Investment Securities

12 Months Ended

Dec. 31, 2019

Investments, Debt and Equity Securities [Abstract]

Investment securities held by us are classified as either trading account assets, AFS, HTM or equity securities held at fair value 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 foreign exchange trading services revenue in our consolidated statement of income. AFS securities 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 AFS and HTM investment securities as of the dates indicated:



	December 31, 2019								December 31, 2018
	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	$	3,506	$	9	$	28	$	3,487	$	1,035	$	4	$	—	$	1,039
Mortgage-backed securities	17,599		264		25		17,838		16,112		37		181		15,968
Total U.S. Treasury and federal agencies	21,105		273		53		21,325		17,147		41		181		17,007
Asset-backed securities:
Student loans⁽¹⁾	532		1		2		531		538		4		1		541
Credit cards	90		—		1		89		609		—		26		583
Collateralized loan obligations	1,822		1		3		1,820		594		1		2		593
Total asset-backed securities	2,444		2		6		2,440		1,741		5		29		1,717
Non-U.S. debt securities:
Mortgage-backed securities	1,978		3		1		1,980		1,687		—		5		1,682
Asset-backed securities	2,179		2		2		2,179		1,580		—		6		1,574
Government securities	12,243		131		1		12,373		12,816		22		45		12,793
Other⁽²⁾	8,595		73		10		8,658		6,600		18		16		6,602
Total non-U.S. debt securities	24,995		209		14		25,190		22,683		40		72		22,651
State and political subdivisions⁽³⁾	1,725		59		1		1,783		1,905		20		7		1,918
Collateralized mortgage obligations	104		—		—		104		200		—		3		197
Other U.S. debt securities	2,941		32		—		2,973		1,683		1		26		1,658
Total	$	53,314	$	575	$	74	$	53,815	$	45,359	$	107	$	318	$	45,148
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	10,311	$	24	$	3	$	10,332	$	14,794	$	—	$	199	$	14,595
Mortgage-backed securities	26,297		316		44		26,569		21,647		24		518		21,153
Total U.S. Treasury and federal agencies	36,608		340		47		36,901		36,441		24		717		35,748
Asset-backed securities:
Student loans⁽¹⁾	3,783		10		41		3,752		3,191		35		10		3,216
Credit cards	—		—		—		—		193		—		—		193
Other	—		—		—		—		1		—		—		1
Total asset-backed securities	3,783		10		41		3,752		3,385		35		10		3,410
Non-U.S. debt securities:
Mortgage-backed securities	366		82		6		442		638		77		9		706
Asset-backed securities	—		—		—		—		223		—		—		223
Government securities	328		—		—		328		358		1		—		359
Other	—		—		—		—		46		—		—		46
Total non-U.S. debt securities	694		82		6		770		1,265		78		9		1,334
Collateralized mortgage obligations	697		38		1		734		823		38		2		859
Total	$	41,782	$	470	$	95	$	42,157	$	41,914	$	175	$	738	$	41,351

⁽¹⁾ Primarily comprised 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, 2019 and December 31, 2018, the fair value of other non-U.S. debt securities included $5.50 billion and $3.20 billion, respectively, primarily of supranational and non-U.S. agency bonds, $1.78 billion and $1.33 billion, respectively, of corporate bonds and $0.68 billion and $1.30 billion, respectively, of covered bonds.

⁽³⁾ As of December 31, 2019 and December 31, 2018, the fair value of state and political subdivisions includes securities in trusts of $0.94 billion and $1.05 billion respectively. Additional information about these trusts is provided in Note 14.

Aggregate investment securities with carrying values of approximately $49.48 billion and $38.87 billion as of December 31, 2019 and December 31, 2018, respectively, were designated as pledged for public and trust deposits, short-term borrowings and for other purposes as provided by law.

In 2019, 2018 and 2017, $3.98 billion, $2.13 billion and $496 million, respectively, of agency MBS, previously classified as AFS, were transferred to HTM. These 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 $49 million, $53 million and $3 million as of December 31, 2019, 2018 and 2017, 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).

In 2018, $1.2 billion of HTM securities, primarily consisting of MBS and CMBS, were transferred to AFS at book value and sold at a pre-tax loss of approximately $36 million, due to our election to make a one-time transfer of securities relating to the adoption of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.

