Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Carrying Value and Estimated Fair Value of Financial Instruments

The following table summarizes the carrying value and estimated fair value of our financial instruments at September 30, 2012 and December 31, 2011.


	September 30, 2012										December 31, 2011
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Carrying Value		Fair Value
	(in millions)
Financial assets:
Short-term financial assets	$	17,203	$	17,203	$	1,385	$	15,313	$	505	$	27,534	$	27,534
Federal funds sold and securities purchased under resale agreements		11,678		11,678		-		11,678		-		3,109		3,104
Non-derivative trading assets		29,243		29,243		2,283		23,928		3,032		30,028		30,028
Derivatives		10,699		10,699		14		10,496		189		9,826		9,826
Securities		64,273		64,509		38,004		26,505		-		55,316		55,579
Commercial loans, net of allowance for credit losses		42,221		42,897		-		-		42,987		33,207		33,535
Commercial loans designated under fair value option and held for sale		424		424		-		424		-		378		378
Commercial loans held for sale		19		19		-		-		19		587		587
Consumer loans, net of allowance for credit losses		18,594		14,606		-		-		14,606		17,917		14,301
Consumer loans held for sale:
Residential mortgages		548		568		-		-		568		2,058		2,071
Credit cards		-		-		-		-		-		416		416
Other consumer		65		65		-		-		65		231		231
Financial liabilities:
Short-term financial liabilities	$	14,605	$	14,605	$	-	$	14,605	$	-	$	18,497	$	18,497
Deposits:
Without fixed maturities		107,721		107,721		-		107,721		-		123,720		122,710
Fixed maturities		4,252		4,261		-		4,261		-		6,210		6,232
Deposits designated under fair value option		9,362		9,362		-		6,482		2,880		9,799		9,799
Non-derivative trading liabilities		7,214		7,214		323		6,891		-		7,342		7,342
Derivatives		15,125		15,125		41		14,871		213		8,440		8,440
Long-term debt		13,267		14,099		-		14,099		-		11,666		11,653
Long-term debt designated under fair value option		7,696		7,696		-		7,375		321		5,043		5,043

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Assets and Liabilities Recorded at Fair Value on a Recurring Basis The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.


	Fair Value Measurements on a Recurring Basis
	Level 1		Level 2		Level 3		Gross Balance		Netting⁽¹⁾			Net Balance
	(in millions)
September 30, 2012:
Assets:
Trading securities, excluding derivatives:
U.S. Treasury, U.S. Government agencies and sponsored enterprises	$	2,283	$	523	$	-	$	2,806	$	-		$	2,806
Collateralized debt obligations		-		-		678		678		-			678
Asset-backed securities:
Residential mortgages		-		309		-		309		-			309
Corporate and other domestic debt securities		-		1,874		1,618		3,492		-			3,492
Debt securities issued by foreign entities:
Corporate		-		5		724		729		-			729
Government		-		5,415		-		5,415		-			5,415
Equity securities		-		25		12		37		-			37
Precious metals trading		-		15,777		-		15,777		-			15,777
Derivatives⁽²⁾:
Interest rate contracts		120		74,936		15		75,071		-			75,071
Foreign exchange contracts		12		13,982		186		14,180		-			14,180
Equity contracts		-		1,396		220		1,616		-			1,616
Precious metals contracts		1		759		11		771		-			771
Credit contracts		-		6,885		1,334		8,219		-			8,219
Other contracts		-		-		-		-		-			-
Derivatives netting		-		-		-		-		(89,158	)		(89,158	)

Total derivatives		133		97,958		1,766		99,857		(89,158	)		10,699
Securities available-for-sale:
U.S. Treasury, U.S. Government agencies and sponsored enterprises		37,962		17,496		-		55,458		-			55,458
Obligations of U.S. states and political subdivisions		-		815		-		815		-			815
Asset-backed securities:
Residential mortgages		-		2		-		2		-			2
Commercial mortgages		-		264		-		264		-			264
Home equity		-		242		-		242		-			242
Student loans		-		-		-		-		-			-
Other		-		85		-		85		-			85
Corporate and other domestic debt securities		-		43		-		43		-			43
Debt securities issued by foreign entities:
Corporate		-		839		-		839		-			839
Government		42		4,567		-		4,609		-			4,609
Equity securities		-		175		-		175		-			175
Loans⁽³⁾		-		424		-		424		-			424
Intangible⁽⁴⁾		-		-		173		173		-			173

