FAIR VALUE

6 Months Ended

Mar. 31, 2022

Our “Financial instruments” and “Financial instrument liabilities” on our Condensed Consolidated Statements of Financial Condition are recorded at fair value. For further information about such instruments and our significant accounting policies related to fair value, see Notes 2 and 4 of our 2021 Form 10-K. 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 6 for additional information.


$ in millions	Level 1		Level 2		Level 3		Netting adjustments		Balance as of March 31, 2022
Assets at fair value on a recurring basis:
Assets segregated for regulatory purposes (1)	$	10,394	$	—	$	—	$	—	$	10,394
Trading assets:
Municipal and provincial obligations	—		115		—		—		115
Corporate obligations	10		47		—		—		57
Government and agency obligations	20		74		—		—		94
Agency mortgage-backed securities (“MBS”), collateralized mortgage obligations (“CMOs”) and asset-backed securities (“ABS”)	—		118		—		—		118
Non-agency CMOs and ABS	—		23		—		—		23
Total debt securities	30		377		—		—		407
Equity securities	13		1		—		—		14
Brokered certificates of deposit	—		41		—		—		41
Other	—		—		13		—		13
Total trading assets	43		419		13		—		475
Available-for-sale securities (2)	213		8,602		—		—		8,815
Derivative assets:
Interest rate - matched book	—		124		—		—		124
Interest rate - other	61		108		—		(110)		59


Total derivative assets	61		232		—		(110)		183
Other investments - private equity - not measured at net asset value (“NAV”)	—		—		23		—		23
All other investments:
Government and agency obligations (3)	136		—		—		—		136
Other	121		2		30		—		153
Total all other investments	257		2		30		—		289
Subtotal	10,968		9,255		66		(110)		20,179
Other investments - private equity - measured at NAV									95
Total assets at fair value on a recurring basis	$	10,968	$	9,255	$	66	$	(110)	$	20,274

Liabilities at fair value on a recurring basis:
Trading liabilities:
Municipal and provincial obligations	$	1	$	—	$	—	$	—	$	1
Corporate obligations	—		3		—		—		3
Government and agency obligations	166		—		—		—		166


Total debt securities	167		3		—		—		170
Equity securities	15		—		—		—		15
Other	—		—		1		—		1
Total trading liabilities	182		3		1		—		186
Derivative liabilities:
Interest rate - matched book	—		124		—		—		124
Interest rate - other	56		141		—		(63)		134
Foreign exchange	—		13		—		—		13

Total derivative liabilities	56		278		—		(63)		271
Total liabilities at fair value on a recurring basis	$	238	$	281	$	1	$	(63)	$	457


$ in millions	Level 1		Level 2		Level 3		Netting adjustments		Balance as of September 30, 2021
Assets at fair value on a recurring basis:
Assets segregated for regulatory purposes (1)	$	2,100	$	—	$	—	$	—	$	2,100
Trading assets:
Municipal and provincial obligations	—		155		—		—		155
Corporate obligations	16		63		—		—		79
Government and agency obligations	15		94		—		—		109
Agency MBS, CMOs and ABS	—		211		—		—		211
Non-agency CMOs and ABS	—		14		—		—		14
Total debt securities	31		537		—		—		568
Equity securities	8		4		—		—		12
Brokered certificates of deposit	—		16		—		—		16
Other	—		—		14		—		14
Total trading assets	39		557		14		—		610
Available-for-sale securities (2)	15		8,300		—		—		8,315
Derivative assets:
Interest rate - matched book	—		193		—		—		193
Interest rate - other	16		128		—		(87)		57
Foreign exchange	—		5		—		—		5
Total derivative assets	16		326		—		(87)		255
Other investments - private equity - not measured at NAV	—		—		75		—		75
All other investments:
Government and agency obligations (3)	86		—		—		—		86
Other	77		2		23		—		102
Total all other investments	163		2		23		—		188
Subtotal	2,333		9,185		112		(87)		11,543
Other investments - private equity - measured at NAV									94
Total assets at fair value on a recurring basis	$	2,333	$	9,185	$	112	$	(87)	$	11,637

Liabilities at fair value on a recurring basis:
Trading liabilities:
Municipal and provincial obligations	$	2	$	—	$	—	$	—	$	2
Corporate obligations	—		6		—		—		6
Government and agency obligations	137		—		—		—		137

Total debt securities	139		6		—		—		145
Equity securities	28		3		—		—		31

Total trading liabilities	167		9		—		—		176
Derivative liabilities:
Interest rate - matched book	—		193		—		—		193
Interest rate - other	16		106		—		(88)		34

Other	—		—		1		—		1
Total derivative liabilities	16		299		1		(88)		228
Total liabilities at fair value on a recurring basis	$	183	$	308	$	1	$	(88)	$	404

(1) These assets consist of U.S. Treasury securities (“U.S. Treasuries”) with maturities greater than 3 months as of our date of purchase. These assets do not include U.S. Treasuries with maturities of less than 3 months as of our date of purchase with a fair value of $650 million at March 31, 2022 and $3.55 billion at September 30, 2021 which were considered cash equivalents. These assets are classified as Level 1.

