Netting Arrangements for Certain Financial Instruments

3 Months Ended

Mar. 31, 2013

Equity [Abstract]

Netting Arrangements for Certain Financial Instruments

Note 11 Netting Arrangements for Certain Financial Instruments

In the ordinary course of business, the Company enters into derivative transactions to manage various risks and to accommodate the business requirements of its customers. The majority of the Company’s derivative portfolio consists of bilateral over-the-counter trades. However, due to legislative changes effective during the first quarter of 2013, certain derivatives executed after March 11, 2013, need to be centrally cleared through clearinghouses, with additional derivative products required to be centrally cleared in the future. A small portion of the Company’s derivative positions are exchange-traded. These are predominantly U.S. Treasury futures and options on U.S. Treasury futures.

Irrespective of how derivatives are traded, the Company’s derivative contracts include offsetting rights (referred to as netting arrangements), and depending on expected volume, credit risk, and counterparty preference, collateral maintenance may be required. For all derivatives, fair value is determined daily and, depending on the collateral maintenance requirements, the Company and a counterparty may receive or deliver collateral, based upon the net fair value of all derivative positions between the Company and the counterparty. Collateral is typically cash, but securities may be allowed under collateral agreements with certain counterparties. Derivative asset and liability fair values are included in other assets and other liabilities, respectively, on the Consolidated Balance Sheet. Receivables and payables related to cash collateral are also included in other assets and other liabilities on the Consolidated Balance Sheet. Any securities pledged to counterparties as collateral remain on the Consolidated Balance Sheet. Securities received from counterparties as collateral are not recognized on the Consolidated Balance Sheet, unless the counterparty defaults. Securities used as collateral can be sold, re-pledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party. Refer to Note 12 for further discussion of the Company’s derivatives, including collateral arrangements.

As part of the Company’s treasury and broker-dealer operations, the Company transacts in arrangements that are treated as securities sold under agreements to repurchase or securities purchased under agreements to resell, both of which are accounted for as collateralized financings. Securities sold under agreements to repurchase include repurchase agreements and securities loaned transactions. Securities purchased under agreements to resell include reverse repurchase agreements and securities borrowed transactions. For securities sold under agreements to repurchase, the Company records a liability for the cash received, which is included in short-term borrowings on the Consolidated Balance Sheet. For securities purchased under agreements to resell, the Company records a receivable for the cash paid, which is included in other assets on the Consolidated Balance Sheet.

Securities transferred to counterparties under repurchase agreements and securities loaned transactions continue to be recognized on the Consolidated Balance Sheet, are measured at fair value, and are included in investment securities or other assets. Securities received from counterparties under reverse repurchase agreements and securities borrowed transactions are not recognized on the Consolidated Balance Sheet unless the counterparty defaults. Under all transactions, the fair value of the securities are determined daily, and additional cash is obtained or refunded to counterparties where appropriate. The securities transferred under repurchase and reverse repurchase transactions typically are U.S. Treasury securities or agency mortgage-backed securities. The securities loaned or borrowed are typically high-grade corporate bonds traded by the Company’s broker-dealer. The securities transferred can be sold, repledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party.

The Company executes its derivative, repurchase/reverse repurchase and securities loaned/borrowed transactions under the respective industry standard agreements. These agreements include master netting arrangements that allow for multiple contracts executed with the same counterparty to be viewed as a single arrangement. This allows for net settlement of a single amount on a daily basis. In the event of default, the master netting arrangement provides for close-out netting, which allows all positions with the defaulting counterparty to be terminated and net settled with a single payment amount.

The Company has elected to offset the assets and liabilities under netting arrangements for the balance sheet presentation of the majority of its derivative counterparties. The netting occurs at the counterparty level, and includes all receivables and payables related to the derivative contracts, including those associated with cash collateral received or pledged. The Company has not elected to offset the assets and liabilities under netting arrangements for the balance sheet presentation of repurchase/reverse repurchase and securities loaned/borrowed transactions.

The following tables provide information on the Company’s netting adjustments, and items not offset in the Consolidated Balance Sheet but available for offset in the event of default:

	Gross Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet			Net Amounts Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet
(Dollars in Millions)								Financial Instruments (a)			Collateral Received (b)			Net Amount
March 31, 2013
Derivative assets (c)	$	1,596	$	(515	)	$	1,081	$	(27	)	$	–		$	1,054
Reverse repurchase agreements		44		–			44		(31	)		(13	)		–
Securities borrowed		628		–			628		–			(609	)		19
Total	$	2,268	$	(515	)	$	1,753	$	(58	)	$	(622	)	$	1,073
December 31, 2012
Derivative assets (c)	$	1,546	$	(418	)	$	1,128	$	(31	)	$	–		$	1,097
Reverse repurchase agreements		363		–			363		(44	)		(319	)		–
Securities borrowed		368		–			368		–			(356	)		12
Total	$	2,277	$	(418	)	$	1,859	$	(75	)	$	(675	)	$	1,109

(a) For derivative assets this includes any derivative liability fair values that could be offset in the event of counterparty default; for reverse repurchase agreements this includes any repurchase agreement payables that could be offset in the event of counterparty default; for securities borrowed this includes any securities loaned payables that could be offset in the event of counterparty default.

(b) Includes the fair value of securities received by the Company from the counterparty. These securities are not included in the Consolidated Balance Sheet unless the counterparty defaults.

(c) Excludes $160 million and $260 million of derivative assets not subject to netting arrangements at March 31, 2013 and December 31, 2012, respectively.

	Gross Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet			Net Amounts Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet
(Dollars in Millions)								Financial Instruments (a)			Collateral Pledged (b)			Net Amount
March 31, 2013
Derivative liabilities (c)	$	2,131	$	(1,472	)	$	659	$	(27	)	$	–		$	632
Repurchase agreements		2,392		–			2,392		(31	)		(2,361	)		–
Securities loaned		–		–			–		–			–			–
Total	$	4,523	$	(1,472	)	$	3,051	$	(58	)	$	(2,361	)	$	632
December 31, 2012
Derivative liabilities (c)	$	2,178	$	(1,549	)	$	629	$	(31	)	$	–		$	598
Repurchase agreements		3,389		–			3,389		(44	)		(3,345	)		–
Securities loaned		–		–			–		–			–			–
Total	$	5,567	$	(1,549	)	$	4,018	$	(75	)	$	(3,345	)	$	598

(a) For derivative liabilities this includes any derivative asset fair values that could be offset in the event of counterparty default; for repurchase agreements this includes any reverse repurchase agreement receivables that could be offset in the event of counterparty default; for securities loaned this includes any securities borrowed receivables that could be offset in the event of counterparty default.

(b) Includes the fair value of securities pledged by the Company to the counterparty. These securities are included in the Consolidated Balance Sheet unless the Company defaults.

(c) Excludes $8 million and $5 million of derivative liabilities not subject to netting arrangements at March 31, 2013 and December 31, 2012, respectively.