Loans Held for Sale

12 Months Ended

Dec. 31, 2021

Loans held for sale consisted of the following:


At December 31,	2021		2020
	(in millions)
Commercial loans:
Real estate, including construction	$	—	$	10
Business and corporate banking	123		—
Global banking	338		119
Total commercial	461		129
Consumer loans:
Residential mortgages	3,082		208
Home equity mortgages	275		—
Credit cards	195		—
Other consumer	204		—
Total consumer	3,756		208
Total loans held for sale	$	4,217	$	337

Commercial Loans During the second quarter of 2021, as part of our Restructuring Plan we made the decision to exit our mass market retail banking business. See Note 4, "Branch Assets and Liabilities Held for Sale," for additional information. As a result, during the second quarter of 2021, we transferred our retail business banking loan portfolio to held for sale with a carrying value of $149 million. The lower of amortized cost or fair value adjustment upon transferring these loans to held for sale was not material. At December 31, 2021, the carrying value of these loans was $79 million.

Also included in commercial loans held for sale are certain other loans that we no longer intend to hold for investment and were transferred to held for sale which totaled $359 million and $93 million at December 31, 2021 and 2020, respectively. During 2021, 2020 and 2019, we recorded $7 million, $23 million and nil, respectively, of lower of amortized cost or fair value adjustments associated with the write-down of these commercial loans held for sale as a component of other income (loss) in the consolidated statement of income (loss).

During the fourth quarter of 2021, we sold a portfolio of commercial real estate loans to a third-party sponsored asset-backed financing entity with a carrying value of $1,032 million at the time of sale and recognized an immaterial loss on sale, including transaction costs. These commercial real estate loans were transferred to held for sale during the third quarter of 2021 as part of an effort to reduce exposure to this sector and improve returns on risk-weighted assets. There was no lower of amortized cost or fair value adjustment recorded upon transferring these loans to held for sale. In connection with the sale, we provided a loan to the third-party buyer sponsored asset-backed financing entity for a portion of the purchase price. See Note 27, "Variable Interest Entities," for additional information.

In addition, commercial loans held for sale includes certain loans that we have elected to designate under the fair value option which consists of loans that we originate in connection with our participation in a number of syndicated credit facilities with the intent of selling them to unaffiliated third parties as well as loans that we purchase from the secondary market and hold as hedges against our exposure to certain total return swaps. The fair value of these loans totaled $23 million and $36 million at December 31, 2021 and 2020, respectively. See Note 17, "Fair Value Option," for additional information.

Consumer Loans As discussed above, during the second quarter of 2021, as part of our Restructuring Plan we made the decision to exit our mass market retail banking business as well as our remaining retail credit card portfolio. As a result, during the second quarter of 2021, we transferred certain consumer loans to held for sale, including loans related to the branch disposal group, with a carrying value which collectively totaled $3,616 million, including $2,364 million of residential mortgages, $265 million of home equity mortgages, $829 million of credit cards and $158 million of other consumer loans. There was no lower of amortized cost or fair value adjustment recorded upon transferring these loans to held for sale. During the second half of 2021, we recorded $7 million of lower of amortized cost or fair value adjustments on these consumer loans held for sale as a component of other income (loss) in the consolidated statement of income (loss) as a result of a reduction in the estimated pricing on specific pools of loans.

During the fourth quarter of 2021, consistent with our Restructuring Plan, we identified additional consumer loans that we no longer have the intent to hold for investment, consisting primarily of certain non-performing mortgage loans and government-backed mortgage loans as well as our remaining student loans. As a result, during the fourth quarter of 2021, we transferred

loans to held for sale with a carrying value which collectively totaled $778 million, including related escrow advances. The lower of amortized cost or fair value adjustment upon transferring these loans to held for sale was not material. At December 31, 2021, the carrying value of these transferred loans totaled $3,681 million, including $3,007 million of residential mortgages, $275 million of home equity mortgages, $195 million of credit cards and $204 million of other consumer loans (of which $25 million are student loans that we have previously elected to designate under the fair value option and are therefore carried at fair value).

During the fourth quarter of 2021, we sold a portfolio of mass market retail credit cards to a third party with a carrying value of $382 million at the time of sale and recognized a gain on sale of approximately $9 million, net of transaction costs. Under the terms of the sale agreement, we will continue to service the portfolio for a period of time not anticipated to exceed one year. Upon completion of the sale, a portfolio of Premier credit cards with a carrying value of $204 million was transferred back to held for investment as we now intend to hold these loans for the foreseeable future. These credit card portfolios were transferred to held for sale during the second quarter of 2021 as discussed above, but were not included in the branch disposal group.

Also included in residential mortgage loans held for sale are agency-eligible conforming residential mortgage loans which are originated and held for sale to third parties, currently on a servicing retained basis. Gains and losses from the sale of these residential mortgage loans are reflected as a component of other income (loss) in the consolidated statement of income (loss).

Loans held for sale are subject to market risk, liquidity risk and interest rate risk, in that their value will fluctuate as a result of changes in market conditions, as well as the credit environment. Interest rate risk for residential mortgage loans which are originated and held for sale is partially mitigated through an economic hedging program to offset changes in the fair value of these mortgage loans held for sale, from the time of commitment to sale, attributable to changes in market interest rates. Revenue associated with this economic hedging program, which is reflected as a component of other income (loss) in the consolidated statement of income (loss), was losses of $2 million, $6 million and $1 million during 2021, 2020 and 2019, respectively.

Valuation Allowances Excluding the loans designated under the fair value option discussed above, loans held for sale are recorded at the lower of amortized cost or fair value, with adjustments to fair value being recorded as a valuation allowance through other revenues. The valuation allowance on consumer loans held for sale was $7 million and nil at December 31, 2021 and 2020, respectively. The valuation allowance on commercial loans held for sale was $5 million and $1 million at December 31, 2021 and 2020, respectively.