Investment Securities

The following table presents the amortized cost and fair value, and associated unrealized gains and losses, of investment securities as of the dates indicated:



	March 31, 2012								December 31, 2011
	Amortized Cost		Gross Unrealized				Fair Value		Amortized Cost		Gross Unrealized				Fair Value
(In millions)			Gains		Losses						Gains		Losses
Available for sale:
U.S. Treasury and federal agencies:
Direct obligations	$	1,693	$	32	$	1	$	1,724	$	2,798	$	39	$	1	$	2,836
Mortgage-backed securities	32,179		586		48		32,717		29,511		538		28		30,021
Asset-backed securities:
Student loans⁽¹⁾	17,404		66		703		16,767		17,187		69		711		16,545
Credit cards	10,151		64		5		10,210		10,448		53		14		10,487
Sub-prime	1,767		2		390		1,379		1,849		2		447		1,404
Other	3,625		166		112		3,679		3,421		169		125		3,465
Total asset-backed securities	32,947		298		1,210		32,035		32,905		293		1,297		31,901
Non-U.S. debt securities:
Mortgage-backed securities	11,507		132		68		11,571		10,890		92		107		10,875
Asset-backed securities	4,963		6		9		4,960		4,318		2		17		4,303
Government securities	1,703		—		—		1,703		1,671		—		—		1,671
Other	3,634		51		2		3,683		2,797		41		13		2,825
Total non-U.S. debt securities	21,807		189		79		21,917		19,676		135		137		19,674
State and political subdivisions	7,066		226		104		7,188		6,924		244		121		7,047
Collateralized mortgage obligations	4,222		96		39		4,279		3,971		62		53		3,980
Other U.S. debt securities	3,885		179		13		4,051		3,471		159		15		3,615
U.S. equity securities	670		3		—		673		639		1		—		640
Non-U.S. equity securities	120		—		—		120		118		—		—		118
Total	$	104,589	$	1,609	$	1,494	$	104,704	$	100,013	$	1,471	$	1,652	$	99,832
Held to maturity:
U.S. Treasury and federal agencies:
Mortgage-backed securities	$	235	$	17			$	252	$	265	$	18			$	283
Asset-backed securities	25		—		$	1	24		31		—		$	2	29
Non-U.S. debt securities:
Mortgage-backed securities	4,660		97		187		4,570		4,973		87		224		4,836
Asset-backed securities	439		14		2		451		436		16		3		449
Government securities	3		—		—		3		3		—		—		3
Other	176		—		5		171		172		—		17		155
Total non-U.S. debt securities	5,278		111		194		5,195		5,584		103		244		5,443
State and political subdivisions	89		2		—		91		107		3		—		110
Collateralized mortgage obligations	3,041		261		22		3,280		3,334		220		57		3,497
Total	$	8,668	$	391	$	217	$	8,842	$	9,321	$	344	$	303	$	9,362


⁽¹⁾	Substantially composed of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.

Aggregate investment securities carried at $38.27 billion and $44.66 billion at March 31, 2012 and December 31, 2011, respectively, were designated as pledged for public and trust deposits, short-term borrowings and for other purposes as provided by law.

The following tables present the aggregate fair values of investment securities that have been in a continuous unrealized loss position for less than 12 months, and those that have been in a continuous unrealized loss position for 12 months or longer, as of the dates indicated:



	Less than 12 months				12 months or longer				Total
March 31, 2012	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
(In millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available for sale:
U.S. Treasury and federal agencies:
Direct obligations	$	136	$	1					$	136	$	1
Mortgage-backed securities	6,017		46		$	340	$	2	6,357		48
Asset-backed securities:
Student loans	2,567		22		10,813		681		13,380		703
Credit cards	731		1		693		4		1,424		5
Sub-prime	7		1		1,336		389		1,343		390
Other	1,080		24		1,106		88		2,186		112
Total asset-backed securities	4,385		48		13,948		1,162		18,333		1,210
Non-U.S. debt securities:
Mortgage-backed securities	4,319		25		1,089		43		5,408		68
Asset-backed securities	1,111		3		386		6		1,497		9
Other	395		2		—		—		395		2
Total non-U.S. debt securities	5,825		30		1,475		49		7,300		79
State and political subdivisions	356		3		1,385		101		1,741		104
Collateralized mortgage obligations	1,305		27		246		12		1,551		39
Other U.S. debt securities	362		2		39		11		401		13
Total	$	18,386	$	157	$	17,433	$	1,337	$	35,819	$	1,494
Held to maturity:
Asset-backed securities					$	24	$	1	$	24	$	1
Non-U.S. debt securities:
Mortgage-backed securities	$	170	$	2	1,359		185		1,529		187
Asset-backed securities	9		1		72		1		81		2
Other	—		—		155		5		155		5
Total non-U.S. debt securities	179		3		1,586		191		1,765		194
Collateralized mortgage obligations	218		6		224		16		442		22
Total	$	397	$	9	$	1,834	$	208	$	2,231	$	217