In 2018, we sold approximately $26 billion of AFS securities, primarily ABS and municipal bonds, resulting in a pre-tax gain of approximately $9 million. In 2017, we sold $12.2 billion of AFS securities, 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.

The following tables present the aggregate fair values of AFS and HTM 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:



	As of December 31, 2019
	Less than 12 months				12 months or longer				Total
(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	$	1,430	$	28	$	—	$	—	$	1,430	$	28
Mortgage-backed securities	2,499		7		1,665		18		4,164		25
Total U.S. Treasury and federal agencies	3,929		35		1,665		18		5,594		53
Asset-backed securities:
Student loans	271		1		127		1		398		2
Credit cards	89		1		—		—		89		1
Collateralized loan obligations	862		2		278		1		1,140		3
Total asset-backed securities	1,222		4		405		2		1,627		6
Non-U.S. debt securities:
Mortgage-backed securities	228		—		220		1		448		1
Asset-backed securities	672		1		109		1		781		2
Government securities	3,246		1		—		—		3,246		1
Other	2,736		9		187		1		2,923		10
Total non-U.S. debt securities	6,882		11		516		3		7,398		14
State and political subdivisions	163		—		22		1		185		1
Collateralized mortgage obligations	13		—		4		—		17		—
Other U.S. debt securities	219		—		14		—		233		—
Total	$	12,428	$	50	$	2,626	$	24	$	15,054	$	74
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	604	$	—	$	2,262	$	3	$	2,866	$	3
Mortgage-backed securities	6,056		31		1,606		13		7,662		44
Total U.S. Treasury and federal agencies	6,660		31		3,868		16		10,528		47
Asset-backed securities:
Student loans	2,003		22		778		19		2,781		41
Total asset-backed securities	2,003		22		778		19		2,781		41
Non-U.S. debt securities:
Mortgage-backed securities	—		—		138		6		138		6
Total non-U.S. debt securities	—		—		138		6		138		6
Collateralized mortgage obligations	13		—		110		1		123		1
Total	$	8,676	$	53	$	4,894	$	42	$	13,570	$	95



	As of December 31, 2018
	Less than 12 months				12 months or longer				Total
(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:
Mortgage-backed securities	$	5,058	$	21	$	5,089	$	160	$	10,147	$	181
Total U.S. Treasury and federal agencies	5,058		21		5,089		160		10,147		181
Asset-backed securities:
Student loans	106		—		218		1		324		1
Credit cards	90		—		493		26		583		26
Collateralized loan obligations	548		2		—		—		548		2
Total asset-backed securities	744		2		711		27		1,455		29
Non-U.S. debt securities:
Mortgage-backed securities	1,407		4		118		1		1,525		5
Asset-backed securities	1,479		6		—		—		1,479		6
Government securities	5,478		45		—		—		5,478		45
Other	2,167		12		226		4		2,393		16
Total non-U.S. debt securities	10,531		67		344		5		10,875		72
State and political subdivisions	365		3		244		4		609		7
Collateralized mortgage obligations	181		3		14		—		195		3
Other U.S. debt securities	861		14		484		12		1,345		26
Total	$	17,740	$	110	$	6,886	$	208	$	24,626	$	318
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	2,192	$	45	$	12,403	$	154	$	14,595	$	199
Mortgage-backed securities	6,502		103		10,648		415		17,150		518
Total U.S. Treasury and federal agencies	8,694		148		23,051		569		31,745		717
Asset-backed securities:
Student loans	481		4		536		6		1,017		10
Total asset-backed securities	481		4		536		6		1,017		10
Non-U.S. debt securities:
Mortgage-backed securities	184		2		119		7		303		9
Total non-U.S. debt securities	184		2		119		7		303		9
Collateralized mortgage obligations	102		1		51		1		153		2
Total	$	9,461	$	155	$	23,757	$	583	$	33,218	$	738

The following table presents the amortized cost and the fair value of contractual maturities of debt investment securities as of December 31, 2019. The maturities of certain ABS, MBS and collateralized mortgage obligations 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.



