Loans Held for Sale

6 Months Ended

Jun. 30, 2022

Loans held for sale consisted of the following:


	June 30, 2022		December 31, 2021
	(in millions)
Commercial loans:

Business and corporate banking	$	7	$	123
Global banking	366		338
Total commercial	373		461
Consumer loans:
Residential mortgages	12		3,082
Home equity mortgages	—		275
Credit cards	8		195
Other consumer	96		204
Total consumer	116		3,756
Total loans held for sale	$	489	$	4,217

Commercial Loans During the first quarter of 2022, we completed the sale of the branch disposal group that we previously transferred to held for sale in 2021 as part of our Restructuring Plan. The sale included certain retail business banking loans with a carrying value at the time of sale of $37 million. See Note 3, "Branch Assets and Liabilities Held for Sale," for additional information.

Also included in commercial loans held for sale are certain other loans that we no longer intend to hold for investment and were transferred to held for sale which totaled $201 million and $359 million at June 30, 2022 and December 31, 2021, respectively. During the three and six months ended June 30, 2022 and 2021, lower of amortized cost or fair value adjustments on commercial loans held for sale were immaterial.

In addition, commercial loans held for sale includes certain loans that we have elected to designate under the fair value option which consists of loans that we originate in connection with our participation in a number of syndicated credit facilities with the intent of selling them to unaffiliated third parties as well as loans that we purchase from the secondary market and hold as hedges against our exposure to certain total return swaps. The fair value of these loans totaled $172 million and $23 million at June 30, 2022 and December 31, 2021, respectively. See Note 11, "Fair Value Option," for additional information.

During the second quarter of 2022, we also sold certain global banking loans to third parties in order to reduce risk-weighted assets as part of our Restructuring Plan. These global banking loans had a carrying value at the time of sale of $44 million and we recognized a loss on sale of $3 million. The loss on sale is reflected as a component of other income (loss) in the consolidated statement of income.

Consumer Loans As discussed above, during the first quarter of 2022, we completed the sale of the branch disposal group that we previously transferred to held for sale in 2021 as part of our Restructuring Plan. The sale included certain consumer loans with a carrying value at the time of sale which collectively totaled $2,102 million, including $1,665 million of residential mortgages, $185 million of home equity mortgages, $168 million of credit cards and $84 million of other consumer loans. See Note 3, "Branch Assets and Liabilities Held for Sale," for additional information.

In addition to the branch disposal group discussed above, during the first quarter of 2022, we sold a portfolio of consumer loans to a third party consisting primarily of certain non-performing mortgage loans and government-backed mortgage loans that we previously transferred to held for sale in 2021 as part of our Restructuring Plan. These mortgage loans had a carrying value at the time of sale which collectively totaled $904 million, including $865 million of residential mortgages and $39 million of home equity mortgages, and we recognized a loss on sale of $35 million, largely reflecting changes in the final terms of the sale. The loss on sale is reflected as a component of other income (loss) in the consolidated statement of income.

Subsequent to completion of the sales discussed above, during the second quarter of 2022, the remaining mass market residential mortgage and home equity mortgage loans not sold, with a carrying value which collectively totaled $538 million, were transferred back to held for investment as we now intend to hold these loans as a run-off portfolio for the foreseeable future.

At June 30, 2022, additional consumer loans that we previously transferred to held for sale in 2021 as part of our Restructuring Plan remained in loans held for sale, including $8 million of credit cards and $96 million of other consumer loans (of which $22 million are student loans that we have previously elected to designate under the fair value option and are therefore carried at fair value). During the three and six months ended June 30, 2022 and 2021, lower of amortized cost or fair value adjustments on consumer loans held for sale were immaterial.

In addition, residential mortgage loans held for sale includes agency-eligible conforming residential mortgage loans which are originated and held for sale to third parties, currently on a servicing retained basis. Gains and losses from the sale of these residential mortgage loans are reflected as a component of other income (loss) in the consolidated statement of income.

Loans held for sale are subject to market risk, liquidity risk and interest rate risk, in that their value will fluctuate as a result of changes in market conditions, as well as the credit environment. Interest rate risk for residential mortgage loans which are originated and held for sale is partially mitigated through an economic hedging program to offset changes in the fair value of these mortgage loans held for sale, from the time of commitment to sale, attributable to changes in market interest rates. Revenue associated with this economic hedging program, which is reflected as a component of other income (loss) in the consolidated statement of income, was gains of $3 million and $7 million during the three and six months ended June 30, 2022, respectively, compared with losses of $3 million and $1 million during the three and six months ended June 30, 2021, respectively.

Valuation Allowances Excluding the loans designated under the fair value option discussed above, loans held for sale are recorded at the lower of amortized cost or fair value, with adjustments to fair value being recorded as a valuation allowance through other revenues. The valuation allowance on consumer loans held for sale was $13 million and $7 million at June 30, 2022 and December 31, 2021, respectively. The valuation allowance on commercial loans held for sale was $1 million and $5 million at June 30, 2022 and December 31, 2021, respectively.