Collateralized Agreements and Financings

6 Months Ended

Jun. 30, 2011

Collateralized Agreements and Financings [Abstract]

Collateralized Agreements and Financings

Note 9. Collateralized Agreements and Financings

Collateralized agreements are securities purchased under agreements to resell (resale agreements or reverse repurchase agreements) and securities borrowed. Collateralized financings are securities sold under agreements to repurchase (repurchase agreements), securities loaned and other secured financings. The firm enters into these transactions in order to, among other things, facilitate client activities, invest excess cash, acquire securities to cover short positions and finance certain firm activities.

Collateralized agreements and financings are presented on a net-by-counterparty basis when a legal right of setoff exists. Interest on collateralized agreements and collateralized financings is recognized over the life of the transaction and included in “Interest income” and “Interest expense,” respectively. See Note 23 for further information about interest income and interest expense.

The table below presents the carrying value of resale and repurchase agreements and securities borrowed and loaned transactions.



	As of
	June		December
in millions	2011		2010

Securities purchased under agreements to resell ¹	$	162,285	$	188,355
Securities borrowed ²		175,472		166,306
Securities sold under agreements to repurchase ¹		155,450		162,345
Securities loaned ²		14,474		11,212


1.	Resale and repurchase agreements are carried at fair value under the fair value option. See Note 8 for further information about the valuation techniques and significant inputs used to determine fair value.

2.	As of June 2011 and December 2010, $61.87 billion and $48.82 billion of securities borrowed and $4.84 billion and $1.51 billion of securities loaned were at fair value, respectively.

Resale and Repurchase Agreements

A resale agreement is a transaction in which the firm purchases financial instruments from a seller, typically in exchange for cash, and simultaneously enters into an agreement to resell the same or substantially the same financial instruments to the seller at a stated price plus accrued interest at a future date.

A repurchase agreement is a transaction in which the firm sells financial instruments to a buyer, typically in exchange for cash, and simultaneously enters into an agreement to repurchase the same or substantially the same financial instruments from the buyer at a stated price plus accrued interest at a future date.

The financial instruments purchased or sold in resale and repurchase agreements typically include U.S. government and federal agency, and investment-grade sovereign obligations.

The firm receives financial instruments purchased under resale agreements, makes delivery of financial instruments sold under repurchase agreements, monitors the market value of these financial instruments on a daily basis, and delivers or obtains additional collateral due to changes in the market value of the financial instruments, as appropriate. For resale agreements, the firm typically requires delivery of collateral with a fair value approximately equal to the carrying value of the relevant assets in the condensed consolidated statements of financial condition.

Even though repurchase and resale agreements involve the legal transfer of ownership of financial instruments, they are accounted for as financing arrangements because they require the financial instruments to be repurchased or resold at the maturity of the agreement. However, “repos to maturity” are accounted for as sales. A repo to maturity is a transaction in which the firm transfers a security that has very little, if any, default risk under an agreement to repurchase the security where the maturity date of the repurchase agreement matches the maturity date of the underlying security. Therefore, the firm effectively no longer has a repurchase obligation and has relinquished control over the underlying security and, accordingly, accounts for the transaction as a sale. The firm had no such transactions outstanding as of June 2011 or December 2010.

Securities Borrowed and Loaned Transactions

In a securities borrowed transaction, the firm borrows securities from a counterparty in exchange for cash. When the firm returns the securities, the counterparty returns the cash. Interest is generally paid periodically over the life of the transaction.

In a securities loaned transaction, the firm lends securities to a counterparty typically in exchange for cash or securities, or a letter of credit. When the counterparty returns the securities, the firm returns the cash or securities posted as collateral. Interest is generally paid periodically over the life of the transaction.

The firm receives securities borrowed, makes delivery of securities loaned, monitors the market value of these securities on a daily basis, and delivers or obtains additional collateral due to changes in the market value of the securities, as appropriate. For securities borrowed transactions, the firm typically requires delivery of collateral with a fair value approximately equal to the carrying value of the securities borrowed transaction.

Securities borrowed and loaned within Fixed Income, Currency and Commodities Client Execution, are recorded at fair value under the fair value option.

Securities borrowed and loaned within Securities Services are recorded based on the amount of cash collateral advanced or received plus accrued interest. As these arrangements generally can be terminated on demand, they exhibit little, if any, sensitivity to changes in interest rates.

As of June 2011 and December 2010, the firm had $24.02 billion and $12.86 billion, respectively, of securities received under resale agreements and securities borrowed transactions that were segregated to satisfy certain regulatory requirements. These securities are included in “Cash and securities segregated for regulatory and other purposes.”