Total assets	$	40,420	$	146,838	$	4,971	$	192,229	$	(89,158	)	$	103,071

Liabilities:
Deposits in domestic offices⁽⁵⁾	$	-	$	6,482	$	2,880	$	9,362	$	-		$	9,362
Trading liabilities, excluding derivatives		323		6,891		-		7,214		-			7,214
Derivatives⁽²⁾:
Interest rate contracts		88		75,296		1		75,385		-			75,385
Foreign exchange contracts		5		13,520		183		13,708		-			13,708
Equity contracts		-		985		189		1,174		-			1,174
Precious metals contracts		183		1,717		10		1,910		-			1,910
Credit contracts		-		7,458		1,033		8,491		-			8,491
Other		-		-		-		-		-			-
Derivatives netting		-		-		-		-		(85,543	)		(85,543	)

Total derivatives		276		98,976		1,416		100,668		(85,543	)		15,125
Long-term debt⁽⁶⁾		-		7,375		321		7,696		-			7,696

Total liabilities	$	599	$	119,724	$	4,617	$	124,940	$	(85,543	)	$	39,397


	Fair Value Measurements on a Recurring Basis
	Level 1		Level 2		Level 3		Gross Balance		Netting⁽¹⁾			Net Balance
	(in millions)
December 31, 2011:
Assets:
Trading securities, excluding derivatives:
U.S. Treasury, U.S. Government agencies and sponsored enterprises	$	259	$	38	$	-	$	297	$	-		$	297
Collateralized debt obligations		-		52		703		755		-			755
Asset-backed securities:
Residential mortgages		-		274		-		274		-			274
Home equity		-		1		-		1		-			1
Student loans		-		2		-		2		-			2
Corporate and other domestic debt securities		-		226		1,679		1,905		-			1,905
Debt securities issued by foreign entities:
Corporate		-		1,958		253		2,211		-			2,211
Government		-		7,461		-		7,461		-			7,461
Equity securities		-		27		13		40		-			40
Precious metals trading		-		17,082		-		17,082		-			17,082
Derivatives⁽²⁾:
Interest rate contracts		135		61,565		9		61,709		-			61,709
Foreign exchange contracts		4		15,440		221		15,665		-			15,665
Equity contracts		-		1,047		169		1,216		-			1,216
Precious metals contracts		171		1,641		30		1,842		-			1,842
Credit contracts		-		12,297		2,093		14,390		-			14,390
Derivatives netting		-		-		-		-		(84,996	)		(84,996	)

Total derivatives		310		91,990		2,522		94,822		(84,996	)		9,826
Securities available-for-sale:
U.S. Treasury, U.S. Government agencies and sponsored enterprises		22,467		22,142		-		44,609		-			44,609
Obligations of U.S. states and political subdivisions		-		600		-		600		-			600
Asset-backed securities:
Residential mortgages		-		5		-		5		-			5
Commercial mortgages		-		451		-		451		-			451
Home equity		-		270		-		270		-			270
Student loans		-		12		-		12		-			12
Other		-		80		-		80		-			80
Corporate and other domestic debt securities		-		544		-		544		-			544
Debt securities issued by foreign entities:
Corporate		-		1,235		-		1,235		-			1,235
Government		40		5,295		-		5,335		-			5,335
Equity securities		-		140		-		140		-			140
Loans⁽³⁾		-		367		11		378		-			378
Intangible⁽⁴⁾		-		-		220		220		-			220

