• | Liquidity valuation adjustments are considered when the Firm may not be able to observe a recent market price for a financial instrument that trades in an inactive (or less active) market. The Firm estimates the amount of uncertainty in the initial fair value estimate based on the degree of liquidity in the market. Factors that may be considered in determining the liquidity adjustment include: (1) the amount of time since the last relevant pricing point; (2) whether there was an actual trade or relevant external quotes or alternatively pricing points for similar instruments in active markets; and (3) the volatility of the principal risk component of the financial instrument. |
• | Unobservable parameter valuation adjustments may be made when positions are valued using internally developed models that incorporate unobservable parameters – that is, parameters that must be estimated and are, therefore, subject to management judgment. Unobservable parameter valuation adjustments are applied to reflect the uncertainty inherent in the valuation estimate provided by the model. |
• | Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
• | Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
• | Level 3 – one or more inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Product/instrument | Valuation methodology | Classifications in the valuation hierarchy | |
Securities financing agreements | Valuations are based on discounted cash flows, which consider: | Level 2 | |
• Derivative features. For further information refer to the discussion of derivatives below. | |||
• Market rates for the respective maturity | |||
• Collateral | |||
Loans and lending-related commitments - wholesale | |||
Trading portfolio | Where observable market data is available, valuations are based on: | Level 2 or 3 | |
• Observed market prices (circumstances are limited) | |||
• Relevant broker quotes | |||
• Observed market prices for similar instruments | |||
Where observable market data is unavailable or limited, valuations are based on discounted cash flows, which consider the following: | |||
• Yield | |||
• Lifetime credit losses | |||
• Loss severity | |||
• Prepayment speed | |||
• Servicing costs | |||
Loans held for investment and associated lending related commitments | Valuations are based on discounted cash flows, which consider: | Predominantly level 3 | |
• Credit spreads, derived from the cost of CDS; or benchmark credit curves developed by the Firm, by industry and credit rating, and which take into account the difference in loss severity rates between bonds and loans | |||
• Prepayment speed | |||
Lending related commitments are valued similar to loans and reflect the portion of an unused commitment expected, based on the Firm’s average portfolio historical experience, to become funded prior to an obligor default | |||
For information regarding the valuation of loans measured at collateral value, see Note 14 on pages 258-283 of this Annual Report. | |||
Loans - consumer | |||
Held for investment consumer loans, excluding credit card | Valuations are based on discounted cash flows, which consider: | Predominantly level 3 | |
• Discount rates (derived from primary origination rates and market activity) | |||
• Expected lifetime credit losses (considering expected and current default rates for existing portfolios, collateral prices, and economic environment expectations (i.e., unemployment rates)) | |||
• Estimated prepayments | |||
• Servicing costs | |||
• Market liquidity | |||
For information regarding the valuation of loans measured at collateral value, see Note 14 on pages 258-283 of this Annual Report. | |||
Held for investment credit card receivables | Valuations are based on discounted cash flows, which consider: | Level 3 | |
• Projected interest income and late fee revenue, funding, servicing and credit costs, and loan repayment rates | |||
• Estimated life of receivables (based on projected loan payment rates) | |||
• Discount rate - based on expected return on receivables | |||
• Credit costs - allowance for loan losses is considered a reasonable proxy for the credit cost based on the short-term nature of credit card receivables | |||
Trading loans - Conforming residential mortgage loans expected to be sold | Fair value is based upon observable prices for mortgage-backed securities with similar collateral and incorporates adjustments to these prices to account for differences between the securities and the value of the underlying loans, which include credit characteristics, portfolio composition, and liquidity. | Predominantly level 2 | |
Product/instrument | Valuation methodology, inputs and assumptions | Classifications in the valuation hierarchy |
Securities | Quoted market prices are used where available. | Level 1 |
In the absence of quoted market prices, securities are valued based on: | Level 2 or 3 | |
• Observable market prices for similar securities | ||
• Relevant broker quotes | ||
• Discounted cash flows | ||
In addition, the following inputs to discounted cash flows are used for the following products: | ||
Mortgage- and asset-backed securities specific inputs: | ||
• Collateral characteristics | ||
• Deal-specific payment and loss allocations | ||
• Current market assumptions related to yield, prepayment speed, conditional default rates and loss severity | ||
Collateralized loan obligations (“CLOs”), specific inputs: | ||
• Collateral characteristics | ||
• Deal-specific payment and loss allocations | ||
• Expected prepayment speed, conditional default rates, loss severity | ||
• Credit spreads | ||
• Credit rating data | ||
Physical commodities | Valued using observable market prices or data | Predominantly Level 1 and 2 |
Derivatives | Exchange-traded derivatives that are actively traded and valued using the exchange price, and over-the-counter contracts where quoted prices are available in an active market. | Level 1 |
Derivatives that are valued using models such as the Black-Scholes option pricing model, simulation models, or a combination of models, that use observable or unobservable valuation inputs (e.g. plain vanilla options and interest rate and credit default swaps). Inputs include: | Level 2 or 3 | |
• Contractual terms including the period to maturity | ||
