Investment Securities

6 Months Ended

Jun. 30, 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:

	June 30, 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	$	758	$	20	$	1	$	777	$	823	$	19	$	1	$	841
Mortgage-backed securities	26,416		303		257		26,462		31,640		598		26		32,212
Asset-backed securities:
Student loans(1)	15,476		60		396		15,140		16,829		100		508		16,421
Credit cards	9,159		24		49		9,134		9,928		61		3		9,986
Sub-prime	1,434		4		113		1,325		1,557		4		162		1,399
Other	4,264		166		36		4,394		4,583		155		61		4,677
Total asset-backed securities	30,333		254		594		29,993		32,897		320		734		32,483
Non-U.S. debt securities:
Mortgage-backed securities	10,153		251		13		10,391		11,119		313		27		11,405
Asset-backed securities	5,438		32		3		5,467		6,180		42		4		6,218
Government securities	3,431		1		2		3,430		3,197		2		—		3,199
Other	4,269		58		19		4,308		4,221		86		1		4,306
Total non-U.S. debt securities	23,291		342		37		23,596		24,717		443		32		25,128
State and political subdivisions	8,157		148		186		8,119		7,384		234		67		7,551
Collateralized mortgage obligations	4,969		87		80		4,976		4,818		151		15		4,954
Other U.S. debt securities	4,955		148		38		5,065		5,072		233		7		5,298
U.S. equity securities	37		6		—		43		28		3		—		31
Non-U.S. equity securities	1		—		—		1		1		—		—		1
Money-market mutual funds	1,148		—		—		1,148		1,183		—		—		1,183
Total	$	100,065	$	1,308	$	1,193	$	100,180	$	108,563	$	2,001	$	882	$	109,682
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	5,000	$	—	$	302	$	4,698	$	5,000	$	—	$	8	$	4,992
Mortgage-backed securities	114		8		—		122		153		11		—		164
Asset-backed securities:
Student loans(1)	1,294		—		14		1,280		—		—		—		—
Credit cards	68		—		1		67		—		—		—		—
Other	889		1		1		889		16		—		—		16
Total asset-backed securities	2,251		1		16		2,236		16		—		—		16
Non-U.S. debt securities:
Mortgage-backed securities	3,809		121		76		3,854		3,122		85		68		3,139
Asset-backed securities	1,167		19		2		1,184		434		16		1		449
Government securities	15		—		—		15		3		—		—		3
Other	184		—		—		184		167		—		2		165
Total non-U.S. debt securities	5,175		140		78		5,237		3,726		101		71		3,756
State and political subdivisions	66		1		—		67		74		2		—		76
Collateralized mortgage obligations	2,862		202		42		3,022		2,410		259		12		2,657
Total	$	15,468	$	352	$	438	$	15,382	$	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 $46.97 billion and $46.66 billion as of June 30, 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
June 30, 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	10,463		236		1,391		21		11,854		257
Asset-backed securities:
Student loans	2,913		36		7,887		360		10,800		396
Credit cards	4,883		49		—		—		4,883		49
Sub-prime	—		—		1,248		113		1,248		113
Other	546		6		810		30		1,356		36
Total asset-backed securities	8,342		91		9,945		503		18,287		594
Non-U.S. debt securities:
Mortgage-backed securities	672		1		290		12		962		13
Asset-backed securities	604		1		28		2		632		3
Government securities	2,863		2		—		—		2,863		2
Other	1,431		19		—		—		1,431		19
Total non-U.S. debt securities	5,570		23		318		14		5,888		37
State and political subdivisions	2,463		124		1,103		62		3,566		186
Collateralized mortgage obligations	1,398		70		393		10		1,791		80
Other U.S. debt securities	1,259		32		33		6		1,292		38
Total	$	29,495	$	576	$	13,303	$	617	$	42,798	$	1,193
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	4,698	$	302	$	—	$	—	$	4,698	$	302
Asset-backed securities:
Student loans	1,074		14		—		—		1,074		14
Credit cards	67		1		—		—		67		1
Other	191		1		—		—		191		1
Total asset-backed securities	1,332		16		—		—		1,332		16
Non-U.S. debt securities:
Mortgage-backed securities	801		5		914		71		1,715		76
Asset-backed securities	398		2		—		—		398		2
Total non-U.S. debt securities	1,199		7		914		71		2,113		78
Collateralized mortgage obligations	641		29		108		13		749		42
Total	$	7,870	$	354	$	1,022	$	84	$	8,892	$	438

