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Variable Interest Entities
 9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Variable Interest Entities
Note 17.
Variable Interest Entities
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  
$ in millions
  
 
September
2020
 
 
      December
2019		  
 
Total nonconsolidated VIEs
     
Assets in VIEs
  
 
$145,175
 
      $128,069  
Carrying value of variable interests — assets
  
 
$    9,746
 
      $    9,526  
Carrying value of variable interests — liabilities
  
 
$      
 
978
 
      $       619  
Maximum exposure to loss:
     
Retained interests
  
 
$    3,848
 
      $    3,372  
Purchased interests
  
 
1,630
 
      901  
Commitments and guarantees
  
 
2,806
 
      2,697  
Derivatives
  
 
8,653
 
      9,010  
Debt and equity
  
 
3,878
 
      4,806  
Total
  
 
$  20,815
 
      $  20,786  
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  
$ in millions
  
 
September
2020
 
 
      December
2019		  
 
Mortgage-backed
     
Assets in VIEs
  
 
$93,867
 
      $75,354  
Carrying value of variable interests — assets
  
 
$  4,467
 
      $  3,830  
Maximum exposure to loss:
     
Retained interests
  
 
$  3,689
 
      $  3,223  
Purchased interests
  
 
778
 
      607  
Commitments and guarantees
  
 
45
 
      50  
Derivatives
  
 
376
 
      66  
Total
  
 
$  4,888
 
      $  3,946  
 
Real estate, credit- and power-related and other investing
 
Assets in VIEs
  
 
$20,696
 
      $19,602  
Carrying value of variable interests — assets
  
 
$  3,204
 
      $  3,243  
Carrying value of variable interests — liabilities
  
 
$    
 
  10
 
      $         7  
Maximum exposure to loss:
     
Commitments and guarantees
  
 
$  1,304
 
      $  1,213  
Derivatives
  
 
85
 
      92  
Debt and equity
  
 
3,204
 
      3,238  
Total
  
 
$  4,593
 
      $  4,543  
 
Corporate debt and other asset-backed
 
   
Assets in VIEs
  
 
$14,990
 
      $16,248  
Carrying value of variable interests — assets
  
 
$  1,666
 
      $  2,040  
Carrying value of variable interests — liabilities
  
 
$    
 
968
 
      $     612  
Maximum exposure to loss:
     
Retained interests
  
 
$    
 
159
 
      $     149  
Purchased interests
  
 
852
 
      294  
Commitments and guarantees
  
 
1,378
 
      1,374  
Derivatives
  
 
8,189
 
      8,849  
Debt and equity
  
 
265
 
      1,155  
Total
  
 
$10,843
 
      $11,821  
 
Investments in funds
     
Assets in VIEs
  
 
$15,622
 
      $16,865  
Carrying value of variable interests — assets
  
 
$    
 
409
 
      $     413  
Maximum exposure to loss:
     
Commitments and guarantees
  
 
$    
 
  79
 
      $       60  
Derivatives
  
 
3
 
      3  
Debt and equity
  
 
409
 
      413  
Total
  
 
$    
 
491
 
      $     476  
As of both September 2020 and December 2019, the carrying values of the firm’s variable interests in nonconsolidated VIEs are included in the consolidated balance sheets as follows:
 
•
 
Mortgage-backed: Assets were primarily included in trading assets and loans.
 
•  
Real estate, credit- and power-related and other investing: Assets were primarily included in loans and investments and liabilities were included in trading liabilities and other liabilities.
 
•  
Corporate debt and other asset-backed: Assets were included in trading assets and loans and liabilities were included in trading liabilities.
 
•  
Investments in funds: Assets were 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  
 
$ in millions
  
 
September
2020
 
 
      December
2019		  
 
Total consolidated VIEs
     
Assets
     
Cash and cash equivalents
  
 
$  
 
255
 
      $   112  
Trading assets
  
 
57
 
      27  
Investments
  
 
846
 
      835  
Loans
  
 
2,077
 
      2,392  
Other assets
  
 
1,066
 
      1,084  
Total
  
 
$4,301
 
      $4,450  
 
Liabilities
     
Other secured financings
  
 
$1,945
 
      $1,163  
Customer and other payables
  
 
25
 
      9  
Trading liabilities
  
 
257
 
      10  
Unsecured short-term borrowings
  
 
44
 
      48  
Unsecured long-term borrowings
  
 
219
 
      214  
Other liabilities
  
 
945
 
      959  
Total
  
 
$3,435
 
      $2,403  
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  
$ in millions
  
 
September
2020
 
 
      December
2019		  
 
Real estate, credit-related and other investing
 
   
Assets
     
Cash and cash equivalents
  
 
$  
 
208
 
      $   112  
Trading assets
  
 
3
 
      26  
Investments
  
 
846
 
      835  
Loans
  
 
2,077
 
      2,392  
Other assets
  
 
1,066
 
      1,084  
Total
  
 
$4,200
 
      $4,449  
 
Liabilities
     
Other secured financings
  
 
$  
 
691
 
      $   684  
Customer and other payables
  
 
25
 
      9  
Trading liabilities
  
 
36
 
      10  
Other liabilities
  
 
945
 
      959  
Total
  
 
$1,697
 
      $1,662  
 
Corporate debt and other asset-backed
     
Assets
         
Cash and cash equivalents
  
 
$  
 
  47
 
      $      
 
 –		  
Total
  
 
$  
 
  47
 
      $      
 
 –		  
 
Liabilities
     
Other secured financings
  
 
$  
 
715
 
      $      
 
 –		  
Total
  
 
$  
 
715
 
      $      
 
 –		  
 
Principal-protected notes
     
Assets
         
Trading assets
  
 
$  
 
  54
 
      $       1  
Total
  
 
$  
 
  54
 
      $       1  
 
Liabilities
     
Other secured financings
  
 
$  
 
539
 
      $   479  
Trading liabilities
  
 
221
 
      –  
Unsecured short-term borrowings
  
 
44
 
      48  
Unsecured long-term borrowings
  
 
219
 
      214  
Total
  
 
$1,023
 
      $   741  
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.