• Readily observable parameters including interest rates and volatility | ||
• Credit quality of the counterparty and of the Firm | ||
• Market funding levels | ||
• Correlation levels | ||
In addition, the following specific inputs are used for the following derivatives that are valued based on models with significant unobservable inputs: | ||
Structured credit derivatives specific inputs include: | ||
• CDS spreads and recovery rates | ||
• Credit correlation between the underlying debt instruments (levels are modeled on a transaction basis and calibrated to liquid benchmark tranche indices) | ||
• Actual transactions, where available, are used to regularly recalibrate unobservable parameters | ||
Certain long-dated equity option specific inputs include: | ||
• Long-dated equity volatilities | ||
Certain interest rate and FX exotic options specific inputs include: | ||
• Interest rate correlation | ||
• Interest rate spread volatility | ||
• Foreign exchange correlation | ||
• Correlation between interest rates and foreign exchange rates | ||
• Parameters describing the evolution of underlying interest rates | ||
Certain commodity derivatives specific inputs include: | ||
• Commodity volatility | ||
• Forward commodity price | ||
Adjustments to reflect counterparty credit quality (credit valuation adjustments or “CVA”), the Firms own creditworthiness (debit valuation adjustments or “DVA”), and FVA to incorporate the impact of funding see page 212 of this Note. | ||
Product/instrument | Valuation methodology, inputs and assumptions | Classification in the valuation hierarchy | |
Mortgage servicing rights (“MSRs”) | See Mortgage servicing rights in Note 17 on pages 299-304 of this Annual Report. | Level 3 | |
Private equity direct investments | Private equity direct investments | Level 3 | |
Fair value is estimated using all available information and considering the range of potential inputs, including: | |||
• Transaction prices | |||
• Trading multiples of comparable public companies | |||
• Operating performance of the underlying portfolio company | |||
• Additional available inputs relevant to the investment | |||
• Adjustments as required, since comparable public companies are not identical to the company being valued, and for company-specific issues and lack of liquidity | |||
Public investments held in the Private Equity portfolio | Level 1 or 2 | ||
• Valued using observable market prices less adjustments for relevant restrictions, where applicable | |||
Fund investments (i.e., mutual/collective investment funds, private equity funds, hedge funds, and real estate funds) | Net asset value (“NAV”) | ||
• NAV is validated by sufficient level of observable activity (i.e., purchases and sales) | Level 1 | ||
• Adjustments to the NAV as required, for restrictions on redemption (e.g., lock up periods or withdrawal limitations) or where observable activity is limited | Level 2 or 3 | ||
Beneficial interests issued by consolidated VIE | Valued using observable market information, where available | Level 2 or 3 | |
In the absence of observable market information, valuations are based on the fair value of the underlying assets held by the VIE | |||
Long-term debt, not carried at fair value | Valuations are based on discounted cash flows, which consider: | Predominantly level 2 | |
• Market rates for respective maturity | |||
• The Firm’s own creditworthiness (DVA), see page 212 of this Note. | |||
Structured notes (included in deposits, other borrowed funds and long-term debt) | • Valuations are based on discounted cash flow analyses that consider the embedded derivative and the terms and payment structure of the note. • The embedded derivative features are considered using models such as the Black-Scholes option pricing model, simulation models, or a combination of models that use observable or unobservable valuation inputs, depending on the embedded derivative. The specific inputs used vary according to the nature of the embedded derivative features, as described in the discussion above regarding derivative valuation. Adjustments are then made to this base valuation to reflect the Firm’s own credit risk (DVA) and to incorporate the impact of funding (FVA). See page 212 of this Note. | Level 2 or 3 | |
Assets and liabilities measured at fair value on a recurring basis | |||||||||||||||||
Fair value hierarchy | |||||||||||||||||
December 31, 2013 (in millions) | Level 1 | Level 2 | Level 3 | Netting adjustments | Total fair value | ||||||||||||
Federal funds sold and securities purchased under resale agreements | $ | — | $ | 25,135 | $ | — | $ | — | $ | 25,135 | |||||||
Securities borrowed | — | 3,739 | — | — | 3,739 | ||||||||||||
Trading assets: | |||||||||||||||||
Debt instruments: | |||||||||||||||||
Mortgage-backed securities: | |||||||||||||||||
U.S. government agencies(a) | 4 | 25,582 | 1,005 | — | 26,591 | ||||||||||||
Residential – nonagency | — | 1,749 | 726 | — | 2,475 | ||||||||||||
Commercial – nonagency | — | 871 | 432 | — | 1,303 | ||||||||||||
Total mortgage-backed securities | 4 | 28,202 | 2,163 | — | 30,369 | ||||||||||||
U.S. Treasury and government agencies(a) | 14,933 | 10,547 | — | — | 25,480 | ||||||||||||
Obligations of U.S. states and municipalities | — | 6,538 | 1,382 | — | 7,920 | ||||||||||||
Certificates of deposit, bankers’ acceptances and commercial paper | — | 3,071 | — | — | 3,071 | ||||||||||||
Non-U.S. government debt securities | 25,762 | 22,379 | 143 | — | 48,284 | ||||||||||||
Corporate debt securities | — | 24,802 | 5,920 | — | 30,722 | ||||||||||||
Loans(b) | — | 17,331 | 13,455 | — | 30,786 | ||||||||||||
Asset-backed securities | — | 3,647 | 1,272 | — | 4,919 | ||||||||||||
Total debt instruments | 40,699 | 116,517 | 24,335 | — | 181,551 | ||||||||||||
Equity securities | 107,667 | 954 | 885 | — | 109,506 | ||||||||||||
Physical commodities(c) | 4,968 | 5,217 | 4 | — | 10,189 | ||||||||||||
Other | — | 5,659 | 2,000 | — | 7,659 | ||||||||||||
Total debt and equity instruments(d) | 153,334 | 128,347 | 27,224 | — | 308,905 | ||||||||||||
Derivative receivables: | |||||||||||||||||
Interest rate | 419 | 848,862 | 5,398 | (828,897 | ) | 25,782 | |||||||||||
Credit | — | 79,754 | 3,766 | (82,004 | ) | 1,516 | |||||||||||
Foreign exchange | 434 | 151,521 | 1,644 | (136,809 | ) | 16,790 | |||||||||||