	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 June 30, 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	$	38	$	55	$	681
Mortgage-backed securities	112		2,115		5,825		18,410
Asset-backed securities:
Student loans	1,120		6,709		4,493		2,818
Credit cards	2,574		4,366		2,194		—
Sub-prime	25		30		2		1,268
Other	140		2,071		1,406		777
Total asset-backed securities	3,859		13,176		8,095		4,863
Non-U.S. debt securities:
Mortgage-backed securities	226		5,458		183		4,524
Asset-backed securities	306		4,657		326		178
Government securities	2,445		985		—		—
Other	1,175		2,580		553		—
Total non-U.S. debt securities	4,152		13,680		1,062		4,702
State and political subdivisions	669		2,938		3,048		1,464
Collateralized mortgage obligations	149		2,257		1,161		1,409
Other U.S. debt securities	225		4,060		747		33
Total	$	9,169	$	38,264	$	19,993	$	31,562
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	—	$	—	$	5,000	$	—
Mortgage-backed securities	—		25		26		63
Asset-backed securities
Student loans	—		154		170		970
Credit cards	—		10		58		—
Other	—		541		342		6
Total asset-backed securities	—		705		570		976
Non-U.S. debt securities:
Mortgage-backed securities	57		823		—		2,929
Asset-backed securities	65		1,055		47		—
Government securities	15		—		—		—
Other	—		179		—		5
Total non-U.S. debt securities	137		2,057		47		2,934
State and political subdivisions	50		16		—		—
Collateralized mortgage obligations	140		1,208		379		1,135
Total	$	327	$	4,011	$	6,022	$	5,108

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 June 30,						Six Months Ended June 30,
(In millions)	2013			2012			2013			2012
Gross realized gains from sales of available-for-sale securities	$	30		$	32		$	87		$	51
Gross realized losses from sales of available-for-sale securities(1)	(30		)	(46		)	(82		)	(46		)
Gross losses from other-than-temporary impairment	—			(21		)	—			(46		)
Losses reclassified (from) to other comprehensive income	(7		)	8			(10		)	25
Net impairment losses recognized in consolidated statement of income	(7		)	(13		)	(10		)	(21		)
Gains (losses) related to investment securities, net	$	(7	)	$	(27	)	$	(5	)	$	(16	)
Impairment associated with expected credit losses	$	—		$	(9	)	$	—		$	(13	)
Impairment associated with management's intent to sell impaired securities prior to recovery in value	(6		)	—			(6		)	—
Impairment associated with adverse changes in timing of expected future cash flows	(1		)	(4		)	(4		)	(8		)
Net impairment losses recognized in consolidated statement of income	$	(7	)	$	(13	)	$	(10	)	$	(21	)

⁽¹⁾ In the three months endedJune 30, 2012, we sold all of our Greek securities, which had an aggregate carrying value of approximately $91 million, and recorded a pre-tax loss of $46 million in our consolidated statement of income.

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

	Six Months Ended June 30,
(In millions)	2013			2012
Beginning balance	$	124		$	113
Plus losses for which other-than-temporary impairment was not previously recognized	6			2
Plus losses for which other-than-temporary impairment was previously recognized	4			19
Less previously recognized losses related to securities sold or matured	(9		)	(20		)
Ending balance	$	125		$	114

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 June 30, 2013.

U.S. Agency Residential Mortgage-Backed Securities

Our portfolio of U.S. agency residential mortgage-backed securities receives the implicit or explicit backing of the U.S. government in conjunction with specified financial support of the U.S. Treasury. We recorded no other-than-temporary impairment on these securities in our consolidated statement of income in the three and six months endedJune 30, 2013 or the three and six months endedJune 30, 2012. The unrealized losses on these securities as of June 30, 2013 were primarily attributable to changes in interest rates in the three months endedJune 30, 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 and six months endedJune 30, 2013. Such impairment losses were $3 million and $7 million, all associated with expected credit losses, in the three and six months endedJune 30, 2012, respectively.

