Investment Securities

12 Months Ended

Dec. 31, 2011

Investment Securities [Abstract]

Investment Securities

Note 3. Investment Securities

The following table presents the amortized cost and fair value, and associated unrealized gains and losses, of investment securities as of December 31:

	2011								2010
(In millions)	Amortized Cost		Gross Unrealized				Fair Value		Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses						Gains		Losses
Available for sale:
U.S. Treasury and federal agencies:
Direct obligations	$	2,798	$	39	$	1	$	2,836	$	7,505	$	74	$	2	$	7,577
Mortgage-backed securities		29,511		538		28		30,021		23,398		325		83		23,640
Asset-backed securities:
Student loans (1)		17,187		69		711		16,545		14,975		92		652		14,415
Credit cards		10,448		53		14		10,487		7,578		56		31		7,603
Sub-prime		1,849		2		447		1,404		2,161		3		346		1,818
Other		3,421		169		125		3,465		2,550		175		156		2,569
Total asset-backed securities		32,905		293		1,297		31,901		27,264		326		1,185		26,405
Non-U.S. debt securities:
Mortgage-backed securities		10,890		92		107		10,875		6,258		82		46		6,294
Asset-backed securities		4,318		2		17		4,303		1,790		13		17		1,786
Government securities		1,671		—		—		1,671		2,005		—		—		2,005
Other		2,797		41		13		2,825		1,900		34		2		1,932
Total non-U.S. debt securities		19,676		135		137		19,674		11,953		129		65		12,017
State and political subdivisions		6,924		244		121		7,047		6,706		102		204		6,604
Collateralized mortgage obligations		3,971		62		53		3,980		1,828		49		16		1,861
Other U.S. debt securities		3,471		159		15		3,615		2,438		116		18		2,536
U.S. equity securities		639		1		—		640		1,115		—		—		1,115
Non-U.S. equity securities		118		—		—		118		122		5		1		126
Total	$	100,013	$	1,471	$	1,652	$	99,832	$	82,329	$	1,126	$	1,574	$	81,881
Held to maturity:
U.S. Treasury and federal agencies:
Mortgage-backed securities	$	265	$	18			$	283	$	413	$	26			$	439
Asset backed securities		31		—	$	2		29		64		—	$	5		59
Non-U.S. debt securities:
Mortgage-backed securities		4,973		87		224		4,836		6,332		166		160		6,338
Asset-backed securities		436		16		3		449		646		18		3		661
Government securities		3		—		—		3		—		—		—		—
Other		172		—		17		155		208		—		2		206
Total non-U.S. debt securities		5,584		103		244		5,443		7,186		184		165		7,205
State and political subdivisions		107		3		—		110		134		3		—		137
Collateralized mortgage obligations		3,334		220		57		3,497		4,452		328		44		4,736
Total	$	9,321	$	344	$	303	$	9,362	$	12,249	$	541	$	214	$	12,576

⁽¹⁾ Substantially composed of securities guaranteed by the federal government with respect to the payment of principal and interest.

 Aggregate investment securities carried at $44.66 billion and $44.81 billion at December 31, 2011 and 2010, respectively, were designated as pledged for public and trust deposits, short-term borrowings and for other purposes as provided by law.

The following table presents contractual maturities of debt investment securities as of December 31, 2011:

(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	$	1,200	$	38	$	822	$	776
Mortgage-backed securities		5		755		10,871		18,390
Asset-backed securities:
Student loans		155		3,331		8,490		4,569
Credit cards		1,893		5,893		2,701		—
Sub-prime		581		82		17		724
Other		119		1,602		1,198		546
Total asset-backed securities		2,748		10,908		12,406		5,839
Non-U.S. debt securities:
Mortgage-backed securities		474		2,358		987		7,056
Asset-backed securities		230		916		2,511		646
Government securities		1,671		—		—		—
Other		1,636		958		231		—
Total non-U.S. debt securities		4,011		4,232		3,729		7,702
State and political subdivisions		471		2,326		3,328		922
Collateralized mortgage obligations		81		1,163		1,209		1,527
Other U.S. debt securities		289		1,391		1,899		36
Total	$	8,805	$	20,813	$	34,264	$	35,192
Held to maturity:
U.S. Treasury and federal agencies:
Mortgage-backed securities			$	19	$	102	$	144
Asset-backed securities				—		—		31
Non-U.S. debt securities:
Mortgage-backed securities	$	1,304		254		—		3,415
Asset-backed securities		—		204		217		15
Government securities		3		—		—		—
Other		—		155		—		17
Total non-U.S. debt securities		1,307		613		217		3,447
State and political subdivisions		56		49		2		—
Collateralized mortgage obligations		394		1,350		530		1,060
Total	$	1,757	$	2,031	$	851	$	4,682

