Property, Leasehold Improvements and Equipment

Property, leasehold improvements and equipment is net of accumulated depreciation and amortization of $9.23 billion as of March 2020 and $9.95 billion as of December 2019. Property, leasehold improvements and equipment included $6.23 billion as of March 2020 and $6.16 billion as of December 2019 that the firm uses in connection with its operations, and $484 million as of March 2020 and $521 million as of December 2019 of foreclosed real estate primarily related to distressed loans that were purchased by the firm. The remainder is held by investment entities, including VIEs, consolidated by the firm. Substantially all property and equipment is depreciated on a straight-line basis over the useful life of the asset. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. Capitalized costs of software developed or obtained for internal use are amortized on a straight-line basis over three years.

The firm tests property, leasehold improvements and equipment for impairment whenever events or changes in circumstances suggest that an asset’s or asset group’s carrying value may not be fully recoverable. To the extent the carrying value of an asset or asset group exceeds the projected undiscounted cash flows expected to result from the use and eventual disposal of the asset or asset group, the firm determines the asset or asset group is impaired and records an impairment equal to the difference between the estimated fair value and the carrying value of the asset or asset group. In addition, the firm will recognize an impairment prior to the sale of an asset or asset group if the carrying value of the asset or asset group exceeds its estimated fair value.

There were no material impairments during both the three months ended March 2020 and March 2019.

Goodwill and Identifiable Intangible Assets

Goodwill.

Goodwill is the cost of acquired companies in excess of the fair value of net assets, including identifiable intangible assets, at the acquisition date.

The table below presents the carrying value of goodwill by reporting unit.



	As of

$ in millions		March 2020	December 2019
Investment Banking		$ 281	$ 281
Global Markets:
FICC		269	269
Equities		2,508	2,508
Asset Management		390	390
Consumer & Wealth Management:
Consumer banking		48	48
Wealth management		700	700
Total		$4,196	$4,196

Goodwill is assessed for impairment annually in the fourth quarter or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.

The quantitative goodwill test compares the estimated fair value of each reporting unit with its estimated net book value (including goodwill and identifiable intangible assets). If the reporting unit’s estimated fair value exceeds its estimated net book value, goodwill is not impaired. An impairment is recognized if the estimated fair value of a reporting unit is less than its estimated net book value.

To estimate the fair value of each reporting unit, other than Consumer banking, a relative value technique is used because the firm believes market participants would use this technique to value these reporting units. The relative value technique applies observable price-to-earnings multiples or price-to-book multiples of comparable competitors to reporting units’ net earnings or net book value. To estimate the fair value of Consumer banking, a discounted cash flow valuation approach is used because the firm believes market participants would use this technique to value that reporting unit given its early stage of development. The estimated net carrying value of each reporting unit reflects an allocation of total shareholders’ equity and represents the estimated amount of total shareholders’ equity required to support the activities of the reporting unit under currently applicable regulatory capital requirements.

In the fourth quarter of 2019, goodwill was tested for impairment using a quantitative test. The estimated fair value of each of the reporting units exceeded its respective net carrying value, and therefore goodwill was not impaired.

During the first quarter of 2020, the outbreak of the COVID-19 pandemic broadly impacted the operating environment, notably in March, causing a sharp contraction in global economic activity and increased market volatility, affecting both equity and credit markets. Due to the significance of this event in relation to the firm’s businesses, the firm performed a qualitative assessment of the goodwill in each of its reporting units for impairment. Multiple factors, including performance indicators, firm and industry events, macroeconomic indicators and fair value indicators, were assessed with respect to each of the firm’s reporting units to determine whether it was more likely than not that the estimated fair value of any of these reporting units was less than its estimated carrying value. The qualitative assessment also considered changes since the quantitative test performed in the fourth quarter of 2019.

Despite challenges to the firm’s operating environment, net revenues for the first quarter of 2020 were strong across three of the firm’s four business segments and their respective reporting units. Asset Management recorded a net loss for the quarter, due to the impact of market declines on the firm’s investments, which was a reflection of the broader market and not due to a firm-specific issue,

which

more than offset fee revenue generated from increased assets under supervision.

