Note 8: Equity Securities

Table 8.1 provides a summary of our equity securities by business purpose and accounting method, including equity securities with readily determinable fair values (marketable) and those without readily determinable fair values (nonmarketable).

Table 8.1: Equity Securities



	Mar 31,		Dec 31,
(in millions)	2019		2018
Held for trading at fair value:
Marketable equity securities	$	20,933	19,449
Not held for trading:
Fair value:
Marketable equity securities (1)	5,135		4,513
Nonmarketable equity securities (2)	6,518		5,594
Total equity securities at fair value	11,653		10,107
Equity method:
Low-income housing tax credit investments	10,925		10,999
Private equity	3,890		3,832
Tax-advantaged renewable energy	3,041		3,073
New market tax credit and other	305		311
Total equity method	18,161		18,215
Other:
Federal Reserve Bank stock and other at cost (3)	5,732		5,643
Private equity (4)	1,961		1,734
Total equity securities not held for trading	37,507		35,699
Total equity securities	$	58,440	55,148


(1)	Includes $3.5 billion and $3.2 billion at March 31, 2019, and December 31, 2018, respectively, related to securities held as economic hedges of our deferred compensation plan obligations.


(2)	Includes $6.4 billion and $5.5 billion at March 31, 2019, and December 31, 2018, respectively, related to investments for which we elected the fair value option. See Note 16 (Fair Value of Assets and Liabilities) for additional information.


(3)	Includes $5.7 billion and $5.6 billion at March 31, 2019 and December 31, 2018, respectively, related to investments in Federal Reserve Bank and Federal Home Loan Bank stock.


(4)	Represents nonmarketable equity securities for which we have elected to account for the security under the measurement alternative.

Equity Securities Held for Trading

Equity securities held for trading purposes are marketable equity securities traded on organized exchanges. These securities are held as part of our customer accommodation trading activities. For more information on these activities, see Note 4 (Trading Activities).

Equity Securities Not Held for Trading

We also hold equity securities unrelated to trading activities. These securities include private equity and tax credit investments, securities held as economic hedges or to meet regulatory requirements (for example, Federal Reserve Bank and Federal Home Loan Bank stock). Equity securities not held for trading purposes are accounted for at either fair value, equity method, cost or the measurement alternative.

FAIR VALUE Marketable equity securities held for purposes other than trading primarily consist of exchange-traded equity funds held to economically hedge obligations related to our deferred compensation plans and to a lesser extent other holdings of publicly traded equity securities held for investment purposes. We have elected to account for certain nonmarketable equity securities under the fair value method, and substantially all of these securities are economically hedged with equity derivatives.

EQUITY METHOD Our equity method investments consist of tax credit and private equity investments, the majority of which are our low-income housing tax credit (LIHTC) investments.

We invest in affordable housing projects that qualify for the LIHTC, which are designed to promote private development of low-income housing. These investments generate a return mostly through realization of federal tax credit and other tax benefits. In first quarter 2019, we recognized pre-tax losses of $273 million related to our LIHTC investments, compared with $280 million in first quarter 2018. These losses were recognized in other noninterest income. We also recognized total tax benefits of $370 million in first quarter 2019, which included tax credits recorded to income taxes of $302 million. In first quarter 2018, total tax benefits were $359 million, which included tax credits of $290 million. We are periodically required to provide additional financial support during the investment period. A liability is recognized for unfunded commitments that are both legally binding and probable of funding. These commitments are predominantly funded within three years of initial investment. Our liability for these unfunded commitments was $3.7 billion at March 31, 2019, and $3.6 billion at December 31, 2018. This liability for unfunded commitments is included in long-term debt.

OTHER The remaining portion of our nonmarketable equity securities portfolio consists of securities accounted for using the cost or measurement alternative method.

Realized Gains and Losses

Table 8.2 provides a summary of the net gains and losses for equity securities not held for trading. Gains and losses for securities held for trading are reported in net gains from trading activities.

Table 8.2: Net Gains (Losses) from Equity Securities Not Held for Trading



	Quarter ended March 31,
(in millions)	2019			2018
Net gains (losses) from equity securities carried at fair value:
Marketable equity securities	$	377		8
Nonmarketable equity securities	936			109
Total equity securities carried at fair value	1,313			117
Net gains (losses) from nonmarketable equity securities not carried at fair value:
Impairment write-downs	(36		)	(20	)
Net unrealized gains related to measurement alternative observable transactions	185			228
Net realized gains on sale	237			498
All other	—			18
Total nonmarketable equity securities not carried at fair value	386			724
Net losses from economic hedge derivatives (1)	(885		)	(58	)
Total net gains from equity securities	$	814		783


(1)	Includes net gains (losses) on derivatives not designated as hedging instruments.

Measurement Alternative

Table 8.3 provides additional information about the impairment write-downs and observable price adjustments related to nonmarketable equity securities accounted for under the measurement alternative. Gains and losses related to these adjustments are also included in Table 8.2.

Table 8.3: Net Gains (Losses) from Measurement Alternative Equity Securities



	Quarter ended March 31,
(in millions)	2019			2018
Net gains (losses) recognized in earnings during the period:
Gross unrealized gains due to observable price changes	$	185		228
Impairment write-downs	(22		)	(7	)
Realized net gains from sale	23			75
Total net gains recognized during the period	$	186		296

Table 8.4 presents cumulative carrying value adjustments to nonmarketable equity securities accounted for under the measurement alternative that were still held as of the balance sheet date.

Table 8.4: Measurement Alternative Cumulative Gains (Losses)



	Mar 31,			Dec 31,
(in millions)	2019			2018
Cumulative gains (losses):
Gross unrealized gains due to observable price changes	$	577		415
Gross unrealized losses due to observable price changes	(25		)	(25	)
Impairment write-downs	(55		)	(33	)