losses) included in earnings	(1)		—		(2)		—
Purchases and contributions	26		—		—		7
Sales and distributions	(26)		—		—		(3)
Transfers:
Into Level 3	—		—		—		—
Out of Level 3	—		—		—		—
Fair value end of period	$	1	$	59	$	65	$	(3)
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period	$	1	$	—	$	(2)	$	—


Nine Months Ended June 30, 2019 Level 3 instruments at fair value
	Financial assets									Financial liabilities
	Trading instruments		Other investments						Trading instruments
$ in millions	Other		Private equity investments		All other		Other
Fair value beginning of period	$	1	$	56	$	67	$	(7)
Total gains/(losses) included in earnings	(1)		—		(2)		2
Purchases and contributions	86		3		—		16
Sales and distributions	(85)		—		—		(14)
Transfers:
Into Level 3	—		—		—		—
Out of Level 3	—		—		—		—
Fair value end of period	$	1	$	59	$	65	$	(3)
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period	$	1	$	—	$	(2)	$	—

Significant Assumptions Used in Valuation of Level 3 Financial Instruments

The following tables present the valuation techniques and significant unobservable inputs used in the valuation of certain of our private equity investments classified as level 3. These inputs represent those that a market participant would take into account when pricing these instruments. Weighted averages are calculated by weighting each input by the relative fair value of the related financial instrument. Certain investments are valued initially at transaction price and updated as other investment-specific events take place which indicate that a change in the carrying values of these investments is appropriate. Other investment-specific events include such events as our periodic review, significant transactions occur or new developments become known.

Recurring measurements

$ in millions

Fair value at June 30, 2020

Valuation technique(s)

Unobservable input

Range
(weighted-average)

Other investments - private equity investments (not measured at NAV)

Discounted cash flow, transaction price or other investment-specific events

Discount rate

25%

Terminal earnings before interest, tax, depreciation and amortization (“EBITDA”) multiple

9.0x

Terminal year

2021 - 2042 (2024)

Fair value at September 30, 2019

Other investments - private equity investments (not measured at NAV)

Discounted cash flow, transaction price or other investment-specific events

Discount rate

25%

Terminal EBITDA multiple

12.5x

Terminal year

2021 - 2042 (2022)

Net asset value of recorded value and unfunded commitments

The following table presents the recorded value and unfunded commitments related to our private equity investments portfolio.


$ in millions	Recorded value		Unfunded commitment
June 30, 2020
Private equity investments measured at NAV	$	73	$	9
Private equity investments not measured at NAV	30
Total private equity investments	$	103

September 30, 2019
Private equity investments measured at NAV	$	83	$	15
Private equity investments not measured at NAV	63
Total private equity investments	$	146

Fair Value Measurements, Nonrecurring

The following table presents assets measured at fair value on a nonrecurring basis along with the valuation techniques and significant unobservable inputs used in the valuation of the assets classified as level 3. These inputs represent those that a market participant would take into account when pricing these instruments. Weighted averages are calculated by weighting each input by the relative fair value of the related financial instrument.


$ in millions	Level 2		Level 3		Total fair value		Valuation technique(s)	Unobservable input	Range (weighted-average)
June 30, 2020
Bank loans, net:
Impaired loans: residential	$	5	$	13	$	18	Discounted cash flow	Prepayment rate	7 yrs. - 12 yrs. (10.4 yrs.)
Impaired loans: corporate	$	—	$	7	$	7	Collateral or discounted cash flow ⁽¹⁾	Not meaningful ⁽¹⁾	Not meaningful ⁽¹⁾
Loan held for sale	$	21	$	—	$	21	N/A	N/A	N/A
Other assets: other real estate owned	$	1	$	—	$	1	N/A	N/A	N/A

September 30, 2019
Bank loans, net:
Impaired loans: residential	$	7	$	14	$	21	Discounted cash flow	Prepayment rate	7 yrs. - 12 yrs. (10.4 yrs.)
Impaired loans: corporate	$	—	$	21	$	21	Collateral or discounted cash flow ⁽¹⁾	Not meaningful ⁽¹⁾	Not meaningful ⁽¹⁾
Loan held for sale	$	66	$	—	$	66	N/A	N/A	N/A
Other assets: other real estate owned	$	1	$	—	$	1	N/A	N/A	N/A

(1) The valuation techniques used for the corporate loans are based on collateral value less selling costs for the collateral dependent loans and discounted cash flows for impaired loans that are not collateral dependent.

Carrying Amounts and Estimated Fair Values of Financial Instruments Not Carried at Fair Value

The following table presents the estimated fair value and fair value hierarchy of financial assets and liabilities that are not recorded at fair value in accordance with GAAP on the Condensed Consolidated Statements of Financial Condition at June 30, 2020 and September 30, 2019. This table excludes financial instruments that are carried at amounts which approximate fair value. Refer to Note 4 of our 2019 Form 10-K for a discussion of the fair value hierarchy classification of our financial instruments that are not recorded at fair value.


$ in millions	Level 2		Level 3		Total estimated fair value		Carrying amount
June 30, 2020
Financial assets:
Bank loans, net	$	65	$	21,278	$	21,343	$	21,177

Financial liabilities:
Bank deposits - certificates of deposit	$	—	$	1,126	$	1,126	$	1,088
Senior notes payable	$	2,413	$	—	$	2,413	$	2,044

September 30, 2019
Financial assets:
Bank loans, net	$	75	$	20,710	$	20,785	$	20,783

Financial liabilities:
Bank deposits - certificates of deposit	$	—	$	617	$	617	$	605
Senior notes payable	$	1,760	$	—	$	1,760	$	1,550

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

+ References + Details