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Trading Cash Instruments
 9 Months Ended
Sep. 30, 2020
Text Block [Abstract]  
Trading Cash Instruments
Note 6.
Trading Cash Instruments
Trading cash instruments consists of instruments held in connection with the firm’s market-making or risk management activities. These instruments are accounted for 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 2020
        
Assets
        
Government and agency obligations:
 
      
U.S.
  
 
$  97,256
 
  
 
$  39,289
 
  
 
$       –
 
  
 
$ 136,545
 
Non-U.S.
  
 
60,431
 
  
 
9,991
 
  
 
16
 
  
 
70,438
 
Loans and securities backed by:
        
Commercial real estate
     –    
 
897
 
  
 
196
 
  
 
1,093
 
Residential real estate
     –    
 
5,503
 
  
 
180
 
  
 
5,683
 
Corporate debt instruments
  
 
809
 
  
 
31,666
 
  
 
782
 
  
 
33,257
 
State and municipal obligations
     –    
 
325
 
  
 
–
 
  
 
325
 
Other debt obligations
  
 
278
 
  
 
2,318
 
  
 
27
 
  
 
2,623
 
Equity securities
  
 
82,638
 
  
 
2,322
 
  
 
64
 
  
 
85,024
 
Commodities
     –    
 
8,892
 
  
 
–
 
  
 
8,892
 
Total
  
 
$241,412
 
  
 
$101,203
 
  
 
$1,265
 
  
 
$ 343,880
 
 
Liabilities
                                
Government and agency obligations:
 
      
U.S.
  
 
$
 
(22,084
) 
  
 
$
  
        (5
) 
  
 
$       –
 
  
 
$  (22,089
) 
Non-U.S.
  
 
(27,700
) 
  
 
(1,572
) 
  
 
(1
) 
  
 
(29,273
) 
Loans and securities backed by:
        
Commercial real estate
     –    
 
(7
) 
     –    
 
(7
) 
Residential real estate
     –    
 
(1
) 
     –    
 
(1
) 
Corporate debt instruments
  
 
(25
) 
  
 
(8,173
) 
  
 
(240
) 
  
 
(8,438
) 
Equity securities
  
 
(44,772
) 
  
 
(836
) 
  
 
(27
) 
  
 
(45,635
) 
Total
  
 
$
 
(94,581
) 
  
 
$
 
(10,594
) 
  
 
$ 
 
(268
) 
  
 
$(105,443
) 
 
As of December 2019
        
Assets
        
Government and agency obligations:
 
      
U.S.
     $108,200       $  34,714       $     21       $
  
142,935		  
Non-U.S.
     33,709       11,108       22       44,839  
Loans and securities backed by:
 
      
Commercial real estate
     –       2,031       191       2,222  
Residential real estate
     –       5,794       231       6,025  
Corporate debt instruments
     1,313       26,768       692       28,773  
State and municipal obligations
     –       680       –       680  
Other debt obligations
     409       1,074       10       1,493  
Equity securities
     78,782       489       75       79,346  
Commodities
     –       3,767       –       3,767  
Total
     $222,413       $  86,425       $1,242       $
  
310,080		  
 
Liabilities
                                
Government and agency obligations:
 
      
U.S.
     $
 
   (9,914		 )      $        (47 )      $
 
       –		       $    
 
(9,961		 ) 
Non-U.S.
     (21,213 )      (2,205 )      (6 )      (23,424 ) 
Loans and securities backed by:
 
      
Commercial real estate
     –       (31 )      (1 )      (32 ) 
Residential real estate
     –       (2 )      –       (2 ) 
Corporate debt instruments
     (115 )      (7,494 )      (253 )      (7,862 ) 
State and municipal obligations
     –       (2 )      –       (2 ) 
Equity securities
     (23,519 )      (212 )      (13 )      (23,744 ) 
Commodities
     –       (6 )      –       (6 ) 
Total
     $
 
 (54,761		 )      $
 
   (9,999		 )      $  (273 )      $  
 
(65,033		 ) 
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.
 
•  
Equity securities includes public equities and exchange-traded funds.
 
•  
Other debt obligations includes other asset-backed securities and money market instruments
.
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.
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.
 