Total assets	$	23,076	$	150,252	$	5,401	$	178,729	$	(84,996	)	$	93,733

Liabilities:
Deposits in domestic offices⁽⁵⁾	$	-	$	6,932	$	2,867	$	9,799	$	-		$	9,799
Trading liabilities, excluding derivatives		321		7,021		-		7,342		-			7,342
Derivatives⁽²⁾:
Interest rate contracts		66		62,702		-		62,768		-			62,768
Foreign exchange contracts		13		15,191		222		15,426		-			15,426
Equity contracts		-		999		252		1,251		-			1,251
Precious metals contracts		32		1,186		30		1,248		-			1,248
Credit contracts		-		13,553		740		14,293		-			14,293
Derivatives netting		-		-		-		-		(86,546	)		(86,546	)

Total derivatives		111		93,631		1,244		94,986		(86,546	)		8,440
Long-term debt⁽⁶⁾		-		4,957		86		5,043		-			5,043

Total liabilities	$	432	$	112,541	$	4,197	$	117,170	$	(86,546	)	$	30,624

⁽¹⁾	Represents counterparty and cash collateral netting which allow the offsetting of amounts relating to certain contracts if certain conditions are met.

⁽²⁾	Includes trading derivative assets of $9.1 billion and $8.8 billion and trading derivative liabilities of $13.7 billion and $6.8 billion as of September 30, 2012 and December 31, 2011, respectively, as well as derivatives held for hedging and commitments accounted for as derivatives.

⁽³⁾	Includes leveraged acquisition finance and other commercial loans held for sale or risk-managed on a fair value basis for which we have elected to apply the fair value option. See Note 8, “Loans Held for Sale,” for further information.

⁽⁴⁾	Represents residential mortgage servicing rights. See Note 9, “Intangible Assets,” for further information on residential mortgage servicing rights.

⁽⁵⁾	Represents structured deposits risk-managed on a fair value basis for which we have elected to apply the fair value option.

⁽⁶⁾	Includes structured notes and own debt issuances which we have elected to measure on a fair value basis.

Changes in Fair Value of Level 3 Assets and Liabilities

Since those Level 1 and Level 2 risk management positions are not included in the table below, the information provided does not reflect the effect of such risk management activities related to the Level 3 assets and liabilities.


	Jul. 1, 2012			Total Gains and (Losses) Included in⁽¹⁾								Purch- ases			Issua- nces			Settle- ments			Transfers Into Level 3			Transfers Out of Level 3			Sep. 30, 2012			Current Period Unrealized Gains (Losses)
	Jul. 1, 2012			Trading Revenue (Loss)			Other Revenue			Other Comprehensive Income		Purch- ases			Issua- nces			Settle- ments			Transfers Into Level 3			Transfers Out of Level 3			Sep. 30, 2012			Current Period Unrealized Gains (Losses)
	(in millions)
Assets:
Trading assets, excluding derivatives:
Collateralized debt obligations	$	658		$	44		$	-		$	-	$	20		$	-		$	(84	)	$	40		$	-		$	678		$	30
Corporate and other domestic debt securities		1,599			24			-			-		-			-			(5	)		-			-			1,618			24
Corporate debt securities issued by foreign entities		688			41			-			-		(1	)		-			(4	)		-			-			724			35
Equity securities		12			1			-			-		-			-			(1	)		-			-			12			1
Derivatives⁽²⁾:
Interest rate contracts		12			-			2			-		-			-			-			-			-			14			1
Foreign exchange contracts		(25	)		(12	)		-			-		-			(1	)		9			-			32			3			20
Equity contracts		(46	)		84			-			-		-			-			(6	)		1			(2	)		31			71
Precious metals contracts		-			1			-			-		-			-			-			-			-			1			1
Credit contracts		921			(227	)		-			-		-			-			(7	)		(16	)		(370	)		301			(250	)
Loans⁽³⁾		-			-			-			-		-			-			-			-			-			-			-
Mortgage servicing rights⁽⁴⁾		187			-			(20	)		-		-			6			-			-			-			173			(19	)

