FAIR VALUE

3 Months Ended

Dec. 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 2022 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 5 for additional information.


$ in millions	Level 1		Level 2		Level 3		Netting adjustments		Balance as of December 31, 2022
Assets at fair value on a recurring basis:

Trading assets:
Municipal and provincial obligations	$	—	$	163	$	—	$	—	$	163
Corporate obligations	19		583		—		—		602
Government and agency obligations	47		79		—		—		126
Agency mortgage-backed securities (“MBS”), collateralized mortgage obligations (“CMOs”) and asset-backed securities (“ABS”)	—		134		—		—		134
Non-agency CMOs and ABS	—		34		—		—		34
Total debt securities	66		993		—		—		1,059
Equity securities	17		1		—		—		18
Brokered certificates of deposit	—		29		—		—		29
Other	—		—		6		—		6
Total trading assets	83		1,023		6		—		1,112
Available-for-sale securities (1)	987		8,806		—		—		9,793
Derivative assets:
Interest rate - matched book	—		14		—		—		14
Interest rate - other	2		418		—		(327)		93


Total derivative assets	2		432		—		(327)		107

All other investments:
Government and agency obligations (2)	80		—		—		—		80
Other	90		2		30		—		122
Total all other investments	170		2		30		—		202
Other assets - fractional shares	86		—		—		—		86
Subtotal	1,328		10,263		36		(327)		11,300
Other investments - private equity - measured at net asset value (“NAV”)									94
Total assets at fair value on a recurring basis	$	1,328	$	10,263	$	36	$	(327)	$	11,394

Liabilities at fair value on a recurring basis:
Trading liabilities:
Municipal and provincial obligations	$	6	$	—	$	—	$	—	$	6
Corporate obligations	—		525		—		—		525
Government and agency obligations	137		—		—		—		137

Total debt securities	143		525		—		—		668
Equity securities	24		—		—		—		24

Total trading liabilities	167		525		—		—		692
Derivative liabilities:
Interest rate - matched book	—		14		—		—		14
Interest rate - other	3		479		—		(61)		421
Foreign exchange	—		13		—		—		13
Other	—		—		4		—		4
Total derivative liabilities	3		506		4		(61)		452
Other payables - fractional shares	86		—		—		—		86
Total liabilities at fair value on a recurring basis	$	256	$	1,031	$	4	$	(61)	$	1,230


$ in millions	Level 1		Level 2		Level 3		Netting adjustments		Balance as of September 30, 2022
Assets at fair value on a recurring basis:

Trading assets:
Municipal and provincial obligations	$	—	$	269	$	—	$	—	$	269
Corporate obligations	16		579		—		—		595
Government and agency obligations	86		85		—		—		171
Agency MBS, CMOs, and ABS	—		123		—		—		123
Non-agency CMOs and ABS	—		61		—		—		61
Total debt securities	102		1,117		—		—		1,219
Equity securities	20		—		—		—		20
Brokered certificates of deposit	—		30		—		—		30
Other	—		—		1		—		1
Total trading assets	122		1,147		1		—		1,270
Available-for-sale securities (1)	986		8,899		—		—		9,885
Derivative assets:
Interest rate - matched book	—		52		—		—		52
Interest rate - other	42		432		—		(348)		126
Foreign exchange	—		10		—		—		10
Total derivative assets	42		494		—		(348)		188

All other investments:
Government and agency obligations (2)	79		—		—		—		79
Other	92		2		29		—		123
Total all other investments	171		2		29		—		202
Other assets - fractional shares	78		—		—		—		78
Subtotal	1,399		10,542		30		(348)		11,623
Other investments - private equity - measured at NAV									90
Total assets at fair value on a recurring basis	$	1,399	$	10,542	$	30	$	(348)	$	11,713

Liabilities at fair value on a recurring basis:
Trading liabilities:
Municipal and provincial obligations	$	5	$	—	$	—	$	—	$	5
Corporate obligations	—		555		—		—		555
Government and agency obligations	249		—		—		—		249

Total debt securities	254		555		—		—		809
Equity securities	27		—		—		—		27

Total trading liabilities	281		555		—		—		836
Derivative liabilities:
Interest rate - matched book	—		52		—		—		52
Interest rate - other	40		495		—		(65)		470
Foreign exchange	—		5		—		—		5
Other	—		—		3		—		3
Total derivative liabilities	40		552		3		(65)		530
Other payables - fractional shares	78		—		—		—		78
Total liabilities at fair value on a recurring basis	$	399	$	1,107	$	3	$	(65)	$	1,444

(1) Our available-for-sale securities primarily consist of agency MBS, agency CMOs and U.S. Treasury securities (“U.S. Treasuries”). See Note 4 for further information.

