Derivatives and Hedging Activities (Tables)
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9 Months Ended |
Sep. 30, 2018 |
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
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Fair Values, Volume of Activity and Gain (Loss) Information Related to Derivative Instruments |
The following table summarizes the fair values of our derivative instruments on a gross and net basis as of September 30, 2018, and December 31, 2017. The derivative asset and liability balances are presented on a gross basis, prior to the application of bilateral collateral and master netting agreements, but after the variation margin payments with central clearing organizations have been applied as settlement, as applicable. Total derivative assets and liabilities are adjusted to take into account the impact of legally enforceable master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Securities collateral related to legally enforceable master netting agreements is not offset on the balance sheet. Our derivative instruments are included in “accrued income and other assets” or “accrued expenses and other liabilities” on the balance sheet, as follows: | | | | | | | | | | | | | | | | | | | | | | September 30, 2018 | | December 31, 2017 | | | Fair Value | | | Fair Value | in millions | Notional Amount | Derivative Assets | Derivative Liabilities | | Notional Amount | Derivative Assets | Derivative Liabilities | Derivatives designated as hedging instruments: | | | | | | | | Interest rate | $ | 27,445 |
| $ | 38 |
| $ | (4 | ) | | $ | 26,176 |
| $ | 81 |
| $ | 46 |
| Foreign exchange | 254 |
| 2 |
| 1 |
| | 302 |
| 1 |
| 4 |
| Total | 27,699 |
| 40 |
| (3 | ) | | 26,478 |
| 82 |
| 50 |
| Derivatives not designated as hedging instruments: | | | | | | | | Interest rate | 65,617 |
| 272 |
| 449 |
| | 61,390 |
| 641 |
| 474 |
| Foreign exchange | 7,695 |
| 100 |
| 92 |
| | 8,317 |
| 129 |
| 120 |
| Commodity | 2,235 |
| 491 |
| 481 |
| | 1,687 |
| 255 |
| 246 |
| Credit | 401 |
| — |
| 3 |
| | 315 |
| 1 |
| 4 |
| Other (a) | 1,795 |
| 7 |
| 3 |
| | 2,006 |
| 4 |
| 13 |
| Total | 77,743 |
| 870 |
| 1,028 |
| | 73,715 |
| 1,030 |
| 857 |
| Netting adjustments (b) | — |
| (162 | ) | (582 | ) | | — |
| (443 | ) | (616 | ) | Net derivatives in the balance sheet | 105,442 |
| 748 |
| 443 |
| | 100,193 |
| 669 |
| 291 |
| Other collateral (c) | — |
| (1 | ) | (50 | ) | | — |
| (5 | ) | (84 | ) | Net derivative amounts | $ | 105,442 |
| $ | 747 |
| $ | 393 |
| | $ | 100,193 |
| $ | 664 |
| $ | 207 |
| | | | | | | | |
| | (a) | Other derivatives include interest rate lock commitments and forward sale commitments related to our residential mortgage banking activities, forward purchase and sales contracts consisting of contractual commitments associated with “to be announced” securities and when-issued securities, and when-issued security transactions in connection with an “at-the-market” equity offering program. |
| | (b) | Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. |
(c) Other collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The other collateral consists of securities and is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the other collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above.
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Pre-Tax Net Gains (Losses) on Fair Value Hedges |
The following table summarizes the amounts that were recorded on the balance sheet as of September 30, 2018, related to cumulative basis adjustments for fair value hedges.
| | | | | | | | | | September 30, 2018 | in millions | Balance sheet line item in which the hedge item is included | Carrying amount of hedged item (a) | Hedge accounting basis adjustment (b) | Interest rate contracts | Long-term debt | $ | 9,442 |
| $ | (145 | ) | Interest rate contracts | Certificate of deposit ($100,000 or more) | 344 |
| (1 | ) | Interest rate contracts | Other time deposits | 178 |
| — |
| | | | |
| | (a) | The carrying amount represents the portion of the liability designated as the hedged item. |
(b) Basis adjustment includes $10 million related to de-designated hedged items no longer in qualifying fair value hedging relationships.