Total assets	$	4,006		$	(44	)	$	(18	)	$	-	$	19		$	5		$	(98	)	$	25		$	(340	)	$	3,555		$	(86	)

Liabilities:
Deposits in domestic offices	$	(2,908	)	$	(81	)	$	-		$	-	$	-		$	(119	)	$	94		$	2		$	132		$	(2,880	)	$	(79	)
Long-term debt		(287	)		(22	)		-			-		-			(59	)		2			-			45			(321	)		(20	)

Total liabilities	$	(3,195	)	$	(103	)	$	-		$	-	$	-		$	(178	)	$	96		$	2		$	177		$	(3,201	)	$	(99	)


	Jan. 1, 2012			Total Gains and (Losses) Included in⁽¹⁾								Purch- ases		Issua- nces			Settle- ments			Transfers Into Level 3			Transfers Out of Level 3			Sep. 30, 2012			Current Period Unrealized Gains (Losses)
	Jan. 1, 2012			Trading Revenue (Loss)			Other Revenue			Other Comprehensive Income		Purch- ases		Issua- nces			Settle- ments			Transfers Into Level 3			Transfers Out of Level 3			Sep. 30, 2012			Current Period Unrealized Gains (Losses)
	(in millions)
Assets:
Trading assets, excluding derivatives:
Collateralized debt obligations	$	703		$	101		$	-		$	-	$	45	$	-		$	(211	)	$	40		$	-		$	678		$	79
Corporate and other domestic debt securities		1,679			42			-			-		101		-			(204	)		-			-			1,618			32
Corporate debt securities issued by foreign entities		253			107			-			-		388		-			(24	)		-			-			724			101
Equity securities		13			-			-			-		-		-			(1	)		-			-			12			-
Derivatives⁽²⁾:
Interest rate contracts		9			-			5			-		-		-			-			-			-			14			4
Foreign exchange contracts		(1	)		(31	)		-			-		-		(6	)		11			(3	)		33			3			1
Equity contracts		(83	)		147			-			-		-		-			(35	)		-			2			31			93
Precious metals contracts		-			1			-			-		-		-			-			-			-			1			1
Credit contracts		1,353			(615	)		-			-		-		-			(51	)		(16	)		(370	)		301			(605	)
Loans⁽³⁾		11			-			-			-		-		-			-			-			(11	)		-			(12	)
Mortgage servicing rights⁽⁴⁾		220			-			(67	)		-		-		20			-			-			-			173			(66	)

Total assets	$	4,157		$	(248	)	$	(62	)	$	-	$	534	$	14		$	(515	)	$	21		$	(346	)	$	3,555		$	(372	)

Liabilities:
Deposits in domestic offices	$	(2,867	)	$	(158	)	$	-		$	-	$	-	$	(675	)	$	254		$	(41	)	$	607		$	(2,880	)	$	(129	)
Long-term debt		(86	)		(13	)		-			-		-		(280	)		7			(7	)		58			(321	)		(16	)

Total liabilities	$	(2,953	)	$	(171	)	$	-		$	-	$	-	$	(955	)	$	261		$	(48	)	$	665		$	(3,201	)	$	(145	)


