Loans and Allowance for Credit Losses (Tables)

6 Months Ended

Jun. 30, 2020

Receivables [Abstract]

Net Loans

The following table presents our recorded investment in loans, by segment, as of the dates indicated:

(In millions)	June 30, 2020			December 31, 2019
Domestic(1):
Commercial and financial:
Fund Finance (2)	$	9,696		$	10,270
Leveraged loans	3,071			3,342
Overdrafts	2,292			1,739
Other(3)	2,450			3,411
Commercial real estate	1,944			1,766
Total domestic	19,453			20,528
Foreign(1):
Commercial and financial:
Fund Finance(2)	3,986			3,145
Leveraged loans	1,230			1,119
Overdrafts	2,163			1,517
Other(3)	28			—
Total foreign	7,407			5,781
Total loans	26,860			26,309
Allowance for loan losses	(141		)	(74		)
Loans, net of allowance	$	26,719		$	26,235

⁽¹⁾ Domestic and foreign categorization is based on the borrower’s country of domicile.

⁽²⁾ Fund finance loans include primarily $5,026 million loans to real money funds, $7,272 million private equity capital call finance loans and $820 million loans to business development companies as of June 30, 2020, compared to $6,040 million loans to real money funds, $6,076 million private equity capital call finance loans and $932 million loans to business development companies as of December 31, 2019.

⁽³⁾Includes $1,448 million securities finance loans, $933 million loans to municipalities and $97 million other loans as of June 30, 2020 and $2,537 million securities finance loans, $848 million loans to municipalities and $26 million other loans as of December 31, 2019.

Amortized cost basis, by year of origination and credit quality indicator

The following tables present our recorded investment in each class of loans by credit quality indicator as of the dates indicated:

June 30, 2020	Commercial and Financial		Commercial Real Estate		Total Loans
(In millions)
Investment grade	$	19,413	$	1,777	$	21,190
Speculative	5,449		167		5,616
Special mention	54		—		54
Total(1)	$	24,916	$	1,944	$	26,860

December 31, 2019	Commercial and Financial		Commercial Real Estate		Total Loans
(In millions)
Investment grade	$	19,501	$	1,766	$	21,267
Speculative	5,008		—		5,008
Special mention	25		—		25
Substandard	9		—		9
Total(1)	$	24,543	$	1,766	$	26,309

⁽¹⁾ Loans Include $4,455 million and $3,256 million of overdrafts as of June 30, 2020 and December 31, 2019, respectively. Overdrafts are short-term in nature and do not present a significant credit risk to us.

Financial assets held at amortized cost that are not loans are disaggregated based on product type. We assess credit risk based on the entire balance within fees receivable.

Securities purchased under a resale agreement and securities-financing within our principal business utilized the collateral maintenance provisions included within ASC 326. An allowance for credit losses is recognized for any remaining exposure based on counterparty type.

The allowance for credit losses for off-balance sheet credit exposures, recorded in accrued expenses and other liabilities in our consolidated statement of condition, represents management’s’ estimate of credit losses primarily in outstanding letters and lines of credit and other credit-enhancement facilities provided to our clients and outstanding as of the balance sheet date. The allowance is evaluated quarterly by management. Factors considered in evaluating the appropriate level of this allowance are similar to those considered with respect to the allowance for credit losses on financial assets held at amortized cost. Provisions to maintain the allowance at a level considered by us to be appropriate to absorb estimated credit losses in outstanding facilities are recorded in the provision for credit losses in our consolidated statement of income.

The following table presents the amortized cost basis, by year of origination and credit quality indicator as of June 30, 2020. For origination years before the fifth annual period, we present the aggregate amortized cost basis of loans. For purchased loans, the date of issuance is used to determine the year of origination, not the date of acquisition. For modified, extended or renewed lending arrangements, we evaluate whether a credit event has occurred which would consider the loan to be a new arrangement.

