XML 296 R16.htm IDEA: XBRL DOCUMENT v3.24.2.u1
Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
We use derivative financial instruments to support our clients' needs and to manage our interest rate, currency and other market risks. These financial instruments consist of FX contracts such as forwards, futures and options contracts; interest rate contracts such as interest rate swaps (cross currency and single currency) and futures; and other derivative contracts. Derivative instruments used for risk management purposes that are highly effective in offsetting the risk being hedged are generally designated as hedging instruments in hedge accounting relationships, while others are economic hedges and not designated in hedge accounting relationships. For additional information on our use and accounting policies on derivative financial instruments, including derivatives not designated as hedging instruments, refer to pages 155 and 156 in Note 10 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2023 Form 10-K.
Derivatives Designated as Hedging Instruments
For additional information on our derivatives designated as hedging instruments, including our risk management objectives and hedging documentation methodologies, refer to pages 155 and 156 in Note 10 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2023 Form 10-K.
Fair Value Hedges
Derivatives designated as fair value hedges are utilized to mitigate the risk of changes in the fair values of recognized assets and liabilities, including long-term debt and AFS securities. We use interest rate and foreign exchange contracts in this manner to manage our exposure to changes in the fair value of hedged items caused by changes in interest rates and foreign exchange rates, respectively.
Changes in the fair value of the derivative and changes in fair value of the hedged item due to changes in the hedged risk are recognized in earnings in the same line item. If a hedge is terminated, but the hedged item was not derecognized, all remaining adjustments to the carrying amount of the hedged item are amortized over a period that is consistent with the amortization of other discounts or premiums associated with the hedged item.
Cash Flow Hedges
Derivatives designated as cash flow hedges are utilized to offset the variability of cash flows of recognized assets, liabilities or forecasted transactions. We have entered into FX contracts to hedge the change in cash flows attributable to FX movements in foreign currency denominated investment securities. Additionally, we have entered into interest rate swap agreements to hedge the forecasted cash flows associated with EURIBOR indexed floating-rate loans and Interest Rate on Reserve Balances (IORB) indexed floating-rate cash deposits held across the Federal Reserve Bank system. The interest rate swaps synthetically convert the interest receipts from a variable-rate to a fixed-rate, thereby mitigating the risk attributable to changes in the EURIBOR and IORB.
Changes in fair value of the derivatives designated as cash flow hedges are initially recorded in AOCI and then reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings and are presented in the same income statement line item as the earnings effect of the hedged item. If the hedge relationship is terminated, the change in fair value on the derivative recorded in AOCI is reclassified into earnings consistent with the timing of the hedged item. For hedge relationships that are discontinued because a forecasted transaction is not expected to occur according to the original hedge terms, any related derivative values recorded in AOCI are immediately recognized in earnings. The net loss associated with cash flow hedges expected to be reclassified from AOCI within 12 months of June 30, 2024, is approximately $167 million. The maximum length of time over which forecasted cash flows are hedged is five years.
Net Investment Hedges
Derivatives categorized as net investment hedges are entered into to protect the net investment in our foreign operations against adverse changes in exchange rates. We use FX forward contracts to convert the foreign currency risk to U.S. dollars to mitigate our exposure to fluctuations in FX rates. The changes in fair value of the FX forward contracts are recorded, net of taxes, in the foreign currency translation component of other comprehensive income (OCI).
The following table presents the aggregate contractual, or notional, amounts of derivative financial instruments, including those entered into for trading and asset-and-liability management activities as of the dates indicated:
(In millions)June 30, 2024December 31, 2023
Derivatives not designated as hedging instruments:
Interest rate contracts:
Futures$34,584 $12,668 
Foreign exchange contracts:
Forward, swap and spot2,892,484 2,528,115 
Options purchased690 851 
Options written225 544 
Futures207 197 
Other:
Futures150 125 
Stable value contracts(1)
28,344 28,704 
Deferred value awards(2)
314 289 
Derivatives designated as hedging instruments:
Interest rate contracts:
Swap agreements28,366 20,333 
Foreign exchange contracts:
Forward and swap9,745 9,777 
(1) The notional value of the stable value contracts represents our maximum exposure. However, exposure to various stable value contracts is generally contractually limited to substantially lower amounts than the notional values.