Equity | — | 45,892 | 7,039 | (40,704 | ) | 12,227 | |||||||||||
Commodity | 320 | 34,696 | 722 | (26,294 | ) | 9,444 | |||||||||||
Total derivative receivables(e) | 1,173 | 1,160,725 | 18,569 | (1,114,708 | ) | 65,759 | |||||||||||
Total trading assets | 154,507 | 1,289,072 | 45,793 | (1,114,708 | ) | 374,664 | |||||||||||
Available-for-sale securities: | |||||||||||||||||
Mortgage-backed securities: | |||||||||||||||||
U.S. government agencies(a) | — | 77,815 | — | — | 77,815 | ||||||||||||
Residential – nonagency | — | 61,760 | 709 | — | 62,469 | ||||||||||||
Commercial – nonagency | — | 15,900 | 525 | — | 16,425 | ||||||||||||
Total mortgage-backed securities | — | 155,475 | 1,234 | — | 156,709 | ||||||||||||
U.S. Treasury and government agencies(a) | 21,091 | 298 | — | — | 21,389 | ||||||||||||
Obligations of U.S. states and municipalities | — | 29,461 | — | — | 29,461 | ||||||||||||
Certificates of deposit | — | 1,041 | — | — | 1,041 | ||||||||||||
Non-U.S. government debt securities | 25,648 | 30,600 | — | — | 56,248 | ||||||||||||
Corporate debt securities | — | 21,512 | — | — | 21,512 | ||||||||||||
Asset-backed securities: | |||||||||||||||||
Collateralized loan obligations | — | 27,409 | 821 | — | 28,230 | ||||||||||||
Other | — | 11,978 | 267 | — | 12,245 | ||||||||||||
Equity securities | 3,142 | — | — | — | 3,142 | ||||||||||||
Total available-for-sale securities | 49,881 | 277,774 | 2,322 | — | 329,977 | ||||||||||||
Loans | — | 80 | 1,931 | — | 2,011 | ||||||||||||
Mortgage servicing rights | — | — | 9,614 | — | 9,614 | ||||||||||||
Other assets: | |||||||||||||||||
Private equity investments(f) | 606 | 429 | 6,474 | — | 7,509 | ||||||||||||
All other | 4,213 | 289 | 3,176 | — | 7,678 | ||||||||||||
Total other assets | 4,819 | 718 | 9,650 | — | 15,187 | ||||||||||||
Total assets measured at fair value on a recurring basis | $ | 209,207 | $ | 1,596,518 | (g) | $ | 69,310 | (g) | $ | (1,114,708 | ) | $ | 760,327 | ||||
Deposits | $ | — | $ | 4,369 | $ | 2,255 | $ | — | $ | 6,624 | |||||||
Federal funds purchased and securities loaned or sold under repurchase agreements | — | 5,426 | — | — | 5,426 | ||||||||||||
Other borrowed funds | — | 11,232 | 2,074 | — | 13,306 | ||||||||||||
Trading liabilities: | |||||||||||||||||
Debt and equity instruments(d) | 61,262 | 19,055 | 113 | — | 80,430 | ||||||||||||
Derivative payables: | |||||||||||||||||
Interest rate | 321 | 822,014 | 3,019 | (812,071 | ) | 13,283 | |||||||||||
Credit | — | 78,731 | 3,671 | (80,121 | ) | 2,281 | |||||||||||
Foreign exchange | 443 | 156,838 | 2,844 | (144,178 | ) | 15,947 | |||||||||||
Equity | — | 46,552 | 8,102 | (39,935 | ) | 14,719 | |||||||||||
Commodity | 398 | 36,609 | 607 | (26,530 | ) | 11,084 | |||||||||||
Total derivative payables(e) | 1,162 | 1,140,744 | 18,243 | (1,102,835 | ) | 57,314 | |||||||||||
Total trading liabilities | 62,424 | 1,159,799 | 18,356 | (1,102,835 | ) | 137,744 | |||||||||||
Accounts payable and other liabilities | — | — | 25 | — | 25 | ||||||||||||
Beneficial interests issued by consolidated VIEs | — | 756 | 1,240 | — | 1,996 | ||||||||||||
Long-term debt | — | 18,870 | 10,008 | — | 28,878 | ||||||||||||
Total liabilities measured at fair value on a recurring basis | $ | 62,424 | $ | 1,200,452 | $ | 33,958 | $ | (1,102,835 | ) | $ | 193,999 |
Fair value hierarchy | |||||||||||||||||
December 31, 2012 (in millions) | Level 1 | Level 2 | Level 3 | Netting adjustments | Total fair value | ||||||||||||
Federal funds sold and securities purchased under resale agreements | $ | — | $ | 24,258 | $ | — | $ | — | $ | 24,258 | |||||||
Securities borrowed | — | 10,177 | — | — | 10,177 | ||||||||||||
Trading assets: | |||||||||||||||||
Debt instruments: | |||||||||||||||||
Mortgage-backed securities: | |||||||||||||||||
U.S. government agencies(a) | — | 36,240 | 498 | — | 36,738 | ||||||||||||
Residential – nonagency | — | 1,509 | 663 | — | 2,172 | ||||||||||||
Commercial – nonagency | — | 1,565 | 1,207 | — | 2,772 | ||||||||||||
Total mortgage-backed securities | — | 39,314 | 2,368 | — | 41,682 | ||||||||||||
U.S. Treasury and government agencies(a)(h) | 15,170 | 7,255 | — | — | 22,425 | ||||||||||||
Obligations of U.S. states and municipalities | — | 16,726 | 1,436 | — | 18,162 | ||||||||||||
Certificates of deposit, bankers’ acceptances and commercial paper | — | 4,759 | — | — | 4,759 | ||||||||||||
Non-U.S. government debt securities(h) | 26,095 | 44,028 | 67 | — | 70,190 | ||||||||||||
Corporate debt securities(h) | — | 31,882 | 5,308 | — | 37,190 | ||||||||||||
Loans(b) | — | 30,754 | 10,787 | — | 41,541 | ||||||||||||
Asset-backed securities | — | 4,182 | 3,696 | — | 7,878 | ||||||||||||
Total debt instruments | 41,265 | 178,900 | 23,662 | — | 243,827 | ||||||||||||
Equity securities | 106,898 | 2,687 | 1,114 | — | 110,699 | ||||||||||||
Physical commodities(c) | 10,107 | 6,066 | — | — | 16,173 | ||||||||||||
Other | — | 3,483 | 863 | — | 4,346 | ||||||||||||
Total debt and equity instruments(d) | 158,270 | 191,136 | 25,639 | — | 375,045 | ||||||||||||
Derivative receivables: | |||||||||||||||||
Interest rate(h) | 476 | 1,295,239 | 6,617 | (1,263,127 | ) | 39,205 | |||||||||||
Credit | — | 93,821 | 6,489 | (98,575 | ) | 1,735 | |||||||||||
Foreign exchange(h) | 450 | 143,752 | 3,051 | (133,111 | ) | 14,142 | |||||||||||
Equity(h) | — | 37,758 | 4,921 | (33,413 | ) | 9,266 | |||||||||||
Commodity(h) | 316 | 42,300 | 1,155 | (33,136 | ) | 10,635 | |||||||||||
Total derivative receivables(e) | 1,242 | 1,612,870 | 22,233 | (1,561,362 | ) | 74,983 | |||||||||||
Total trading assets | 159,512 | 1,804,006 | 47,872 | (1,561,362 | ) | 450,028 | |||||||||||
Available-for-sale securities: | |||||||||||||||||
Mortgage-backed securities: | |||||||||||||||||
U.S. government agencies(a) | — | 98,388 | — | — | 98,388 | ||||||||||||
Residential – nonagency | — | 74,189 | 450 | — | 74,639 | ||||||||||||
Commercial – nonagency | — | 12,948 | 255 | — | 13,203 | ||||||||||||
Total mortgage-backed securities | — | 185,525 | 705 | — | 186,230 | ||||||||||||
U.S. Treasury and government agencies(a)(h) | 11,089 | 1,041 | — | — | 12,130 | ||||||||||||
Obligations of U.S. states and municipalities | 35 | 21,489 | 187 | — | 21,711 | ||||||||||||
