Investment Securities

9 Months Ended

Sep. 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:

	September 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	$	729	$	11	$	2	$	738	$	823	$	19	$	1	$	841
Mortgage-backed securities	24,562		275		262		24,575		31,640		598		26		32,212
Asset-backed securities:
Student loans(1)	15,079		94		302		14,871		16,829		100		508		16,421
Credit cards	8,649		23		46		8,626		9,928		61		3		9,986
Sub-prime	1,371		5		110		1,266		1,557		4		162		1,399
Other	4,772		148		19		4,901		4,583		155		61		4,677
Total asset-backed securities	29,871		270		477		29,664		32,897		320		734		32,483
Non-U.S. debt securities:
Mortgage-backed securities	10,773		241		13		11,001		11,119		313		27		11,405
Asset-backed securities	5,445		25		3		5,467		6,180		42		4		6,218
Government securities	3,537		4		—		3,541		3,197		2		—		3,199
Other	4,556		58		14		4,600		4,221		86		1		4,306
Total non-U.S. debt securities	24,311		328		30		24,609		24,717		443		32		25,128
State and political subdivisions	9,307		171		180		9,298		7,384		234		67		7,551
Collateralized mortgage obligations	5,152		79		73		5,158		4,818		151		15		4,954
Other U.S. debt securities	4,925		153		33		5,045		5,072		233		7		5,298
U.S. equity securities	34		5		—		39		28		3		—		31
Non-U.S. equity securities	2		—		—		2		1		—		—		1
U.S. money-market mutual funds	680		—		—		680		1,062		—		—		1,062
Non-U.S. money-market mutual funds	174		—		—		174		121		—		—		121
Total	$	99,747	$	1,292	$	1,057	$	99,982	$	108,563	$	2,001	$	882	$	109,682
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	5,003	$	—	$	390	$	4,613	$	5,000	$	—	$	8	$	4,992
Mortgage-backed securities	100		7		—		107		153		11		—		164
Asset-backed securities:
Student loans(1)	1,502		—		11		1,491		—		—		—		—
Credit cards	531		—		—		531		—		—		—		—
Other	818		—		3		815		16		—		—		16
Total asset-backed securities	2,851		—		14		2,837		16		—		—		16
Non-U.S. debt securities:
Mortgage-backed securities	4,109		130		67		4,172		3,122		85		68		3,139
Asset-backed securities	1,486		18		2		1,502		434		16		1		449
Government securities	16		—		—		16		3		—		—		3
Other	190		—		—		190		167		—		2		165
Total non-U.S. debt securities	5,801		148		69		5,880		3,726		101		71		3,756
State and political subdivisions	61		1		—		62		74		2		—		76
Collateralized mortgage obligations	2,882		193		31		3,044		2,410		259		12		2,657
Total	$	16,698	$	349	$	504	$	16,543	$	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 $48.28 billion and $46.66 billion as of September 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
September 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	$	158	$	1	$	117	$	1	$	275	$	2
Mortgage-backed securities	9,721		232		1,933		30		11,654		262
Asset-backed securities:
Student loans	2,123		19		7,463		283		9,586		302
Credit cards	3,734		46		—		—		3,734		46
Sub-prime	16		1		1,193		109		1,209		110
Other	896		5		469		14		1,365		19
Total asset-backed securities	6,769		71		9,125		406		15,894		477
Non-U.S. debt securities:
Mortgage-backed securities	1,240		3		242		10		1,482		13
Asset-backed securities	708		1		21		2		729		3
Other	1,434		14		—		—		1,434		14
Total non-U.S. debt securities	3,382		18		263		12		3,645		30
State and political subdivisions	2,436		118		1,080		62		3,516		180
Collateralized mortgage obligations	1,665		65		304		8		1,969		73
Other U.S. debt securities	1,047		27		33		6		1,080		33
Total	$	25,178	$	532	$	12,855	$	525	$	38,033	$	1,057
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	4,611	$	390	$	—	$	—	$	4,611	$	390
Asset-backed securities:
Student loans	1,234		11		—		—		1,234		11
Other	580		3		—		—		580		3
Total asset-backed securities	1,814		14		—		—		1,814		14
Non-U.S. debt securities:
Mortgage-backed securities	1,155		5		893		62		2,048		67
Asset-backed securities	717		2		—		—		717		2
Total non-U.S. debt securities	1,872		7		893		62		2,765		69
Collateralized mortgage obligations	905		27		96		4		1,001		31
Total	$	9,202	$	438	$	989	$	66	$	10,191	$	504

