Loans And Leases

9 Months Ended

Sep. 30, 2011

Loans And Leases

Loans And Leases

Note 4. Loans and Leases

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

(In millions)	September 30, 2011			December 31, 2010
Institutional:
Investment funds:
U.S.	$	6,456		$	5,316
Non-U.S.		1,505			1,478
Commercial and financial:
U.S.		637			540
Non-U.S.		207			190
Purchased receivables:
U.S.		673			728
Non-U.S.		403			1,471
Lease financing:
U.S.		399			417
Non-U.S.		857			1,053
Total institutional		11,137			11,193
Commercial real estate:
U.S.		603			764
Total loans and leases		11,740			11,957
Allowance for loan losses		(22	)		(100	)
Loans and leases, net of allowance for loan losses	$	11,718		$	11,857

The institutional segment included aggregate short-duration advances to our clients of $3.81 billion and $2.63 billion as of September 30, 2011 and December 31, 2010, respectively. These advances, which we provide in support of clients' investment activities associated with securities settlement, fluctuate based on the volume of securities transactions, and are largely short-term in nature.

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

	Institutional								Commercial Real Estate
September 30, 2011 (In millions)	Investment Funds		Commercial and Financial		Purchased Receivables		Lease Financing		Property Development		Other Acquired Credit- Impaired		Other		Total Loans and Leases
Investment grade	$	7,843	$	714	$	1,076	$	1,197	$	1	$	3	$	37	$	10,871
Speculative		118		129		—		59		379		31		95		811
Special mention		—		1		—		—		—		—		—		1
Doubtful		—		—		—		—		52		5		—		57
Total	$	7,961	$	844	$	1,076	$	1,256	$	432	$	39	$	132	$	11,740

	Institutional								Commercial Real Estate
December 31, 2010 (In millions)	Investment Funds		Commercial and Financial		Purchased Receivables		Lease Financing		Property Development		Property Development Acquired- Credit Impaired		Other Acquired Credit- Impaired		Other		Total Loans and Leases
Investment grade	$	6,674	$	579	$	2,199	$	1,279	$	3			$	3	$	49	$	10,786
Speculative		120		101		—		191		362				47		108		929
Substandard		—		50		—		—		—				—		—		50
Doubtful		—		—		—		—		86	$	42		49		15		192
Total	$	6,794	$	730	$	2,199	$	1,470	$	451	$	42	$	99	$	172	$	11,957

Loans and leases are grouped in the tables presented above into the rating categories that align with our internal risk-rating framework. Management considers the ratings to be current as of September 30, 2011. We use an internal risk-rating system to assess the risk of credit loss for each loan or lease. This risk-rating process incorporates the use of risk-rating tools in conjunction with management judgment. Qualitative and quantitative inputs are captured in a systematic manner, and following a formal review and approval process, an internal credit rating based on our credit scale is assigned. In assessing the risk rating assigned to each individual loan or lease, among the factors considered are the borrower's debt capacity, collateral coverage, payment history and delinquency experience, financial flexibility and earnings strength, the expected amounts and sources of repayment, the level and nature of contingencies, if any, and the industry and geography in which the borrower operates. These factors are based on an evaluation of historical and current information, and involve subjective assessment and interpretation. Credit counterparties are evaluated and risk-rated on an individual basis at least annually.

In October 2011, we completed a deed-in-lieu-of-foreclosure agreement with respect to an acquired commercial real estate, or CRE, property development loan with a recorded investment of $52 million as of September 30, 2011, and took title to the underlying property. The loan was part of the portfolio acquired in 2008 pursuant to indemnified repurchase agreements with an affiliate of Lehman as a result of the Lehman Brothers bankruptcy. In connection with the agreement, in October 2011, the property was recorded in other assets as other real estate owned in our consolidated statement of condition at its fair value of $52 million and we charged off our recorded investment in the loan. The fair value of the property is net of estimated costs to sell it. During the three months ended September 30, 2011, we charged off the related allowance for loan losses of $24 million. This transaction had no impact on our consolidated statement of income.

In March 2011, we completed foreclosure on an acquired CRE loan with a recorded investment of $42 million, and took possession of the underlying collateral, which consisted of undeveloped land. The loan was part of the portfolio acquired in 2008 pursuant to indemnified repurchase agreements with an affiliate of Lehman as a result of the Lehman Brothers bankruptcy. The property is recorded in other assets as other real estate owned in our consolidated statement of condition at its fair value of $22 million. The fair value of the property is net of estimated costs to sell it. When we took possession of the collateral, we charged off our recorded investment in the loan and the related allowance for loan losses of $19 million, and as a result this foreclosure had no impact on our consolidated statement of income.