(2) These assets are comprised of U.S. Treasuries primarily purchased to meet certain deposit requirements with clearing organizations.

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 December 31, 2022 Level 3 instruments at fair value
	Financial assets				Financial liabilities
	Trading assets		Other investments			Derivative liabilities
$ in millions	Other		All other			Other
Fair value beginning of period	$	1	$	29		$	(3)
Total gains/(losses) included in earnings	—		1			(1)
Purchases and contributions	25		—			—
Sales, distributions, and deconsolidations	(20)		—			—
Transfers:
Into Level 3	—		—			—
Out of Level 3	—		—			—
Fair value end of period	$	6	$	30		$	(4)
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period	$	(1)	$	1		$	(1)


Three months ended December 31, 2021 Level 3 instruments at fair value
	Financial assets						Financial liabilities
	Trading assets		Derivative assets		Other investments			Derivative liabilities
$ in millions	Other		Other		All other			Other
Fair value beginning of period	$	14	$	—	$	98		$	(1)
Total gains included in earnings	2		1		—			1
Purchases and contributions	25		—		—			—
Sales and distributions	(39)		—		—			—
Transfers:
Into Level 3	—		—		—			—
Out of Level 3	—		—		—			—
Fair value end of period	$	2	$	1	$	98		$	—
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period	$	(1)	$	2	$	—		$	—

As of December 31, 2022, 15% of our assets and 2% of our liabilities were measured at fair value on a recurring basis. In comparison, as of September 30, 2022, 14% of our assets and 2% of our liabilities were measured at fair value on a recurring basis. As of both December 31, 2022 and September 30, 2022, 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 2022 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 December 31, 2022 primarily included investments in third-party funds, including growth equity, venture capital, and mezzanine lending fund investments. Our investments cannot be redeemed directly with the funds. Our investments are monetized through the liquidation of underlying assets of fund investments, 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
December 31, 2022
Private equity investments measured at NAV	$	94	$	38
Private equity investments not measured at NAV	5
Total private equity investments	$	99

September 30, 2022
Private equity investments measured at NAV	$	90	$	39
Private equity investments not measured at NAV	5
Total private equity investments	$	95

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)
December 31, 2022
Bank loans:
Residential mortgage loans	$	2	$	9	$	11	Collateral or discounted cash flow (1)	Prepayment rate	7 yrs. - 12 yrs. (10.4 yrs.)
Corporate loans	$	—	$	47	$	47	Collateral or discounted cash flow (1)	Recovery rate	17% - 68% (50%)
Loans held for sale	$	1	$	—	$	1	N/A	N/A	N/A


September 30, 2022
Bank loans:
Residential mortgage loans	$	2	$	10	$	12	Collateral or discounted cash flow (1)	Prepayment rate	7 yrs. - 12 yrs. (10.4 yrs.)
Corporate loans	$	—	$	57	$	57	Collateral or discounted cash flow (1)	Recovery rate	24% - 66% (47%)
Loans held for sale	$	3	$	—	$	3	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. Unobservable inputs used in the collateral valuation technique are not meaningful and unobservable inputs used in the discounted cash flow valuation technique are presented in the table.

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 December 31, 2022 and September 30, 2022. This table excludes financial instruments that are carried at amounts which approximate fair value. Refer to Note 4 of our 2022 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
December 31, 2022
Financial assets:
Bank loans, net	$	89	$	43,251	$	43,340	$	44,007
Financial liabilities:
Bank deposits - certificates of deposit	$	1,402	$	—	$	1,402	$	1,415
Other borrowings - subordinated notes payable	$	94	$	—	$	94	$	100
Senior notes payable	$	1,743	$	—	$	1,743	$	2,038

September 30, 2022
Financial assets:
Bank loans, net	$	134	$	42,336	$	42,470	$	43,167
Financial liabilities:
Bank deposits - certificates of deposit	$	400	$	579	$	979	$	999
Other borrowings - subordinated notes payable	$	95	$	—	$	95	$	100
Senior notes payable	$	1,706	$	—	$	1,706	$	2,038

- 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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