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Schedule of Derivatives Instruments Statements of Financial Performance and Financial Position, Location |
The following tables summarize the effect of fair value and cash flow hedge accounting on the income statement for the three- and nine-month periods ended September 30, 2018, and September 30, 2017.
| | | | | | | | | | | | | | | Location and amount of net gains (losses) recognized in income on fair value and cash flow hedging relationships (a) | in millions | Interest expense – long-term debt | Interest income – loans | Interest expense - deposits | Other income | Three months ended September 30, 2018 | | | | | Total amounts presented in the consolidated statement of income | $ | (108 | ) | $ | 1,025 |
| $ | (140 | ) | $ | 23 |
| | | | | | Net gains (losses) on fair value hedging relationships | | | | | Interest contracts | | | | | Recognized on hedged items | 41 |
| — |
| — |
| — |
| Recognized on derivatives designated as hedging instruments | (46 | ) | — |
| — |
| — |
| Net income (expense) recognized on fair value hedges | (5 | ) | — |
| — |
| — |
| Net gain (loss) on cash flow hedging relationships | | | | | Interest contracts | | | | | Realized gains (losses) (pre-tax) reclassified from AOCI into net income | (2 | ) | (15 | ) | — |
| — |
| Net income (expense) recognized on cash flow hedges | $ | (2 | ) | $ | (15 | ) | — |
| — |
| | | | | | Three months ended September 30, 2017 | | | | | Total amounts presented in the consolidated statement of income | $ | (86 | ) | $ | 928 |
| $ | (72 | ) | $ | 21 |
| | | | | | Net gains (losses) on fair value hedging relationships | | | | | Interest contracts | | | | | Recognized on hedged items | — |
| — |
| — |
| 20 |
| Recognized on derivatives designated as hedging instruments | 10 |
| — |
| — |
| (19 | ) | Net income (expense) recognized on fair value hedges | 10 |
| — |
| — |
| 1 |
| Net gain (loss) on cash flow hedging relationships | | | | | Interest contracts | | | | | Realized gains (losses) (pre-tax) reclassified from AOCI into net income | (1 | ) | 1 |
| — |
| — |
| Gains (losses) (before tax) recognized in income for hedge ineffectiveness | — |
| — |
| — |
| — |
| Net income (expense) recognized on cash flow hedges | $ | (1 | ) | $ | 1 |
| — |
| — |
| | | | | |
| | | | | | | | | | | | | | | Location and amount of net gains (losses) recognized in income on fair value and cash flow hedging relationships (a) | in millions | Interest expense – long-term debt | Interest income – loans | Interest expense - deposits | Other income | Nine months ended September 30, 2018 | | | | | Total amounts presented in the consolidated statement of income | $ | (302 | ) | $ | 2,965 |
| $ | (343 | ) | $ | 143 |
| | | | | | Net gains (losses) on fair value hedging relationships | | | | | Interest contracts | | | | | Recognized on hedged items | 134 |
| — |
| 1 |
| — |
| Recognized on derivatives designated as hedging instruments | (140 | ) | — |
| — |
| — |
| Net income (expense) recognized on fair value hedges | (6 | ) | — |
| 1 |
| — |
| Net gain (loss) on cash flow hedging relationships | | | | | Interest contracts | | | | | Realized gains (losses) (pre-tax) reclassified from AOCI into net income | (2 | ) | (42 | ) | — |
| — |
| Net income (expense) recognized on cash flow hedges | $ | (2 | ) | $ | (42 | ) | — |
| — |
| | | | | | Nine months ended September 30, 2017 | | | | | Total amounts presented in the consolidated statement of income | $ | (228 | ) | $ | 2,753 |
| $ | (196 | ) | $ | 138 |
| | | | | | Net gains (losses) on fair value hedging relationships | | | | | Interest contracts | | | | | Recognized on hedged items | — |
| — |
| — |
| 50 |
| Recognized on derivatives designated as hedging instruments | 42 |
| — |
| — |
| (49 | ) | Net income (expense) recognized on fair value hedges | 42 |
| — |
| — |
| 1 |
| Net gain (loss) on cash flow hedging relationships | | | | | Interest contracts | | | | | Realized gains (losses) (pre-tax) reclassified from AOCI into net income | (3 | ) | 21 |
| — |
| — |
| Gains (losses) (before tax) recognized in income for hedge ineffectiveness | — |
| — |
| — |
| — |
| Net income (expense) recognized on cash flow hedges | $ | (3 | ) | $ | 21 |
| — |
| — |
| | | | | |
| | (a) | Prior period gain or loss amounts were not restated to conform to the new hedge accounting guidance adopted in 2018. |
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Derivative Instrument Cash Flow Hedge Earning Recognized by Income Statement Location |
