Investment Securities

12 Months Ended

Dec. 31, 2012

Investments, Debt and Equity Securities [Abstract]

Investment Securities

Investment Securities

The following table presents the amortized cost and fair value, and associated unrealized gains and losses, of investment securities as of December 31:

	2012								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	$	823	$	19	$	1	$	841	$	2,798	$	39	$	1	$	2,836
Mortgage-backed securities	31,640		598		26		32,212		29,511		538		28		30,021
Asset-backed securities:
Student loans(1)	16,829		100		508		16,421		17,187		69		711		16,545
Credit cards	9,928		61		3		9,986		10,448		53		14		10,487
Sub-prime	1,557		4		162		1,399		1,849		2		447		1,404
Other	4,583		155		61		4,677		3,421		169		125		3,465
Total asset-backed securities	32,897		320		734		32,483		32,905		293		1,297		31,901
Non-U.S. debt securities:
Mortgage-backed securities	11,119		313		27		11,405		10,890		92		107		10,875
Asset-backed securities	6,180		42		4		6,218		4,318		2		17		4,303
Government securities	3,197		2		—		3,199		1,671		—		—		1,671
Other	4,221		86		1		4,306		2,797		41		13		2,825
Total non-U.S. debt securities	24,717		443		32		25,128		19,676		135		137		19,674
State and political subdivisions	7,384		234		67		7,551		6,924		244		121		7,047
Collateralized mortgage obligations	4,818		151		15		4,954		3,971		62		53		3,980
Other U.S. debt securities	5,072		233		7		5,298		3,471		159		15		3,615
U.S. equity securities	1,089		3		—		1,092		639		1		—		640
Non-U.S. equity securities	123		—		—		123		118		—		—		118
Total	$	108,563	$	2,001	$	882	$	109,682	$	100,013	$	1,471	$	1,652	$	99,832
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	5,000	$	—	$	8	$	4,992	$	—	$	—	$	—	$	—
Mortgage-backed securities	153		11		—		164		265		18		—		283
Asset-backed securities	16		—		—		16		31		—		2		29
Non-U.S. debt securities:
Mortgage-backed securities	3,122		85		68		3,139		4,973		87		224		4,836
Asset-backed securities	434		16		1		449		436		16		3		449
Government securities	3		—		—		3		3		—		—		3
Other	167		—		2		165		172		—		17		155
Total non-U.S. debt securities	3,726		101		71		3,756		5,584		103		244		5,443
State and political subdivisions	74		2		—		76		107		3		—		110
Collateralized mortgage obligations	2,410		259		12		2,657		3,334		220		57		3,497
Total	$	11,379	$	373	$	91	$	11,661	$	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 $46.66 billion and $44.66 billion as of December 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
December 31, 2012	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
(In millions)
Available for sale:
U.S. Treasury and federal agencies:
Direct obligations	$	—	$	—	$	132	$	1	$	132	$	1
Mortgage-backed securities	3,486		18		865		8		4,351		26
Asset-backed securities:
Student loans	625		6		10,241		502		10,866		508
Credit cards	888		3		—		—		888		3
Sub-prime	—		—		1,346		162		1,346		162
Other	639		13		989		48		1,628		61
Total asset-backed securities	2,152		22		12,576		712		14,728		734
Non-U.S. debt securities:
Mortgage-backed securities	670		3		453		24		1,123		27
Asset-backed securities	973		1		53		3		1,026		4
Other	509		1		—		—		509		1
Total non-U.S. debt securities	2,152		5		506		27		2,658		32
State and political subdivisions	685		9		1,152		58		1,837		67
Collateralized mortgage obligations	347		1		621		14		968		15
Other U.S. debt securities	302		1		33		6		335		7
Total	$	9,124	$	56	$	15,885	$	826	$	25,009	$	882
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	3,792	$	8	$	—	$	—	$	3,792	$	8
Non-U.S. debt securities:
Mortgage-backed securities	56		1		956		67		1,012		68
Asset-backed securities	—		—		73		1		73		1
Other	—		—		156		2		156		2
Total non-U.S. debt securities	56		1		1,185		70		1,241		71
Collateralized mortgage obligations	120		1		153		11		273		12
Total	$	3,968	$	10	$	1,338	$	81	$	5,306	$	91

	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)
Available for sale:
U.S. Treasury and federal agencies:
Direct obligations	$	1,373	$	1	$	—	$	—	$	1,373	$	1
Mortgage-backed securities	4,715		26		370		2		5,085		28
Asset-backed securities:
Student loans	2,992		34		10,356		677		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	1,485		19		1,119		106		2,604		125
Total asset-backed securities	7,074		60		14,296		1,237		21,370		1,297
Non-U.S. debt securities:
Mortgage-backed securities	6,126		61		1,094		46		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	9,874		88		1,202		49		11,076		137
State and political subdivisions	185		3		1,431		118		1,616		121
Collateralized mortgage obligations	2,024		43		67		10		2,091		53
Other U.S. debt securities	220		2		58		13		278		15
Total	$	25,465	$	223	$	17,424	$	1,429	$	42,889	$	1,652
Held to maturity:
Asset-backed securities	$	—	$	—	$	29	$	2	$	29	$	2
Non-U.S. debt securities:
Mortgage-backed securities	678		91		1,046		133		1,724		224
Asset-backed securities	79		3		—		—		79		3
Other	—		—		138		17		138		17
Total non-U.S. debt securities	757		94		1,184		150		1,941		244
Collateralized mortgage obligations	673		38		206		19		879		57
Total	$	1,430	$	132	$	1,419	$	171	$	2,849	$	303

The following table presents contractual maturities of debt investment securities as of December 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	$	4	$	43	$	61	$	733
Mortgage-backed securities	10		2,458		7,139		22,605
Asset-backed securities:
Student loans	425		6,863		5,540		3,593
Credit cards	1,102		5,967		2,917		—
Sub-prime	56		51		4		1,288
Other	178		2,199		1,588		712
Total asset-backed securities	1,761		15,080		10,049		5,593
Non-U.S. debt securities:
Mortgage-backed securities	160		5,484		73		5,688
Asset-backed securities	272		4,579		1,063		304
Government securities	2,064		1,135		—		—
Other	1,373		2,534		399		—
Total non-U.S. debt securities	3,869		13,732		1,535		5,992
State and political subdivisions	685		3,075		2,882		909
Collateralized mortgage obligations	161		2,371		1,161		1,261
Other U.S. debt securities	271		3,722		1,271		34
Total	$	6,761	$	40,481	$	24,098	$	37,127
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	—	$	—	$	4,500	$	500
Mortgage-backed securities	—		36		32		85
Asset-backed securities	—		9		—		7
Non-U.S. debt securities:
Mortgage-backed securities	93		—		—		3,029
Asset-backed securities	149		238		47		—
Government securities	3		—		—		—
Other	—		158		—		9
Total non-U.S. debt securities	245		396		47		3,038
State and political subdivisions	49		25		—		—
Collateralized mortgage obligations	235		1,250		171		754
Total	$	529	$	1,716	$	4,750	$	4,384

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 years ended December 31:

(In millions)	2012			2011			2010
Gross realized gains from sales of available-for-sale securities	$	101		$	152		$	1,330
Gross realized losses from sales of available-for-sale securities(1)(2)	(46		)	(12		)	(1,385		)
Gross losses from other-than-temporary impairment	(53		)	(123		)	(651		)
Losses not related to credit	21			50			420
Net impairment losses	(32		)	(73		)	(231		)
Gains (Losses) related to investment securities, net	$	23		$	67		$	(286	)
Impairment associated with expected credit losses	$	(16	)	$	(42	)	$	(203	)
Impairment associated with management's intent to sell the impaired securities prior to their recovery in value	—			(8		)	(1		)
Impairment associated with adverse changes in timing of expected future cash flows	(16		)	(23		)	(27		)
Net impairment losses	$	(32	)	$	(73	)	$	(231	)

⁽¹⁾Amount for the year ended December 31, 2012 represented a loss that resulted from the sale of all of our Greek securities, which were previously classified as held to maturity. The sale was undertaken as a result of the effect of significant deterioration in the creditworthiness of the underlying collateral, including significant downgrades of the securities' published credit ratings.

⁽²⁾Amount for the year ended December 31, 2010 included a pre-tax net loss of approximately $344 million that resulted from a repositioning of our investment securities portfolio. In connection with the repositioning, which we undertook to enhance our regulatory capital ratios under evolving regulatory capital standards, increase our balance sheet flexibility in deploying our capital and reduce our exposure to certain asset classes, we sold approximately $11 billion of securities. The sale included approximately $4.8 billion of securities classified as held to maturity in our consolidated statement of condition, which was sold at a net pre-tax loss of $119 million, in response to changes in regulatory capital requirements and previous downgrades of the securities.