Other Secured Financings

In addition to repurchase agreements and securities lending transactions, the firm funds certain assets through the use of other secured financings and pledges financial instruments and other assets as collateral in these transactions. These other secured financings consist of:


•	liabilities of consolidated VIEs;

•	transfers of assets accounted for as financings rather than sales (primarily collateralized central bank financings, pledged commodities, bank loans and mortgage whole loans);

•	other structured financing arrangements; and

•	debt raised through the firm’s William Street credit extension program outstanding as of December 2010.

Other secured financings include arrangements that are nonrecourse. As of June 2011 and December 2010, nonrecourse other secured financings were $4.54 billion and $8.42 billion, respectively.

The firm has elected to apply the fair value option to the following other secured financings because the use of fair value eliminates non-economic volatility in earnings that would arise from using different measurement attributes:


•	transfers of assets accounted for as financings rather than sales;

•	certain other nonrecourse financings; and

•	debt raised through the firm’s William Street credit extension program outstanding as of December 2010.

See Note 8 for further information about other secured financings that are accounted for at fair value. Other secured financings that are not recorded at fair value are recorded based on the amount of cash received plus accrued interest, which generally approximates fair value.

The table below presents information about other secured financings. In the table below:


•	short-term secured financings include financings maturing within one year of the financial statement date and financings that are redeemable within one year of the financial statement date at the option of the holder;

•	long-term secured financings that are repayable prior to maturity at the option of the firm are reflected at their contractual maturity dates; and

•	long-term secured financings that are redeemable prior to maturity at the option of the holders are reflected at the dates such options become exercisable.

As of June 2011

As of December 2010

U.S.

Non-U.S.

U.S.

Non-U.S.

$ in millions

Dollar

Total

Dollar

Total

Other secured financings (short-term):

At fair value

16,216

4,061

20,277

16,404

3,684

20,088

At amortized cost

135

6,097

6,232

4,342

4,441

Interest rates ¹

3.29%

0.26%

2.96%

0.71%

Other secured financings (long-term):

At fair value

3,309

2,862

6,171

9,594

2,112

11,706

At amortized cost

1,376

464

1,840

1,565

577

2,142

Interest rates ¹

1.95%

2.23%

2.14%

1.94%

Total ²

21,036

13,484

34,520

27,662

10,715

38,377

Amount of other secured financings collateralized by:

Financial instruments ³

20,614

11,872

32,486

27,014

8,760

35,774

Other assets ⁴

422

1,612

2,034

648

1,955

2,603


1.	The weighted average interest rates exclude secured financings at fair value and include the effect of hedging activities. See Note 7 for further information about hedging activities.

2.	Includes $9.90 billion and $8.32 billion related to transfers of financial assets accounted for as financings rather than sales as of June 2011 and December 2010, respectively. Such financings were collateralized by financial assets included in “Financial instruments owned, at fair value” of $10.15 billion and $8.53 billion as of June 2011 and December 2010, respectively.

3.	Includes $19.70 billion and $25.63 billion of other secured financings collateralized by financial instruments owned, at fair value and $12.78 billion and $10.14 billion of other secured financings collateralized by financial instruments received as collateral and repledged as of June 2011 and December 2010, respectively.

4.	Primarily real estate and cash.

The table below presents other secured financings by maturity.



	As of
in millions	June 2011

Other secured financings (short-term)	$	26,509
Other secured financings (long-term):
2012		2,470
2013		1,596
2014		921
2015		578
2016		257
2017-thereafter		2,189


Total other secured financings (long-term)		8,011


Total other secured financings	$	34,520

The aggregate contractual principal amount of other secured financings (long-term) for which the fair value option was elected exceeded the related fair value by $294 million and $352 million as of June 2011 and December 2010, respectively.

Collateral Received and Pledged

The firm receives financial instruments (e.g., U.S. government and federal agency, other sovereign and corporate obligations, as well as equities and convertible debentures) as collateral, primarily in connection with resale agreements, securities borrowed, derivative transactions and customer margin loans.

In many cases, the firm is permitted to deliver or repledge these financial instruments when entering into repurchase agreements, securities lending agreements and other secured financings, collateralizing derivative transactions and meeting firm or customer settlement requirements.

The table below presents financial instruments at fair value received as collateral that were available to be delivered or repledged and were delivered or repledged by the firm.



	As of
	June		December
in millions	2011		2010

Collateral available to be delivered or repledged	$	639,691	$	618,423
Collateral that was delivered or repledged		476,343		447,882

The firm also pledges certain financial instruments owned, at fair value in connection with repurchase agreements, securities lending agreements and other secured financings, and other assets (primarily real estate and cash) in connection with other secured financings to counterparties who may or may not have the right to deliver or repledge them. The table below presents information about assets pledged by the firm.



	As of
	June		December
in millions	2011		2010

Financial instruments owned, at fair value pledged to counterparties that:
Had the right to deliver or repledge	$	57,687	$	51,010
Did not have the right to deliver or repledge		112,430		112,750
Other assets pledged to counterparties that:
Did not have the right to deliver or repledge		3,791		4,482