The following tables summarize the pre-tax net gains (losses) on our cash flow and net investment hedges for the three- and nine-month periods ended September 30, 2018, and September 30, 2017, and where they are recorded on the income statement. The table includes net gains (losses) recognized in OCI during the period and net gains (losses) reclassified from OCI into income during the current period. | | | | | | | | | | | | in millions | Net Gains (Losses) Recognized in OCI | Income Statement Location of Net Gains (Losses) Reclassified From OCI Into Income | Net Gains (Losses) Reclassified From OCI Into Income(a) | Net Gains (Losses) Recognized in Other Income(a) | Three months ended September 30, 2018 | | | | | Cash Flow Hedges | | | | | Interest rate | $ | (32 | ) | Interest income — Loans | $ | (15 | ) | $ | — |
| Interest rate | (1 | ) | Interest expense — Long-term debt | (2 | ) | — |
| Interest rate | 1 |
| Investment banking and debt placement fees | — |
| — |
| Net Investment Hedges | | | | | Foreign exchange contracts | (2 | ) | Other Income | — |
| — |
| Total | $ | (34 | ) | | $ | (17 | ) | $ | — |
| Three months ended September 30, 2017 | | | | | Cash Flow Hedges | | | | | Interest rate | $ | (1 | ) | Interest income — Loans | $ | 1 |
| $ | — |
| Interest rate | (1 | ) | Interest expense — Long-term debt | (1 | ) | — |
| Interest rate | (1 | ) | Investment banking and debt placement fees | — |
| — |
| Net Investment Hedges | | | | | Foreign exchange contracts | (12 | ) | Other Income | — |
| — |
| Total | $ | (15 | ) | | $ | — |
| $ | — |
| | | | | |
| | | | | | | | | | | | in millions | Net Gains (Losses) Recognized in OCI | Income Statement Location of Net Gains (Losses) Reclassified From OCI Into Income | Net Gains (Losses) Reclassified From OCI Into Income(a) | Net Gains (Losses) Recognized in Other Income(a) | Nine months ended September 30, 2018 | | | | | Cash Flow Hedges | | | | | Interest rate | $ | (178 | ) | Interest income — Loans | $ | (42 | ) | $ | — |
| Interest rate | 3 |
| Interest expense — Long-term debt | (2 | ) | — |
| Interest rate | 2 |
| Investment banking and debt placement fees | — |
| — |
| Net Investment Hedges | | | | | Foreign exchange contracts | 8 |
| Other Income | — |
| — |
| Total | $ | (165 | ) | | $ | (44 | ) | $ | — |
| Nine months ended September 30, 2017 | | | | | Cash Flow Hedges | | | | | Interest rate | $ | (1 | ) | Interest income — Loans | $ | 21 |
| $ | — |
| Interest rate | (1 | ) | Interest expense — Long-term debt | (3 | ) | — |
| Interest rate | (1 | ) | Investment banking and debt placement fees | — |
| — |
| Net Investment Hedges | | | | | Foreign exchange contracts | (22 | ) | Other Income | — |
| — |
| Total | $ | (25 | ) | | $ | 18 |
| $ | — |
| | | | | |
(a) Prior period gain or loss amounts were not restated to conform to the new hedge accounting guidance adopted in 2018.
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Pre-Tax Net Gains (Losses) on Derivatives Not Designated as Hedging Instruments |
The following tables summarize the pre-tax net gains (losses) on our derivatives that are not designated as hedging instruments for the three- and nine-month periods ended September 30, 2018, and September 30, 2017, and where they are recorded on the income statement. | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three months ended September 30, 2018 | | Three months ended September 30, 2017 | in millions | Corporate services income | Consumer mortgage income | Other income | Total | | Corporate services income | Consumer mortgage income | Other income | Total | NET GAINS (LOSSES) | | | | | | | | | | Interest rate | $ | 8 |
| $ | — |
| $ | 2 |
| $ | 10 |
| | $ | 5 |
| — |
| $ | 1 |
| $ | 6 |
| Foreign exchange | 10 |
| — |
| — |
| 10 |
| | 10 |
| — |
| — |
| 10 |
| Commodity | — |
| — |
| — |
| — |
| | 1 |
| — |
| — |
| 1 |
| Credit | — |
| — |
| (7 | ) | (7 | ) | | — |
| — |
| (6 | ) | (6 | ) | Other | — |
| 1 |
| 1 |
| 2 |
| | — |
| $ | (1 | ) | 7 |
| 6 |
| Total net gains (losses) | $ | 18 |
| $ | 1 |
| $ | (4 | ) | $ | 15 |
| | $ | 16 |
| $ | (1 | ) | $ | 2 |
| $ | 17 |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Nine months ended September 30, 2018 | | Nine months ended September 30, 2017 | in millions | Corporate services income | Consumer mortgage income | Other income | Total | | Corporate services income | Consumer mortgage income | Other income | Total | NET GAINS (LOSSES) | | | | | | | | | | Interest rate | $ | 28 |
| $ | — |
| $ | 4 |
| $ | 32 |
| | $ | 21 |
| — |
| $ | (1 | ) | $ | 20 |
| Foreign exchange | 32 |
| — |
| — |
| 32 |
| | 31 |
| — |
| — |
| 31 |
| Commodity | 6 |
| — |
| — |
| 6 |
| | 4 |
| — |
| — |
| 4 |
| Credit | 2 |
| — |
| (26 | ) | (24 | ) | | 1 |
