Investment Securities

9 Months Ended

Sep. 30, 2014

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, 2014								December 31, 2013
	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	$	10,751	$	17	$	4	$	10,764	$	702	$	9	$	2	$	709
Mortgage-backed securities	21,203		196		198		21,201		23,744		211		392		23,563
Asset-backed securities:
Student loans(1)	12,806		122		122		12,806		14,718		92		268		14,542
Credit cards	3,128		13		30		3,111		8,230		21		41		8,210
Sub-prime	1,054		2		59		997		1,291		3		91		1,203
Other	4,239		114		10		4,343		4,949		138		23		5,064
Total asset-backed securities	21,227		251		221		21,257		29,188		254		423		29,019
Non-U.S. debt securities:
Mortgage-backed securities	10,056		185		2		10,239		10,808		230		9		11,029
Asset-backed securities	3,433		15		1		3,447		5,369		23		2		5,390
Government securities	3,605		8		—		3,613		3,759		2		—		3,761
Other	5,802		55		8		5,849		4,679		59		11		4,727
Total non-U.S. debt securities	22,896		263		11		23,148		24,615		314		22		24,907
State and political subdivisions	10,366		323		44		10,645		10,301		160		198		10,263
Collateralized mortgage obligations	4,629		57		15		4,671		5,275		70		76		5,269
Other U.S. debt securities	4,189		106		11		4,284		4,876		138		34		4,980
U.S. equity securities	29		9		—		38		28		6		—		34
Non-U.S. equity securities	2		—		—		2		1		—		—		1
U.S. money-market mutual funds	532		—		—		532		422		—		—		422
Non-U.S. money-market mutual funds	10		—		—		10		7		—		—		7
Total	$	95,834	$	1,222	$	504	$	96,552	$	99,159	$	1,162	$	1,147	$	99,174
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	5,117	$	—	$	222	$	4,895	$	5,041	$	—	$	448	$	4,593
Mortgage-backed securities	68		4		—		72		91		6		—		97
Asset-backed securities:
Student loans(1)	1,873		5		1		1,877		1,627		—		10		1,617
Credit cards	897		2		—		899		762		1		—		763
Other	633		3		1		635		782		1		2		781
Total asset-backed securities	3,403		10		2		3,411		3,171		2		12		3,161
Non-U.S. debt securities:
Mortgage-backed securities	4,153		192		16		4,329		4,211		150		48		4,313
Asset-backed securities	3,293		18		—		3,311		2,202		19		—		2,221
Government securities	110		—		—		110		2		—		—		2
Other	75		—		—		75		192		—		—		192
Total non-U.S. debt securities	7,631		210		16		7,825		6,607		169		48		6,728
State and political subdivisions	12		—		—		12		24		1		—		25
Collateralized mortgage obligations	2,536		129		15		2,650		2,806		176		26		2,956
Total	$	18,767	$	353	$	255	$	18,865	$	17,740	$	354	$	534	$	17,560

⁽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 with carrying values of $44.77 billion and $46.99 billion as of September 30, 2014 and December 31, 2013, 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, 2014	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	$	4,374	$	3	$	158	$	1	$	4,532	$	4
Mortgage-backed securities	3,391		23		7,026		175		10,417		198
Asset-backed securities:
Student loans	291		2		6,158		120		6,449		122
Credit cards	—		—		1,258		30		1,258		30
Sub-prime	—		—		936		59		936		59
Other	606		2		506		8		1,112		10
Total asset-backed securities	897		4		8,858		217		9,755		221
Non-U.S. debt securities:
Mortgage-backed securities	443		1		176		1		619		2
Asset-backed securities	—		—		84		1		84		1
Other	2,148		2		283		6		2,431		8
Total non-U.S. debt securities	2,591		3		543		8		3,134		11
State and political subdivisions	439		2		1,786		42		2,225		44
Collateralized mortgage obligations	886		5		314		10		1,200		15
Other U.S. debt securities	336		2		294		9		630		11
Total	$	12,914	$	42	$	18,979	$	462	$	31,893	$	504
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	114	$	1	$	4,781	$	221	$	4,895	$	222
Asset-backed securities:
Student loans	364		1		—		—		364		1
Other	79		1		—		—		79		1
Total asset-backed securities	443		2		—		—		443		2
Non-U.S. mortgage-backed securities
Mortgage-backed securities	255		1		658		15		913		16
Total non-U.S. debt securities	255		1		658		15		913		16
Collateralized mortgage obligations	467		3		552		12		1,019		15
Total	$	1,279	$	7	$	5,991	$	248	$	7,270	$	255

	Less than 12 months				12 months or longer				Total
December 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	$	182	$	1	$	113	$	1	$	295	$	2
Mortgage-backed securities	10,562		316		2,389		76		12,951		392
Asset-backed securities:
Student loans	1,930		16		7,252		252		9,182		268
Credit cards	3,714		30		161		11		3,875		41
Sub-prime	—		—		1,150		91		1,150		91
Other	1,896		12		439		11		2,335		23
Total asset-backed securities	7,540		58		9,002		365		16,542		423
Non-U.S. debt securities:
Mortgage-backed securities	868		2		258		7		1,126		9
Asset-backed securities	551		1		16		1		567		2
Other	1,655		9		150		2		1,805		11
Total non-U.S. debt securities	3,074		12		424		10		3,498		22
State and political subdivisions	3,242		113		1,268		85		4,510		198
Collateralized mortgage obligations	1,581		55		510		21		2,091		76
Other U.S. debt securities	1,039		25		58		9		1,097		34
Total	$	27,220	$	580	$	13,764	$	567	$	40,984	$	1,147
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	4,571	$	448	$	—	$	—	$	4,571	$	448
Asset-backed securities:
Student Loans	1,352		10		—		—		1,352		10
Other	297		1		29		1		326		2
Total asset-backed securities	1,649		11		29		1		1,678		12
Non-U.S. mortgage-backed securities	834		3		878		45		1,712		48
Collateralized mortgage obligations	759		18		161		8		920		26
Total	$	7,813	$	480	$	1,068	$	54	$	8,881	$	534

The following table presents contractual maturities of debt investment securities as of September 30, 2014:

(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	$	151	$	6,766	$	3,300	$	547
Mortgage-backed securities	183		2,441		4,753		13,824
Asset-backed securities:
Student loans	342		6,572		3,750		2,142
Credit cards	307		1,513		1,291		—
Sub-prime	9		14		—		974
Other	255		1,069		1,149		1,870
Total asset-backed securities	913		9,168		6,190		4,986
Non-U.S. debt securities:
Mortgage-backed securities	2,190		4,344		384		3,321
Asset-backed securities	359		2,691		290		107
Government securities	1,978		1,635		—		—
Other	1,969		2,942		938		—
Total non-U.S. debt securities	6,496		11,612		1,612		3,428
State and political subdivisions	731		3,021		4,451		2,442
Collateralized mortgage obligations	286		1,165		1,072		2,148
Other U.S. debt securities	700		3,221		328		35
Total	$	9,460	$	37,394	$	21,706	$	27,410
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	—	$	—	$	5,000	$	117
Mortgage-backed securities	—		15		13		40
Asset-backed securities
Student loans	7		182		393		1,291
Credit cards	—		375		522		—
Other	19		401		208		5
Total asset-backed securities	26		958		1,123		1,296
Non-U.S. debt securities:
Mortgage-backed securities	323		1,208		274		2,348
Asset-backed securities	5		3,051		237		—
Government securities	110		—		—		—
Other	—		75		—		—
Total non-U.S. debt securities	438		4,334		511		2,348
State and political subdivisions	9		3		—		—
Collateralized mortgage obligations	577		550		503		906
Total	$	1,050	$	5,860	$	7,150	$	4,707

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

The following tables present 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,
(In millions)	2014			2013
Gross realized gains from sales of available-for-sale securities	$	48		$	11
Gross realized losses from sales of available-for-sale securities	(48		)	(5		)
Net impairment losses:
Gross losses from other-than-temporary impairment	—			(13		)
Losses reclassified (from) to other comprehensive income	—			3
Net impairment losses(1)	—			(10		)
Gains related to investment securities, net	$	—		$	(4	)
(1) Net impairment losses, recognized in our consolidated statement of income, were composed of the following:
Impairment associated with expected credit losses	$	—		$	(8	)
Impairment associated with management's intent to sell impaired securities prior to recovery in value	—			—
Impairment associated with adverse changes in timing of expected future cash flows	—			(2		)
Net impairment losses	$	—		$	(10	)

	Nine Months Ended September 30,
(In millions)	2014			2013
Gross realized gains from sales of available-for-sale securities	$	64		$	98
Gross realized losses from sales of available-for-sale securities	(49		)	(87		)
Net impairment losses:
Gross losses from other-than-temporary impairment	(1		)	(19		)
Losses reclassified (from) to other comprehensive income	(10		)	(1		)
Net impairment losses(1)	(11		)	(20		)
Gains related to investment securities, net	$	4		$	(9	)
(1) Net impairment losses, recognized in our consolidated statement of income, were composed of the following:
Impairment associated with expected credit losses	$	(10	)	$	(8	)
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	(1		)	(6		)
Net impairment losses	$	(11	)	$	(20	)

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

	Nine Months Ended September 30,
(In millions)	2014			2013
Beginning balance	$	122		$	124
Plus losses for which other-than-temporary impairment was not previously recognized	—			14
Plus losses for which other-than-temporary impairment was previously recognized	11			6
Less previously recognized losses related to securities sold or matured	(11		)	(10		)
Less losses related to securities intended or required to be sold	(6		)	—
Ending balance	$	116		$	134

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 collectability 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 provides a description of our process for the identification and assessment of other-than-temporary impairment, as well as information about other-than-temporary impairment recorded in the three and nine months ended September 30, 2014 and 2013 and changes in period-end unrealized losses, for major security types.

U.S. Agency Securities

Our portfolio of U.S. agency direct obligations and 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 the three and nine months ended September 30, 2014 or 2013. The overall decline in the unrealized losses on these securities as of September 30, 2014 compared to December 31, 2013 was primarily attributable to narrowing spreads in the nine months endedSeptember 30, 2014.

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 ended September 30, 2014 or 2013. The gross unrealized losses in our FFELP loan-backed securities portfolio as of September 30, 2014 were primarily attributable to the lower spreads on these securities relative to those associated with more current issuances. The decline in the unrealized losses on these securities as of September 30, 2014 compared to December 31, 2013 was primarily attributable to narrowing spreads in the nine months endedSeptember 30, 2014.

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 4.6 years as of September 30, 2014.

Our total exposure to private student loan-backed securities was less than $800 million as of September 30, 2014. 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. We recorded no other-than-temporary impairment on these securities in the three and nine months ended September 30, 2014 or 2013.

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 automobile loans and leases. Our assessment of impairment with respect to these securities 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 nine months endedSeptember 30, 2014, we recorded other-than-temporary impairment of $1 million on non-U.S. residential mortgage-backed securities in our consolidated statement of income, associated with adverse changes in the timing of expected future cash flows from the securities. In the three and nine months ended September 30, 2013, we recorded other-than-temporary impairment of $2 million and $6 million, respectively, on these securities in our consolidated statement of income, associated with adverse changes in the timing of expected future cash flows from the securities.

In addition, in the nine months endedSeptember 30, 2013, we recorded other-than-temporary impairment of $6 million on these securities in our consolidated statement of income, 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.

Our aggregate exposure to Spain, Italy, Ireland and Portugal with respect to mortgage- and asset-backed securities totaled approximately $910 million as of September 30, 2014, composed of $173 million in Spain, $555 million in Italy, $109 million in Ireland and $73 million in Portugal. We had no direct sovereign debt exposure to any of these countries as of that date. As of September 30, 2014, these mortgage- and asset-backed securities had an aggregate pre-tax net unrealized gain of approximately $125 million, composed of gross unrealized gains of $126 million and gross unrealized losses of $1 million. We recorded the above-mentioned other-than-temporary impairment of $6 million on one of these securities, all in the three months ended June 30, 2013.

Our assessment of other-than-temporary impairment of these securities takes into account government intervention in the corresponding mortgage markets and assumes a conservative baseline macroeconomic environment for this region, factoring in 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 15% 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, we perform stress testing and sensitivity analysis 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 portfolio of other U.S. debt securities is primarily composed of securities issued by U.S. corporations. 

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 impairment deemed to be other than temporary is recorded in our consolidated statement of income.  

We recorded no other-than-temporary impairment on these securities in the three and nine months ended September 30, 2014 or 2013. The decline in the unrealized losses on these securities as of September 30, 2014 compared to December 31, 2013 was primarily attributable to the narrowing of spreads and U.S. Treasury rates in the nine months endedSeptember 30, 2014.

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

We assess other-than-temporary impairment of our portfolio of U.S. non-agency residential mortgage-backed securities 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. non-agency residential 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 the three and nine months ended September 30, 2014 or 2013.

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

With respect to our portfolio of U.S. non-agency 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. In the nine months endedSeptember 30, 2014, we recorded other-than-temporary impairment of $10 million on these securities in our consolidated statement of income, all associated with credit losses. We recorded $8 million of other-than-temporary impairment on these securities, all associated with credit losses, in our consolidated statement of income in both the three and nine months ended September 30, 2013.

*****

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 no other-than-temporary impairment in three months endedSeptember 30, 2014, and $11 million in the nine months endedSeptember 30, 2014, compared to $10 million and $20 million in the three and nine months ended September 30, 2013, respectively, as summarized below:

Nine months endedSeptember 30, 2014:

• $1 million (non-U.S. mortgage-backed securities) resulted from adverse changes in the timing of expected future cash flows from the securities; and

• $10 million (U.S. non-agency commercial mortgage-backed securities) was associated with expected credit losses.

Three and nine months endedSeptember 30, 2013:

• $8 million in both periods was associated with expected credit losses;

• $2 million and$6 million (non-U.S. mortgage-backed securities), respectively, resulted from adverse changes in the timing of expected future cash flows from certain of the securities; and

• $6 million in the nine months ended September 30, 2013 was associated with management's intent to sell the impaired security prior to its recovery in value.

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 endedSeptember 30, 2014, management considers the aggregate decline in fair value of the investment securities portfolio and the resulting gross pre-tax unrealized losses of $759 million as of September 30, 2014, related to 1,459 securities, to be temporary, and not the result of any material changes in the credit characteristics of the securities.