Derivative Instruments

12 Months Ended

Dec. 31, 2011

Derivative Instruments [Abstract]

Derivative Instruments

 NOTE 20  Derivative Instruments

The Company recognizes all derivatives in the consolidated balance sheet at fair value as other assets or liabilities. On the date the Company enters into a derivative contract, the derivative is designated as either a hedge of the fair value of a recognized asset or liability (“fair value hedge”); a hedge of a forecasted transaction or the variability of cash flows to be paid related to a recognized asset or liability (“cash flow hedge”); a hedge of the volatility of an investment in foreign operations driven by changes in foreign currency exchange rates (“net investment hedge”); or a designation is not made as it is a customer-related transaction, an economic hedge for asset/liability risk management purposes or another stand-alone derivative created through the Company’s operations (“free-standing derivative”).

Of the Company’s $54.7 billion of total notional amount of asset and liability management positions at December 31, 2011, $14.1 billion was designated as a fair value, cash flow or net investment hedge. When a derivative is designated as a fair value, cash flow or net investment hedge, the Company performs an assessment, at inception and, at a minimum, quarterly thereafter, to determine the effectiveness of the derivative in offsetting changes in the value or cash flows of the hedged item(s).

Fair Value Hedges These derivatives are primarily interest rate swaps that hedge the change in fair value related to interest rate changes of underlying fixed-rate debt and junior subordinated debentures. Changes in the fair value of derivatives designated as fair value hedges, and changes in the fair value of the hedged items, are recorded in earnings. All fair value hedges were highly effective for the year ended December 31, 2011, and the change in fair value attributed to hedge ineffectiveness was not material.

Cash Flow Hedges These derivatives are interest rate swaps that are hedges of the forecasted cash flows from the underlying variable-rate loans and debt. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) until expense from the cash flows of the hedged items is realized. If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective, the gain or loss in other comprehensive income (loss) is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged forecasted transaction is no longer probable, hedge accounting is ceased and any gain or loss included in other comprehensive income (loss) is reported in earnings immediately, unless the forecasted transaction is at least reasonably possible of occurring, whereby the amounts within other comprehensive income (loss) remain. At December 31, 2011, the Company had $489 million (net-of-tax) of realized and unrealized losses on derivatives classified as cash flow hedges recorded in other comprehensive income (loss), compared with $414 million (net-of-tax) at December 31, 2010. The estimated amount to be reclassified from other comprehensive income (loss) into earnings during the next 12 months is a loss of $124 million (net-of-tax). This amount includes gains and losses related to hedges that were terminated early for which the forecasted transactions are still probable. All cash flow hedges were highly effective for the year ended December 31, 2011, and the change in fair value attributed to hedge ineffectiveness was not material.

Net Investment Hedges The Company uses forward commitments to sell specified amounts of certain foreign currencies to hedge the volatility of its investment in foreign operations driven by fluctuations in foreign currency exchange rates. The ineffectiveness on all net investment hedges was not material for the year ended December 31, 2011.

Other Derivative Positions  The Company enters into free-standing derivatives to mitigate interest rate risk and for other risk management purposes. These derivatives include forward commitments to sell TBAs and other commitments to sell residential mortgage loans, which are used to economically hedge the interest rate risk related to residential mortgage loans held for sale. The Company also enters into U.S. Treasury futures, options on U.S. Treasury futures contracts, interest rate swaps and forward commitments to buy TBAs to economically hedge the change in the fair value of the Company’s MSRs. The Company also enters into foreign currency forwards to economically hedge remeasurement gains and losses the Company recognizes on foreign currency denominated assets and liabilities. In addition, the Company acts as a seller and buyer of interest rate derivatives and foreign exchange contracts for its customers. To mitigate the market and liquidity risk associated with these customer derivatives, the Company enters into similar offsetting positions with broker-dealers. The Company also has derivative contracts that are created through its operations, including commitments to originate mortgage loans held for sale and certain derivative financial guarantee contracts.

For additional information on the Company’s purpose for entering into derivative transactions and its overall risk management strategies, refer to “Management Discussion and Analysis — Use of Derivatives to Manage Interest Rate and Other Risks” which is incorporated by reference into these Notes to Consolidated Financial Statements.