	Jul. 1, 2011			Total Gains and (Losses) Included in⁽¹⁾								Purch- ases		Issua- nces			Settle- ments			Transfers Into Level 3			Transfers Out of Level 3		Sep. 30, 2011			Current Period Unrealized Gains (Losses)
	Jul. 1, 2011			Trading Revenue (Loss)			Other Revenue			Other Comprehensive Income		Purch- ases		Issua- nces			Settle- ments			Transfers Into Level 3			Transfers Out of Level 3		Sep. 30, 2011			Current Period Unrealized Gains (Losses)
	(in millions)
Assets:
Trading assets, excluding derivatives:
Collateralized debt obligations	$	770		$	(41	)	$	-		$	-	$	7	$	-		$	(29	)	$	-		$	-	$	707		$	(48	)
Corporate and other domestic debt securities		1,615			5			-			-		22		-			-			-			-		1,642			(5	)
Corporate debt securities issued by foreign entities		271			(34	)		-			-		-		-			-			-			-		237			(33	)
Equity securities		16			(2	)		-			-		-		-			(2	)		-			-		12			(1	)
Derivatives⁽²⁾:
Interest rate contracts		3			-			9			-		-		-			-			-			-		12			9
Foreign exchange contracts		1			(2	)		-			-		-		-			-			-			-		(1	)		(1	)
Equity contracts		(29	)		(173	)		-			-		-		-			(30	)		(18	)		94		(156	)		(33	)
Credit contracts		1,069			613			-			-		-		-			(13	)		-			-		1,669			598
Loans⁽³⁾		11			-			-			-		-		-			-			-			-		11			-
Mortgage servicing rights⁽⁴⁾		363			-			(134	)		-		-		-			8			-			-		237			(133	)

Total assets	$	4,090		$	366		$	(125	)	$	-	$	29	$	-		$	(66	)	$	(18	)	$	94	$	4,370		$	353

Liabilities:
Deposits in domestic offices	$	(4,719	)	$	62		$	-		$	-	$	-	$	(588	)	$	107		$	-		$	207	$	(4,931	)	$	68
Long-term debt		(685	)		113			-			-		-		(22	)		46			-			435		(113	)		10

Total liabilities	$	(5,404	)	$	175		$	-		$	-	$	-	$	(610	)	$	153		$	-		$	642	$	(5,044	)	$	78


	Jan. 1, 2011			Total Gains and (Losses) Included in⁽¹⁾								Purch- ases		Issua- nces			Settle- ments			Transfers Into Level 3			Transfers Out of Level 3		Sep. 30, 2011			Current Period Unrealized Gains (Losses)
	Jan. 1, 2011			Trading Revenue (Loss)			Other Revenue			Other Comprehensive Income		Purch- ases		Issua- nces			Settle- ments			Transfers Into Level 3			Transfers Out of Level 3		Sep. 30, 2011			Current Period Unrealized Gains (Losses)
	(in millions)
Assets:
Trading assets, excluding derivatives:
Collateralized debt obligations	$	793		$	(14	)	$	-		$	-	$	100	$	-		$	(172	)	$	-		$	-	$	707		$	(31	)
Corporate and other domestic debt securities		833			-			-			-		814		-			(5	)		-			-		1,642			-
Corporate debt securities issued by foreign entities		243			(6	)		-			-		-		-			-			-			-		237			(6	)
Equity securities		17			(2	)		-			-		-		-			(3	)		-			-		12			(2	)
Derivatives⁽²⁾:
Interest rate contracts		(1	)		-			13			-		-		-			-			-			-		12			13
Foreign exchange contracts		(4	)		3			-			-		-		-			-			-			-		(1	)		3
Equity contracts		12			(93	)		-			-		-		-			(188	)		33			80		(156	)		(109	)
Credit contracts		1,202			562			-			-		-		-			(157	)		-			62		1,669			441
Loans⁽³⁾		11			-			-			-		-		-			-			-			-		11			-
Mortgage servicing rights⁽⁴⁾		394			-			(189	)		-		-		-			32			-			-		237			(189	)

Total assets	$	3,500		$	450		$	(176	)	$	-	$	914	$	-		$	(493	)	$	33		$	142	$	4,370		$	120

Liabilities:
Deposits in domestic offices	$	(3,612	)	$	(29	)	$	-		$	-	$	-	$	(1,865	)	$	348		$	(25	)	$	252	$	(4,931	)	$	67
Long-term debt		(301	)		101			-			-		-		(621	)		189			(3	)		521		(114	)		12

Total liabilities	$	(3,913	)	$	72		$	-		$	-	$	-	$	(2,486	)	$	537		$	(28	)	$	773	$	(5,045	)	$	79

⁽¹⁾	Includes realized and unrealized gains and losses.