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

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. 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 possible 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 asset- and mortgage-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:

• 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 recovery in value.

The substantial majority of our investment securities portfolio is composed of debt securities. A critical component of the evaluation for other-than-temporary impairment of our 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 describes our process for identifying credit impairment in security types with the most significant unrealized losses as of December 31, 2011.

Mortgage- and Asset-Backed Securities

For certain vintages of U.S. mortgage-backed securities (in particular, sub-prime first-lien mortgages, "Alt-A" mortgages and home equity lines of credit (2006 and 2007 originations) that have significant unrealized losses as a percentage of their amortized cost), other-than-temporary impairment related to credit is assessed 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. 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 our specific securities, the underlying collateral type, vintage, borrower profile, third-party guarantees, current levels of subordination, geography and other factors.

The following tables present the parameters used in the evaluation of 2006- and 2007-vintage U.S. residential mortgage- backed securities as of December 31, 2011 and 2010:

		Sub-Prime A			Sub-Prime A			Sub-Prime A
	Sub-Prime ARM			Alt-A			Non- Agency Prime
December 31, 2011:
Prepayment rate		1-3	%		2-6	%		5-10	%
Cumulative loss estimates		46-54			26-39			9-19
Loss severity(1)		70-72			59-61			52-53
Peak-to-trough housing price decline(2)		35			35			35

		Sub-Prime ARM			Sub-Prime ARM			Sub-Prime ARM
	Sub-Prime ARM			Alt-A			Non- Agency Prime
December 31, 2010:
Prepayment rate		2-3	%		7	%		7-10	%
Cumulative loss estimates		33			21			13
Loss severity(1)		67			49			49
Peak-to-trough housing price decline(2)		35-40			35-40			35-40

⁽¹⁾ Loss severity rates consider the initial loan-to-value ratio, lien position, geography, expected collateral value and other factors.

⁽²⁾ Management's expectation of the Case-Shiller National Home Price Index.

The following table presents other-than-temporary impairment recorded on securities in these vintages, when both fair value was below carrying value and a credit loss existed, for the years indicated:

	Year Ended December 31, 2011		Year Ended December 31, 2010		Year Ended December 31, 2009 (1)
(In millions)
Sub-prime ARM	$	2	$	26	$	29
Alt-A		5		43		20
Non-agency prime		5		89		60
Total	$	12	$	158	$	109

⁽¹⁾  Represents the period from April 1, 2009 through December 31, 2009, subsequent to the adoption of the revised GAAP related to other-than-temporary impairment.

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 principal, with additional credit support provided in the form of overcollateralization, subordination and excess spread, which collectively total in excess of 100% of principal and interest. Accordingly, the vast majority of FFELP loan-backed securities are not exposed to traditional consumer credit risk. Our total exposure to private student loan-backed securities is less than $1.0 billion; our evaluation of impairment considers the impact of high unemployment rates on the collateral performance of private student loans. Other risk factors are considered in our evaluation of other-than-temporary impairment.

Non-U.S. Mortgage- and Asset-Backed Securities

Non-U.S. mortgage- and asset-backed securities are composed primarily of U.K., Dutch and Australian securities collateralized by residential mortgages. Our evaluation of impairment 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 resides, 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.

