Variable Interest Entities

9 Months Ended

Sep. 30, 2022

Variable Interest Entities [Abstract]

A variable interest in a VIE is an investment (e.g., debt or equity) or other interest (e.g., derivatives or loans and lending commitments) that will absorb portions of the VIE’s expected losses and/or receive portions of the VIE’s expected residual returns.

The firm’s variable interests in VIEs include senior and subordinated debt; loans and lending commitments; limited and general partnership interests; preferred and common equity; derivatives that may include foreign currency, equity and/or credit risk; guarantees; and certain of the fees the firm receives from investment funds. Certain interest rate, foreign currency and credit derivatives the firm enters into with VIEs are not variable interests because they create, rather than absorb, risk.

VIEs generally finance the purchase of assets by issuing debt and equity securities that are either collateralized by or indexed to the assets held by the VIE. The debt and equity securities issued by a VIE may include tranches of varying levels of subordination. The firm’s involvement with VIEs includes securitization of financial assets, as described in Note 16, and investments in and loans to other types of VIEs, as described below. See Note 3 for the firm’s consolidation policies, including the definition of a VIE.

VIE Consolidation Analysis

The enterprise with a controlling financial interest in a VIE is known as the primary beneficiary and consolidates the VIE. The firm determines whether it is the primary beneficiary of a VIE by performing an analysis that principally considers:

•Which variable interest holder has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance;

•Which variable interest holder has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE;

•The VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders;

•The VIE’s capital structure;

•The terms between the VIE and its variable interest holders and other parties involved with the VIE; and

•Related-party relationships.

The firm reassesses its evaluation of whether an entity is a VIE when certain reconsideration events occur. The firm reassesses its determination of whether it is the primary beneficiary of a VIE on an ongoing basis based on current facts and circumstances.

VIE Activities

The firm is principally involved with VIEs through the following business activities:

Mortgage-Backed VIEs. The firm sells residential and commercial mortgage loans and securities to mortgage-backed VIEs and may retain beneficial interests in the assets sold to these VIEs. The firm purchases and sells beneficial interests issued by mortgage-backed VIEs in connection with market-making activities. In addition, the firm may enter into derivatives with certain of these VIEs, primarily interest rate swaps, which are typically not variable interests. The firm generally enters into derivatives with other counterparties to mitigate its risk.

Real Estate, Credit- and Power-Related and Other Investing VIEs. The firm purchases equity and debt securities issued by and makes loans to VIEs that hold real estate, performing and nonperforming debt, distressed loans, power-related assets and equity securities. The firm generally does not sell assets to, or enter into derivatives with, these VIEs.

Corporate Debt and Other Asset-Backed VIEs. The firm structures VIEs that issue notes to clients, purchases and sells beneficial interests issued by corporate debt and other asset-backed VIEs in connection with market-making activities, and makes loans to VIEs that warehouse corporate debt. Certain of these VIEs synthetically create the exposure for the beneficial interests they issue by entering into credit derivatives with the firm, rather than purchasing the underlying assets. In addition, the firm may enter into derivatives, such as total return swaps, with certain corporate debt and other asset-backed VIEs, under which the firm pays the VIE a return due to the beneficial interest holders and receives the return on the collateral owned by the VIE. The collateral owned by these VIEs is primarily other asset-backed loans and securities. The firm may be removed as the total return swap counterparty and may enter into derivatives with other counterparties to mitigate its risk related to these swaps. The firm may sell assets to the corporate debt and other asset-backed VIEs it structures.

Principal-Protected Note VIEs. The firm structures VIEs that issue principal-protected notes to clients. These VIEs own portfolios of assets, principally with exposure to hedge funds. Substantially all of the principal protection on the notes issued by these VIEs is provided by the asset portfolio rebalancing that is required under the terms of the notes. The firm enters into total return swaps with these VIEs under which the firm pays the VIE the return due to the principal-protected note holders and receives the return on the assets owned by the VIE. The firm may enter into derivatives with other counterparties to mitigate its risk. The firm also obtains funding through these VIEs.

Investments in Funds. The firm makes equity investments in certain investment fund VIEs it manages and is entitled to receive fees from these VIEs. The firm has generally not sold assets to, or entered into derivatives with, these VIEs.

Nonconsolidated VIEs

The table below presents a summary of the nonconsolidated VIEs in which the firm holds variable interests.


	As of
	September		December
$ in millions	2022		2021
Total nonconsolidated VIEs
Assets in VIEs	$	184,515	$	176,809
Carrying value of variable interests — assets	$	12,035	$	9,582
Carrying value of variable interests — liabilities	$	791	$	928
Maximum exposure to loss:
Retained interests	$	4,908	$	3,552
Purchased interests	916		1,071
Commitments and guarantees	2,642		2,440
Derivatives	8,128		8,682
Debt and equity	5,887		4,639
Total	$	22,481	$	20,384

In the table above:

•The nature of the firm’s variable interests is described in the rows under maximum exposure to loss.

•The firm’s exposure to the obligations of VIEs is generally limited to its interests in these entities. In certain instances, the firm provides guarantees, including derivative guarantees, to VIEs or holders of variable interests in VIEs.

