Trading Cash Instruments

9 Months Ended

Sep. 30, 2022

Trading cash instruments consists of instruments held in connection with the firm’s market-making or risk management activities. These instruments are carried at fair value and the related fair value gains and losses are recognized in the consolidated statements of earnings.

Fair Value of Trading Cash Instruments by Level

The table below presents trading cash instruments by level within the fair value hierarchy.


$ in millions	Level 1		Level 2		Level 3		Total
As of September 2022
Assets
Government and agency obligations:
U.S.	$	62,481	$	28,001	$	—	$	90,482
Non-U.S.	52,260		17,548		38		69,846
Loans and securities backed by:
Commercial real estate	—		1,435		55		1,490
Residential real estate	—		9,445		110		9,555
Corporate debt instruments	282		33,347		1,352		34,981
State and municipal obligations	—		563		32		595
Other debt obligations	254		3,387		135		3,776
Equity securities	83,569		1,947		102		85,618
Commodities	—		7,507		4		7,511
Total	$	198,846	$	103,180	$	1,828	$	303,854

Liabilities
Government and agency obligations:
U.S.	$	(24,009)	$	(19)	$	—	$	(24,028)
Non-U.S.	(37,453)		(2,672)		—		(40,125)
Loans and securities backed by:
Commercial real estate	—		(31)		(1)		(32)
Residential real estate	—		(10)		(1)		(11)
Corporate debt instruments	(32)		(19,229)		(79)		(19,340)
Other debt obligations	—		(143)		—		(143)
Equity securities	(76,423)		(786)		(30)		(77,239)
Commodities	—		(26)		—		(26)
Total	$	(137,917)	$	(22,916)	$	(111)	$	(160,944)

As of December 2021
Assets
Government and agency obligations:
U.S.	$	63,388	$	27,427	$	—	$	90,815
Non-U.S.	35,284		13,511		19		48,814
Loans and securities backed by:
Commercial real estate	—		1,717		137		1,854
Residential real estate	—		13,083		152		13,235
Corporate debt instruments	590		36,874		1,318		38,782
State and municipal obligations	—		568		36		604
Other debt obligations	69		1,564		66		1,699
Equity securities	105,233		2,958		156		108,347
Commodities	—		7,801		5		7,806
Total	$	204,564	$	105,503	$	1,889	$	311,956

Liabilities
Government and agency obligations:
U.S.	$	(21,002)	$	(25)	$	—	$	(21,027)
Non-U.S.	(39,983)		(2,602)		—		(42,585)
Loans and securities backed by:
Commercial real estate	—		(40)		(2)		(42)
Residential real estate	—		(5)		—		(5)
Corporate debt instruments	(23)		(15,781)		(71)		(15,875)
Equity securities	(48,991)		(915)		(31)		(49,937)
Total	$	(109,999)	$	(19,368)	$	(104)	$	(129,471)

In the table above:

•Trading cash instrument assets are shown as positive amounts and trading cash instrument liabilities are shown as negative amounts.

•Corporate debt instruments includes corporate loans, debt securities, convertible debentures, prepaid commodity transactions and transfers of assets accounted for as secured loans rather than purchases.

•Other debt obligations includes other asset-backed securities and money market instruments.

•Equity securities includes public equities and exchange-traded funds.

See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of trading cash instruments. See Note 7 for information about hedging activities for precious metals included in commodities and accounted for at the lower of cost or net realizable value. These precious metals are designated in a fair value hedging relationship, and therefore their carrying value equals fair value.

Significant Unobservable Inputs

The table below presents the amount of level 3 assets, and ranges and weighted averages of significant unobservable inputs used to value level 3 trading cash instruments.


	As of September 2022				As of December 2021
$ in millions	Amount or Range		Weighted Average		Amount or Range		Weighted Average
Loans and securities backed by commercial real estate
Level 3 assets	$	55			$	137
Yield	6.8% to 34.0%		20.2	%	2.8% to 28.5%		12.3	%
Recovery rate	47.0% to 61.7%		53.1	%	5.1% to 86.5%		55.0	%
Duration (years)	1.2 to 3.7		2.1		0.1 to 4.3		1.8
Loans and securities backed by residential real estate
Level 3 assets	$	110			$	152
Yield	1.0% to 23.0%		9.7	%	0.4% to 26.6%		7.0	%
Cumulative loss rate	11.0% to 35.0%		20.8	%	0.1% to 43.4%		17.7	%
Duration (years)	1.1 to 10.8		6.5		1.2 to 17.2		6.5
Corporate debt instruments
Level 3 assets	$	1,352			$	1,318
Yield	1.2% to 33.0%		6.6	%	0.0% to 18.0%		7.1	%
Recovery rate	17.0% to 70.0%		51.6	%	9.0% to 69.9%		52.0	%
Duration (years)	0.5 to 21.4		4.7		2.0 to 28.5		4.5
Other
Level 3 assets	$	311			$	282
Yield	4.0% to 41.6%		11.5	%	1.1% to 44.8%		9.4	%
Multiples	3.9x to 4.2x		4.0x		N/A		N/A
Duration (years)	0.8 to 13.0		5.0		0.9 to 5.2		2.4

In the table above:

•Other includes government and agency obligations, state and municipal obligations, other debt obligations, equity securities and commodities.