	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 September 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	$	—	$	42	$	46	$	650
Mortgage-backed securities	103		1,847		6,188		16,437
Asset-backed securities:
Student loans	1,019		6,513		4,646		2,693
Credit cards	2,919		3,506		2,201		—
Sub-prime	26		28		2		1,210
Other	341		1,758		1,432		1,370
Total asset-backed securities	4,305		11,805		8,281		5,273
Non-U.S. debt securities:
Mortgage-backed securities	148		6,191		159		4,503
Asset-backed securities	253		4,685		378		151
Government securities	2,541		1,000		—		—
Other	1,143		2,912		545		—
Total non-U.S. debt securities	4,085		14,788		1,082		4,654
State and political subdivisions	668		3,059		3,565		2,006
Collateralized mortgage obligations	271		1,923		1,157		1,807
Other U.S. debt securities	215		4,094		703		33
Total	$	9,647	$	37,558	$	21,022	$	30,860
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	—	$	—	$	5,000	$	3
Mortgage-backed securities	—		25		19		56
Asset-backed securities
Student loans	19		153		219		1,111
Credit cards	—		229		302		—
Other	—		510		302		6
Total asset-backed securities	19		892		823		1,117
Non-U.S. debt securities:
Mortgage-backed securities	—		939		164		3,006
Asset-backed securities	80		1,235		171		—
Government securities	16		—		—		—
Other	162		24		—		4
Total non-U.S. debt securities	258		2,198		335		3,010
State and political subdivisions	48		13		—		—
Collateralized mortgage obligations	102		1,174		502		1,104
Total	$	427	$	4,302	$	6,679	$	5,290

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

The following table presents gross realized gains and gross realized losses from sales of available-for-sale securities and the components of net impairment losses, included in net gains and losses related to investment securities, for the periods indicated:

	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2013			2012			2013			2012
Gross realized gains from sales of available-for-sale securities	$	11		$	24		$	98		$	75
Gross realized losses from sales of available-for-sale securities(1)	(5		)	—			(87		)	(46		)
Gross losses from other-than-temporary impairment	(8		)	(4		)	(8		)	(50		)
Losses reclassified (from) to other comprehensive income	(2		)	(2		)	(12		)	23
Net impairment losses recognized in consolidated statement of income	(10		)	(6		)	(20		)	(27		)
Gains (losses) related to investment securities, net	$	(4	)	$	18		$	(9	)	$	2
Impairment associated with expected credit losses	$	(8	)	$	(1	)	$	(8	)	$	(14	)
Impairment associated with management's intent to sell impaired securities prior to recovery in value	—			—			(6		)	—
Impairment associated with adverse changes in timing of expected future cash flows	(2		)	(5		)	(6		)	(13		)
Net impairment losses recognized in consolidated statement of income	$	(10	)	$	(6	)	$	(20	)	$	(27	)

⁽¹⁾ Amount for the nine months endedSeptember 30, 2012 represented a pre-tax loss from the sale of all of our Greek investment securities, which had an aggregate carrying value of approximately $91 million.

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

	Nine Months Ended September 30,
(In millions)	2013			2012
Beginning balance	$	124		$	113
Plus losses for which other-than-temporary impairment was not previously recognized	14			2
Plus losses for which other-than-temporary impairment was previously recognized	6			25
Less previously recognized losses related to securities sold or matured	(10		)	(21		)
Ending balance	$	134		$	119

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 its recovery in value.

Substantially all of our investment securities portfolio is composed of debt securities. A critical component of our assessment 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 the identification and assessment of other-than-temporary impairment in security types with the most significant gross unrealized losses as of September 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. No other-than-temporary impairment was recorded on these securities in the three and nine months endedSeptember 30, 2013 or in the three and nine months endedSeptember 30, 2012. The unrealized losses on these securities as of September 30, 2013 were primarily attributable to changes in interest rates in 2013.

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 over-collateralization, 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 the three and nine months endedSeptember 30, 2013 or the three and nine months endedSeptember 30, 2012. The gross unrealized losses in our FFELP loan-backed securities portfolio as of September 30, 2013 were primarily attributable to lower liquidity and the lower spreads on these securities relative to those associated with more current issuances. Our assessment of other-than-temporary impairment of these securities considers, 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 5.0 years as of September 30, 2013. In addition, our total exposure to private student loan-backed securities was less than $900 million as of September 30, 2013. Our assessment of other-than-temporary impairment of private student loan-backed 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 assessment 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 and nine months endedSeptember 30, 2013, we recorded other-than-temporary impairment of $2 million and $6 million, respectively, on certain of our non-U.S. mortgage-backed securities, the result of adverse changes in the timing of expected future cash flows from the securities, in our consolidated statement of income. In addition, in the nine months ended September 30, 2013, we recorded other-than-temporary impairment of $6 million, all in the three months ended June 30, 2013, on one of these securities, associated with management's intent to sell the impaired security prior to its recovery in value.