	Less than 12 months				12 months or longer				Total
December 31, 2011	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
(In millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available for sale:
U.S. Treasury and federal agencies:
Direct obligations	$	1,373	$	1					$	1,373	$	1
Mortgage-backed securities	4,714		26		$	370	$	2	5,084		28
Asset-backed securities:
Student loans	2,642		23		10,706		688		13,348		711
Credit cards	2,581		6		1,461		8		4,042		14
Sub-prime	16		1		1,360		446		1,376		447
Other	1,482		19		1,122		106		2,604		125
Total asset-backed securities	6,721		49		14,649		1,248		21,370		1,297
Non-U.S. debt securities:
Mortgage-backed securities	6,069		55		1,151		52		7,220		107
Asset-backed securities	2,205		14		108		3		2,313		17
Other	1,543		13		—		—		1,543		13
Total non-U.S. debt securities	9,817		82		1,259		55		11,076		137
State and political subdivisions	171		3		1,446		118		1,617		121
Collateralized mortgage obligations	2,024		43		68		10		2,092		53
Other U.S. debt securities	220		2		57		13		277		15
Total	$	25,040	$	206	$	17,849	$	1,446	$	42,889	$	1,652
Held to maturity:
Asset-backed securities					$	29	$	2	$	29	$	2
Non-U.S. debt securities:
Mortgage-backed securities	$	341	$	6	1,382		218		1,723		224
Asset-backed securities	9		1		70		2		79		3
Other	—		—		138		17		138		17
Total non-U.S. debt securities	350		7		1,590		237		1,940		244
Collateralized mortgage obligations	649		32		231		25		880		57
Total	$	999	$	39	$	1,850	$	264	$	2,849	$	303

The following table presents contractual maturities of debt investment securities as of March 31, 2012:



(In millions)	Under 1 Year		1 to 5 Years		6 to 10 Years		Over 10 Years
Available for sale:
U.S. Treasury and federal agencies:
Direct obligations	$	200	$	75	$	662	$	787
Mortgage-backed securities	5		1,723		9,926		21,063
Asset-backed securities:
Student loans	142		5,607		7,552		3,466
Credit cards	1,528		6,980		1,702		—
Sub-prime	324		50		9		996
Other	114		2,039		1,288		238
Total asset-backed securities	2,108		14,676		10,551		4,700
Non-U.S. debt securities:
Mortgage-backed securities	477		3,195		420		7,479
Asset-backed securities	255		2,668		1,577		460
Government securities	1,703		—		—		—
Other	1,650		1,904		129		—
Total non-U.S. debt securities	4,085		7,767		2,126		7,939
State and political subdivisions	500		3,014		2,812		862
Collateralized mortgage obligations	69		2,166		593		1,451
Other U.S. debt securities	283		2,855		874		39
Total	$	7,250	$	32,276	$	27,544	$	36,841
Held to maturity:
U.S. Treasury and federal agencies:
Mortgage-backed securities			$	48	$	58	$	129
Asset-backed securities			—		—		25
Non-U.S. debt securities:
Mortgage-backed securities	$	1,202	102		—		3,356
Asset-backed securities	—		303		136		—
Government securities	3		—		—		—
Other	—		160		—		16
Total non-U.S. debt securities	1,205		565		136		3,372
State and political subdivisions	49		40		—		—
Collateralized mortgage obligations	276		1,563		184		1,018
Total	$	1,530	$	2,216	$	378	$	4,544

The maturities of asset-backed securities, mortgage-backed securities and collateralized mortgage obligations are based on expected principal payments.