	As of December 31, 2019
(In millions)	Under 1 Year				1 to 5 Years				6 to 10 Years				Over 10 Years				Total
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations	$	1,050	$	1,058	$	1,009	$	1,010	$	1,448	$	1,419	$	—	$	—	$	3,507	$	3,487
Mortgage-backed securities	116		118		971		970		2,954		2,951		13,558		13,799		17,599		17,838
Total U.S. Treasury and federal agencies	1,166		1,176		1,980		1,980		4,402		4,370		13,558		13,799		21,106		21,325
Asset-backed securities:
Student loans	72		72		185		184		96		96		180		179		533		531
Credit cards	—		—		—		—		90		89		—		—		90		89
Collateralized loan obligations	—		—		745		745		959		958		117		117		1,821		1,820
Total asset-backed securities	72		72		930		929		1,145		1,143		297		296		2,444		2,440
Non-U.S. debt securities:
Mortgage-backed securities	430		430		568		569		196		196		784		785		1,978		1,980
Asset-backed securities	487		487		981		981		366		366		345		345		2,179		2,179
Government securities	4,183		4,183		7,270		7,381		791		809		—		—		12,244		12,373
Other	883		884		6,634		6,689		1,057		1,063		19		22		8,593		8,658
Total non-U.S. debt securities	5,983		5,984		15,453		15,620		2,410		2,434		1,148		1,152		24,994		25,190
State and political subdivisions	236		238		622		635		526		554		341		356		1,725		1,783
Collateralized mortgage obligations	—		—		—		—		—		—		104		104		104		104
Other U.S. debt securities	759		760		2,056		2,083		126		130		—		—		2,941		2,973
Total	$	8,216	$	8,230	$	21,041	$	21,247	$	8,609	$	8,631	$	15,448	$	15,707	$	53,314	$	53,815
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	4,116	$	4,114	$	6,161	$	6,185	$	5	$	5	$	29	$	29	$	10,311	$	10,333
Mortgage-backed securities	9		9		438		439		2,515		2,539		23,335		23,581		26,297		26,568
Total U.S. Treasury and federal agencies	4,125		4,123		6,599		6,624		2,520		2,544		23,364		23,610		36,608		36,901
Asset-backed securities:
Student loans	96		92		207		206		408		402		3,072		3,051		3,783		3,751
Total asset-backed securities	96		92		207		206		408		402		3,072		3,051		3,783		3,751
Non-U.S. debt securities:
Mortgage-backed securities	16		16		33		33		4		4		313		390		366		443
Government securities	328		328		—		—		—		—		—		—		328		328
Total non-U.S. debt securities	344		344		33		33		4		4		313		390		694		771
Collateralized mortgage obligations	2		3		283		287		13		13		399		431		697		734
Total	$	4,567	$	4,562	$	7,122	$	7,150	$	2,945	$	2,963	$	27,148	$	27,482	$	41,782	$	42,157

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)	2019			2018			2017
Gross realized gains from sales of AFS investment securities	$	31		$	205		$	74
Gross realized losses from sales of AFS investment securities	(32		)	(196		)	(113		)
Net impairment losses:
Gross losses from OTTI	—			(3		)	—
Net impairment losses	—			(3		)	—
Gains (losses) related to investment securities, net	(1		)	6			(39		)
Net impairment losses, recognized in our consolidated statement of income, were composed of the following:
Impairment associated with adverse changes in timing of expected future cash flows	—			(3		)	—
Net impairment losses	$	—		$	(3	)	$	—

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)	2019			2018			2017
Balance, beginning of period	$	78		$	77		$	79
Additions⁽¹⁾:
Other-than-temporary-impairment recognized	—			3			—
Deductions⁽²⁾:
Realized losses on securities sold or matured	(8		)	(2		)	(2		)
Balance, end of period	$	70		$	78		$	77

¹⁾Additions represent securities with a first time credit impairment realized or when a subsequent credit impairment has occurred.

⁽²⁾ Deductions represent impairments on securities that have been sold or matured, are required to be sold, or for which management intends to sell.

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, adjusted as prepayments occur, 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.

We recorded less than $1 million, $3 million and less than $1 million of OTTI, included in other income, in the years ended December 31, 2019, 2018 and 2017, respectively, which resulted from adverse changes in the timing of expected future cash flows from non-U.S. mortgage- and asset backed 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 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 $169 million related to 622 securities as of December 31, 2019 to be temporary, and not the result of any material changes in the credit characteristics of the securities.