(2) Our available-for-sale securities primarily consist of agency MBS and agency CMOs. See Note 5 for further information.

(3) These assets are comprised of U.S. Treasuries primarily purchased to meet certain deposit requirements with clearing organizations or to meet future broker-dealer customer reserve requirements.

Level 3 recurring fair value measurements

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 and derivative instruments are reported in “Principal transactions” and gains/(losses) on other investments are reported in “Other” revenues on our Condensed Consolidated Statements of Income and Comprehensive Income.


Three months ended March 31, 2022 Level 3 instruments at fair value
	Financial assets								Financial liabilities
	Trading assets		Derivative assets		Other investments				Trading liabilities
$ in millions	Other		Other		Private equity investments		All other		Other
Fair value beginning of period	$	2	$	1	$	75	$	23	$	—
Total gains/(losses) included in earnings	—		(1)		—		—		(1)
Purchases and contributions	29		—		—		7		—
Sales, distributions, and deconsolidations	(18)		—		(40)		—		—
Transfers:
Into Level 3	—		—		—		—		—
Out of Level 3	—		—		(12)		—		—
Fair value end of period	$	13	$	—	$	23	$	30	$	(1)
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period	$	(1)	$	(1)	$	—	$	—	$	(1)


Six months ended March 31, 2022 Level 3 instruments at fair value
	Financial assets				Financial liabilities
	Trading assets		Other investments				Trading liabilities		Derivative liabilities
$ in millions	Other		Private equity investments		All other		Other		Other
Fair value beginning of period	$	14	$	75	$	23	$	—	$	(1)
Total gains/(losses) included in earnings	2		—		—		(1)		1
Purchases and contributions	54		—		7		—		—
Sales, distributions, and deconsolidations	(57)		(40)		—		—		—
Transfers:
Into Level 3	—		—		—		—		—
Out of Level 3	—		(12)		—		—		—
Fair value end of period	$	13	$	23	$	30	$	(1)	$	—
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period	$	(1)	$	—	$	—	$	(1)	$	—


Three months ended March 31, 2021 Level 3 instruments at fair value
	Financial assets						Financial liabilities
	Trading assets		Other investments				Trading liabilities		Derivative liabilities
$ in millions	Other		Private equity investments		All other		Other		Other
Fair value beginning of period	$	3	$	52	$	22	$	—	$	(1)
Total gains/(losses) included in earnings	(2)		—		1		(1)		(3)
Purchases and contributions	10		—		—		—		—
Sales and distributions	(6)		—		—		—		—
Transfers:
Into Level 3	—		—		—		—		—
Out of Level 3	—		—		—		—		—
Fair value end of period	$	5	$	52	$	23	$	(1)	$	(4)
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period	$	—	$	—	$	1	$	(1)	$	(3)


Six months ended March 31, 2021 Level 3 instruments at fair value
	Financial assets						Financial liabilities
	Trading assets		Other investments				Trading liabilities		Derivative liabilities
$ in millions	Other		Private equity investments		All other		Other		Other
Fair value beginning of period	$	12	$	37	$	22	$	—	$	(5)
Total gains/(losses) included in earnings	—		15		1		(1)		1
Purchases and contributions	16		—		—		—		—
Sales and distributions	(23)		—		—		—		—
Transfers:
Into Level 3	—		—		—		—		—
Out of Level 3	—		—		—		—		—
Fair value end of period	$	5	$	52	$	23	$	(1)	$	(4)
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period	$	—	$	15	$	1	$	(1)	$	1

As of March 31, 2022, 28% of our assets and less than 1% of our liabilities were measured at fair value on a recurring basis. In comparison, as of September 30, 2021, 19% of our assets and less than 1% of our liabilities were measured at fair value on a recurring basis. The increase in assets measured at fair value on a recurring basis as a percentage of total assets was primarily due to a significant increase in assets segregated for regulatory purposes, driven by a significant increase in client cash balances. As of both March 31, 2022 and September 30, 2021, Level 3 assets represented less than 1% of our assets measured at fair value on a recurring basis.

