Derivative Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The following table presents the fair value of derivative contracts by major product type on a gross basis. Gross fair values exclude the effects of both counterparty netting as well as collateral, and therefore are not representative of our exposure. The table below also presents the amounts of counterparty netting and cash collateral that have been offset in the consolidated balance sheet, as well as cash and securities collateral posted and received under enforceable master netting agreements that do not meet the criteria for netting. Derivative assets and liabilities which are not subject to an enforceable master netting agreement, or are subject to a netting agreement where an appropriate legal opinion to determine such agreements are enforceable has not been either sought or obtained, have not been netted in the following table. Where we have received or posted collateral under netting agreements where an appropriate legal opinion to determine such agreements are enforceable has not been either sought or obtained, the related collateral also has not been netted in the following table.



	March 31, 2020				December 31, 2019
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
	(in millions)
Derivatives accounted for as fair value hedges⁽¹⁾
OTC-cleared⁽²⁾	$	—	$	2	$	—	$	1
Bilateral OTC⁽²⁾	—		291		—		164
Interest rate contracts	—		293		—		165
Derivatives accounted for as cash flow hedges⁽¹⁾
Foreign exchange contracts - bilateral OTC⁽²⁾	12		8		16		20
Interest rate contracts - bilateral OTC⁽²⁾	—		2		—		1
Total derivatives accounted for as hedges	12		303		16		186
Trading derivatives not accounted for as hedges⁽³⁾
Exchange-traded⁽²⁾	11		11		110		3
OTC-cleared⁽²⁾	126		17		167		29
Bilateral OTC⁽²⁾	19,494		22,164		11,990		13,324
Interest rate contracts	19,631		22,192		12,267		13,356
Exchange-traded⁽²⁾	—		7		80		—
OTC-cleared ⁽²⁾	41		—		—		—
Bilateral OTC⁽²⁾	31,072		29,727		16,440		15,786
Foreign exchange contracts	31,113		29,734		16,520		15,786
Exchange-traded⁽²⁾	1		—		—		—
Bilateral OTC⁽²⁾	4,182		3,201		3,753		3,993
Equity contracts	4,183		3,201		3,753		3,993
Exchange-traded⁽²⁾	—		147		71		80
Bilateral OTC⁽²⁾	2,211		2,040		1,087		1,309
Precious metals contracts	2,211		2,187		1,158		1,389
OTC-cleared⁽²⁾	85		—		1		—
Bilateral OTC⁽²⁾	1,876		2,307		1,138		1,024
Credit contracts	1,961		2,307		1,139		1,024
Other non-qualifying derivatives not accounted for as hedges⁽¹⁾
Interest rate contracts - bilateral OTC⁽²⁾	211		5		128		51
Foreign exchange contracts - bilateral OTC⁽²⁾	—		2		—		—
Equity contracts - bilateral OTC⁽²⁾	423		929		1,354		75
Credit contracts - bilateral OTC⁽²⁾	30		21		—		44
Other contracts - bilateral OTC⁽²⁾⁽⁴⁾	9		67		10		85
Total derivatives	59,784		60,948		36,345		35,989
Less: Gross amounts of receivable / payable subject to enforceable master netting agreements⁽⁵⁾⁽⁷⁾	48,099		48,099		29,510		29,510
Less: Gross amounts of cash collateral received / posted subject to enforceable master netting agreements⁽⁶⁾⁽⁷⁾	6,178		9,131		3,683		4,390
Net amounts of derivative assets / liabilities presented in the balance sheet	5,507		3,718		3,152		2,089
Less: Gross amounts of financial instrument collateral received / posted subject to enforceable master netting agreements but not offset in the consolidated balance sheet	1,443		552		891		553
Net amounts of derivative assets / liabilities	$	4,064	$	3,166	$	2,261	$	1,536


⁽¹⁾	Derivative assets / liabilities related to cash flow hedges, fair value hedges and derivative instruments held for purposes other than for trading are recorded in other assets / interest, taxes and other liabilities on the consolidated balance sheet.