Certificates of deposit | — | 2,783 | — | — | 2,783 | ||||||||||||
Non-U.S. government debt securities(h) | 29,556 | 36,488 | — | — | 66,044 | ||||||||||||
Corporate debt securities | — | 38,609 | — | — | 38,609 | ||||||||||||
Asset-backed securities: | |||||||||||||||||
Collateralized loan obligations | — | — | 27,896 | — | 27,896 | ||||||||||||
Other | — | 12,843 | 128 | — | 12,971 | ||||||||||||
Equity securities | 2,733 | 38 | — | — | 2,771 | ||||||||||||
Total available-for-sale securities | 43,413 | 298,816 | 28,916 | — | 371,145 | ||||||||||||
Loans | — | 273 | 2,282 | — | 2,555 | ||||||||||||
Mortgage servicing rights | — | — | 7,614 | — | 7,614 | ||||||||||||
Other assets: | |||||||||||||||||
Private equity investments(f) | 578 | — | 7,181 | — | 7,759 | ||||||||||||
All other | 4,188 | 253 | 4,258 | — | 8,699 | ||||||||||||
Total other assets | 4,766 | 253 | 11,439 | — | 16,458 | ||||||||||||
Total assets measured at fair value on a recurring basis | $ | 207,691 | $ | 2,137,783 | (g) | $ | 98,123 | (g) | $ | (1,561,362 | ) | $ | 882,235 | ||||
Deposits | $ | — | $ | 3,750 | $ | 1,983 | $ | — | $ | 5,733 | |||||||
Federal funds purchased and securities loaned or sold under repurchase agreements | — | 4,388 | — | — | 4,388 | ||||||||||||
Other borrowed funds | — | 9,972 | 1,619 | — | 11,591 | ||||||||||||
Trading liabilities: | |||||||||||||||||
Debt and equity instruments(d)(h) | 47,469 | 13,588 | 205 | — | 61,262 | ||||||||||||
Derivative payables: | |||||||||||||||||
Interest rate(h) | 490 | 1,256,989 | 3,295 | (1,235,868 | ) | 24,906 | |||||||||||
Credit | — | 95,411 | 4,616 | (97,523 | ) | 2,504 | |||||||||||
Foreign exchange(h) | 428 | 155,323 | 4,801 | (141,951 | ) | 18,601 | |||||||||||
Equity(h) | — | 37,808 | 6,727 | (32,716 | ) | 11,819 | |||||||||||
Commodity(h) | 176 | 46,548 | 901 | (34,799 | ) | 12,826 | |||||||||||
Total derivative payables(e) | 1,094 | 1,592,079 | 20,340 | (1,542,857 | ) | 70,656 | |||||||||||
Total trading liabilities | 48,563 | 1,605,667 | 20,545 | (1,542,857 | ) | 131,918 | |||||||||||
Accounts payable and other liabilities | — | — | 36 | — | 36 | ||||||||||||
Beneficial interests issued by consolidated VIEs | — | 245 | 925 | — | 1,170 | ||||||||||||
Long-term debt | — | 22,312 | 8,476 | — | 30,788 | ||||||||||||
Total liabilities measured at fair value on a recurring basis | $ | 48,563 | $ | 1,646,334 | $ | 33,584 | $ | (1,542,857 | ) | $ | 185,624 |
(a) | At December 31, 2013 and 2012, included total U.S. government-sponsored enterprise obligations of $91.5 billion and $119.4 billion, respectively, which were predominantly mortgage-related. |
(b) | At December 31, 2013 and 2012, included within trading loans were $14.8 billion and $26.4 billion, respectively, of residential first-lien mortgages, and $2.1 billion and $2.2 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government agencies of $6.0 billion and $17.4 billion, respectively, and reverse mortgages of $3.6 billion and $4.0 billion, respectively. |
(c) | Physical commodities inventories are generally accounted for at the lower of cost or market. “Market” is a term defined in U.S. GAAP as not exceeding fair value less costs to sell (“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, market approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when market is below cost), the carrying value of physical commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the Firm’s hedge accounting relationships, see Note 6 on pages 220–233 of this Annual Report. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented. |
(d) | Balances reflect the reduction of securities owned (long positions) by the amount of securities sold but not yet purchased (short positions) when the long and short positions have identical Committee on Uniform Security Identification Procedures numbers (“CUSIPs”). |
(e) | As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances for this netting adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of an asset or liability. Therefore, the balances reported in the fair value hierarchy table are gross of any counterparty netting adjustments. However, if the Firm were to net such balances within level 3, the reduction in the level 3 derivative receivables and payables balances would be $7.6 billion and $7.4 billion at December 31, 2013 and 2012, respectively; this is exclusive of the netting benefit associated with cash collateral, which would further reduce the level 3 balances. |
(f) | Private equity instruments represent investments within the Corporate/Private Equity line of business. The cost basis of the private equity investment portfolio totaled $8.0 billion and $8.4 billion at December 31, 2013 and 2012, respectively. |
(g) | Includes investments in hedge funds, private equity funds, real estate and other funds that do not have readily determinable fair values. The Firm uses net asset value per share when measuring the fair value of these investments. At December 31, 2013 and 2012, the fair values of these investments were $3.2 billion and $4.9 billion, respectively, of which $899 million and $1.1 billion, respectively were classified in level 2, and $2.3 billion and $3.8 billion, respectively, in level 3. |
(h) | The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. |
Level 3 inputs(a) | |||||||||||
December 31, 2013 (in millions, except for ratios and basis points) | |||||||||||
Product/Instrument | Fair value | Principal valuation technique | Unobservable inputs | Range of input values | Weighted average | ||||||
Residential mortgage-backed securities and loans | $ | 11,089 | Discounted cash flows | Yield | 3 | % | - | 18% | 7% | ||
Prepayment speed | 0 | % | - | 15% | 7% | ||||||
Conditional default rate | 0 | % | - | 100% | 26% | ||||||
Loss severity | 0 | % | - | 100% | 21% | ||||||
Commercial mortgage-backed securities and loans(b) | 1,204 | Discounted cash flows | Yield | 6 | % | - | 29% | 11% | |||
Conditional default rate | 0 | % | - | 100% | 10% | ||||||
Loss severity | 0 | % | - | 40% | 33% | ||||||
Corporate debt securities, obligations of U.S. states and municipalities, and other(c) | 15,209 | Discounted cash flows | Credit spread | 88 bps | - | 255 bps | 154 bps | ||||
Yield | 1 | % | - | 40% | 10% | ||||||
5,843 | Market comparables | Price | 3 | - | 122 | 95 | |||||