The following table provides information on the fair value of the Company’s derivative positions as of December 31:

	2011						2010
(Dollars in Millions)	Asset Derivatives			Liability Derivatives			Asset Derivatives			Liability Derivatives
Total fair value of derivative positions	$	1,913		$	2,554		$	1,799		$	2,174
Netting (a)		(294	)		(1,889	)		(280	)		(1,163	)
Total	$	1,619		$	665		$	1,519		$	1,011

Note: The fair value of asset and liability derivatives are included in Other assets and Other liabilities on the Consolidated Balance Sheet, respectively.

(a) Represents netting of derivative asset and liability balances, and related collateral, with the same counterparty subject to master netting agreements. Authoritative accounting guidance permits the netting of derivative receivables and payables when a legally enforceable master netting agreement exists between the Company and a derivative counterparty. A master netting agreement is an agreement between two counterparties who have multiple derivative contracts with each other that provide for the net settlement of contracts through a single payment, in a single currency, in the event of default on or termination of any one contract. At December 31, 2011, the amount of cash and money market investments collateral posted by counterparties that was netted against derivative assets was $88 million and the amount of cash collateral posted by the Company that was netted against derivative liabilities was $1.7 billion. At December 31, 2010, the amount of cash and money market investments collateral posted by counterparties that was netted against derivative assets was $55 million and the amount of cash collateral posted by the Company that was netted against derivative liabilities was $936 million.

The following table summarizes the asset and liability management derivative positions of the Company:

	Asset Derivatives						Liability Derivatives
(Dollars in Millions)	Notional Value		Fair Value		Weighted-Average Remaining Maturity In Years		Notional Value		Fair Value		Weighted-Average Remaining Maturity In Years
December 31, 2011
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps	$	500	$	27		4.09	$	–	$	–		–
Foreign exchange cross-currency swaps		688		17		5.17		432		23		5.17
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps		–		–		–		4,788		803		4.03
Receive fixed/pay floating swaps		750		–		2.75		6,250		6		2.86
Net investment hedges
Foreign exchange forward contracts		708		4		.08		–		–		–
Other economic hedges
Interest rate contracts
Futures and forwards
Buy		14,270		150		.07		29		–		.12
Sell		231		1		.15		14,415		134		.11
Options
Purchased		1,250		–		.07		–		–		–
Written		4,421		80		.10		11		1		.13
Receive fixed/pay floating swaps		2,625		9		10.21		–		–		–
Foreign exchange forward contracts		261		1		.08		567		5		.09
Equity contracts		54		1		1.05		10		–		.64
Credit contracts		800		7		3.71		1,600		8		3.59
December 31, 2010
Fair value hedges
Interest rate contracts
Receive fixed/pay floating swaps		1,800		72		55.75		–		–		–
Foreign exchange cross-currency swaps		891		70		6.17		445		–		6.17
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps		–		–		–		4,788		688		5.03
Net investment hedges
Foreign exchange forward contracts		512		3		.08		–		–		–
Other economic hedges
Interest rate contracts
Futures and forwards
Buy		2,879		20		.10		6,312		79		.05
Sell		9,082		207		.07		6,002		51		.09
Options
Purchased		1,600		–		.06		–		–		–
Written		6,321		23		.07		1,348		9		.07
Receive fixed/pay floating swaps		2,250		3		10.22		–		–		–
Foreign exchange forward contracts		158		1		.09		694		6		.09
Equity contracts		61		3		1.60		–		–		–
Credit contracts		650		2		3.22		1,183		7		2.71

The following table summarizes the customer-related derivative positions of the Company:

	Asset Derivatives						Liability Derivatives
(Dollars in Millions)	Notional Value		Fair Value		Weighted- Average Remaining Maturity In Years		Notional Value		Fair Value		Weighted- Average Remaining Maturity In Years
December 31, 2011
Interest rate contracts
Receive fixed/pay floating swaps	$	16,230	$	1,216		4.98	$	523	$	1		2.52
Pay fixed/receive floating swaps		99		–		1.81		16,206		1,182		5.10
Options
Purchased		2,660		26		6.11		–		–		–
Written		–		–		–		2,660		26		6.11
Foreign exchange rate contracts
Forwards, spots and swaps (a)		7,982		369		.54		8,578		360		.49
Options
Purchased		127		5		.41		–		–		–
Written		–		–		–		127		5		.41
December 31, 2010
Interest rate contracts
Receive fixed/pay floating swaps		15,730		956		4.64		1,294		21		6.01
Pay fixed/receive floating swaps		1,315		24		6.12		15,769		922		4.68
Options
Purchased		2,024		13		1.98		115		12		.36
Written		472		12		.26		1,667		13		2.35
Foreign exchange rate contracts
Forwards, spots and swaps (a)		7,772		384		.74		7,694		360		.75
Options
Purchased		224		6		.40		–		–		–
Written		–		–		–		224		6		.40

(a) Reflects the net of long and short positions.