•The maximum exposure to loss excludes the benefit of offsetting financial instruments that are held to mitigate the risks associated with these variable interests.

•The maximum exposure to loss from retained interests, purchased interests, and debt and equity is the carrying value of these interests.

•The maximum exposure to loss from commitments and guarantees, and derivatives is the notional amount, which does not represent anticipated losses and has not been reduced by unrealized losses. As a result, the maximum exposure to loss exceeds liabilities recorded for commitments and guarantees, and derivatives.

The table below presents information, by principal business activity, for nonconsolidated VIEs included in the summary table above.


	As of
	September		December
$ in millions	2022		2021
Mortgage-backed
Assets in VIEs	$	129,580	$	120,343
Carrying value of variable interests — assets	$	4,892	$	4,147
Maximum exposure to loss:
Retained interests	$	4,483	$	3,192
Purchased interests	408		955
Commitments and guarantees	61		34
Derivatives	13		18
Total	$	4,965	$	4,199

Real estate, credit- and power-related and other investing
Assets in VIEs	$	27,198	$	26,867
Carrying value of variable interests — assets	$	4,105	$	3,923
Carrying value of variable interests — liabilities	$	2	$	8
Maximum exposure to loss:
Commitments and guarantees	$	2,061	$	2,030
Derivatives	61		64
Debt and equity	4,102		3,923
Total	$	6,224	$	6,017

Corporate debt and other asset-backed
Assets in VIEs	$	20,700	$	18,391
Carrying value of variable interests — assets	$	2,757	$	1,156
Carrying value of variable interests — liabilities	$	789	$	920
Maximum exposure to loss:
Retained interests	$	425	$	360
Purchased interests	508		116
Commitments and guarantees	367		250
Derivatives	8,052		8,597
Debt and equity	1,504		360
Total	$	10,856	$	9,683

Investments in funds
Assets in VIEs	$	7,037	$	11,208
Carrying value of variable interests — assets	$	281	$	356
Maximum exposure to loss:
Commitments and guarantees	$	153	$	126
Derivatives	2		3
Debt and equity	281		356
Total	$	436	$	485

As of both September 2022 and December 2021, the carrying values of the firm’s variable interests in nonconsolidated VIEs are included in the consolidated balance sheets as follows:

•Mortgage-backed: Assets primarily included in trading assets and loans.

•Real estate, credit- and power-related and other investing: Assets primarily included in investments and loans, and liabilities included in trading liabilities and other liabilities.

•Corporate debt and other asset-backed: Assets included in loans and trading assets, and liabilities included in trading liabilities.

•Investments in funds: Assets included in investments.

Consolidated VIEs

The table below presents a summary of the carrying value and balance sheet classification of assets and liabilities in consolidated VIEs.


	As of
	September		December
$ in millions	2022		2021
Total consolidated VIEs
Assets
Cash and cash equivalents	$	918	$	501
Customer and other receivables	11		—
Trading assets	145		122
Investments	98		153
Loans	1,293		1,988
Other assets	298		314
Total	$	2,763	$	3,078

Liabilities
Other secured financings	$	1,348	$	1,143
Customer and other payables	5		34
Trading liabilities	1		7
Unsecured short-term borrowings	46		146
Unsecured long-term borrowings	23		81
Other liabilities	128		163
Total	$	1,551	$	1,574

In the table above:

•Assets and liabilities are presented net of intercompany eliminations and exclude the benefit of offsetting financial instruments that are held to mitigate the risks associated with the firm’s variable interests.

•VIEs in which the firm holds a majority voting interest are excluded if (i) the VIE meets the definition of a business and (ii) the VIE’s assets can be used for purposes other than the settlement of its obligations.

•Substantially all assets can only be used to settle obligations of the VIE.

The table below presents information, by principal business activity, for consolidated VIEs included in the summary table above.


	As of
	September		December
$ in millions	2022		2021
Real estate, credit-related and other investing
Assets
Cash and cash equivalents	$	301	$	274
Customer and other receivables	11		—
Trading assets	30		16
Investments	98		153
Loans	1,293		1,988
Other assets	298		314
Total	$	2,031	$	2,745

Liabilities
Other secured financings	$	132	$	150
Customer and other payables	5		34
Trading liabilities	1		7
Other liabilities	128		163
Total	$	266	$	354

Corporate debt and other asset-backed
Assets
Cash and cash equivalents	$	617	$	227
Trading assets	70		17
Total	$	687	$	244

Liabilities
Other secured financings	$	940	$	602
Total	$	940	$	602

Principal-protected notes
Assets
Trading assets	$	45	$	89
Total	$	45	$	89

Liabilities
Other secured financings	$	276	$	391
Unsecured short-term borrowings	46		146
Unsecured long-term borrowings	23		81
Total	$	345	$	618

In the table above:

•The majority of the assets in principal-protected notes VIEs are intercompany and are eliminated in consolidation.

•Creditors and beneficial interest holders of real estate, credit-related and other investing VIEs do not have recourse to the general credit of the firm.