(2) Represents grants of deferred value awards to employees; refer to page 156 in Note 10 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2023 Form 10-K.
Notional amounts are provided here as an indication of the volume of our derivative activity and serve as a reference to calculate the fair values of the derivative.
The following table presents the fair value of derivative financial instruments, excluding the impact of master netting agreements, recorded in our consolidated statement of condition as of the dates indicated. The impact of master netting agreements is provided in Note 8.
Derivative Assets(1)
Derivative Liabilities(2)
(In millions)June 30, 2024December 31, 2023June 30, 2024December 31, 2023
Derivatives not designated as hedging instruments:
Foreign exchange contracts$15,698 $19,498 $16,050 $19,153 
Other derivative contracts— — 169 182 
Total$15,698 $19,498 $16,219 $19,335 
Derivatives designated as hedging instruments:
Foreign exchange contracts$56 $196 $23 $263 
Interest rate contracts10 13 — 4 
Total$66 $209 $23 $267 
(1) Derivative assets are included within other assets in our consolidated statement of condition.
(2) Derivative liabilities are included within other liabilities in our consolidated statement of condition.
The following table presents the impact of our use of derivative financial instruments on our consolidated statement of income for the periods indicated:
Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
(In millions)Location of Gain (Loss) on Derivative in Consolidated Statement of IncomeAmount of Gain (Loss) on Derivative Recognized in Consolidated Statement of Income
Derivatives not designated as hedging instruments:
Foreign exchange contractsForeign exchange trading services revenue$208 $191 $415 $423 
Foreign exchange contractsInterest expense64 (22)113 (16)
Interest rate contractsForeign exchange trading services revenue2 — 9 1 
Other derivative contractsOther fee revenue(1)— (3)— 
Other derivative contractsCompensation and employee benefits(23)(24)(72)(78)
Total$250 $145 $462 $330 
The following table shows the carrying amount and associated cumulative basis adjustments related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships:
June 30, 2024
Cumulative Fair Value Hedging Adjustment Increasing (Decreasing) the Carrying Amount
(In millions)Carrying Amount of Hedged Assets/LiabilitiesActive
De-designated(1)
Long-term debt$12,468 $(376)$128 
Available-for-sale securities(2)(3)
18,374 (546)1 
December 31, 2023
Cumulative Fair Value Hedging Adjustment Increasing (Decreasing) the Carrying Amount
(In millions)Carrying Amount of Hedged Assets/LiabilitiesActive
De-designated(1)
Long-term debt$12,463 $(340)$156 
Available-for-sale securities(2)(3)
11,260 (503)3 
(1) Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance sheet date.
(2) Included in these amounts is the amortized cost of the financial assets designated under the portfolio layer hedging relationships (hedged item is the hedged layer of a closed portfolio of financial assets expected to remain outstanding at the end of the hedging relationship). At June 30, 2024 and December 31, 2023, the amortized cost of the closed portfolios used in these hedging relationships was $649 million and $685 million, respectively, of which $400 million was designated under the portfolio layer hedging relationship for both periods. At June 30, 2024 and December 31, 2023, the cumulative adjustment associated with these hedging relationships was ($11) million and ($6) million, respectively.
(3) Carrying amount represents amortized cost.
As of June 30, 2024 and December 31, 2023, the total notional amount of the interest rate swaps of fair value hedges was $26.75 billion and $19.43 billion, respectively.