The table below shows the effective portion of the gains (losses) recognized in other comprehensive income (loss) and the gains (losses) reclassified from other comprehensive income (loss) into earnings (net-of-tax) for the years ended December 31:

	Gains (Losses) Recognized in Other Comprehensive Income (Loss)									Gains (Losses) Reclassified from Other Comprehensive Income (Loss) into Earnings
(Dollars in Millions)	2011			2010			2009			2011			2010			2009
Asset and Liability Management Positions
Cash flow hedges
Interest rate contracts (a)	$	(213	)	$	(235	)	$	114		$	(138	)	$	(148	)	$	(209	)
Net investment hedges
Foreign exchange forward contracts		34			(25	)		(44	)		–			–			–

Note: Ineffectiveness on cash flow and net investment hedges was not material for the years ended December 31, 2011, 2010 and 2009.

(a) Gains (Losses) reclassified from other comprehensive income (loss) into interest income on loans and interest expense on long-term debt.

The table below shows the gains (losses) recognized in earnings for fair value hedges, other economic hedges and the customer-related positions for the years ended December 31:

	Location of Gains (Losses) Recognized in Earnings	Gains (Losses) Recognized in Earnings
(Dollars in Millions)		2011			2010			2009
Asset and Liability Management Positions
Fair value hedges (a)
Interest rate contracts	Other noninterest income	$	(36	)	$	(31	)	$	(27	)
Foreign exchange cross-currency swaps	Other noninterest income		(69	)		(193	)		115
Other economic hedges
Interest rate contracts
Futures and forwards	Mortgage banking revenue		23			831			184
Purchased and written options	Mortgage banking revenue		456			425			300
Receive fixed/pay floating swaps	Mortgage banking revenue		518			–			–
Pay fixed/receive floating swaps	Mortgage banking revenue		1			–			–
Foreign exchange forward contracts	Commercial products revenue		(81	)		(16	)		(46	)
Equity contracts	Compensation expense		1			1			(22	)
Credit contracts	Other noninterest income/expense		–			(6	)		29
Customer-Related Positions
Interest rate contracts
Receive fixed/pay floating swaps	Other noninterest income		302			201			(658	)
Pay fixed/receive floating swaps	Other noninterest income		(317	)		(196	)		696
Purchased and written options	Other noninterest income		–			1			(1	)
Foreign exchange rate contracts
Forwards, spots and swaps	Commercial products revenue		53			49			49
Purchased and written options	Commercial products revenue		–			1			1

(a) Gains (Losses) on items hedged by interest rate contracts and foreign exchange forward contracts, included in noninterest income (expense), were $29 million and $72 million for the year ended December 31, 2011, respectively, $35 million and $193 million for the year ended December 31, 2010, respectively, and $25 million and $(114) million for the year ended December 31, 2009, respectively. The ineffective portion was immaterial for the years ended December 31, 2011, 2010 and 2009.

Derivatives are subject to credit risk associated with counterparties to the derivative contracts. The Company measures that credit risk based on its assessment of the probability of counterparty default and includes that risk within the fair value of the derivative. The Company manages counterparty credit risk through diversification of its derivative positions among various counterparties, by entering into master netting agreements and, where possible, by requiring collateral agreements. These collateral agreements require the counterparty to post, on a daily basis, collateral (typically cash) equal to the Company’s net derivative receivable. For highly-rated counterparties, the agreements may include minimum dollar posting thresholds, but allow for the Company to call for immediate, full collateral coverage when credit-rating thresholds are triggered by counterparties.

The Company’s collateral agreements are bilateral and, therefore, contain provisions that require collateralization of the Company’s net liability derivative positions. Required collateral coverage is based on certain net liability thresholds and contingent upon the Company’s credit rating from two of the nationally recognized statistical rating organizations. If the Company’s credit rating were to fall below credit ratings thresholds established in the collateral agreements, the counterparties to the derivatives could request immediate full collateral coverage for derivatives in net liability positions. The aggregate fair value of all derivatives under collateral agreements that were in a net liability position at December 31, 2011, was $1.9 billion. At December 31, 2011, the Company had $1.7 billion of cash posted as collateral against this net liability position.