•Ranges represent the significant unobservable inputs that were used in the valuation of each type of trading cash instrument.

•Weighted averages are calculated by weighting each input by the relative fair value of the trading cash instruments.

•The ranges and weighted averages of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one trading cash instrument. For example, the highest recovery rate for corporate debt instruments is appropriate for valuing a specific corporate debt instrument, but may not be appropriate for valuing any other corporate debt instrument. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 trading cash instruments.

•Increases in yield, duration or cumulative loss rate used in the valuation of level 3 trading cash instruments would have resulted in a lower fair value measurement, while increases in recovery rate or multiples would have resulted in a higher fair value measurement as of both September 2022 and December 2021. Due to the distinctive nature of each level 3 trading cash instrument, the interrelationship of inputs is not necessarily uniform within each product type.

•Trading cash instruments are valued using discounted cash flows.

•In other, the significant unobservable inputs for multiples as of December 2021 did not have a range (and there was no weighted average) as they pertained to a single position. Therefore, such unobservable inputs are not included in the table above.

Level 3 Rollforward

The table below presents a summary of the changes in fair value for level 3 trading cash instruments.


	Three Months Ended September				Nine Months Ended September
$ in millions	2022		2021		2022		2021
Total trading cash instrument assets
Beginning balance	$	2,080	$	1,304	$	1,889	$	1,237
Net realized gains/(losses)	40		27		85		63
Net unrealized gains/(losses)	(124)		11		(1,496)		64
Purchases	359		223		1,294		793
Sales	(248)		(133)		(635)		(455)
Settlements	(78)		(113)		(206)		(287)
Transfers into level 3	326		358		1,277		306
Transfers out of level 3	(527)		(161)		(380)		(205)
Ending balance	$	1,828	$	1,516	$	1,828	$	1,516

Total trading cash instrument liabilities
Beginning balance	$	(182)	$	(78)	$	(104)	$	(80)
Net realized gains/(losses)	(4)		2		(42)		5
Net unrealized gains/(losses)	53		(2)		47		(1)
Purchases	100		22		198		35
Sales	(40)		(55)		(121)		(86)
Settlements	5		—		(2)		8
Transfers into level 3	(86)		(32)		(103)		(22)
Transfers out of level 3	43		5		16		3
Ending balance	$	(111)	$	(138)	$	(111)	$	(138)

In the table above:

•Changes in fair value are presented for all trading cash instruments that are classified in level 3 as of the end of the period.

•Net unrealized gains/(losses) relates to trading cash instruments that were still held at period-end.

•Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a trading cash instrument was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3.

•For level 3 trading cash instrument assets, increases are shown as positive amounts, while decreases are shown as negative amounts. For level 3 trading cash instrument liabilities, increases are shown as negative amounts, while decreases are shown as positive amounts.

•Level 3 trading cash instruments are frequently economically hedged with level 1 and level 2 trading cash instruments and/or level 1, level 2 or level 3 derivatives. Accordingly, gains or losses that are classified in level 3 can be partially offset by gains or losses attributable to level 1 or level 2 trading cash instruments and/or level 1, level 2 or level 3 derivatives. As a result, gains or losses included in the level 3 rollforward below do not necessarily represent the overall impact on the firm’s results of operations, liquidity or capital resources.

The table below presents information, by product type, for assets included in the summary table above.


	Three Months Ended September				Nine Months Ended September
$ in millions	2022		2021		2022		2021
Loans and securities backed by commercial real estate
Beginning balance	$	74	$	96	$	137	$	203
Net realized gains/(losses)	7		2		7		6
Net unrealized gains/(losses)	(10)		(4)		(10)		(7)
Purchases	2		28		11		54
Sales	(1)		(2)		(54)		(39)
Settlements	(8)		(7)		(15)		(13)
Transfers into level 3	16		31		11		15
Transfers out of level 3	(25)		(8)		(32)		(83)
Ending balance	$	55	$	136	$	55	$	136