    Level 3 Assets and Range of Significant
Unobservable Inputs (Weighted Average) as of		  
$ in millions
  
 
September
2020
 
 
    
December
2019
  
 
Loans and securities backed by commercial real estate
 
Level 3 assets
  
 
$196
 
     $191  
Yield
  
 
2.0% to 22.0% (9.9%
)
     2.7% to 21.7% (13.5% ) 
Recovery rate
  
 
19.7% to 93.8% (61.4%
)
     11.4% to 81.1% (55.6% ) 
Duration (years)
  
 
0.3 to 9.2 (5.3
) 
     0.3 to 6.6 (2.8 ) 
Loans and securities backed by residential real estate
 
Level 3 assets
  
 
$180
 
     $231  
Yield
  
 
1.6% to 14.2% (5.9%
) 
     1.2% to 12.0% (5.8% ) 
Cumulative loss rate
  
 
4.7% to 36.6% (19.3%
) 
     5.4% to 30.4% (16.3% ) 
Duration (years)
  
 
1.2 to 14.8 (4.8
) 
     2.3 to 12.4 (5.7 ) 
Corporate debt instruments
 
Level 3 assets
  
 
$782
 
     $692  
Yield
  
 
1.2% to 32.5% (11.9%
) 
     0.1% to 20.4% (7.2% ) 
Recovery rate
  
 
0.0% to 69.9% (59.0%
) 
     0.0% to 69.7% (54.9% ) 
Duration (years)
  
 
1.9 to 6.1 (3.3
) 
     1.7 to 16.6 (5.1 ) 
Level 3 government and agency obligations, other debt obligations and equity securities were not material as of both September 2020 and December 2019, and therefore are not included in the table above.
In the table above:
 
•
 
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 would have resulted in a higher fair value measurement as of both September 2020 and December 2019. 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.
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
  
 
2020
 
      2019    
 
  
 
2020
 
      2019  
Total trading cash instrument assets
 
       
Beginning balance
  
 
$1,804
 
      $1,519      
 
$1,242
 
      $1,689  
Net realized gains/(losses)
  
 
15
 
      3      
 
59
 
      50  
Net unrealized gains/(losses)
  
 
34
 
      (122 )     
 
(146
) 
      (75 ) 
Purchases
  
 
244
 
      162      
 
685
 
      547  
Sales
  
 
(701
) 
      (207 )     
 
(438
) 
      (735 ) 
Settlements
  
 
(124
) 
      (80 )     
 
(264
) 
      (185 ) 
Transfers into level 3
  
 
157
 
      367      
 
313
 
      280  
Transfers out of level 3
  
 
(164
) 
      (207 )   
 
  
 
(186
) 
      (136 ) 
Ending balance
  
 
$1,265
 
      $1,435    
 
  
 
$1,265
 
      $1,435  
 
Total trading cash instrument liabilities
 
 
                     
Beginning balance
  
 
$  (156
) 
      $  (211 )     
 
$  (273
) 
      $    (49 ) 
Net realized gains/(losses)
  
 
–
 
      (2 )     
 
–
 
      1  
Net unrealized gains/(losses)
  
 
(79
) 
      (72 )     
 
18
 
      (207 ) 
Purchases
  
 
13
 
      15      
 
50
 
      22  
Sales
  
 
(20
) 
      (16 )     
 
(35
) 
      (19 ) 
Settlements
  
 
(3
) 
      12      
 
(2
) 
      30  
Transfers into level 3
  
 
(34
) 
      (4 )     
 
(28
) 
      (24 ) 
Transfers out of level 3
  
 
11
 
      38    
 
  
 
2
 
      6  
Ending balance
  
 
$  (268
) 
      $  (240 )   
 
  
 
$  (268
) 
      $  (240 ) 
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
  
 
2020
 
      2019    
 
  
 
2020
 
      2019  
Loans and securities backed by commercial real estate
 
Beginning balance
  
 
$ 430
 
      $ 268      
 
$ 191
 
      $ 332  
Net realized gains/(losses)
  
 
2
 
      11      
 
15
 
      27  
Net unrealized gains/(losses)
  
 
(2
) 
      (19 )     
 
(36
) 
      (36 ) 
Purchases
  
 
7
 
      1      
 
77
 
      40  
Sales
  
 
(228
) 
      (35 )     
 
(19
) 
      (127 ) 
Settlements
  
 
(3
) 
      (20 )     
 
(55
) 
      (61 ) 
Transfers into level 3
  
 
7
 
      19      
 
30
 
      57  
Transfers out of level 3
  
 
(17
) 
      (1 )   
 
  
 
(7
) 
      (8 ) 
Ending balance
  
 
$ 196
 
      $ 224    
 
  
 
$ 196
 
      $ 224  
 
Loans and securities backed by residential real estate
 
 
Beginning balance
  
 
$ 307
 
      $ 270      
 
$ 231
 
      $ 348  
Net realized gains/(losses)
  
 
4
 
      5      
 
7
 
      8  
Net unrealized gains/(losses)
  
 
5
 
      9      
 
17
 
      22  
Purchases
  
 
78
 
      31      
 
97
 
      130  
Sales
  
 
(177
) 
      (104 )     
 