The following table presents realized gains and losses related to investment securities for the periods indicated:



	Three Months Ended March 31,
(In millions)	2012			2011
Gross realized gains from sales of available-for-sale securities	$	19		$	7
Gross realized losses from sales of available-for-sale securities	—			(3		)

Gross losses from other-than-temporary impairment	(25		)	(35		)
Losses not related to credit	17			24
Net impairment losses	(8		)	(11		)
Gains (Losses) related to investment securities, net	$	11		$	(7	)

Impairment associated with expected credit losses	$	(4	)	$	(5	)
Impairment associated with adverse changes in timing of expected future cash flows	(4		)	(6		)
Net impairment losses	$	(8	)	$	(11	)

The following table presents activity with respect to net impairment losses related to credit for the periods indicated:



	Three Months Ended March 31,
(In millions)	2012			2011
Beginning balance	$	113		$	63
Plus losses for which other-than-temporary impairment was not previously recognized	1			3
Plus losses for which other-than-temporary impairment was previously recognized	7			8
Less previously recognized losses related to securities sold	(20		)	—
Ending balance	$	101		$	74

Impairment

We conduct periodic reviews of individual securities to assess whether other-than-temporary impairment exists. Impairment exists when the current fair value of an individual security is below its amortized cost basis. When the decline in the security's fair value is deemed to be other than temporary, the loss is recorded in our consolidated statement of income. In addition, for debt securities available for sale and held to maturity, impairment is recorded in our consolidated statement of income when management intends to sell (or may be required to sell) the securities before they recover in value, or when management expects the present value of cash flows expected to be collected from the securities to be less than the amortized cost of the impaired security (a credit loss).

Our review of impaired securities generally includes:


•	the identification and evaluation of securities that have indications of possible other-than-temporary impairment, such as issuer-specific concerns, including deteriorating financial condition or bankruptcy;


•	the analysis of expected future cash flows of securities, based on quantitative and qualitative factors;


•	the analysis of the collectibility of those future cash flows, including information about past events, current conditions and reasonable and supportable forecasts;


•	the analysis of the underlying collateral for asset- and mortgage-backed securities;


•	the analysis of individual impaired securities, including consideration of the length of time the security has been in an unrealized loss position, the anticipated recovery period, and the magnitude of the overall price decline;


•	discussion and evaluation of factors or triggers that could cause individual securities to be deemed other-than- temporarily impaired and those that would not support other-than-temporary impairment; and


•	documentation of the results of these analyses.

Factors considered in determining whether impairment is other than temporary include:


•	the length of time the security has been impaired;


•	the severity of the impairment;


•	the cause of the impairment and the financial condition and near-term prospects of the issuer;


•	activity in the market with respect to the issuer's securities, which may indicate adverse credit conditions; and


•	our intention not to sell, and the likelihood that we will not be required to sell, the security for a period of time sufficient to allow for recovery in value.

The substantial majority of our investment securities portfolio is composed of debt securities. A critical component of the evaluation for other-than-temporary impairment of our debt securities is the identification of credit-impaired securities for which management does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security.

Debt securities that are not deemed to be credit-impaired are subject to additional management analysis to assess whether management intends to sell, or, more likely than not, would be required to sell, the security before the expected recovery to its amortized cost basis.

The following describes our process for identifying credit impairment in security types with the most significant unrealized losses as of March 31, 2012.

U.S. Non-Agency Residential Mortgage-Backed Securities

For U.S. non-agency residential mortgage-backed securities, other-than-temporary impairment related to credit is assessed using cash flow models, tailored for each security, that estimate the future cash flows from the underlying mortgages, using the security-specific collateral and transaction structure. Estimates of future cash flows are subject to management judgment. The future cash flows and performance of our portfolio of U.S. mortgage-backed securities are a function of a number of factors, including, but not limited to, the condition of the U.S. economy, the condition of the U.S. residential mortgage markets, and the level of loan defaults, prepayments and loss severities. Management's estimates of future losses for each security also consider the underwriting and historical performance of our specific securities, the underlying collateral type, vintage, borrower profile, third-party guarantees, current levels of subordination, geography and other factors.

Primarily as a result of rising delinquencies and loss severities for certain securities as well as management's continued expectation of declining housing prices, we recorded other-than-temporary impairment of $4 million related to such securities, all associated with expected credit losses, in our consolidated statement of income in the three months ended March 31, 2012. Such losses were $5 million, all associated with expected credit losses, in the three months ended March 31, 2011.

Asset-Backed Securities - Student Loans

Asset-backed securities collateralized by student loans are primarily composed of securities collateralized by Federal Family Education Loan Program, or FFELP, loans. FFELP loans benefit from a federal government guarantee of at least 97% of defaulted principal and accrued interest, with additional credit support provided in the form of overcollateralization, subordination and excess spread, which collectively total in excess of 100%. Accordingly, the vast majority of FFELP loan-backed securities are not exposed to traditional consumer credit risk. Our total exposure to private student loan-backed securities was less than $1.0 billion as of March 31, 2012; our evaluation of impairment considers, among other factors, the impact of high unemployment rates on the collateral performance of private student loans.