(In millions)	2020		2019		2018		2017		2016		2015		Prior		Revolving Loans		Total(1)(2)
Domestic loans:
Commercial and financial:
Risk Rating:
Investment grade	$	2,478	$	438	$	5	$	120	$	—	$	—	$	—	$	10,465	$	13,506
Speculative	322		999		944		741		108		—		—		835		3,949
Special mention	—		—		29		25		—		—		—		—		54
Total commercial and financing	$	2,800	$	1,437	$	978	$	886	$	108	$	—	$	—	$	11,300	$	17,509
Commercial real estate:
Risk Rating:
Investment grade	$	178	$	440	$	654	$	279	$	197	$	29	$	—	$	—	$	1,777
Speculative	—		110		57		—		—		—		—		—		167
Total commercial real estate	$	178	$	550	$	711	$	279	$	197	$	29	$	—	$	—	$	1,944
Non-U.S. loans:
Commercial and financial:
Risk Rating:
Investment grade	$	2,001	$	—	$	—	$	—	$	—	$	—	$	—	$	3,906	$	5,907
Speculative	336		412		348		208		25		—		63		108		1,500
Total commercial and financing	$	2,337	$	412	$	348	$	208	$	25	$	—	$	63	$	4,014	$	7,407
Total loans	$	5,315	$	2,399	$	2,037	$	1,373	$	330	$	29	$	63	$	15,314	$	26,860
Off-balance sheet commitments and guarantees:
Unfunded credit facilities	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	33,126	$	33,126
Indemnified securities financing	367,214		—		—		—		—		—		—		—		367,214
Standby letters of credit	—		—		—		—		—		—		—		3,246		3,246
Total off-balance sheet commitments and guarantees	$	367,214	$	—	$	—	$	—	$	—	$	—	$	—	$	36,372	$	403,586
Total financing receivables and off-balance sheet commitments and guarantees	$	372,529	$	2,399	$	2,037	$	1,373	$	330	$	29	$	63	$	51,686	$	430,446

⁽¹⁾ Any reserve associated with accrued interest is not material.

⁽²⁾ As of June 30, 2020, accrued interest receivable of $63 million included in the amortized cost basis of loans has been excluded from the amortized cost basis within this table.

Schedule of Activity in the Allowance for Loan Losses

The following table presents the activity in the allowance for credit losses by portfolio and class for the periods indicated:

	Three Months Ended June 30, 2020
	Commercial and Financial
(In millions)	Leveraged Loans			Other Loans		Commercial Real Estate		Off-Balance Sheet Commitments			All Other (2)			Total Credit Reserve
Allowance for credit losses:
Beginning balance	$	83		$	10	$	4	$	22		$	5		$	124
Charge-offs(1)	(14		)	—		—		—			—			(14		)
Provision	43			10		4		(4		)	(1		)	52
FX translation	1			—		—		—			—			1
Ending balance	$	113		$	20	$	8	$	18		$	4		$	163

 

⁽¹⁾ Related to the sale of leveraged loans in the second quarter of 2020.

⁽²⁾ Includes the reserves on HTM investment securities.

	Six Months Ended June 30, 2020
	Commercial and Financial
(In millions)	Leveraged Loans			Other Loans		Commercial Real Estate		Off-Balance Sheet Commitments			All Other(2)		Total Credit Reserve
Allowance for credit losses:
Beginning balance	$	61		$	10	$	2	$	19		$	1	$	93
Charge-offs(1)	(19		)	—		—		—			—		(19		)
Provision	70			10		6		(1		)	3		88
FX translation	1			—		—		—			—		1
Ending balance	$	113		$	20	$	8	$	18		$	4	$	163

 

⁽¹⁾ Primarily related to the sale of leveraged loans in the second quarter of 2020.

⁽²⁾ Includes the reserves on HTM investment securities.

Allowance for Loan Losses under Incurred Loss Methodology for the period ended June 30, 2019

The following table presents activity in the allowance for loan losses as of June 30, 2019 under the incurred loss methodology:

(In millions)	Three months ended June 30, 2019
Allowance for loan losses:
Beginning balance	$	70
Provision for credit losses(1)	1
Other(2)	1
Ending balance	$	72
(In millions)	Six months ended June 30, 2019
Allowance for loan losses:
Beginning balance	$	67
Provision for credit losses(1)	5
Ending balance	$	72

 

⁽¹⁾ The provisions for credit losses were primarily attributable to exposure to purchased leveraged loans to non-investment grade loans.

⁽²⁾ Consists primarily of FX translation.