As a result of investor uncertainty and the economic outlook, fair value indicators in the market were negatively impacted, as global equity prices significantly declined and credit spreads widened. This similarly affected fair value indicators for the firm and publicly traded participants in its industry. In response to the macroeconomic concerns, central banks and governments intervened with monetary and fiscal measures aimed at mitigating the extent of the contraction in economic activity, as well as market concerns, and providing liquidity to the financial markets. There were no other events, entity-specific or otherwise, that would have had a significant negative impact on the valuation of the firm’s reporting units.

Based on the qualitative assessment, the firm determined that it was more likely than not that the estimated fair value of each of the reporting units exceeded its respective estimated carrying value, and that the impact of the COVID-19 pandemic through the end of the first quarter of 2020 was not a triggering event to perform a quantitative test.

Identifiable Intangible Assets.

The table below presents identifiable intangible assets by reporting unit and type.



	As of

$ in millions		March 2020		December 2019
By Reporting Unit
Global Markets:
FICC		$ 2		$ 3
Asset Management		257		265
Consumer & Wealth Management:
Consumer banking		6		7
Wealth management		349		366
Total		$ 614		$ 641
By Type
Customer lists
Gross carrying value		$ 1,427		$ 1,427
Accumulated amortization		(1,055	)	(1,044	)
Net carrying value		372		383
Acquired leases and other
Gross carrying value		792		790
Accumulated amortization		(550	)	(532	)
Net carrying value		242		258
Total gross carrying value		2,219		2,217
Total accumulated amortization		(1,605	)	(1,576	)
Total net carrying value		$ 614		$ 641

The firm acquired $34 million of intangible assets during the three months ended March 2020, primarily related to acquired leases, with a weighted average amortization period of 8 years. The firm acquired $515 million of intangible assets during 2019, primarily related to customer lists, with a weighted average amortization period of 10 years.

Substantially all of the firm’s identifiable intangible assets have finite useful lives and are amortized over their estimated useful lives generally using the straight-line method.

The tables below present information about the amortization of identifiable intangible assets.



	Three Months Ended March

$ in millions		2020	2019
Amortization		$41	$43



$ in millions			As of March 2020
Estimated future amortization
Remainder of 2020			$84
2021			$89
2022			$78
2023			$72
2024			$61
2025			$42

The firm tests intangible assets for impairment whenever events or changes in circumstances suggest that an asset’s or asset group’s carrying value may not be fully recoverable. To the extent the carrying value of an asset or asset group exceeds the projected undiscounted cash flows expected to result from the use and eventual disposal of the asset or asset group, the firm determines the asset or asset group is impaired and records an impairment equal to the difference between the estimated fair value and the carrying value of the asset or asset group. In addition, the firm will recognize an impairment prior to the sale of an asset or asset group if the carrying value of the asset or asset group exceeds its estimated fair value. There were no material impairments during each of the three months ended March 2020 and March 2019.

Operating Lease

Right-of-Use

Assets

The firm enters into operating leases for real estate, office equipment and other assets, substantially all of which are used in connection with its operations. For leases longer than one year, the firm recognizes a

right-of-use

asset representing the right to use the underlying asset for the lease term, and a lease liability representing the liability to make payments. The lease term is generally determined based on the contractual maturity of the lease. For leases where the firm has the option to terminate or extend the lease, an assessment of the likelihood of exercising the option is incorporated into the determination of the lease term. Such assessment is initially performed at the inception of the lease and is updated if events occur that impact the original assessment.

An operating lease

right-of-use

asset is initially determined based on the operating lease liability, adjusted for initial direct costs, lease incentives and amounts paid at or prior to lease commencement. This amount is then amortized over the lease term. The firm recognized $51 million for the three months ended March 2020

and $

712

million (primarily related to the firm’s new European headquarters in London) for the three months ended March 2019 of

right-of-use

assets and operating lease liabilities in

non-cash

transactions for leases entered into or assumed. See Note 15 for information about operating lease liabilities.

For leases where the firm will derive no economic benefit from leased space that it has vacated or where the firm has shortened the term of a lease when space is no longer needed, the firm will record an impairment or accelerated amortization of

right-of-use

assets. There were no material impairments or accelerated amortizations during each of the three months ended March 2020 and March 2019.

Miscellaneous Receivables and Other

Miscellaneous receivables and other included:

•	Investments in qualified affordable housing projects of $671 million as of March 2020 and $606 million as of December 2019.

•	Assets classified as held for sale of $632 million as of March 2020 and $470 million as of December 2019 related to the firm’s consolidated investments within the Asset Management segment, substantially all of which consisted of property and equipment.