Net interest rate derivatives | 2,379 | Option pricing | Interest rate correlation | (75 | )% | - | 95% | ||||
Interest rate spread volatility | 0 | % | - | 60% | |||||||
Net credit derivatives(b)(c) | 95 | Discounted cash flows | Credit correlation | 34 | % | - | 82% | ||||
Net foreign exchange derivatives | (1,200 | ) | Option pricing | Foreign exchange correlation | 45 | % | - | 75% | |||
Net equity derivatives | (1,063 | ) | Option pricing | Equity volatility | 20 | % | - | 55% | |||
Net commodity derivatives | 115 | Discounted cash flows | Forward commodity price | $20 | - | $160 per megawatt hour | |||||
Collateralized loan obligations | 821 | Discounted cash flows | Credit spread | 214 bps | - | 575 bps | 234 bps | ||||
Prepayment speed | 20% | 20% | |||||||||
Conditional default rate | 2% | 2% | |||||||||
Loss severity | 40% | 40% | |||||||||
487 | Market comparables | Price | 0 | - | 114 | 88 | |||||
Mortgage servicing rights (“MSRs”) | 9,614 | Discounted cash flows | Refer to Note 17 on pages 299–304 of this Annual Report. | ||||||||
Private equity direct investments | 4,872 | Market comparables | EBITDA multiple | 4.0x | - | 14.7x | 8.1x | ||||
Liquidity adjustment | 0 | % | - | 37% | 11% | ||||||
Private equity fund investments(d) | 1,602 | Net asset value | Net asset value(f) | ||||||||
Long-term debt, other borrowed funds, and deposits(e) | 13,282 | Option pricing | Interest rate correlation | (75 | )% | - | 95% | ||||
Foreign exchange correlation | 0 | % | - | 75% | |||||||
Equity correlation | (50 | )% | - | 85% | |||||||
1,055 | Discounted cash flows | Credit correlation | 34 | % | - | 82% |
(a) | The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated Balance Sheets. |
(b) | The unobservable inputs and associated input ranges for approximately $735 million of credit derivative receivables and $644 million of credit derivative payables with underlying mortgage risk have been included in the inputs and ranges provided for commercial mortgage-backed securities and loans. |
(c) | The unobservable inputs and associated input ranges for approximately $1.0 billion of credit derivative receivables and $890 million of credit derivative payables with underlying asset-backed securities risk have been included in the inputs and ranges provided for corporate debt securities, obligations of U.S. states and municipalities and other. |
(d) | As of December 31, 2013, $757 million of private equity fund exposure was carried at a discount to net asset value per share. |
(e) | Long-term debt, other borrowed funds and deposits include structured notes issued by the Firm that are predominantly financial instruments containing embedded derivatives. The estimation of the fair value of structured notes is predominantly based on the derivative features embedded within the instruments. The significant unobservable inputs are broadly consistent with those presented for derivative receivables. |
(f) | The range has not been disclosed due to the wide range of possible values given the diverse nature of the underlying investments. |
Fair value measurements using significant unobservable inputs | ||||||||||||||||||||||||||||||
Year ended December 31, 2013 (in millions) | Fair value at January 1, 2013 | Total realized/unrealized gains/(losses) | Transfers into and/or out of level 3(h) | Fair value at Dec. 31, 2013 | Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2013 | |||||||||||||||||||||||||
Purchases(g) | Sales | Settlements | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||
Trading assets: | ||||||||||||||||||||||||||||||
Debt instruments: | ||||||||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||
U.S. government agencies | $ | 498 | $ | 169 | $ | 819 | $ | (381 | ) | $ | (100 | ) | $ | — | $ | 1,005 | $ | 200 | ||||||||||||
Residential – nonagency | 663 | 407 | 780 | (1,028 | ) | (91 | ) | (5 | ) | 726 | 205 | |||||||||||||||||||
Commercial – nonagency | 1,207 | 114 | 841 | (1,522 | ) | (208 | ) | — | 432 | (4 | ) | |||||||||||||||||||
Total mortgage-backed securities | 2,368 | 690 | 2,440 | (2,931 | ) | (399 | ) | (5 | ) | 2,163 | 401 | |||||||||||||||||||
Obligations of U.S. states and municipalities | 1,436 | 71 | 472 | (251 | ) | (346 | ) | — | 1,382 | 18 | ||||||||||||||||||||
Non-U.S. government debt securities | 67 | 4 | 1,449 | (1,479 | ) | (8 | ) | 110 | 143 | (1 | ) | |||||||||||||||||||
Corporate debt securities | 5,308 | 103 | 7,602 | (5,975 | ) | (1,882 | ) | 764 | 5,920 | 466 | ||||||||||||||||||||
Loans | 10,787 | 665 | 10,411 | (7,431 | ) | (685 | ) | (292 | ) | 13,455 | 315 | |||||||||||||||||||
Asset-backed securities | 3,696 | 191 | 1,912 | (2,379 | ) | (292 | ) | (1,856 | ) | 1,272 | 105 | |||||||||||||||||||
Total debt instruments | 23,662 | 1,724 | 24,286 | (20,446 | ) | (3,612 | ) | (1,279 | ) | 24,335 | 1,304 | |||||||||||||||||||
Equity securities | 1,114 | (41 | ) | 328 | (266 | ) | (135 | ) | (115 | ) | 885 | 46 | ||||||||||||||||||
Physical commodities | — | (4 | ) | — | (8 | ) | — | 16 | 4 | (4 | ) | |||||||||||||||||||
Other | 863 | 558 | 659 | (95 | ) | (120 | ) | 135 | 2,000 | 1,074 | ||||||||||||||||||||
Total trading assets – debt and equity instruments | 25,639 | 2,237 | (c) | 25,273 | (20,815 | ) | (3,867 | ) | (1,243 | ) | 27,224 | 2,420 | (c) | |||||||||||||||||
Net derivative receivables:(a) | ||||||||||||||||||||||||||||||
Interest rate | 3,322 | 1,358 | 344 | (220 | ) | (2,391 | ) | (34 | ) | 2,379 | 107 | |||||||||||||||||||
Credit | 1,873 | (1,697 | ) | 115 | (12 | ) | (357 | ) | 173 | 95 | (1,449 | ) | ||||||||||||||||||
Foreign exchange | (1,750 | ) | (101 | ) | 3 | (4 | ) | 683 | (31 | ) | (1,200 | ) | (110 | ) | ||||||||||||||||
Equity | (1,806 | ) | 2,587 | 2,918 | (3,783 | ) | (1,353 | ) | 374 | (1,063 | ) | 872 | ||||||||||||||||||
Commodity | 254 | 816 | 105 | (3 | ) | (1,107 | ) | 50 | 115 | 410 | ||||||||||||||||||||
Total net derivative receivables | 1,893 | 2,963 | (c) | 3,485 | (4,022 | ) | (4,525 | ) | 532 | 326 | (170 | ) | (c) | |||||||||||||||||
Available-for-sale securities: | ||||||||||||||||||||||||||||||
Asset-backed securities | 28,024 | 4 | 579 | (57 | ) | (57 | ) | (27,405 | ) | 1,088 | 4 | |||||||||||||||||||
Other | 892 | 26 | 508 | (216 | ) | (6 | ) | 30 | 1,234 | 25 | ||||||||||||||||||||