Our aggregate exposure to Spain, Italy, Ireland, Greece and Portugal totaled approximately $1.08 billion as of December 31, 2011. While we had no direct sovereign debt exposure to these countries, we had indirect exposure consisting of mortgage- and asset-backed securities, composed of $424 million in Spain, $373 million in Italy, $114 million in Ireland, $99 million in Greece and $69 million in Portugal. These securities had an aggregate pre-tax gross unrealized loss of approximately $122 million as of December 31, 2011. We recorded no other-than-temporary impairment on these securities in 2011. Our evaluation of potential other-than-temporary impairment of these securities assumes a negative baseline macroeconomic environment for this region, due to the continued sovereign debt crisis, and the combination of slower economic growth and continued government austerity measures. Our baseline view assumes a recessionary period characterized by higher unemployment and by additional house price declines between 5% and 15% across these five countries. Our evaluation of other-than-temporary impairment does not assume a disorderly sovereign debt restructuring or countries leaving the euro common currency, consistent with management's expectations. In addition, stress testing and sensitivity analysis is performed in order to understand the impact of more severe assumptions on potential other-than-temporary impairment.

State and Political Subdivisions

In assessing other-than-temporary impairment, we may from time to time rely on support from third-party financial guarantors for certain asset-backed and municipal (state and political subdivisions) securities. Factors taken into consideration when determining the level of support include the guarantor's credit rating and management's assessment of the guarantor's financial condition. For those guarantors that management deems to be under financial duress, we assume an immediate default by those guarantors, with a modest recovery of claimed amounts (up to 20%). In addition, for various forms of collateralized securities, management considers the liquidation value of the underlying collateral based on expected housing prices and other relevant factors.

The assumptions presented above are used by management to identify those securities which are subject to further analysis of potential credit losses. Additional analyses are performed using more severe assumptions to further evaluate sensitivity of losses relative to the above factors. However, since the assumptions are based on the unique characteristics of each security, management uses a range of point estimates for prepayment speeds and housing prices 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. Primarily as a result of rising delinquencies and management's continued expectation of declining housing prices, we recorded credit-related other-than- temporary impairment of $73 million in 2011.

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 asset-backed securities and other relevant factors, and excluding the securities for which other-than- temporary impairment was recorded in 2011, management considers the aggregate decline in fair value of the remaining securities and the resulting gross pre-tax unrealized losses of $1.96 billion related to 1,703 securities as of December 31, 2011 to be temporary and not the result of any material changes in the credit characteristics of the securities.

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

	Less than 12 months				12 months or longer				Total
December 31, 2011 (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	$	1,373	$	1					$	1,373	$	1
Mortgage-backed securities		4,714		26	$	370	$	2		5,084		28
Asset-backed securities:
Student loans		2,642		23		10,706		688		13,348		711
Credit cards		2,581		6		1,461		8		4,042		14
Sub-prime		16		1		1,360		446		1,376		447
Other		1,482		19		1,122		106		2,604		125
Total asset-backed		6,721		49		14,649		1,248		21,370		1,297
Non-U.S. debt securities:
Mortgage-backed securities		6,069		55		1,151		52		7,220		107
Asset-backed securities		2,205		14		108		3		2,313		17
Other		1,543		13		—		—		1,543		13
Total non-U.S. debt securities		9,817		82		1,259		55		11,076		137
State and political subdivisions		171		3		1,446		118		1,617		121
Collateralized mortgage obligations		2,024		43		68		10		2,092		53
Other U.S. debt securities		220		2		57		13		277		15
Total	$	25,040	$	206	$	17,849	$	1,446	$	42,889	$	1,652
Held to maturity:
Asset-backed securities					$	29	$	2	$	29	$	2
Non-U.S. debt securities:
Mortgage-backed securities	$	341	$	6		1,382		218		1,723		224
Asset-backed securities		9		1		70		2		79		3
Other		—		—		138		17		138		17
Total non U.S. debt securities		350		7		1,590		237		1,840		244
Collateralized mortgage obligations		649		32		231		25		880		57
Total	$	999	$	39	$	1,850	$	264	$	2,849	$	303