| — |
| (16 | ) | (15 | ) | Other | — |
| 1 |
| 13 |
| 14 |
| | — |
| $ | — |
| (4 | ) | (4 | ) | Total net gains (losses) | $ | 68 |
| $ | 1 |
| $ | (9 | ) | $ | 60 |
| | $ | 57 |
| $ | — |
| $ | (21 | ) | $ | 36 |
| | | | | | | | | | |
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Fair Value of Derivative Assets by Type |
The following table summarizes the fair value of our derivative assets by type at the dates indicated. These assets represent our gross exposure to potential loss after taking into account the effects of bilateral collateral and master netting agreements and other means used to mitigate risk. | | | | | | | | in millions | September 30, 2018 |
| December 31, 2017 |
| Interest rate | $ | 189 |
| $ | 401 |
| Foreign exchange | 61 |
| 77 |
| Commodity | 376 |
| 163 |
| Credit | (1 | ) | 1 |
| Other | 7 |
| 4 |
| Derivative assets before collateral | 632 |
| 646 |
| Less: Related collateral | (116 | ) | (23 | ) | Total derivative assets | $ | 748 |
| $ | 669 |
| | | |
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Fair Value of Credit Derivatives Purchased and Sold |
The following table summarizes the fair value of our credit derivatives purchased and sold by type as of September 30, 2018, and December 31, 2017. The fair value of credit derivatives presented below does not take into account the effects of bilateral collateral or master netting agreements. | | | | | | | | | | | | | | | | | | | | September 30, 2018 | | December 31, 2017 | in millions | Purchased | Sold | Net | | Purchased | Sold | Net | Single-name credit default swaps | $ | (1 | ) | — |
| $ | (1 | ) | | $ | (1 | ) | — |
| $ | (1 | ) | Traded credit default swap indices | (1 | ) | — |
| (1 | ) | | (2 | ) | — |
| (2 | ) | Other | — |
| (1 | ) | (1 | ) | | — |
| — |
| — |
| Total credit derivatives | $ | (2 | ) | (1 | ) | $ | (3 | ) | | $ | (3 | ) | — |
| $ | (3 | ) | | | | | | | | |
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Credit Derivatives Sold and Held |
The following table provides information on the types of credit derivatives sold by us and held on the balance sheet at September 30, 2018, and December 31, 2017. The notional amount represents the maximum amount that the seller could be required to pay. The payment/performance risk assessment is based on the default probabilities for the underlying reference entities’ debt obligations using a Moody’s credit ratings matrix known as Moody’s “Idealized” Cumulative Default Rates. The payment/performance risk shown in the table represents a weighted-average of the default probabilities for all reference entities in the respective portfolios. These default probabilities are directly correlated to the probability that we will have to make a payment under the credit derivative contracts. | | | | | | | | | | | | | | | | | | September 30, 2018 | | December 31, 2017 | dollars in millions | Notional Amount | Average Term (Years) | Payment / Performance Risk | | Notional Amount | Average Term (Years) | Payment / Performance Risk | Other | $ | 12 |
| 2.47 |
| 5.01 | % | | $ | 15 |
| 3.08 |
| 6.64 | % | Total credit derivatives sold | $ | 12 |
| — |
| — |
| | $ | 15 |
| — |
| — |
| | | | | | | | |
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Credit Risk Contingent Feature |
The following table summarizes the additional cash and securities collateral that KeyBank would have been required to deliver under the ISDA Master Agreements had the credit risk contingent features been triggered for the derivative contracts in a net liability position as of September 30, 2018, and December 31, 2017. The additional collateral amounts were calculated based on scenarios under which KeyBank’s ratings are downgraded one, two, or three ratings as of September 30, 2018, and December 31, 2017, and take into account all collateral already posted. A similar calculation was performed for KeyCorp, and no additional collateral would have been required as of September 30, 2018, and December 31, 2017. For more information about the credit ratings for KeyBank and KeyCorp, see the discussion under the heading “Factors affecting liquidity” in the section entitled “Liquidity risk management” in Item 2 of this report. | | | | | | | | | | | | | | | | September 30, 2018 | | December 31, 2017 | in millions | Moody’s | S&P | | Moody’s | S&P | KeyBank’s long-term senior unsecured credit ratings | A3 |
| A- |
| | A3 |
| A- |
| One rating downgrade | $ | 1 |
| $ | 1 |
| | $ | 2 |
| $ | 2 |
| Two rating downgrades | 1 |
| 1 |
| | 2 |
| 2 |
| Three rating downgrades | 1 |
| 1 |
| | 2 |
| 2 |
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