Total available-for-sale securities | 28,916 | 30 | (d) | 1,087 | (273 | ) | (63 | ) | (27,375 | ) | 2,322 | 29 | (d) | |||||||||||||||||
Loans | 2,282 | 81 | (c) | 1,065 | (191 | ) | (1,306 | ) | — | 1,931 | (21 | ) | (c) | |||||||||||||||||
Mortgage servicing rights | 7,614 | 1,612 | (e) | 2,215 | (725 | ) | (1,102 | ) | — | 9,614 | 1,612 | (e) | ||||||||||||||||||
Other assets: | ||||||||||||||||||||||||||||||
Private equity investments | 7,181 | 645 | (c) | 673 | (1,137 | ) | (687 | ) | (201 | ) | 6,474 | 262 | (c) | |||||||||||||||||
All other | 4,258 | 98 | (f) | 272 | (730 | ) | (722 | ) | — | 3,176 | 53 | (f) | ||||||||||||||||||
Fair value measurements using significant unobservable inputs | ||||||||||||||||||||||||||||||
Year ended December 31, 2013 (in millions) | Fair value at January 1, 2013 | Total realized/unrealized (gains)/losses | Transfers into and/or out of level 3(h) | Fair value at Dec. 31, 2013 | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2013 | |||||||||||||||||||||||||
Purchases(g) | Sales | Issuances | Settlements | |||||||||||||||||||||||||||
Liabilities:(b) | ||||||||||||||||||||||||||||||
Deposits | $ | 1,983 | $ | (82 | ) | (c) | $ | — | $ | — | $ | 1,248 | $ | (222 | ) | $ | (672 | ) | $ | 2,255 | $ | (88 | ) | (c) | ||||||
Other borrowed funds | 1,619 | (177 | ) | (c) | — | — | 7,108 | (6,845 | ) | 369 | 2,074 | 291 | (c) | |||||||||||||||||
Trading liabilities – debt and equity instruments | 205 | (83 | ) | (c) | (2,418 | ) | 2,594 | — | (54 | ) | (131 | ) | 113 | (100 | ) | (c) | ||||||||||||||
Accounts payable and other liabilities | 36 | (2 | ) | (f) | — | — | — | (9 | ) | — | 25 | (2 | ) | (f) | ||||||||||||||||
Beneficial interests issued by consolidated VIEs | 925 | 174 | (c) | — | — | 353 | (212 | ) | — | 1,240 | 167 | (c) | ||||||||||||||||||
Long-term debt | 8,476 | (435 | ) | (c) | — | — | 6,830 | (4,362 | ) | (501 | ) | 10,008 | (85 | ) | (c) |
Fair value measurements using significant unobservable inputs | ||||||||||||||||||||||||||||||
Year ended December 31, 2012 (in millions) | Fair value at January 1, 2012 | Total realized/unrealized gains/(losses) | Transfers into and/or out of level 3(h) | Fair value at Dec. 31, 2012 | Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2012 | |||||||||||||||||||||||||
Purchases(g) | Sales | Settlements | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||
Trading assets: | ||||||||||||||||||||||||||||||
Debt instruments: | ||||||||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||
U.S. government agencies | $ | 86 | $ | (44 | ) | $ | 575 | $ | (103 | ) | $ | (16 | ) | $ | — | $ | 498 | $ | (21 | ) | ||||||||||
Residential – nonagency | 796 | 151 | 417 | (533 | ) | (145 | ) | (23 | ) | 663 | 74 | |||||||||||||||||||
Commercial – nonagency | 1,758 | (159 | ) | 287 | (475 | ) | (104 | ) | (100 | ) | 1,207 | (145 | ) | |||||||||||||||||
Total mortgage-backed securities | 2,640 | (52 | ) | 1,279 | (1,111 | ) | (265 | ) | (123 | ) | 2,368 | (92 | ) | |||||||||||||||||
Obligations of U.S. states and municipalities | 1,619 | 37 | 336 | (552 | ) | (4 | ) | — | 1,436 | (15 | ) | |||||||||||||||||||
Non-U.S. government debt securities | 104 | (6 | ) | 661 | (668 | ) | (24 | ) | — | 67 | (5 | ) | ||||||||||||||||||
Corporate debt securities | 6,373 | 187 | 8,391 | (6,186 | ) | (3,045 | ) | (412 | ) | 5,308 | 689 | |||||||||||||||||||
Loans | 12,209 | 836 | 5,342 | (3,269 | ) | (3,801 | ) | (530 | ) | 10,787 | 411 | |||||||||||||||||||
Asset-backed securities | 7,965 | 272 | 2,550 | (6,468 | ) | (614 | ) | (9 | ) | 3,696 | 184 | |||||||||||||||||||
Total debt instruments | 30,910 | 1,274 | 18,559 | (18,254 | ) | (7,753 | ) | (1,074 | ) | 23,662 | 1,172 | |||||||||||||||||||
Equity securities | 1,177 | (209 | ) | 460 | (379 | ) | (12 | ) | 77 | 1,114 | (112 | ) | ||||||||||||||||||
Other | 880 | 186 | 68 | (108 | ) | (163 | ) | — | 863 | 180 | ||||||||||||||||||||
Total trading assets – debt and equity instruments | 32,967 | 1,251 | (c) | 19,087 | (18,741 | ) | (7,928 | ) | (997 | ) | 25,639 | 1,240 | (c) | |||||||||||||||||
Net derivative receivables:(a) | ||||||||||||||||||||||||||||||
Interest rate | 3,561 | 6,930 | 406 | (194 | ) | (7,071 | ) | (310 | ) | 3,322 | 905 | |||||||||||||||||||
Credit | 7,732 | (4,487 | ) | 124 | (84 | ) | (1,416 | ) | 4 | 1,873 | (3,271 | ) | ||||||||||||||||||
Foreign exchange | (1,263 | ) | (800 | ) | 112 | (184 | ) | 436 | (51 | ) | (1,750 | ) | (957 | ) | ||||||||||||||||
Equity | (3,105 | ) | 168 | 1,676 | (2,579 | ) | 899 | 1,135 | (1,806 | ) | 580 | |||||||||||||||||||
Commodity | (687 | ) | (673 | ) | 74 | 64 | 1,278 | 198 | 254 | (160 | ) | |||||||||||||||||||
Total net derivative receivables | 6,238 | 1,138 | (c) | 2,392 | (2,977 | ) | (5,874 | ) | 976 | 1,893 | (2,903 | ) | (c) | |||||||||||||||||
Available-for-sale securities: | ||||||||||||||||||||||||||||||
Asset-backed securities | 24,958 | 135 | 9,280 | (3,361 | ) | (3,104 | ) | 116 | 28,024 | 118 | ||||||||||||||||||||
Other | 528 | 55 | 667 | (113 | ) | (245 | ) | — | 892 | 59 | ||||||||||||||||||||
Total available-for-sale securities | 25,486 | 190 | (d) | 9,947 | (3,474 | ) | (3,349 | ) | 116 | 28,916 | 177 | (d) | ||||||||||||||||||
Loans | 1,647 | 695 | (c) | 1,536 | (22 | ) | (1,718 | ) | 144 | 2,282 | 12 | (c) | ||||||||||||||||||
Mortgage servicing rights | 7,223 | (635 | ) | (e) | 2,833 | (579 | ) | (1,228 | ) | — | 7,614 | (635 | ) | (e) | ||||||||||||||||
Other assets: | ||||||||||||||||||||||||||||||
Private equity investments | 6,751 | 420 | (c) | 1,545 | (512 | ) | (977 | ) | (46 | ) | 7,181 | 333 | (c) | |||||||||||||||||
All other | 4,374 | (195 | ) | (f) | 818 | (238 | ) | (501 | ) | — | 4,258 | (200 | ) | (f) | ||||||||||||||||
Fair value measurements using significant unobservable inputs | ||||||||||||||||||||||||||||||
Year ended December 31, 2012 (in millions) | Fair value at January 1, 2012 | Total realized/unrealized (gains)/losses | Transfers into and/or out of level 3(h) | Fair value at Dec. 31, 2012 | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2012 | |||||||||||||||||||||||||
Purchases(g) | Sales | Issuances | Settlements | |||||||||||||||||||||||||||
Liabilities:(b) | ||||||||||||||||||||||||||||||
Deposits | $ | 1,418 | $ | 212 | (c) | $ | — | $ | — | $ | 1,236 | $ | (380 | ) | $ | (503 | ) | $ | 1,983 | $ | 185 | (c) | ||||||||