⁽²⁾	Level 3 net derivatives included derivative assets of $1.8 billion and $2.8 billion and derivative liabilities of $1.4 billion and $1.3 billion as of September 30, 2012 and 2011, respectively.

⁽³⁾	Includes Level 3 corporate lending activities risk-managed on a fair value basis for which we have elected the fair value option.

⁽⁴⁾	See Note 9, “Intangible Assets,” for additional information.

Quantitative Information about Recurring Fair Value Measurement of Assets and Liabilities Classified as Level 3

The following table presents quantitative information about recurring fair value measurement of assets and liabilities classified as Level 3 fair value measurements as of September 30, 2012.


Financial Instrument Type	Fair Value (in millions)			Valuation Technique(s)	Significant Unobservable Inputs	Range of Inputs

Collateralized debt obligations	$	678		Broker quotes or consensus pricing and, where applicable, discounted cash flows	Prepayment rates	0% - 6 %
					Constant default rates	4% - 14%
					Loss severity rates	50% - 100%
Corporate and other domestic debt securities		1,618		Option adjusted discounted cash flows	Option adjusted spread	446 basis points
				Discounted cash flows	Spread volatility on collateral assets	1.54% - 4.17%
					Correlation between insurance claim shortfall and collateral value	80%
Corporate debt securities issued by foreign entities		724		Discounted cash flows	Correlations of default among a portfolio of credit names of embedded credit derivatives	29.0% - 29.2%
Equity securities (investments in hedge funds)		12		Net asset value of hedge funds	Range of fair value adjustments to reflect restrictions on timing and amount of redemption and realization risks	0% - 90%
Interest rate derivative contracts		14		Market comparable adjusted for probability to fund	Probability to fund for rate lock commitments	NM⁽¹⁾
Foreign exchange derivative contracts⁽⁴⁾		3		Option pricing model	Foreign exchange volatility and correlation of a basket of currencies	NM⁽²⁾⁽³⁾
Equity derivative contracts⁽⁴⁾		31		Option pricing model	Price volatility of underlying equity and correlations of equities with a basket or index	NM⁽²⁾⁽³⁾
Precious metals contracts		1		Option pricing model	Precious metals price volatility and correlation of a basket of precious metals	NM⁽²⁾⁽³⁾
Credit derivative contracts		301		Option pricing model	Correlation of defaults of a portfolio of reference credit names	40.4% - 43.4%
					Industry by industry correlation of defaults	48% - 75%
Mortgage servicing rights		173		Option adjusted discounted cash flow	Constant prepayment rates	8.3% - 48.2%
					Option adjusted spread	8.07% - 19.07%
					Estimated annualized costs to service	$98 - $263 per account
Deposits in domestic offices (Structured deposits)		(2,880	)	Option adjusted discounted cash flows	Foreign exchange volatility and correlations of a currency basket within the embedded derivative feature	NM⁽³⁾
					Equity price volatility and correlations of equity baskets or index within the embedded derivative feature
Long-term debt (Structured notes)		(321	)	Option adjusted discounted cash flows	Foreign exchange volatility and correlations of a currency basket within the embedded derivative feature	NM⁽³⁾
					Equity price volatility and correlations of equity baskets or index within the embedded derivative feature

⁽¹⁾	Insignificant Level 3 measurement. Disclosure is not meaningful to users.

⁽²⁾

We are the client-facing entity and we enter into identical but opposite derivatives to transfer the resultant risks to our affiliates. With the exception of counterparty credit risks, we are market neutral. As a result, the range of significant unobservable inputs is not meaningful as the net risk positions are not significant.

⁽³⁾

The structured notes and structured deposits contain embedded equity or foreign currency derivatives. For financial reporting purposes, we measure the financial instruments at fair value in entirety with changes in fair value recorded in the income statement. For the presentation of this table, we have separated the embedded derivatives from the financial instruments and included them in the equity derivative, foreign currency derivative and precious metals derivatives categories to reflect the underlying risks are managed through identical but offsetting derivatives with affiliates (also see note (2) above).