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.

We recorded no other-than-temporary impairment on these securities in our consolidated statement of income in the three and six months endedJune 30, 2013 or the three and six months endedJune 30, 2012. The gross unrealized losses in our FFELP loan-backed securities portfolio as of June 30, 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 June 30, 2013. In addition, our total exposure to private student loan-backed securities was less than $900 million as of June 30, 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 Dutch securities collateralized by residential mortgages and German securities collateralized by auto loans and leases. 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 both the three and six months endedJune 30, 2013, we recorded other-than-temporary impairment of $6 million on one of these securities (refer to the following paragraph), all associated with management's intent to sell the impaired security prior to its recovery in value. In addition, in the three and six months endedJune 30, 2013, we recorded other-than-temporary impairment of $1 million and $4 million, respectively, on non-U.S. mortgage-backed securities, all associated with adverse changes in the timing of expected future cash flows from the securities. During the three and six months endedJune 30, 2012, we recorded other-than-temporary impairment of $10 million and $14 million, respectively, substantially related to non-U.S. mortgage-backed securities, with $6 million in both periods (refer to the following paragraph) associated with expected credit losses and $4 million and $8 million, respectively, 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 $556 million as of June 30, 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 $261 million in Spain, $106 million in Italy, $114 million in Ireland and $75 million in Portugal. As of June 30, 2013, these securities had an aggregate pre-tax net unrealized gain of approximately $33 million, composed of gross unrealized gains of $58 million and gross unrealized losses of $25 million. We recorded the above-mentioned other-than-temporary impairment of $6 million on one of these securities in the three and six months endedJune 30, 2013, all associated with management's intent to sell the impaired security prior to its recovery in value. We recorded the above-mentioned other-than-temporary impairment of $6 million on certain of these securities in both the three and six months endedJune 30, 2012, associated with expected credit losses.

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 high unemployment and by additional housing price declines of between 9% and 18% 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 and Other U.S. Debt Securities

Our municipal securities portfolio primarily includes securities issued by U.S. states and their municipalities. Our other U.S. debt securities portfolio is primarily composed of securities issued by U.S. corporations.  A portion of this portfolio is held in connection with our tax-exempt investment program, more fully described in note 9. The gross unrealized losses in each portfolio as of June 30, 2013 were primarily attributable to changes in interest rates in the three months ended June 30, 2013.  When evaluating impairment of a security in these portfolios, we may consider, among other factors, adverse conditions specifically related to the industry, geographic area or financial condition of the issuer; the structure of the security, including collateral, if any, and payment schedule; rating agency changes to the security's credit rating; the volatility of the fair value changes; and our intent and ability to hold the security until its recovery in value.  If the impairment of the security is credit-related, we estimate the future cash flows from the security, tailored to the security and considering the above-described factors, and any resulting other-than-temporary impairment is recorded in our consolidated statement of income.  We recorded no other-than-temporary impairment on these securities in the three and six months endedJune 30, 2013 and June 30, 2012, respectively. 

*****

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 $7 million and $10 million in the three and six months endedJune 30, 2013, respectively, compared to $13 million and $21 million in the three and six months endedJune 30, 2012, respectively. Of the $7 million and $10 million recorded in the three and six months endedJune 30, 2013, $6 million resulted from management's intent to sell an impaired security prior to its recovery in value, and $1 million and $4 million, respectively, resulted from adverse changes in the timing of expected future cash flows from the securities. Of the $13 million and $21 million recorded in the six months ended June 30, 2012, $9 million, and $13 million, respectively, related to expected credit losses, and $4 million and $8 million, respectively, 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 six months ended June 30, 2013, management considers the aggregate decline in fair value of the investment securities portfolio and the resulting gross pre-tax unrealized losses of $1.63 billion related to 2,738 securities as of June 30, 2013 to be temporary, and not the result of any material changes in the credit characteristics of the securities.