Other borrowed funds | 1,507 | 148 | (c) | — | — | 1,646 | (1,774 | ) | 92 | 1,619 | 72 | (c) | ||||||||||||||||||
Trading liabilities – debt and equity instruments | 211 | (16 | ) | (c) | (2,875 | ) | 2,940 | — | (50 | ) | (5 | ) | 205 | (12 | ) | (c) | ||||||||||||||
Accounts payable and other liabilities | 51 | 1 | (f) | — | — | — | (16 | ) | — | 36 | 1 | (f) | ||||||||||||||||||
Beneficial interests issued by consolidated VIEs | 791 | 181 | (c) | — | — | 221 | (268 | ) | — | 925 | 143 | (c) | ||||||||||||||||||
Long-term debt | 10,310 | 328 | (c) | — | — | 3,662 | (4,511 | ) | (1,313 | ) | 8,476 | (101 | ) | (c) |
Fair value measurements using significant unobservable inputs | ||||||||||||||||||||||||||||||
Year ended December 31, 2011 (in millions) | Fair value at January 1, 2011 | Total realized/unrealized gains/(losses) | Transfers into and/or out of level 3(h) | Fair value at Dec. 31, 2011 | Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2011 | |||||||||||||||||||||||||
Purchases(g) | Sales | Settlements | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||
Trading assets: | ||||||||||||||||||||||||||||||
Debt instruments: | ||||||||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||
U.S. government agencies | $ | 174 | $ | 24 | $ | 28 | $ | (39 | ) | $ | (43 | ) | $ | (58 | ) | $ | 86 | $ | (51 | ) | ||||||||||
Residential – nonagency | 687 | 109 | 708 | (432 | ) | (221 | ) | (55 | ) | 796 | (9 | ) | ||||||||||||||||||
Commercial – nonagency | 2,069 | 37 | 796 | (973 | ) | (171 | ) | — | 1,758 | 33 | ||||||||||||||||||||
Total mortgage-backed securities | 2,930 | 170 | 1,532 | (1,444 | ) | (435 | ) | (113 | ) | 2,640 | (27 | ) | ||||||||||||||||||
Obligations of U.S. states and municipalities | 2,257 | 9 | 807 | (1,465 | ) | (1 | ) | 12 | 1,619 | (11 | ) | |||||||||||||||||||
Non-U.S. government debt securities | 202 | 35 | 552 | (531 | ) | (80 | ) | (74 | ) | 104 | 38 | |||||||||||||||||||
Corporate debt securities | 4,946 | 32 | 8,080 | (5,939 | ) | (1,005 | ) | 259 | 6,373 | 26 | ||||||||||||||||||||
Loans | 13,144 | 329 | 5,532 | (3,873 | ) | (2,691 | ) | (232 | ) | 12,209 | 142 | |||||||||||||||||||
Asset-backed securities | 8,460 | 90 | 4,185 | (4,368 | ) | (424 | ) | 22 | 7,965 | (217 | ) | |||||||||||||||||||
Total debt instruments | 31,939 | 665 | 20,688 | (17,620 | ) | (4,636 | ) | (126 | ) | 30,910 | (49 | ) | ||||||||||||||||||
Equity securities | 1,685 | 267 | 180 | (541 | ) | (352 | ) | (62 | ) | 1,177 | 278 | |||||||||||||||||||
Other | 930 | 48 | 36 | (39 | ) | (95 | ) | — | 880 | 79 | ||||||||||||||||||||
Total trading assets – debt and equity instruments | 34,554 | 980 | (c) | 20,904 | (18,200 | ) | (5,083 | ) | (188 | ) | 32,967 | 308 | (c) | |||||||||||||||||
Net derivative receivables:(a) | ||||||||||||||||||||||||||||||
Interest rate | 2,836 | 5,205 | 511 | (219 | ) | (4,534 | ) | (238 | ) | 3,561 | 1,497 | |||||||||||||||||||
Credit | 5,386 | 2,240 | 22 | (13 | ) | 116 | (19 | ) | 7,732 | 2,744 | ||||||||||||||||||||
Foreign exchange | (614 | ) | (1,913 | ) | 191 | (20 | ) | 886 | 207 | (1,263 | ) | (1,878 | ) | |||||||||||||||||
Equity | (2,446 | ) | (60 | ) | 715 | (1,449 | ) | 37 | 98 | (3,105 | ) | (132 | ) | |||||||||||||||||
Commodity | (805 | ) | 596 | 328 | (350 | ) | (294 | ) | (162 | ) | (687 | ) | 208 | |||||||||||||||||
Total net derivative receivables | 4,357 | 6,068 | (c) | 1,767 | (2,051 | ) | (3,789 | ) | (114 | ) | 6,238 | 2,439 | (c) | |||||||||||||||||
Available-for-sale securities: | ||||||||||||||||||||||||||||||
Asset-backed securities | 13,775 | (95 | ) | 15,268 | (1,461 | ) | (2,529 | ) | — | 24,958 | (106 | ) | ||||||||||||||||||
Other | 512 | — | 57 | (15 | ) | (26 | ) | — | 528 | 8 | ||||||||||||||||||||
Total available-for-sale securities | 14,287 | (95 | ) | (d) | 15,325 | (1,476 | ) | (2,555 | ) | — | 25,486 | (98 | ) | (d) | ||||||||||||||||
Loans | 1,466 | 504 | (c) | 326 | (9 | ) | (639 | ) | (1 | ) | 1,647 | 484 | (c) | |||||||||||||||||
Mortgage servicing rights | 13,649 | (7,119 | ) | (e) | 2,603 | — | (1,910 | ) | — | 7,223 | (7,119 | ) | (e) | |||||||||||||||||
Other assets: | ||||||||||||||||||||||||||||||
Private equity investments | 7,862 | 943 | (c) | 1,452 | (2,746 | ) | (594 | ) | (166 | ) | 6,751 | (242 | ) | (c) | ||||||||||||||||
All other | 4,179 | (54 | ) | (f) | 938 | (139 | ) | (521 | ) | (29 | ) | 4,374 | (83 | ) | (f) | |||||||||||||||
Fair value measurements using significant unobservable inputs | ||||||||||||||||||||||||||||||
Year ended December 31, 2011 (in millions) | Fair value at January 1, 2011 | Total realized/unrealized (gains)/losses | Transfers into and/or out of level 3(h) | Fair value at Dec. 31, 2011 | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2011 | |||||||||||||||||||||||||
Purchases(g) | Sales | Issuances | Settlements | |||||||||||||||||||||||||||
Liabilities:(b) | ||||||||||||||||||||||||||||||
Deposits | $ | 773 | $ | 15 | (c) | $ | — | $ | — | $ | 433 | $ | (386 | ) | $ | 583 | $ | 1,418 | $ | 4 | (c) | |||||||||
Other borrowed funds | 1,384 | (244 | ) | (c) | — | — | 1,597 | (834 | ) | (396 | ) | 1,507 | (85 | ) | (c) | |||||||||||||||
Trading liabilities – debt and equity instruments | 54 | 17 | (c) | (533 | ) | 778 | — | (109 | ) | 4 | 211 | (7 | ) | (c) | ||||||||||||||||
Accounts payable and other liabilities | 236 | (61 | ) | (f) | — | — | — | (124 | ) | — | 51 | 5 | (f) | |||||||||||||||||
Beneficial interests issued by consolidated VIEs | 873 | 17 | (c) | — | — | 580 | (679 | ) | — | 791 | (15 | ) | (c) | |||||||||||||||||
Long-term debt | 13,044 | 60 | (c) | — | — | 2,564 | (3,218 | ) | (2,140 | ) | 10,310 | 288 | (c) |
(a) | All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty. |
(b) | Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 18%, 18% and 22% at December 31, 2013, 2012 and 2011, respectively. |
(c) | Predominantly reported in principal transactions revenue, except for changes in fair value for Consumer & Community Banking (“CCB”) mortgage loans, lending-related commitments originated with the intent to sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income. |