The following tables present the impact of our use of derivative financial instruments on our consolidated statement of income for the periods indicated:
Three Months Ended June 30,Three Months Ended June 30,
2024202320242023
(In millions)Location of Gain (Loss) on Derivative in Consolidated Statement of IncomeAmount of Gain
(Loss) on Derivative
Recognized in
Consolidated
Statement of Income		Hedged Item in Fair Value Hedging RelationshipLocation of Gain (Loss) on Hedged Item in Consolidated Statement of IncomeAmount of Gain
(Loss) on Hedged
Item Recognized in
Consolidated
Statement of Income
Derivatives designated as fair value hedges:
Interest rate contractsNet interest income$(59)$156 
Available-for-sale securities(1)
Net interest income
$59 $(156)
Interest rate contractsNet interest income24 (84)Long-term debtNet interest income(24)84 
Foreign exchange contractsOther fee revenue5 — 
Available-for-sale securities(1)
Other fee revenue(5)— 
Total$(30)$72 $30 $(72)
Six Months Ended June 30,Six Months Ended June 30,
2024202320242023
(In millions)Location of Gain (Loss) on Derivative in Consolidated Statement of IncomeAmount of Gain
(Loss) on Derivative
Recognized in
Consolidated
Statement of Income		Hedged Item in Fair Value Hedging RelationshipLocation of Gain (Loss) on Hedged Item in Consolidated Statement of IncomeAmount of Gain
(Loss) on Hedged
Item Recognized in
Consolidated
Statement of Income
Derivatives designated as fair value hedges:
Interest rate contractsNet interest income$43 43 
Available-for-sale securities(2)
Net interest income$(42)$(43)
Interest rate contractsNet interest income(36)25 Long-term debtNet interest income36 (25)
Foreign exchange contractsOther fee revenue5 — 
Available-for-sale securities(1)
Other fee revenue(5)
Total$12 $68 $(11)$(68)
(1) In the three months ended June 30, 2024, approximately $43 million of net unrealized losses on AFS investment securities designated in fair value hedges were recognized in OCI compared to $115 million of net unrealized gains in the same period of 2023.
(2) In the six months ended June 30, 2024, approximately $32 million of net unrealized gains on AFS investment securities designated in fair value hedges were recognized in OCI compared to $34 million of net unrealized gains in the same period of 2023.
Three Months Ended June 30,Three Months Ended June 30,
20242023Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income20242023
(In millions)Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Derivatives designated as cash flow hedges:
Interest rate contracts(1)
$(7)$(6)Net interest income$(55)$(52)
Foreign exchange contracts— 65 Net interest income— — 
Total derivatives designated as cash flow hedges$(7)$59 $(55)$(52)
Derivatives designated as net investment hedges:
Foreign exchange contracts$58 $(8)Gains (Losses) related to investment securities, net$— $— 
Total derivatives designated as net investment hedges58 (8)— — 
Total$51 $51 $(55)$(52)
Six Months Ended June 30,Six Months Ended June 30,
2024202320242023
(In millions)Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativeLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Derivatives designated as cash flow hedges:
Interest rate contracts$(21)$(3)Net interest income$(110)$(103)
Foreign exchange contracts59 82 Net interest income254 1 
Total derivatives designated as cash flow hedges$38 $79 $144 $(102)
Derivatives designated as net investment hedges:
Foreign exchange contracts$243 $(49)$— $— 
Total derivatives designated as net investment hedges243 (49)— — 
Total$281 $30 $144 $(102)
(1) As of June 30, 2024, the maximum maturity date of the underlying hedged items is approximately 5.0 years.
Derivatives Netting and Credit Contingencies
Netting
Derivatives receivable and payable as well as cash collateral from the same counterparty are netted in the consolidated statement of condition for those counterparties with whom we have legally binding master netting agreements in place. In addition to cash collateral received and transferred presented on a net basis, we also receive and transfer collateral in the form of securities, which mitigate credit risk but are not eligible for netting. Additional information on netting is provided in Note 8.
Credit Contingencies
Certain of our derivatives are subject to master netting agreements with our derivative counterparties containing credit risk-related contingent features, which requires us to maintain an investment grade credit rating with the various credit rating agencies. If our rating falls below investment grade, we would be in violation of the provisions, and counterparties to the derivatives could request immediate payment or demand full overnight collateralization on derivatives instruments in liability positions. The aggregate fair value of all derivatives with credit contingent features and in a net liability position as of June 30, 2024 totaled approximately $3.81 billion, against which we provided $2.90 billion of collateral in the normal course of business. If our credit related contingent features underlying these agreements were triggered as of June 30, 2024, the maximum additional collateral we would be required to post to our counterparties is approximately $0.91 billion.