⁽²⁾

Over-the-counter ("OTC") derivatives include derivatives executed and settled bilaterally with counterparties without the use of an organized exchange or central clearing house. The credit risk associated with bilateral OTC derivatives is managed through obtaining collateral and enforceable master netting agreements. OTC-cleared derivatives are executed bilaterally in the OTC market but then novated to a central clearing counterparty, whereby the central clearing counterparty becomes the counterparty to each of the original counterparties. Exchange traded derivatives are executed directly on an organized exchange. Credit risk is minimized for OTC-cleared derivatives and exchange traded derivatives through daily margining requirements. In addition, OTC-cleared interest rate and credit derivatives with certain central clearing counterparties are settled daily.


⁽³⁾	Trading related derivative assets / liabilities are recorded in trading assets / trading liabilities on the consolidated balance sheet.


⁽⁴⁾	Consists of swap agreements entered into in conjunction with the sales of Visa Inc. ("Visa") Class B common shares ("Class B Shares").


⁽⁵⁾	Represents the netting of derivative receivable and payable balances for the same counterparty under enforceable netting agreements.


⁽⁶⁾	Represents the netting of cash collateral posted and received by counterparty under enforceable netting agreements.


⁽⁷⁾	Netting is performed at a counterparty level in cases where enforceable master netting agreements are in place, regardless of the type of derivative instrument. Therefore, we have not allocated netting to the different types of derivative instruments shown in the table above.

Schedule of Gains and Losses on Fair Value Hedging Instruments

The following table presents the carrying amount of hedged items in fair value hedges recognized in the consolidated balance sheet at March 31, 2020 and December 31, 2019, along with the cumulative amount of fair value hedging adjustments included in the carrying amount of those hedged items:



	Carrying Amount of Hedged Items⁽¹⁾		Cumulative Amount of Fair Value Hedging Adjustments Increasing (Decreasing) the Carrying Amount of Hedged Items
	Carrying Amount of Hedged Items⁽¹⁾		Active		Discontinued			Total
	(in millions)
At March 31, 2020
Securities available-for-sale ("AFS")	$	10,928	$	1,630	$	356		$	1,986
Deposits⁽²⁾	3,229		229		—			229
Long-term debt	5,927		326		(22		)	304
At December 31, 2019
Securities available-for-sale ("AFS")	7,277		554		428			982
Long-term debt	10,975		285		(32		)	253


⁽¹⁾	The carrying amount of securities AFS represents the amortized cost basis.


⁽²⁾	During the first quarter of 2020, $3.0 billion of fixed-rate senior debt obligations issued to HSBC North America were recharacterized as time deposits. The cumulative amount of fair value hedging adjustments associated with this debt was reclassified to deposits. See Note 14, "Related Party Transactions," for additional information.

The following table presents information on gains and losses on derivative instruments designated and qualifying as hedging instruments and the hedged items in fair value hedges and their locations on the consolidated statement of income (loss):



	Location of Gain (Loss) Recognized in Income	Gain (Loss) on Derivatives			Gain (Loss) on Hedged Items
		(in millions)
Three Months Ended March 31, 2020
Interest rate contracts / Securities AFS	Net interest income	$	(1,156	)	$	1,178
Interest rate contracts / Deposits	Net interest income	120			(146		)
Interest rate contracts / Long-term debt	Net interest income	177			(229		)
Total		$	(859	)	$	803

Three Months Ended March 31, 2019
Interest rate contracts / Securities AFS	Net interest income	$	(257	)	$	350
Interest rate contracts / Long-term debt	Net interest income	84			(199		)
Total		$	(173	)	$	151

Schedule of Gains and Losses on Cash Flow Hedging Instruments

The following table presents information on gains and losses on derivative instruments designated and qualifying as hedging instruments in cash flow hedges (including amounts recognized in AOCI from discontinued cash flow hedges) and their locations on the consolidated statement of income (loss):



	Gain (Loss) Recognized in AOCI on Derivatives				Location of Gain (Loss) Reclassified from AOCI into Income	Gain (Loss) Reclassified From AOCI into Income
	2020		2019		Location of Gain (Loss) Reclassified from AOCI into Income	2020			2019
	(in millions)
Three Months Ended March 31,
Foreign exchange contracts	$	—	$	1	Net interest income	$	—		$	—
Interest rate contracts	113		7		Net interest income	(6		)	(10		)
Total	$	113	$	8		$	(6	)	$	(10	)

