Investment Securities

12 Months Ended

Dec. 31, 2017

Investments, Debt and Equity Securities [Abstract]

Investment securities held by us are classified as either trading, AFS, or HTM at the time of purchase and reassessed periodically, based on management’s intent.

Generally, trading assets are debt and equity securities purchased in connection with our trading activities and, as such, are expected to be sold in the near term. Our trading activities typically involve active and frequent buying and selling with the objective of generating profits on short-term movements. AFS investment securities are those securities that we intend to hold for an indefinite period of time. AFS investment securities include securities utilized as part of our asset-and-liability management activities that may be sold in response to changes in interest rates, prepayment risk, liquidity needs or other factors. HTM securities are debt securities that management has the intent and the ability to hold to maturity.

Trading assets are carried at fair value. Both realized and unrealized gains and losses on trading assets are recorded in trading services revenue in our consolidated statement of income. Debt and marketable equity securities classified as AFS are carried at fair value, and after-tax net unrealized gains and losses are recorded in AOCI. Gains or losses realized on sales of AFS investment securities are computed using the specific identification method and are recorded in gains (losses) related to investment securities, net, in our consolidated statement of income. HTM investment securities are carried at cost, adjusted for amortization of premiums and accretion of discounts.

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



	December 31, 2017								December 31, 2016
	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	$	222	$	2	$	1	$	223	$	4,265	$	7	$	9	$	4,263
Mortgage-backed securities	10,975		26		129		10,872		13,340		76		159		13,257
Total U.S. Treasury and federal agencies	11,197		28		130		11,095		17,605		83		168		17,520
Asset-backed securities:
Student loans⁽¹⁾	3,325		37		4		3,358		5,659		12		75		5,596
Credit cards	1,565		2		25		1,542		1,377		—		26		1,351
Sub-prime	—		—		—		—		289		1		18		272
Other⁽²⁾	1,440		7		—		1,447		895		10		—		905
Total asset-backed securities	6,330		46		29		6,347		8,220		23		119		8,124
Non-U.S. debt securities:
Mortgage-backed securities	6,664		36		5		6,695		6,506		35		6		6,535
Asset-backed securities	2,942		5		—		2,947		2,513		4		1		2,516
Government securities	10,754		16		49		10,721		5,834		8		6		5,836
Other⁽³⁾	6,076		38		6		6,108		5,587		31		5		5,613
Total non-U.S. debt securities	26,436		95		60		26,471		20,440		78		18		20,500
State and political subdivisions	8,929		245		23		9,151		10,233		201		112		10,322
Collateralized mortgage obligations	1,060		3		9		1,054		2,610		18		35		2,593
Other U.S. debt securities	2,563		12		15		2,560		2,481		18		30		2,469
U.S. equity securities	40		8		2		46		39		6		3		42
Non-U.S. equity securities	—		—		—		—		3		—		—		3
U.S. money-market mutual funds	397		—		—		397		409		—		—		409
Non-U.S. money-market mutual funds	—		—		—		—		16		—		—		16
Total	$	56,952	$	437	$	268	$	57,121	$	62,056	$	427	$	485	$	61,998
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	17,028	$	—	$	143	$	16,885	$	17,527	$	17	$	58	$	17,486
Mortgage-backed securities	16,651		22		225		16,448		10,334		20		221		10,133
Total U.S. Treasury and federal agencies	33,679		22		368		33,333		27,861		37		279		27,619
Asset-backed securities:
Student loans⁽¹⁾	3,047		32		9		3,070		2,883		5		30		2,858
Credit cards	798		2		—		800		897		2		—		899
Other	1		—		—		1		35		—		—		35
Total asset-backed securities	3,846		34		9		3,871		3,815		7		30		3,792
Non-U.S. debt securities:
Mortgage-backed securities	939		82		6		1,015		1,150		70		15		1,205
Asset-backed securities	263		1		—		264		531		—		—		531
Government securities	474		2		—		476		286		3		—		289
Other	48		—		—		48		113		1		—		114
Total non-U.S. debt securities	1,724		85		6		1,803		2,080		74		15		2,139
Collateralized mortgage obligations	1,209		45		6		1,248		1,413		42		11		1,444
Total	$	40,458	$	186	$	389	$	40,255	$	35,169	$	160	$	335	$	34,994

⁽¹⁾ Primarily composed of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.

⁽²⁾As of December 31, 2017 and December 31, 2016, the fair value of other ABS was primarily composed of $1,447 million and $905 million, respectively, of CLOs.