(d) | Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment losses that are recorded in earnings, are reported in securities gains. Unrealized gains/(losses) are reported in OCI. Realized gains/(losses) and foreign exchange remeasurement adjustments recorded in income on AFS securities were $17 million, $145 million, and $(240) million for the years ended December 31, 2013, 2012 and 2011, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were $13 million, $45 million and $145 million for the years ended December 31, 2013, 2012 and 2011, respectively. |
(e) | Changes in fair value for CCB mortgage servicing rights are reported in mortgage fees and related income. |
(f) | Largely reported in other income. |
(g) | Loan originations are included in purchases. |
(h) | All transfers into and/or out of level 3 are assumed to occur at the beginning of the quarterly reporting period in which they occur. |
• | $27.0 billion decrease in asset-backed AFS securities, predominantly driven by transfers of highly rated CLOs from level 3 to into level 2 during the year ended 2013, based on increased liquidity and price transparency; |
• | $3.7 billion decrease in gross derivative receivables, predominantly driven by a $2.7 billion decrease from the impact of tightening reference entity credit spreads and risk reductions of credit derivatives, $1.4 billion decrease in foreign exchange derivatives due to market movements, and $1.2 billion decrease in interest rate derivatives due to the increase in interest rates, partially offset by $2.1 billion increase in equity derivatives due to client-driven market-making activity; |
• | $1.1 billion decrease in all other assets, predominantly driven by sales of tax-oriented and hedge fund investments, and redemptions from investment funds. |
• | $2.0 billion increase in MSRs. For further discussion of the change, refer to Note 17 on pages 299–304 of this Annual Report; |
• | $1.6 billion increase in trading assets – debt and equity instruments, largely driven by net purchases of trading loans, new client-driven financing transactions, and partially offset by transfers of highly rated CLOs from level 3 to into level 2 during the year ended 2013, based on increased liquidity and price transparency. |
• | $3.0 billion of net gains on derivatives, largely driven by $2.6 billion of gains on equity derivatives, primarily related to client-driven market-making activity and a rise in equity markets; and $1.4 billion of gains, predominantly on interest rate lock and mortgage loan purchase commitments; partially offset by $1.7 billion of losses on credit derivatives from the impact of tightening reference entity credit spreads; |
• | $2.2 billion of net gains on trading assets - debt and equity instruments, largely driven by market making and credit spread tightening in nonagency mortgage-backed securities and trading loans, and the impact of market movements on client-driven financing transactions; |
• | $1.6 billion of net gains on MSRs. For further discussion of the change, refer to Note 17 on pages 299–304 of this Annual Report. |
• | $1.3 billion of net gains on trading assets - debt and equity instruments, largely driven by tightening of credit spreads and fluctuation in foreign exchange rates; |
• | Credit valuation adjustments (“CVA”) are taken to reflect the credit quality of a counterparty in the valuation of derivatives. CVA adjustments are necessary when the market price (or parameter) is not indicative of the credit quality of the counterparty. As few classes of derivative contracts are listed on an exchange, derivative positions are predominantly valued using models that use as their basis observable market parameters. An adjustment therefore may be necessary to reflect the credit quality of each derivative counterparty to arrive at fair value. |
• | Debit valuation adjustments (“DVA”) are taken to reflect the credit quality of the Firm in the valuation of liabilities measured at fair value. The DVA calculation methodology is generally consistent with the CVA methodology described above and incorporates JPMorgan Chase’s credit spread as observed through the CDS market to estimate the probability of default and loss given default as a result of a systemic event affecting the Firm. Structured notes DVA is estimated using the current fair value of the structured note as the exposure amount, and is otherwise consistent with the derivative DVA methodology. |
December 31, (in millions) | 2013 | 2012 | |||||
Derivative receivables balance(a) | $ | 65,759 | $ | 74,983 | |||
Derivative payables balance(a) | 57,314 | 70,656 | |||||
Derivatives CVA(b)(c) | (2,352 | ) | (4,238 | ) | |||
Derivatives DVA and FVA(b)(d) | (322 | ) | 830 | ||||
Structured notes balance (net of structured notes DVA and FVA)(b)(e) | 48,808 | 48,112 | |||||
Structured notes DVA and FVA(b)(f) | 952 | 1,712 |
(a) | Balances are presented net of applicable credit and funding adjustments. |
(b) | Positive credit and funding adjustments represent amounts that increased receivable balances or decreased payable balances; negative credit and funding adjustments represent amounts that decreased receivable balances or increased payable balances. |
(c) | Derivatives CVA, gross of hedges, includes results managed by the Credit Portfolio and other lines of business within the CIB. |
(d) | At December 31, 2013 and 2012 included derivatives DVA of $715 million and $830 million, respectively. |
(e) | Structured notes are predominantly financial instruments containing embedded derivatives. At December 31, 2013 and 2012, included $1.1 billion and $1.1 billion, respectively, of financial instruments with with no embedded derivative for which the fair value option has been elected. |
(f) | At December 31, 2013 and 2012 included structured notes DVA of $1.4 billion and $1.7 billion, respectively. |
Year ended December 31, (in millions) | 2013 | 2012 | 2011 | ||||||||
Derivative CVA(a) | $ | 1,886 | $ | 2,698 | $ | (2,574 | ) | ||||
Derivative DVA and FVA(b) | (1,152 | ) | (590 | ) | 538 | ||||||
Structured notes DVA and FVA(c)(d) | (760 | ) | (340 | ) | 899 |
(a) | Derivatives CVA, gross of hedges, includes results managed by the Credit Portfolio and other lines of business within the CIB. |
(b) | At December 31, 2013, 2012 and 2011 included derivatives DVA of $(115) million, $(590) million and $538 million, respectively. |
(c) | