Investment Securities

3 Months Ended

Mar. 31, 2013

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 the dates indicated:

	March 31, 2013								December 31, 2012
	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	$	787	$	18	$	1	$	804	$	823	$	19	$	1	$	841
Mortgage-backed securities	28,244		544		43		28,745		31,640		598		26		32,212
Asset-backed securities:
Student loans(1)	15,846		125		305		15,666		16,829		100		508		16,421
Credit cards	9,624		48		4		9,668		9,928		61		3		9,986
Sub-prime	1,495		5		115		1,385		1,557		4		162		1,399
Other	4,339		161		40		4,460		4,583		155		61		4,677
Total asset-backed securities	31,304		339		464		31,179		32,897		320		734		32,483
Non-U.S. debt securities:
Mortgage-backed securities	10,611		306		22		10,895		11,119		313		27		11,405
Asset-backed securities	5,711		40		3		5,748		6,180		42		4		6,218
Government securities	2,957		4		—		2,961		3,197		2		—		3,199
Other	4,294		80		3		4,371		4,221		86		1		4,306
Total non-U.S. debt securities	23,573		430		28		23,975		24,717		443		32		25,128
State and political subdivisions	7,447		222		69		7,600		7,384		234		67		7,551
Collateralized mortgage obligations	4,714		133		19		4,828		4,818		151		15		4,954
Other U.S. debt securities	5,087		227		7		5,307		5,072		233		7		5,298
U.S. equity securities	133		5		—		138		109		3		—		112
Non-U.S. equity securities	2		—		—		2		1		—		—		1
Money-market mutual funds	1,258		—		—		1,258		1,102		—		—		1,102
Total	$	102,549	$	1,918	$	631	$	103,836	$	108,563	$	2,001	$	882	$	109,682
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	5,000	$	—	$	37	$	4,963	$	5,000	$	—	$	8	$	4,992
Mortgage-backed securities	131		10		—		141		153		11		—		164
Asset-backed securities:
Student loans(1)	511		—		—		511		—		—		—		—
Credit cards	25		—		—		25		—		—		—		—
Other	722		—		1		721		16		—		—		16
Total asset-backed securities	1,258		—		1		1,257		16		—		—		16
Non-U.S. debt securities:
Mortgage-backed securities	3,617		121		64		3,674		3,122		85		68		3,139
Asset-backed securities	822		19		1		840		434		16		1		449
Government securities	15		—		—		15		3		—		—		3
Other	161		—		1		160		167		—		2		165
Total non-U.S. debt securities	4,615		140		66		4,689		3,726		101		71		3,756
State and political subdivisions	70		1		—		71		74		2		—		76
Collateralized mortgage obligations	2,519		247		18		2,748		2,410		259		12		2,657
Total	$	13,593	$	398	$	122	$	13,869	$	11,379	$	373	$	91	$	11,661

⁽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 $47.01 billion and $46.66 billion as of March 31, 2013 and December 31, 2012, 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, 2013	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	$	—	$	—	$	120	$	1	$	120	$	1
Mortgage-backed securities	5,276		38		769		5		6,045		43
Asset-backed securities:
Student loans	490		7		8,305		298		8,795		305
Credit cards	895		4		—		—		895		4
Sub-prime	—		—		1,317		115		1,317		115
Other	408		5		855		35		1,263		40
Total asset-backed securities	1,793		16		10,477		448		12,270		464
Non-U.S. debt securities:
Mortgage-backed securities	587		2		346		20		933		22
Asset-backed securities	608		1		43		2		651		3
Other	471		3		—		—		471		3
Total non-U.S. debt securities	1,666		6		389		22		2,055		28
State and political subdivisions	859		19		1,144		50		2,003		69
Collateralized mortgage obligations	616		7		547		12		1,163		19
Other U.S. debt securities	274		1		34		6		308		7
Total	$	10,484	$	87	$	13,480	$	544	$	23,964	$	631
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	4,963	$	37	$	—	$	—	$	4,963	$	37
Asset-backed securities	547		1		—		—		547		1
Non-U.S. debt securities:
Mortgage-backed securities	422		3		952		61		1,374		64
Asset-backed securities	—		—		73		1		73		1
Other	—		—		153		1		153		1
Total non-U.S. debt securities	422		3		1,178		63		1,600		66
Collateralized mortgage obligations	427		7		128		11		555		18
Total	$	6,359	$	48	$	1,306	$	74	$	7,665	$	122

	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

The following table presents contractual maturities of debt investment securities as of March 31, 2013:

(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	$	3	$	40	$	62	$	699
Mortgage-backed securities	117		2,335		6,039		20,254
Asset-backed securities:
Student loans	746		6,797		4,976		3,147
Credit cards	1,578		5,775		2,315		—
Sub-prime	28		29		4		1,324
Other	117		2,196		1,588		559
Total asset-backed securities	2,469		14,797		8,883		5,030
Non-U.S. debt securities:
Mortgage-backed securities	256		5,503		156		4,980
Asset-backed securities	288		4,907		335		218
Government securities	1,917		1,044		—		—
Other	1,322		2,627		422		—
Total non-U.S. debt securities	3,783		14,081		913		5,198
State and political subdivisions	714		3,064		2,739		1,083
Collateralized mortgage obligations	148		2,265		1,223		1,192
Other U.S. debt securities	216		3,929		1,128		34
Total	$	7,450	$	40,511	$	20,987	$	33,490
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	—	$	—	$	5,000	$	—
Mortgage-backed securities	—		30		28		73
Asset-backed securities
Student loans	—		92		92		327
Credit cards	—		—		25		—
Other	—		264		451		7
Total asset-backed securities	—		356		568		334
Non-U.S. debt securities:
Mortgage-backed securities	97		590		—		2,930
Asset-backed securities	150		626		46		—
Government securities	15		—		—		—
Other	—		153		—		8
Total non-U.S. debt securities	262		1,369		46		2,938
State and political subdivisions	52		18		—		—
Collateralized mortgage obligations	140		1,195		204		980
Total	$	454	$	2,968	$	5,846	$	4,325

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)	2013			2012
Gross realized gains from sales of available-for-sale securities	$	57		$	19
Gross realized losses from sales of available-for-sale securities	(52		)	—
Gross losses from other-than-temporary impairment	—			(25		)
Losses reclassified (from) to other comprehensive income	(3		)	17
Net impairment losses recognized in consolidated statement of income	(3		)	(8		)
Gains (losses) related to investment securities, net	$	2		$	11
Impairment associated with expected credit losses	$	—		$	(4	)
Impairment associated with adverse changes in timing of expected future cash flows	(3		)	(4		)
Net impairment losses recognized in consolidated statement of income	$	(3	)	$	(8	)

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

	Three Months Ended March 31,
(In millions)	2013		2012
Beginning balance	$	124	$	113
Plus losses for which other-than-temporary impairment was not previously recognized	—		1
Plus losses for which other-than-temporary impairment was previously recognized	3		7
Less previously recognized losses related to securities sold	—		(20		)
Ending balance	$	127	$	101

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 March 31, 2013.

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 no other-than-temporary impairment on these securities in our consolidated statement of income in the three months ended March 31, 2013. Such impairment losses were $4 million, all associated with expected credit losses, in the three months ended March 31, 2012.

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 March 31, 2013 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 5.1 years as of March 31, 2013. In addition, our total exposure to private student loan-backed securities was less than $900 million as of March 31, 2013. 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 three months ended March 31, 2013, we recorded other-than-temporary impairment of $3 million related to non-U.S. mortgage-backed securities associated with adverse changes in the timing of expected future cash flows from the securities. During the three months ended March 31, 2012, we recorded other-than-temporary impairment of $4 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 $563 million as of March 31, 2013. 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 $264 million in Spain, $114 million in Italy, $110 million in Ireland and $75 million in Portugal. These securities had an aggregate pre-tax gross unrealized loss of approximately $29 million as of March 31, 2013. We recorded no other-than-temporary impairment on these securities in the three months ended March 31, 2013 or the three months ended March 31, 2012.

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 19% 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 other-than-temporary impairment of $3 million in the three months ended March 31, 2013, compared to $8 million in the three months ended March 31, 2012, respectively. The $3 million recorded in the three months ended March 31, 2013 resulted from adverse changes in the timing of expected future cash flows from the securities. Of the $8 million recorded in the three months ended March 31, 2012, $4 million related to expected credit losses, and $4 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 three months ended March 31, 2013, management considers the aggregate decline in fair value of the investment securities portfolio and the resulting gross pre-tax unrealized losses of $753 million related to 1,423 securities as of March 31, 2013 to be temporary, and not the result of any material changes in the credit characteristics of the securities.