	Less than 12 months				12 months or longer				Total
December 31, 2010 (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					$	153	$	2	$	153	$	2
Mortgage-backed securities	$	6,639	$	81		431		2		7,070		83
Asset-backed securities:
Student loans		1,980		25		8,457		627		10,437		652
Credit cards		1,268		5		2,396		26		3,664		31
Sub-prime		—		—		1,769		346		1,769		346
Other		269		3		1,122		153		1,391		156
Total asset-backed securities		3,517		33		13,744		1,152		17,261		1,185
Non-U.S. debt securities:
Mortgage-backed securities		2,621		22		370		24		2,991		46
Asset-backed securities		—		—		54		17		54		17
Other		348		2		—		—		348		2
Total non-U.S. debt securities		2,969		24		424		41		3,393		65
State and political subdivisions		1,097		19		1,967		185		3,064		204
Collateralized mortgage obligations		494		5		109		11		603		16
Other U.S. debt securities		330		7		61		11		391		18
Non-U.S. equity securities		8		1		—		—		8		1
Total	$	15,054	$	170	$	16,889	$	1,404	$	31,943	$	1,574
Held to maturity:
Asset-backed securities					$	53	$	5	$	53	$	5
Non-U.S. debt securities:
Mortgage-backed securities	$	1,445	$	72		862		88		2,307		160
Asset-backed securities		—		—		68		3		68		3
Other		206		2		—		—		206		2
Total non-U.S. debt securities		1,651		74		930		91		2,581		165
Collateralized mortgage obligations		125		2		575		42		700		44
Total	$	1,776	$	76	$	1,558	$	138	$	3,334	$	214

The following table presents realized gains and losses related to investment securities for the years ended December 31:

(In millions)	2011			2010			2009
Gross realized gains from sales of investment securities	$	152		$	1,330		$	418
Gross realized losses from sales of investment securities		(12	)		(1,385	)		(50	)
Gross losses from other-than-temporary impairment		(123	)		(651	)		(1,155	)
Losses not related to credit(1)		50			420			928
Net impairment losses		(73	)		(231	)		(227	)
Gains (Losses) related to investment securities, net	$	67		$	(286	)	$	141
Impairment associated with expected credit losses	$	(42	)	$	(203	)	$	(151	)
Impairment associated with management's intent to sell the impaired securities prior to their recovery in value		(8	)		(1	)		(54	)
Impairment associated with adverse changes in timing of expected future cash flows		(23	)		(27	)		(22	)
Net impairment losses	$	(73	)	$	(231	)	$	(227	)

⁽¹⁾ Pursuant to revised GAAP adopted on April 1, 2009, these losses were recorded, net of related taxes, a component of other comprehensive income; refer to note 12.

The following table presents activity with respect to credit-related losses recognized in our consolidated statement of income for the years ended December 31, associated with securities considered other-than-temporarily impaired:

(In millions)	2011			2010			2009(1)
Beginning balance	$	63		$	175		$	—
Plus expected credit-related losses for which other-than-temporary impairment was not previously recognized		10			88			214
Plus expected credit-related losses for which other-than-temporary impairment was previously recognized		55			142			—
Less losses realized for securities sold		(13	)		(342	)		(17	)
Less losses realized for securities intended or required to be sold		(2	)		—			(22	)
Ending balance	$	113		$	63		$	175

⁽¹⁾  Beginning balance was as of April 1, 2009, pursuant to revised GAAP.

The impairment losses were related to non-agency securities collateralized by U.S. mortgages, which management concluded had experienced credit losses based on the present value of the securities' expected future cash flows, which evidenced deterioration in the performance of individual securities in the portfolio.

In December 2010, we undertook a repositioning of our investment securities portfolio by selling approximately $11 billion of securities, composed of $4.3 billion of asset-backed securities, $4.1 billion of non-agency mortgage-backed securities and $2.5 billion of mortgage-backed securities. The repositioning was undertaken to enhance our regulatory capital ratios under evolving regulatory capital standards, increase our balance sheet flexibility in deploying our capital, and reduce our exposure to certain asset classes. The sale resulted in a pre-tax net loss of approximately $344 million, which was recorded in our consolidated statement of income and is reflected in the gross realized gains and gross realized losses presented in the preceding table.

The sale included approximately $4.8 billion of securities classified as held to maturity in our consolidated statement of condition. These securities were sold at a net pre-tax loss of $119 million in response to changes in regulatory capital requirements and previous downgrades of the securities.