⁽³⁾As of December 31, 2017 and December 31, 2016, the fair value of other non-U.S. debt securities was primarily composed of $3,537 million and $3,769 million, respectively, of covered bonds and $1,885 million and $988 million, as of December 31, 2017 and December 31, 2016, respectively, of corporate bonds.

Aggregate investment securities with carrying values of approximately $48 billion and $46 billion as of December 31, 2017 and December 31, 2016, respectively, were designated as pledged for public and trust deposits, short-term borrowings and for other purposes as provided by law.

In 2017, we sold $12.2 billion of AFS, primarily Agency MBS and U.S. Treasury securities in our investment portfolio, to position for the then-existing interest rate environment resulting in a pre-tax loss of $39 million.

In 2017, $496 million of Agency MBS previously classified as AFS were transferred to HTM, and in 2016, $4.9 billion, of Agency MBS and Student Loan ABS previously classified as AFS were transferred to HTM. Both transfers reflect our intent to hold these securities until their maturity. These securities were transferred at fair value, which included a net unrealized loss of $2.8 million and a net unrealized gain of $87 million as of December 31, 2017 and 2016, respectively, within accumulated other comprehensive loss which will be accreted into interest income over the remaining life of the transferred security (ranging from approximately 10 to 42 years).

The following tables present the aggregate fair values of investment securities that have been in a continuous unrealized loss position for less than 12 months, and those that have been in a continuous unrealized loss position for 12 months or longer, as of the dates indicated:



	Less than 12 months				12 months or longer				Total
December 31, 2017	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
(In millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations	$	—	$	—	$	67	$	1	$	67	$	1
Mortgage-backed securities	5,161		31		3,341		98		8,502		129
Total U.S. Treasury and federal agencies	5,161		31		3,408		99		8,569		130
Asset-backed securities:
Student loans	—		—		769		4		769		4
Credit cards	1,289		25		—		—		1,289		25
Total asset-backed securities	1,289		25		769		4		2,058		29
Non-U.S. debt securities:
Mortgage-backed securities	1,059		4		469		1		1,528		5
Government securities	7,629		48		68		1		7,697		49
Other	816		4		289		2		1,105		6
Total non-U.S. debt securities	9,504		56		826		4		10,330		60
State and political subdivisions	734		6		901		17		1,635		23
Collateralized mortgage obligations	399		5		136		4		535		9
Other U.S. debt securities	1,007		8		345		7		1,352		15
U.S. equity securities	—		—		6		2		6		2
Total	$	18,094	$	131	$	6,391	$	137	$	24,485	$	268
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	14,439	$	109	$	2,447	$	34	$	16,886	$	143
Mortgage-backed securities	6,785		38		5,988		187		12,773		225
Total U.S. Treasury and federal agencies	21,224		147		8,435		221		29,659		368
Asset-backed securities:
Student loans	440		3		423		6		863		9
Total asset-backed securities	440		3		423		6		863		9
Non-U.S. debt securities:
Mortgage-backed securities	—		—		239		6		239		6
Total non-U.S. debt securities	—		—		239		6		239		6
Collateralized mortgage obligations	—		—		276		6		276		6
Total	$	21,664	$	150	$	9,373	$	239	$	31,037	$	389



	Less than 12 months				12 months or longer				Total
December 31, 2016	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	$	651	$	8	$	180	$	1	$	831	$	9
Mortgage-backed securities	7,072		131		1,114		28		8,186		159
Total U.S. Treasury and federal agencies	7,723		139		1,294		29		9,017		168
Asset-backed securities:
Student loans	54		—		3,745		75		3,799		75
Credit cards	795		1		494		25		1,289		26
Sub-prime	1		—		252		18		253		18
Other	75		—		—		—		75		—
Total asset-backed securities	925		1		4,491		118		5,416		119
Non-U.S. debt securities:
Mortgage-backed securities	442		1		893		5		1,335		6
Asset-backed securities	253		—		276		1		529		1
Government securities	1,314		6		—		—		1,314		6
Other	670		4		218		1		888		5
Total non-U.S. debt securities	2,679		11		1,387		7		4,066		18
State and political subdivisions	3,390		102		304		10		3,694		112
Collateralized mortgage obligations	1,259		31		162		4		1,421		35
Other U.S. debt securities	944		24		157		6		1,101		30
U.S. equity securities	8		—		5		3		13		3
Total	$	16,928	$	308	$	7,800	$	177	$	24,728	$	485
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	8,891	$	57	$	86	$	1	$	8,977	$	58
Mortgage-backed securities	6,838		221		—		—		6,838		221
Total U.S. Treasury and federal agencies	15,729		278		86		1		15,815		279
Asset-backed securities:
Student loans	705		9		1,235		21		1,940		30
Credit cards	33		—		—		—		33		—
Other	18		—		9		—		27		—
Total asset-backed securities	756		9		1,244		21		2,000		30
Non-U.S. debt securities:
Mortgage-backed securities	54		2		330		13		384		15
Asset-backed securities	28		—		35		—		63		—
Government securities	180		—		—		—		180		—
Total non-U.S. debt securities	262		2		365		13		627		15
Collateralized mortgage obligations	537		4		204		7		741		11
Total	$	17,284	$	293	$	1,899	$	42	$	19,183	$	335

