Equity Securities

3 Months Ended

Mar. 31, 2020

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



(in millions)	Mar 31, 2020		Dec 31, 2019
Held for trading at fair value:
Marketable equity securities	$	13,573	27,440
Not held for trading:
Fair value:
Marketable equity securities (1)	7,708		6,481
Nonmarketable equity securities	6,895		8,015
Total equity securities at fair value	14,603		14,496
Equity method:
Low-income housing tax credit investments	11,290		11,343
Private equity	3,351		3,459
Tax-advantaged renewable energy	3,991		3,811
New market tax credit and other	387		387
Total equity method	19,019		19,000
Other:
Federal Reserve Bank stock and other at cost (2)	4,512		4,790
Private equity (3)	2,340		2,515
Total equity securities not held for trading	40,474		40,801
Total equity securities	$	54,047	68,241


(1)	Includes $3.1 billion and $3.8 billion at March 31, 2020, and December 31, 2019, respectively, related to securities held as economic hedges of our deferred compensation plan obligations.


(2)	Includes $4.5 billion and $4.8 billion at March 31, 2020, and December 31, 2019, respectively, related to investments in Federal Reserve Bank and Federal Home Loan Bank stock.


(3)	Represents nonmarketable equity securities accounted for 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).

FAIR VALUE Marketable equity securities held for purposes other than trading partially 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 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 2020, we recognized pre-tax losses of $339 million related to our LIHTC investments, compared with $273 million in first quarter 2019. These losses were recognized in other noninterest income. We also recognized total tax benefits of $398 million in first quarter 2020, which included tax credits recorded to income taxes of $314 million. In first quarter 2019, total tax benefits were $370 million, which included tax credits of $302 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 $4.2 billion at March 31, 2020, and $4.3 billion at December 31, 2019. 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.

Realized Gains and Losses Not Held for Trading

Table 8.2 provides a summary of the net gains and losses from 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)	2020			2019
Net gains (losses) from equity securities carried at fair value:
Marketable equity securities	$	(803	)	377
Nonmarketable equity securities	(1,104		)	936
Total equity securities carried at fair value	(1,907		)	1,313
Net gains (losses) from nonmarketable equity securities not carried at fair value:
Impairment write-downs	(935		)	(36	)
Net unrealized gains related to measurement alternative observable transactions	222			185
Net realized gains on sale	—			237
All other	—			—
Total nonmarketable equity securities not carried at fair value	(713		)	386
Net gains (losses) from economic hedge derivatives (1)	1,219			(885	)
Total net gains (losses) from equity securities not held for trading	$	(1,401	)	814


(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)	2020			2019
Net gains (losses) recognized in earnings during the period:
Gross unrealized gains due to observable price changes	$	222		185
Gross unrealized losses due to observable price changes	—			—
Impairment write-downs	(354		)	(22	)
Realized net gains from sale	2			23
Total net gains (losses) recognized during the period	$	(130	)	186

Table 8.4 presents cumulative carrying value adjustments to nonmarketable equity securities accounted for under the measurement alternative that were still held at the end of each reporting period presented.

Table 8.4: Measurement Alternative Cumulative Gains (Losses)



(in millions)	Mar 31, 2020			Dec 31, 2019
Cumulative gains (losses):
Gross unrealized gains due to observable price changes	$	1,084		973
Gross unrealized losses due to observable price changes	(42		)	(42	)
Impairment write-downs	(473		)	(134	)