(79
) 
      (222 ) 
Settlements
  
 
(11
) 
      (12 )     
 
(33
) 
      (26 ) 
Transfers into level 3
  
 
4
 
      79      
 
22
 
      4  
Transfers out of level 3
  
 
(30
) 
      (36 )   
 
  
 
(82
) 
      (22 ) 
Ending balance
  
 
$ 180
 
      $ 242    
 
  
 
$ 180
 
      $ 242  
 
Corporate debt instruments
            
Beginning balance
  
 
$ 764
 
      $ 822      
 
$ 692
 
      $ 912  
Net realized gains/(losses)
  
 
10
 
      18      
 
28
 
      39  
Net unrealized gains/(losses)
  
 
25
 
      (30 )     
 
(102
) 
      13  
Purchases
  
 
139
 
      69      
 
455
 
      218  
Sales
  
 
(89
) 
      (55 )     
 
(256
) 
      (346 ) 
Settlements
  
 
(103
) 
      (42 )     
 
(157
) 
      (71 ) 
Transfers into level 3
  
 
129
 
      126      
 
214
 
      92  
Transfers out of level 3
  
 
(93
) 
      (150 )   
 
  
 
(92
) 
      (99 ) 
Ending balance
  
 
$ 782
 
      $ 758    
 
  
 
$ 782
 
      $ 758  
 
Other
            
Beginning balance
  
 
$ 303
 
      $ 159      
 
$ 128
 
      $   97  
Net realized gains/(losses)
  
 
(1
) 
      (31 )     
 
9
 
      (24 ) 
Net unrealized gains/(losses)
  
 
6
 
      (82 )     
 
(25
) 
      (74 ) 
Purchases
  
 
20
 
      61      
 
56
 
      159  
Sales
  
 
(207
) 
      (13 )     
 
(84
) 
      (40 ) 
Settlements
  
 
(7
) 
      (6 )     
 
(19
) 
      (27 ) 
Transfers into level 3
  
 
17
 
      143      
 
47
 
      127  
Transfers out of level 3
  
 
(24
) 
      (20 )   
 
  
 
(5
) 
      (7 ) 
Ending balance
  
 
$ 107
 
      $ 211    
 
  
 
$ 107
 
      $ 211  
In the table above, other includes U.S. and
non-U.S.
government and agency obligations, other debt obligations and equity securities.
Level 3 Rollforward Commentary
Three Months Ended September 2020.
The net realized and unrealized gains on level 3 trading cash instrument assets of $49 million (reflecting $15 million of net realized gains and $34 million of net unrealized gains) for the three months ended September 2020 included gains of $25 million reported in market making and $24 million reported in interest income.
The drivers of the net unrealized gains on level 3 trading cash instrument assets for the three months ended September 2020 were not material.
Transfers into level 3 trading cash instrument assets during the three months ended September 2020 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 2020 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 2020.
The net realized and unrealized losses on level 3 trading cash instrument assets of $87 million (reflecting $59 million of net realized gains and $146 million of net unrealized losses) for the nine months ended September 2020 included gains/(losses) of $(171) million reported in market making and $84 million reported in interest income.
The net unrealized losses on level 3 trading cash instrument assets for the nine months ended September 2020 primarily reflected losses on certain corporate debt instruments, principally driven by corporate performance.
Transfers into level 3 trading cash instrument assets during the nine months ended September 2020 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 2020 primarily reflected transfers of certain corporate debt instruments, and loans and securities backed by residential real estate 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 2019.
The net realized and unrealized losses on level 3 trading cash instrument assets of $119 million (reflecting $3 million of net realized gains and $122 million of net unrealized losses) for the three months ended September 2019 included gains/(losses) of $(157) million reported in market making and $38 million reported in interest income.
The drivers of the net unrealized losses on level 3 trading cash instrument assets for the three months ended September 2019 were not material.
Transfers into level 3 trading cash instrument assets during the three months ended September 2019 primarily reflected transfers of certain corporate debt instruments and other debt obligations included in other trading cash instrument assets 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 2019 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 2019.
The net realized and unrealized losses on level 3 trading cash instrument assets of $25 million (reflecting $50 million of net realized gains and $75 million of net unrealized losses) for the nine months ended September 2019 included gains/(losses) of $(140) million reported in market making and $115 million reported in interest income.
The drivers of the net unrealized losses on level 3 trading cash instrument assets for the nine months ended September 2019 were not material.
Transfers into level 3 trading cash instrument assets during the nine months ended September 2019 primarily reflected transfers of certain equity securities included in other trading cash instrument assets and 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 2019 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.