Schedule of Gains and Losses on Derivative Instruments Included in Trading Activities

The following table presents information on gains and losses on derivative instruments held for trading purposes and their locations on the consolidated statement of income (loss):



	Location of Gain (Loss) Recognized in Income on Derivatives	Gain (Loss) Recognized in Income on Derivatives
		Three Months Ended March 31,
		2020			2019
		(in millions)
Interest rate contracts	Trading revenue	$	17		$	56
Foreign exchange contracts⁽¹⁾	Trading revenue	(665		)	(14		)
Equity contracts	Trading revenue	1,257			(89		)
Precious metals contracts⁽¹⁾	Trading revenue	160			17
Credit contracts	Trading revenue	(657		)	(122		)
Total		$	112		$	(152	)

⁽¹⁾

During the third quarter of 2019, we changed our presentation for certain derivatives that were previously reported in foreign exchange contracts and began reporting these derivatives in precious metals contracts. As a result, we have reclassified $151 million of gains from foreign exchange contracts to precious metals contracts during the three months ended March 31, 2019 to conform with the current year presentation.

Schedule of Gains and Losses on Derivative Instruments Held for Non-qualifying Hedging Activities

The following table presents information on gains and losses on derivative instruments held for non-qualifying hedging and other activities and their locations on the consolidated statement of income (loss):



	Location of Gain (Loss) Recognized in Income on Derivatives	Gain (Loss) Recognized in Income on Derivatives
		Three Months Ended March 31,
		2020			2019
		(in millions)
Interest rate contracts	Loss on instruments designated at fair value and related derivatives	$	250		$	156
Interest rate contracts	Other income (loss)	(3		)	(1		)
Foreign exchange contracts	Loss on instruments designated at fair value and related derivatives	(2		)	(1		)
Equity contracts	Loss on instruments designated at fair value and related derivatives	(1,698		)	914
Credit contracts	Loss on instruments designated at fair value and related derivatives	37			—
Credit contracts	Other income (loss)	51			(10		)
Other contracts⁽¹⁾	Other income (loss)	11			(6		)
Total		$	(1,354	)	$	1,052


⁽¹⁾	Consists of swap agreements entered into in conjunction with the sales of Visa Class B Shares.

Credit-Risk Related Contingent Features

The following table presents the amount of additional collateral that we would be required to post (from the current collateral level) related to derivative instruments with credit-risk related contingent features if our long-term ratings were downgraded by one or two notches. A downgrade by a single rating agency that does not result in a rating lower than a preexisting corresponding rating provided by another rating agency will generally not result in additional collateral.



	One-notch downgrade		Two-notch downgrade
	(in millions)
Amount of additional collateral to be posted upon downgrade	$	51	$	100

Notional Value of Derivative Contracts

The following table summarizes the notional values of derivative contracts:



	March 31, 2020		December 31, 2019
	(in millions)
Interest rate:
Futures and forwards	$	765,243	$	597,980
Swaps	1,938,082		2,130,442
Options written	116,380		158,861
Options purchased	121,867		164,265
	2,941,572		3,051,548
Foreign exchange:
Swaps, futures and forwards	1,304,885		1,362,959
Options written	35,269		44,876
Options purchased	36,088		46,085
Spot	44,391		67,060
	1,420,633		1,520,980
Commodities, equities and precious metals:
Swaps, futures and forwards	73,740		55,678
Options written	35,418		39,035
Options purchased	45,636		49,517
	154,794		144,230
Credit derivatives	95,364		90,049
Other contracts⁽¹⁾	895		1,044
Total	$	4,613,258	$	4,807,851


⁽¹⁾	Consists of swap agreements entered into in conjunction with the sales of Visa Class B Shares.

- Definition

Tabular disclosure of pertinent information about a derivative or group of derivatives on a disaggregated basis, such as for individual instruments, or small groups of similar instruments. May include a combination of the type of instrument, risks being hedged, notional amount, hedge designation, related hedged item, inception date, maturity date, or other relevant item.

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