Derivative Financial Instruments (Tables)

6 Months Ended

Jun. 30, 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.



	June 30, 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⁾	$	—	$	—	$	—	$	1
Bilateral OTC⁽²⁾	—		84		—		164
Interest rate contracts	—		84		—		165
Derivatives accounted for as cash flow hedges⁽¹⁾
Foreign exchange contracts - bilateral OTC⁽²⁾	19		1		16		20
Interest rate contracts - bilateral OTC⁽²⁾	—		—		—		1
Total derivatives accounted for as hedges	19		85		16		186
Trading derivatives not accounted for as hedges⁽³⁾
Exchange-traded⁽²⁾	9		12		110		3
OTC-cleared⁽²⁾	71		80		167		29
Bilateral OTC⁽²⁾	16,739		19,146		11,990		13,324
Interest rate contracts	16,819		19,238		12,267		13,356
Exchange-traded⁽²⁾	—		—		80		—
OTC-cleared ⁽²⁾	—		8		—		—
Bilateral OTC⁽²⁾	19,706		18,871		16,440		15,786
Foreign exchange contracts	19,706		18,879		16,520		15,786
Equity contracts - Bilateral OTC⁽²⁾	3,585		3,635		3,753		3,993
Exchange-traded⁽²⁾	1		99		71		80
Bilateral OTC⁽²⁾	1,625		1,791		1,087		1,309
Precious metals contracts	1,626		1,890		1,158		1,389
OTC-cleared⁽²⁾	94		—		1		—
Bilateral OTC⁽²⁾	699		900		1,138		1,024
Credit contracts	793		900		1,139		1,024
Other non-qualifying derivatives not accounted for as hedges⁽¹⁾
Interest rate contracts - bilateral OTC⁽²⁾	139		3		128		51
Foreign exchange contracts - bilateral OTC⁽²⁾	—		1		—		—
Equity contracts - bilateral OTC⁽²⁾	857		291		1,354		75
Credit contracts - bilateral OTC⁽²⁾	3		54		—		44
Other contracts - bilateral OTC⁽²⁾⁽⁴⁾	9		73		10		85
Total derivatives	43,556		45,049		36,345		35,989
Less: Gross amounts of receivable / payable subject to enforceable master netting agreements⁽⁵⁾⁽⁷⁾	36,240		36,240		29,510		29,510
Less: Gross amounts of cash collateral received / posted subject to enforceable master netting agreements⁽⁶⁾⁽⁷⁾	3,913		6,042		3,683		4,390
Net amounts of derivative assets / liabilities presented in the balance sheet	3,403		2,767		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	638		1,002		891		553
Net amounts of derivative assets / liabilities	$	2,765	$	1,765	$	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 June 30, 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 June 30, 2020
Securities available-for-sale ("AFS")	$	9,547	$	1,167	$	780		$	1,947
Deposits⁽²⁾	3,234		234		—			234
Long-term debt	5,932		328		(19		)	309
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 June 30, 2020
Interest rate contracts / Securities AFS	Net interest income	$	12		$	52
Interest rate contracts / Deposits	Net interest income	—			(35		)
Interest rate contracts / Long-term debt	Net interest income	50			(61		)
Total		$	62		$	(44	)

Three Months Ended June 30, 2019
Interest rate contracts / Securities AFS	Net interest income	$	(404	)	$	488
Interest rate contracts / Long-term debt	Net interest income	153			(290		)
Total		$	(251	)	$	198

Six Months Ended June 30, 2020
Interest rate contracts / Securities AFS	Net interest income	$	(1,144	)	$	1,230
Interest rate contracts / Deposits	Net interest income	120			(181		)
Interest rate contracts / Long-term debt	Net interest income	227			(290		)
Total		$	(797	)	$	759

Six Months Ended June 30, 2019
Interest rate contracts / Securities AFS	Net interest income	$	(661	)	$	838
Interest rate contracts / Long-term debt	Net interest income	237			(489		)
Total		$	(424	)	$	349

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 June 30,
Foreign exchange contracts	$	—	$	—		Net interest income	$	—		$	—
Interest rate contracts	—		(2		)	Net interest income	(4		)	(9		)
Total	$	—	$	(2	)		$	(4	)	$	(9	)

Six Months Ended June 30,
Foreign exchange contracts	$	—	$	1		Net interest income	$	—		$	—
Interest rate contracts	113		5			Net interest income	(10		)	(19		)
Total	$	113	$	6			$	(10	)	$	(19	)

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 June 30,						Six Months Ended June 30,
		2020			2019			2020			2019
		(in millions)
Interest rate contracts	Trading revenue	$	(135	)	$	(171	)	$	(118	)	$	(115	)
Foreign exchange contracts⁽¹⁾	Trading revenue	(144		)	253			(809		)	239
Equity contracts	Trading revenue	(189		)	(61		)	1,068			(150		)
Precious metals contracts⁽¹⁾	Trading revenue	223			36			383			53
Credit contracts	Trading revenue	35			(145		)	(622		)	(267		)
Total		$	(210	)	$	(88	)	$	(98	)	$	(240	)

⁽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 $424 million and $575 million of gains from foreign exchange contracts to precious metals contracts during the three and six months ended June 30, 2019, respectively, 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 June 30,						Six Months Ended June 30,
		2020			2019			2020			2019
		(in millions)
Interest rate contracts	Gain (loss) on instruments designated at fair value and related derivatives	$	19		$	180		$	269		$	336
Interest rate contracts	Other income (loss)	2			(1		)	(1		)	(2		)
Foreign exchange contracts	Gain (loss) on instruments designated at fair value and related derivatives	—			1			(2		)	—
Equity contracts	Gain (loss) on instruments designated at fair value and related derivatives	1,085			324			(613		)	1,238
Credit contracts	Gain (loss) on instruments designated at fair value and related derivatives	—			—			37			—
Credit contracts	Other income (loss)	(38		)	(4		)	13			(14		)
Other contracts⁽¹⁾	Other income (loss)	(12		)	(3		)	(1		)	(9		)
Total		$	1,056		$	497		$	(298	)	$	1,549


⁽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	$	33	$	183

Notional Value of Derivative Contracts

The following table summarizes the notional values of derivative contracts:



	June 30, 2020		December 31, 2019
	(in millions)
Interest rate:
Futures and forwards	$	492,827	$	597,980
Swaps	1,633,572		2,130,442
Options written	85,733		158,861
Options purchased	90,289		164,265
	2,302,421		3,051,548
Foreign exchange:
Swaps, futures and forwards	1,114,801		1,362,959
Options written	31,766		44,876
Options purchased	31,970		46,085
Spot	81,472		67,060
	1,260,009		1,520,980
Commodities, equities and precious metals:
Swaps, futures and forwards	65,008		55,678
Options written	35,138		39,035
Options purchased	45,260		49,517
	145,406		144,230
Credit derivatives	83,278		90,049
Other contracts⁽¹⁾	1,074		1,044
Total	$	3,792,188	$	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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