⁽⁴⁾	Excludes Level 3 inputs for a partially funded total return swap with a third party investor for which we fully hedge the market risks by holding the underlying foreign currency denominated security.

Fair Value Hierarchy Level within Which Fair Value of Financial and Non-Financial Assets has been Recorded

The gains (losses) during the three and nine months ended September 30, 2012 and 2011 are also included.


	Non-Recurring Fair Value Measurements as of September 30, 2012								Total Gains (Losses) For the Three Months Ended September 30, 2012			Total Gains (Losses) For the Nine Months Ended September 30, 2012
	Level 1		Level 2		Level 3		Total
	(in millions)
Residential mortgage loans held for sale⁽¹⁾	$	-	$	-	$	108	$	108	$	3		$	(4	)
Other consumer loans held for sale⁽¹⁾		-		-		65		65		-			-
Impaired loans⁽²⁾		-		-		309		309		(4	)		(27	)
Real estate owned⁽³⁾		-		18		-		18		1			3
Commercial loans held for sale		-		19		-		19		-			-

Total assets at fair value on a non-recurring basis	$	-	$	37	$	482	$	519	$	-		$	(28	)


	Non-Recurring Fair Value Measurements as of September 30, 2011								Total Gains (Losses) For the Three Months Ended September 30, 2011			Total Gains (Losses) For the Nine Months Ended September 30, 2011
	Level 1		Level 2		Level 3		Total
	(in millions)
Residential mortgage loans held for sale⁽¹⁾	$	-	$	5	$	228	$	233	$	(10	)	$	(16	)
Other consumer loans held for sale⁽¹⁾		-		-		71		71		-			-
Impaired loans⁽²⁾		-		-		415		415		(8	)		44
Real estate owned⁽³⁾		-		28		-		28		(1	)		(4	)
Commercial loans held for sale		-		32		-		32		-			-
Impairment of certain previously capitalized software development costs⁽⁴⁾		-		-		-		-		-			(94	)
Building held for sale		-		-		-		-		-			(5	)

Total assets at fair value on a non-recurring basis	$	-	$	65	$	714	$	779	$	(19	)	$	(75	)

⁽¹⁾

As of September 30, 2012 and 2011, the fair value of the loans held for sale was below cost. Certain residential mortgage loans held for sale have been classified as a Level 3 fair value measurement within the fair value hierarchy as the underlying real estate properties which determine fair value are illiquid assets as a result of market conditions and significant inputs in estimating fair value were unobservable. Additionally, the fair value of these properties is affected by, among other things, the location, the payment history and the completeness of the loan documentation.

⁽²⁾

Represents impaired commercial loans. Certain commercial loans have undergone troubled debt restructurings and are considered impaired. As a matter of practical expedient, we measure the credit impairment of a collateral-dependent loan based on the fair value of the collateral. The collateral often involves real estate properties that are illiquid due to market conditions. As a result, these commercial loans are classified as a Level 3 fair value measurement within the fair value hierarchy.

⁽³⁾	Real estate owned are required to be reported on the balance sheet net of transactions costs. The real estate owned amounts in the table above reflect the fair value unadjusted for transaction costs.

⁽⁴⁾

In the first quarter of 2011 it was determined that certain previously capitalized software development costs were no longer realizable as a result of the decision to cancel certain projects and, therefore, we recorded an impairment charge of $78 million representing the full amount of the developed software capitalized associated with these projects. The impairment charge was recorded in other expenses in our consolidated statement of income (loss) and is included in the results of our RBWM and CMB segment. During the second quarter of 2011, HSBC completed a comprehensive review of all platforms currently under development which resulted in additional projects being cancelled. As a result, we recorded an additional charge of $16 million relating to the impairment of certain previously capitalized software development costs relating to these projects which were determined to be no longer realizable. The impairment charges were recorded in other expenses in our consolidated statement of income (loss) and are included in the results of our segments principally in RBWM and CMB.