The following table presents contractual maturities of debt investment securities by carrying amount as of December 31, 2017. The maturities of certain ABS, MBS, and CMOs are based on expected principal payments. Actual maturities may differ from these expected maturities since certain borrowers have the right to prepay obligations with or without prepayment penalties.



December 31, 2017	Under 1 Year		1 to 5 Years		6 to 10 Years		Over 10 Years		Total
(In millions)	Under 1 Year		1 to 5 Years		6 to 10 Years		Over 10 Years		Total
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations	$	—	$	12	$	6	$	205	$	223
Mortgage-backed securities	96		762		3,123		6,891		10,872
Total U.S. Treasury and federal agencies	96		774		3,129		7,096		11,095
Asset-backed securities:
Student loans	289		1,044		685		1,340		3,358
Credit cards	—		1,290		252		—		1,542
Other	—		350		956		141		1,447
Total asset-backed securities	289		2,684		1,893		1,481		6,347
Non-U.S. debt securities:
Mortgage-backed securities	551		4,502		602		1,040		6,695
Asset-backed securities	205		2,185		557		—		2,947
Government securities	2,195		3,201		4,448		877		10,721
Other	1,078		4,235		758		37		6,108
Total non-U.S. debt securities	4,029		14,123		6,365		1,954		26,471
State and political subdivisions	474		2,415		4,724		1,538		9,151
Collateralized mortgage obligations	3		145		170		736		1,054
Other U.S. debt securities	296		1,097		1,107		60		2,560
Total	$	5,187	$	21,238	$	17,388	$	12,865	$	56,678
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	1,988	$	14,968	$	14	$	58	$	17,028
Mortgage-backed securities	—		162		1,605		14,884		16,651
Total U.S. Treasury and federal agencies	1,988		15,130		1,619		14,942		33,679
Asset-backed securities:
Student loans	35		245		265		2,502		3,047
Credit cards	178		620		—		—		798
Other	—		—		—		1		1
Total asset-backed securities	213		865		265		2,503		3,846
Non-U.S. debt securities:
Mortgage-backed securities	132		217		45		545		939
Asset-backed securities	26		237		—		—		263
Government securities	353		121		—		—		474
Other	—		48		—		—		48
Total non-U.S. debt securities	511		623		45		545		1,724
Collateralized mortgage obligations	8		144		343		714		1,209
Total	$	2,720	$	16,762	$	2,272	$	18,704	$	40,458

The following tables present gross realized gains and losses from sales of AFS investment securities, and the components of net impairment losses included in net gains and losses related to investment securities for the periods indicated.



	Years Ended December 31,
(In millions)	2017			2016			2015
Gross realized gains from sales of AFS investment securities	$	74		$	15		$	57
Gross realized losses from sales of AFS investment securities	(113		)	(5		)	(62		)
Net impairment losses:
Gross losses from OTTI	—			(2		)	(1		)
Losses reclassified (from) to other comprehensive income	—			(1		)	—
Net impairment losses⁽¹⁾	—			(3		)	(1		)
Gains (losses) related to investment securities, net	$	(39	)	$	7		$	(6	)
⁽¹⁾ Net impairment losses, recognized in our consolidated statement of income, were composed of the following:
Impairment associated with expected credit losses	$	—		$	(1	)	$	—
Impairment associated with adverse changes in timing of expected future cash flows	—			(2		)	(1		)
Net impairment losses	$	—		$	(3	)	$	(1	)

The following table presents a roll-forward with respect to net impairment losses that have been recognized in income for the periods indicated.