The following table presents activity with respect to net impairment losses for the years ended December 31:

(In millions)	2012			2011			2010
Beginning balance	$	113		$	63		$	175
Plus losses for which other-than-temporary impairment was not previously recognized	4			10			88
Plus losses for which other-than-temporary impairment was previously recognized	28			55			142
Less previously recognized losses related to securities sold	(21		)	(13		)	(342		)
Less losses related to securities intended or required to be sold	—			(2		)	—
Ending balance	$	124		$	113		$	63

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 potential 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 mortgage- and asset-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:

• certain macroeconomic drivers;

• certain industry-specific drivers;

• 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.

Substantially all of our investment securities portfolio is composed of debt securities. A critical component of the evaluation of other-than-temporary impairment of these 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 December 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 each specific security, the underlying collateral type, vintage, borrower profile, third-party guarantees, current levels of subordination, geography and other factors.

We recorded other-than-temporary impairment of $10 million on these securities in our consolidated statement of income in the year ended December 31, 2012, all associated with expected credit losses, primarily as a result of rising delinquencies and loss severities for certain securities, as well as management's continued expectation of a slow U.S. national housing market. Such losses were $42 million, all associated with expected credit losses, in the year ended December 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 protected from traditional consumer credit risk.

The gross unrealized losses in our FFELP loan-backed securities portfolio as of December 31, 2012 were primarily attributable to lower liquidity and the lower spreads on these securities relative to those associated with more current issuances. When evaluating impairment of these securities, we consider, among many other factors, the strength of the U.S. government guarantee, the performance of the underlying collateral, and the remaining average term of the FFELP loan-backed securities portfolio, which was approximately 5.6 years as of December 31, 2012. In addition, our total exposure to private student loan-backed securities was less than $1 billion as of December 31, 2012. Our evaluation of impairment of these securities 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 primarily composed of U.K., Australian and Netherlands 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 is located, 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.

In the year ended December 31, 2012, we recorded other-than-temporary impairment of $22 million, substantially related to non-U.S. mortgage-backed securities, of which $6 million was associated with expected credit losses (refer to the following paragraph) and $16 million was associated with adverse changes in the timing of expected future cash flows from the securities. In the year ended December 31, 2011, we recorded other-than-temporary impairment of $23 million, substantially related to non-U.S. mortgage-backed securities, all associated with adverse changes in the timing of expected future cash flows from the securities.

Our aggregate exposure to Spain, Italy, Ireland and Portugal totaled approximately $655 million as of December 31, 2012. We had no such exposure to Greece as of December 31, 2012. We had no direct sovereign-debt exposure to any of these countries as of that date, but we had indirect exposure consisting of mortgage- and asset-backed securities, composed of $276 million in Spain, $144 million in Italy, $159 million in Ireland and $76 million in Portugal. These securities had an aggregate pre-tax gross unrealized loss of approximately $36 million as of December 31, 2012. The $6 million of other-than-temporary impairment recorded in the year ended December 31, 2012, described above, was related to these securities.

Our evaluation of potential other-than-temporary impairment of these securities takes into account government intervention in the corresponding mortgage markets and assumes a negative baseline macroeconomic environment for this region, due to a 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 of between 10% and 20% across these four countries. Our evaluation of other-than-temporary impairment in our base case does not assume a disorderly sovereign-debt restructuring or a break-up of the Eurozone. 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 of these securities, 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 the sensitivity of losses relative to the above-described 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 $32 million and $73 million in the years ended December 31, 2012 and December 31, 2011, respectively. Of the $32 million recorded in the year ended December 31, 2012, $16 million related to expected credit losses and $16 million resulted from adverse changes in the timing of expected future cash flows from the securities. Of the $73 million recorded in the year ended December 31, 2011, $42 million related to expected credit losses, $8 million resulted from changes in management's intent to sell the impaired securities prior to their recovery in value, and $23 million resulted from adverse changes in the 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 mortgage- and asset-backed securities and other relevant factors, and excluding other-than-temporary impairment recorded in the year ended December 31, 2012, management considers the aggregate decline in fair value of the investment securities portfolio and the resulting gross pre-tax unrealized losses of $973 million related to 1,400 securities as of December 31, 2012 to be temporary, and not the result of any material changes in the credit characteristics of the securities.