Quantitative Information about Non Recurring Fair Value Measurement of Assets and Liabilities

The following table presents quantitative information about non-recurring fair value measurements of assets and liabilities classified with Level 3 of the fair value hierarchy as of September 30, 2012.


Financial Instrument Type	Fair Value (in millions)		Valuation Technique(s)	Significant Unobservable Inputs	Range of Inputs
Residential mortgage loans held for sale	$	108	Valuation of third party appraisal on underlying collateral	Loss severity rates	-% - 90%
Impaired loans		309	Valuation by third party appraisal on underlying collateral	Loss severity rates	2% - 61%

Additional Information Relating to Asset-Backed Securities and Collateralized Debt Obligations

Additional information relating to asset-backed securities and collateralized debt obligations is presented in the following tables:

Trading asset-backed securities and related collateral:


		Prime				Alt-A				Sub-prime
Rating of Securities:	Collateral Type:	Level 2		Level 3		Level 2		Level 3		Level 2		Level 3		Total
		(in millions)
AAA -A	Residential mortgages	$	-	$	-	$	68	$	-	$	178	$	-	$	246
	Home equity		-		-		-		-		-		-		-
	Student loans		-		-		-		-		-		-		-
	Other		-		-		-		-		-		-		-

	Total AAA -A		-		-		68		-		178		-		246

BBB -B	Residential mortgages		-		-		-		-		-		-		-
	Home equity		-		-		-		-		-		-		-

	Total BBB -B		-		-		-		-		-		-		-

CCC-Unrated	Residential mortgages		-		-		-		-		4		-		4
	Home equity		-		-		-		-		-		-		-
	Other		-		-		-		-		-		-		-

	Total CCC -Unrated		-		-		-		-		4		-		4

		$	-	$	-	$	68	$	-	$	182	$	-	$	250

Trading collateralized debt obligations and related collateral:


Rating of Securities:	Collateral Type:	Level 2		Level 3
	(in millions)
AAA -A	Commercial mortgages	$	-	$	-
	Residential mortgages		-		-
	Student loans		58		-
	Other		-		-

	Total AAA -A		58		-

BBB -B	Commercial mortgages		-		122
	Corporate loans		-		330
	Other		-		162

	Total BBB -B		-		614

CCC -Unrated	Commercial mortgages		-		65
	Corporate loans		-		-
	Other		-		-

	Total CCC -Unrated		-		65

		$	58	$	679

Available-for-sale securities backed by collateral:


		Commercial Mortgages				Prime				Alt-A				Sub-prime
Rating of Securities:	Collateral Type:	Level 2		Level 3		Level 2		Level 3		Level 2		Level 3		Level 2		Level 3		Total
		(in millions)
AAA -A	Residential mortgages	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
	Commercial mortgages		264		-		-		-		-		-		-		-		264
	Home equity		-		-		-		-		104		-		-		-		104
	Student loans		-		-		-		-		-		-		-		-		-
	Other		-		-		-		-		85		-		-		-		85

	Total AAA -A		264		-		-		-		189		-		-		-		453

BBB -B	Residential mortgages		-		-		-		-		-		-		-		-		-
	Home equity		-		-		-		-		77		-				-		77

	Total BBB -B		-		-		-		-		77		-				-		77

CCC -Unrated	Residential mortgages		-		-		-		-		2		-		-		-		2
	Home equity		-		-		-		-		62		-		-		-		62

	Total CCC -Unrated		-		-		-		-		64		-		-		-		64

		$	264	$	-	$	-	$	-	$	330	$	-	$		$	-	$	594

- Definition

Tabular disclosure of assets and liabilities by class, including financial instruments measured at fair value that are classified in shareholders' equity, if any, that are measured at fair value on a nonrecurring basis in periods after initial recognition (for example, impaired assets). Disclosures may include, but are not limited to: (a) the fair value measurements recorded and the reasons for the measurements and (b) the level within the fair value hierarchy in which the fair value measurements are categorized in their entirety (levels 1, 2, 3).

+ References+ Details

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

+ References+ Details