	Years Ended December 31,
(In millions)	2017			2016			2015
Balance, beginning of period	$	66		$	92		$	115
Additions:
Losses for which OTTI was previously recognized	—			2			1
Deductions:
Previously recognized losses related to securities sold or matured	(2		)	(28		)	(24		)
Balance, end of period	$	64		$	66		$	92

Interest income related to debt securities is recognized in our consolidated statement of income using the effective interest method, or on a basis approximating a level rate of return over the contractual or estimated life of the security. The level rate of return considers any non-refundable fees or costs, as well as purchase premiums or discounts, resulting in amortization or accretion, accordingly.

For certain debt securities acquired which are considered to be beneficial interests in securitized financial assets, the excess of our estimate of undiscounted future cash flows from these securities over their initial recorded investment is accreted into interest income on a level-yield basis over the securities’ estimated remaining terms. Subsequent decreases in these securities’ expected future cash flows are either recognized prospectively through an adjustment of the yields on the securities over their remaining terms, or are evaluated for OTTI. Increases in expected future cash flows are recognized prospectively over the securities’ estimated remaining terms through the recalculation of their yields.

Impairment

We conduct periodic reviews of individual securities to assess whether OTTI exists. Impairment exists when the current fair value of an individual security is below its amortized cost basis. For AFS and HTM debt securities, 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 OTTI, 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 MBS and ABS;


•	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;


•	evaluation of factors or triggers that could cause individual securities to be deemed OTTI and those that would not support OTTI; 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 OTTI 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 of its amortized cost basis.

The following provides a description of our process for the identification and assessment of OTTI, as well as information about OTTI recorded in 2017, 2016 and 2015 and changes in period-end unrealized losses, for major security types as of December 31, 2017.

U.S. Agency Securities

Our portfolio of U.S. agency direct obligations and MBS 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 OTTI on these securities in 2017, 2016 or 2015. The overall increase in the unrealized losses on these securities as of December 31, 2017 was primarily attributable to interest rate increases in 2017.

Asset-Backed Securities - Student Loans

Asset-backed securities collateralized by student loans are primarily composed of securities collateralized by 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 to our securities 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 OTTI on these securities in 2017, 2016 or 2015.The improvement in the mark to market for our FFELP loan-backed securities portfolio as of December 31, 2017 was primarily attributable to the tightening FFELP spreads.

Our assessment of OTTI 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 December 31, 2017.

In general, the rating agencies have largely completed their downgrade review of FFELP loan-backed securities due to potential extension of student loan repayments beyond the securities’ legal final maturity dates. At this time, we do not expect a significant number of additional downgrades related to potential legal final maturity breaches. Based on the limited price impact on the overall FFELP loan-backed securities portfolio and recent remedial actions by issuers, including amending loan-backed securities’ maturity dates and exercising cleanup calls, the credit quality of the FFELP loan-backed securities portfolio remains stable and we, as a bondholder, remain protected from principal loss as a result of the aforementioned federal government guarantee and over-collateralization. Downside risks remain should remedial actions fail to address the extension risks.

Our total exposure to private student loan-backed securities was less than $70 million as of December 31, 2017. Our assessment of OTTI 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 OTTI on these securities in 2017, 2016 or 2015.

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 and U.K. 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 OTTI exists.

We recorded OTTI of less than $1 million, $2 million and $1 million in 2017, 2016 and 2015, respectively, on non-U.S. residential MBS, which resulted from adverse changes in the timing of expected future cash flows from the securities.

Our assessment of OTTI of these securities takes into account government intervention in the corresponding mortgage markets and assumes a baseline macroeconomic environment for this region, factoring in slower economic growth and continued government austerity measures. In addition, we perform stress testing and sensitivity analysis in order to understand the impact of more severe assumptions on potential OTTI.

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 14. Our portfolio of other U.S. debt securities is primarily composed of securities issued by U.S. corporations.

Our assessment of OTTI 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 OTTI on these securities in 2017, 2016 or 2015. The decline in the unrealized losses on these securities as of December 31, 2017 was primarily attributable to the narrowing of spreads and U.S. Treasury rates in 2017.

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

We assess OTTI 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 OTTI on these securities in 2017, 2016 or 2015.

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

With respect to our portfolio of U.S. non-agency commercial mortgage-backed securities, OTTI 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 no OTTI on these securities in 2017 and 2015. In 2016 we recorded $1 million of OTTI on these securities, all associated with expected credit losses.

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 OTTI, since the loss is ultimately subject to a discount commensurate with the purchase yield of the security.

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 MBS and ABS and other relevant factors, management considers the aggregate decline in fair value of the investment securities portfolio and the resulting gross pre-tax unrealized losses of $657 million related to 1,283 securities as of December 31, 2017 to be temporary, and not the result of any material changes in the credit characteristics of the securities.