The following table presents our recorded investment in loans and leases and the related allowance for loan losses, disaggregated based on our impairment methodology, as of the dates indicated:

	Institutional				Commercial Real Estate				Total Loans and Leases
	September 30, 2011		December 31, 2010		September 30, 2011		December 31, 2010		September 30, 2011		December 31, 2010
(In millions)
Loans and leases:
Individually evaluated for impairment	$	93	$	112	$	564	$	623	$	657	$	735
Collectively evaluated for impairment		11,044		11,081		—		—		11,044		11,081
Loans acquired with deteriorated credit quality		—		—		39		141		39		141
Total	$	11,137	$	11,193	$	603	$	764	$	11,740	$	11,957
Allowance for loan losses:
Individually evaluated for impairment							$	24			$	24
Collectively evaluated for impairment	$	22	$	31				—	$	22		31
Loans acquired with deteriorated credit quality		—		—				45		—		45
Total	$	22	$	31		—	$	69	$	22	$	100

The following table presents our recorded investment in impaired loans and leases for the dates or periods indicated:

	As of September 30, 2011						Three Months Ended September 30, 2011				Nine Months Ended September 30, 2011				As of December 31, 2010
(In millions)	Recorded Investment		Unpaid Principal Balance		Related Allowance(1)		Average Recorded Investment		Interest Revenue Recognized		Average Recorded Investment		Interest Revenue Recognized		Recorded Investment		Unpaid Principal Balance		Related Allowance(1)
With no related allowance recorded:
CRE—property development	$	251	$	347			$	274	$	4	$	280	$	12	$	209	$	240
CRE—property development—acquired credit-impaired		—		34				—		—		6		—		—		34
CRE—other—acquired credit-impaired		8		69				23		—		46		—		16		47
CRE—other		2		3				3		—		7		1		27		29
With an allowance recorded:
CRE—property development		—		—				—		—		—		—		79		113	$	24
CRE—property development—acquired credit-impaired		—		—				—		—		—		—		42		47		19
CRE—other—acquired credit—impaired		31		37				31		—		31		1		83		100		26
CRE—other		7		9				7		—		7		—		7		9		—
Total CRE	$	299	$	499		—	$	338	$	4	$	377	$	14	$	463	$	619	$	69

⁽¹⁾  As of September 30, 2011 and December 31, 2010, we maintained allowances for loan losses of $22 million and $31 million, respectively, associated with loans and leases that were not impaired.

As of September 30, 2011, we held an aggregate of approximately $260 million of CRE loans which were modified in troubled debt restructurings, or TDRs, compared to $307 million as of December 31, 2010. No impairment loss was recognized upon restructuring of the loans, as the discounted cash flows of the modified loans exceeded the carrying amount of the original loans as of the modification date. During the nine months ended September 30, 2011, no loans were modified in troubled debt restructurings.

No institutional loans or leases were 90 days or more contractually past-due as of September 30, 2011 or December 31, 2010. Although a portion of the CRE loans was 90 days or more contractually past-due as of September 30, 2011 and December 31, 2010, we do not report them as past-due loans pursuant to GAAP that governs the accounting for acquired credit-impaired loans.

The following table presents the components of our recorded investment in loans and leases on non-accrual status as of the dates indicated:

(In millions)	September 30, 2011		December 31, 2010
Commercial Real Estate:
Property development	$	52	$	79
Property development—acquired credit-impaired		—		42
Other—acquired credit-impaired		5		22
Other		—		15
Total	$	57	$	158

The loans presented in the table above were placed on non-accrual status by management because the yield associated with those loans was deemed to be non-accretable, based on the expected future collection of principal and interest from the loans.  The property development loan of $52 million presented in the table was transferred to other real estate owned in October 2011 in connection with the previously-described deed-in-lieu-of-foreclosure agreement. The acquired credit-impaired property development loan of $42 million presented in the table was foreclosed upon and transferred to other real estate owned in March 2011, as described previously in this note.

The following tables present activity in the allowance for loan losses during the periods indicated:

	Three Months Ended September 30,
(In millions)	2011									2010
	Institutional			Commercial Real Estate			Total Loans and Leases			Total Loans and Leases
Allowance for loan losses:
Beginning balance	$	22		$	32		$	54		$	102
Charge-offs		—			(32	)		(32	)		(1	)
Provisions		—			—			—			1
Other		—			—			—			(1	)
Ending balance	$	22		$	—		$	22		$	101
	Nine Months Ended September 30,
	2011									2010
(In millions)	Institutional			Commercial Real Estate			Total Loans and Leases			Total Loans and Leases
Allowance for loan losses:
Beginning balance	$	31		$	69		$	100		$	79
Charge-offs		—			(79	)		(79	)		(4	)
Provisions		(9	)		10			1			26
Ending balance	$	22		$	—		$	22		$	101

The charge-offs recorded in 2011 were mainly related to the previously described deed-in-lieu-of-foreclosure agreement and acquired credit-impaired loan, foreclosure, as well as an acquired credit-impaired loan whose underlying collateral had deteriorated in value. The majority of the provision for loan losses recorded in 2010 resulted from a revaluation of the collateral supporting a CRE loan.

Loans and leases are reviewed on a regular basis, and any provisions for loan losses that are recorded reflect management's estimate of the amount necessary to maintain the allowance for loan losses at a level considered appropriate to absorb estimated probable credit losses inherent in the loan and lease portfolio. With respect to CRE loans, management also considers its expectations with respect to future cash flows from those loans and the value of available collateral. These expectations are based, among other things, on an assessment of economic conditions, including conditions in the commercial real estate market and other factors.