Non-U.S. Mortgage- and Asset-Backed Securities

Non-U.S. mortgage- and asset-backed securities are composed primarily of U.K., Dutch and Australian securities collateralized by residential mortgages. Our evaluation of impairment considers the location of the underlying collateral, collateral enhancement and structural features, expected credit losses under base-case and stressed conditions and the macroeconomic outlook for the country in which the collateral resides, including housing prices and unemployment. Where appropriate, any potential loss after consideration of the above-referenced factors is further evaluated to determine whether any other-than-temporary impairment exists. We recorded other-than-temporary impairment of $4 million, all associated with adverse changes in timing of expected future cash flows, in the three months ended March 31, 2012, substantially related to non-U.S. mortgage-backed securities. We recorded other-than-temporary impairment of $6 million, all associated with adverse changes in timing of expected future cash flows, in the three months ended March 31, 2011, substantially related to non-U.S. mortgage-backed securities.

Our aggregate exposure to Spain, Italy, Ireland, Greece and Portugal totaled approximately $1.09 billion as of March 31, 2012. While we had no direct sovereign debt exposure to these countries, we had indirect exposure consisting of mortgage- and asset-backed securities, composed of $435 million in Spain, $371 million in Italy, $115 million in Ireland, $98 million in Greece and $75 million in Portugal. These securities had an aggregate pre-tax gross unrealized loss of approximately $100 million as of March 31, 2012. We recorded no other-than-temporary impairment associated with expected credit losses on these securities in the three months ended March 31, 2012 or 2011. Our evaluation of potential other-than-temporary impairment of these securities assumes a negative baseline macroeconomic environment for this region, due to the continued sovereign debt crisis, and the combination of slower economic growth and continued government austerity measures. Our baseline view assumes a recessionary period characterized by higher unemployment and by additional housing price declines between 4% and 14% across these five countries. Our evaluation of other-than-temporary impairment in our base case does not assume a disorderly sovereign debt restructuring or countries leaving the Euro common currency. In addition, stress testing and sensitivity analysis is performed in order to understand the impact of more severe assumptions on potential other-than-temporary impairment.

State and Political Subdivisions

In assessing other-than-temporary impairment, we may from time to time rely on support from third-party financial guarantors for certain asset-backed and municipal (state and political subdivisions) securities. Factors considered when determining the level of support include the guarantor's credit rating and management's assessment of the guarantor's financial condition. For those guarantors that management deems to be under financial duress, we assume an immediate default by those guarantors, with a modest recovery of claimed amounts (up to 20%). In addition, for various forms of collateralized securities, management considers the liquidation value of the underlying collateral based on expected housing prices and other relevant factors.

*****

The estimates, assumptions and other risk factors utilized in our evaluation of impairment as described above are used by management to identify securities which are subject to further analysis of potential credit losses. Additional analyses are performed using more severe assumptions to further evaluate sensitivity of losses relative to the above factors. However, since the assumptions are based on the unique characteristics of each security, management uses a range of point estimates for prepayment speeds and housing prices that reflect the collateral profile of the securities within each asset class. In addition, in measuring expected credit losses, the individual characteristics of each security are examined to determine whether any additional factors would increase or mitigate the expected loss. Once losses are determined, the timing of the loss will also affect the ultimate other-than-temporary impairment, since the loss is ultimately subject to a discount commensurate with the purchase yield of the security.

In the aggregate, we recorded credit-related other-than-temporary impairment of $8 million during the three months ended March 31, 2012, compared to $11 million during the three months ended March 31, 2011. Of the $8 million, $4 million related to expected credit losses, and $4 million resulted from adverse changes in timing of expected future cash flows from the securities. Of the $11 million, $5 million related to expected credit losses and $6 million resulted from adverse changes in timing of expected future cash flows from the securities.

After a review of the investment portfolio, taking into consideration current economic conditions, adverse situations that might affect our ability to fully collect principal and interest, the timing of future payments, the credit quality and performance of the collateral underlying asset-backed securities and other relevant factors, and excluding other-than-temporary impairment recorded during the three months ended March 31, 2012, management considers the aggregate decline in fair value of the investment securities portfolio and the resulting gross pre-tax unrealized losses of $1.71 billion related to 1,900 securities as of March 31, 2012 to be temporary and not the result of any material changes in the credit characteristics of the securities.