In the three months endedSeptember 30, 2012, we recorded other-than-temporary impairment of $5 million, substantially related to non-U.S. mortgage-backed securities, the result of adverse changes in the timing of expected future cash flows from the securities, in our consolidated statement of income. In the nine months endedSeptember 30, 2012, we recorded other-than-temporary impairment of $19 million, substantially related to non-U.S. mortgage-backed securities, of which $6 million was associated with expected credit losses and $13 million resulted from adverse changes in the timing of expected future cash flows from the securities.

Our aggregate exposure to Spain, Italy, Ireland and Portugal totaled approximately $570 million as of September 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 $269 million in Spain, $106 million in Italy, $118 million in Ireland and $77 million in Portugal. As of September 30, 2013, these securities had an aggregate pre-tax net unrealized gain of approximately $39 million, composed of gross unrealized gains of $63 million and gross unrealized losses of $24 million.

We recorded no other-than-temporary impairment on any of these securities in the three months endedSeptember 30, 2013. We recorded the above-described other-than-temporary impairment of $6 million on one of these securities in the nine months ended September 30, 2013, all in the three months ended June 30, 2013, associated with management's intent to sell the impaired security prior to its recovery in value. We recorded no other-than-temporary impairment in the three months endedSeptember 30, 2012. We recorded the above-mentioned other-than-temporary impairment of $6 million on certain of these securities in the nine months endedSeptember 30, 2012, all in the three months ended June 30, 2012, associated with expected credit losses.

Our assessment of 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 10% 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. A portion of this portfolio is held in connection with our tax-exempt investment program, more fully described in note 9. Our other U.S. debt securities portfolio is primarily composed of securities issued by U.S. corporations.  The gross unrealized losses in each portfolio as of September 30, 2013 were primarily attributable to fluctuations in interest rates in 2013. 

Our assessment of other-than-temporary impairment of these portfolios considers, 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 nine months endedSeptember 30, 2013 and the three and nine months endedSeptember 30, 2012. 

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

For U.S. non-agency residential mortgage-backed securities, we assess other-than-temporary impairment 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.

No other-than-temporary impairment was recorded on these securities in the three and nine months endedSeptember 30, 2013. We recorded other-than-temporary impairment of $1 million and $8 million on these securities, all associated with expected credit losses, in our consolidated statement of income in the three and nine months endedSeptember 30, 2012, respectively.

Collateralized Mortgage Obligations

For U.S. commercial mortgage-backed securities, other-than-temporary impairment is assessed by considering a number of factors, including, but not limited to, the condition of the U.S. economy and the condition of the U.S. commercial real estate market, as well as capitalization rates. Management estimates of future losses for each security also consider the underlying collateral type, property location, vintage, debt-service coverage ratios, expected property income, servicer advances and estimated property values, as well as current levels of subordination. We recorded $8 million of other-than-temporary impairment on these securities, all associated with expected credit losses, in our consolidated statement of income in both the three and nine months endedSeptember 30, 2013. No other-than-temporary impairment was recorded on these securities in the three and nine months endedSeptember 30, 2012.

*****

The estimates, assumptions and other risk factors utilized in our assessment 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 stressful 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 estimates for prepayment speeds, default, and loss severity forecasts 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 $10 million and $20 million in the three and nine months endedSeptember 30, 2013, respectively, compared to $6 million and $27 million in the three and nine months endedSeptember 30, 2012, respectively. Of the $10 million recorded in the three months ended September 30, 2013, $8 million was associated with expected credit losses and $2 million resulted from adverse changes in the timing of expected future cash flows from the securities. Of the $20 million recorded in the nine months ended September 30, 2013, $8 million was associated with expected credit losses, $6 million resulted from management's intent to sell an impaired security prior to its recovery in value, and $6 million resulted from adverse changes in the timing of expected future cash flows from the securities. Of the $6 million and $27 million recorded in the three and nine months endedSeptember 30, 2012, $1 million and $14 million, respectively, was associated with expected credit losses, and $5 million and $13 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 nine months ended September 30, 2013, management considers the aggregate decline in fair value of the investment securities portfolio and the resulting gross pre-tax unrealized losses of $1.56 billion related to 2,607 securities as of September 30, 2013 to be temporary, and not the result of any material changes in the credit characteristics of the securities.