Investments in private equity measured at net asset value per share

As more fully described in Note 2 of our 2021 Form 10-K, as a practical expedient, we utilize NAV or its equivalent to determine the recorded value of a portion of our private equity investments portfolio. We utilize NAV when the fund investment does not have a readily determinable fair value and the NAV of the fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the investments at fair value.

Our private equity portfolio as of March 31, 2022 included investments in third-party funds, as well as various direct investments. Our third-party fund portfolio is primarily invested in a broad range of strategies including leveraged buyouts, growth capital, distressed capital, venture capital and mezzanine capital. Due to the closed-end nature of certain of our fund investments, such investments cannot be redeemed directly with the funds. Our investment is monetized by distributions received through the liquidation of the underlying assets of those funds, the timing of which is uncertain.

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


$ in millions	Recorded value		Unfunded commitment
March 31, 2022
Private equity investments measured at NAV	$	95	$	27
Private equity investments not measured at NAV	23
Total private equity investments	$	118

September 30, 2021
Private equity investments measured at NAV	$	94	$	8
Private equity investments not measured at NAV	75
Total private equity investments (1)	$	169

(1) Of the total private equity investments, the portion we owned was $120 million, while the portion that we did not own was $49 million and was included as a component of noncontrolling interests on our Condensed Consolidated Statements of Financial Condition.

As a financial holding company, we are subject to holding period limitations for our merchant banking activities. As a result of such holding limitations, we exited or restructured certain of our private equity investments during the first half of our fiscal 2022, which resulted in a decline in private equity investments not measured at NAV compared to September 30, 2021 and a decline in noncontrolling interests on our Condensed Consolidated Statements of Financial Condition related to the portion of such investments we did not own. Additionally, many of our private equity fund investments meet the definition of prohibited covered funds as defined by the Volcker Rule enacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). We have received approval from the Board of Governors of the Federal Reserve System (“the Fed”) to continue to hold the majority of our covered fund investments until July 2022, totaling $4 million as of March 31, 2022. As a result of our holding period limitations, we have continued to exit or restructure certain of our private equity investments and will continue to do so during the remainder of fiscal 2022 in accordance with our regulatory deadlines.

Financial instruments measured at fair value on a nonrecurring basis

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)
March 31, 2022
Bank loans:
Residential mortgage loans	$	3	$	10	$	13	Collateral or discounted cash flow (1)	Prepayment rate	7 yrs. - 12 yrs. (10.5 yrs.)
Corporate loans	$	—	$	60	$	60	Collateral or discounted cash flow (1)	Not meaningful (1)	Not meaningful (1)
Loans held for sale	$	150	$	—	$	150	N/A	N/A	N/A


September 30, 2021
Bank loans:
Residential mortgage loans	$	3	$	11	$	14	Collateral or discounted cash flow (1)	Prepayment rate	7 yrs. - 12 yrs. (10.5 yrs.)
Corporate loans	$	—	$	49	$	49	Collateral or discounted cash flow (1)	Not meaningful (1)	Not meaningful (1)
Loans held for sale	$	29	$	—	$	29	N/A	N/A	N/A

(1) The valuation techniques used to estimate the fair values are based on collateral value less selling costs for the collateral-dependent loans and discounted cash flows for loans that are not collateral-dependent.

Financial instruments not recorded at fair value

Many, but not all, of the financial instruments we hold were recorded at fair value on the Condensed Consolidated Statements of Financial Condition. The following table presents the estimated fair value and fair value hierarchy of financial assets and liabilities that are not recorded at fair value on the Condensed Consolidated Statements of Financial Condition at March 31, 2022 and September 30, 2021. This table excludes financial instruments that are carried at amounts which approximate fair value. Refer to Note 4 of our 2021 Form 10-K for a discussion of the fair value hierarchy classifications of our financial instruments that are not recorded at fair value.


$ in millions	Level 2		Level 3		Total estimated fair value		Carrying amount
March 31, 2022
Financial assets:
Bank loans, net	$	128	$	27,099	$	27,227	$	27,660
Financial liabilities:
Bank deposits - certificates of deposit	$	—	$	698	$	698	$	701
Senior notes payable	$	2,169	$	—	$	2,169	$	2,037

September 30, 2021
Financial assets:
Bank loans, net	$	116	$	24,839	$	24,955	$	24,902
Financial liabilities:
Bank deposits - certificates of deposit	$	—	$	898	$	898	$	878
Senior notes payable	$	2,459	$	—	$	2,459	$	2,037

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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