Loans and securities backed by residential real estate
Beginning balance	$	110	$	130	$	152	$	131
Net realized gains/(losses)	2		2		10		6
Net unrealized gains/(losses)	(5)		5		(12)		16
Purchases	5		11		33		29
Sales	(7)		(4)		(57)		(48)
Settlements	(4)		(25)		(14)		(36)
Transfers into level 3	23		14		15		39
Transfers out of level 3	(14)		(11)		(17)		(15)
Ending balance	$	110	$	122	$	110	$	122

Corporate debt instruments
Beginning balance	$	1,440	$	891	$	1,318	$	797
Net realized gains/(losses)	13		24		44		48
Net unrealized gains/(losses)	(43)		12		(115)		57
Purchases	313		152		558		634
Sales	(126)		(88)		(363)		(327)
Settlements	(51)		(67)		(131)		(195)
Transfers into level 3	201		292		339		187
Transfers out of level 3	(395)		(120)		(298)		(105)
Ending balance	$	1,352	$	1,096	$	1,352	$	1,096

Other
Beginning balance	$	456	$	187	$	282	$	106
Net realized gains/(losses)	18		(1)		24		3
Net unrealized gains/(losses)	(66)		(2)		(1,359)		(2)
Purchases	39		32		692		76
Sales	(114)		(39)		(161)		(41)
Settlements	(15)		(14)		(46)		(43)
Transfers into level 3	86		21		912		65
Transfers out of level 3	(93)		(22)		(33)		(2)
Ending balance	$	311	$	162	$	311	$	162

In the table above, other includes government and agency obligations, state and municipal obligations, other debt obligations, equity securities and commodities.

Level 3 Rollforward Commentary

Three Months Ended September 2022. The net realized and unrealized losses on level 3 trading cash instrument assets of $84 million (reflecting $40 million of net realized gains and $124 million of net unrealized losses) for the three months ended September 2022 included gains/(losses) of $(106) million reported in market making and $22 million reported in interest income.

The drivers of net unrealized losses on level 3 trading cash instrument assets for the three months ended September 2022 were not material.

Transfers into level 3 trading cash instrument assets during the three months ended September 2022 primarily reflected transfers of certain corporate debt instruments from level 2 (principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments).

Transfers out of level 3 trading cash instruments assets during the three months ended September 2022 primarily reflected transfers of certain corporate debt instruments to level 2 (principally due to increased price transparency as a result of market evidence, including market transactions in these instruments).

Nine Months Ended September 2022. The net realized and unrealized losses on level 3 trading cash instrument assets of $1.41 billion (reflecting $85 million of net realized gains and $1.50 billion of net unrealized losses) for the nine months ended September 2022 included gains/(losses) of $(1.46) billion reported in market making and $53 million reported in interest income.

The net unrealized losses on level 3 trading cash instrument assets for the nine months ended September 2022 primarily reflected losses on certain equity securities (included in other cash instruments), principally driven by broad macroeconomic and geopolitical concerns.

Transfers into level 3 trading cash instrument assets during the nine months ended September 2022 primarily reflected transfers of certain equity securities (included in other cash instruments) and corporate debt instruments from both level 1 and level 2 (in each case, principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments).

Transfers out of level 3 trading cash instrument assets during the nine months ended September 2022 primarily reflected transfers of certain corporate debt instruments to level 2 (principally due to increased price transparency as a result of market evidence, including market transactions in these instruments).

Three Months Ended September 2021. The net realized and unrealized gains on level 3 trading cash instrument assets of $38 million (reflecting $27 million of net realized gains and $11 million of net unrealized gains) for the three months ended September 2021 included gains of $17 million reported in market making and $21 million reported in interest income.

The drivers of net unrealized gains on level 3 trading cash instrument assets for the three months ended September 2021 were not material.

Transfers into level 3 trading cash instrument assets during the three months ended September 2021 primarily reflected transfers of certain corporate debt instruments from level 2 (principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments).

Transfers out of level 3 trading cash instrument assets during the three months ended September 2021 primarily reflected transfers of certain corporate debt instruments to level 2 (principally due to increased price transparency as a result of market evidence, including market transactions in these instruments).

Nine Months Ended September 2021. The net realized and unrealized gains on level 3 trading cash instrument assets of $127 million (reflecting $63 million of net realized gains and $64 million of net unrealized gains) for the nine months ended September 2021 included gains of $63 million reported in market making and $64 million reported in interest income.

The drivers of net unrealized gains on level 3 trading cash instrument assets for the nine months ended September 2021 were not material.

Transfers into level 3 trading cash instrument assets during the nine months ended September 2021 primarily reflected transfers of certain corporate debt instruments from level 2 (principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments).

Transfers out of level 3 trading cash instrument assets during the nine months ended September 2021 primarily reflected transfers of certain corporate debt instruments to level 2 (principally due to increased price transparency as a result of market evidence, including market transactions in these instruments).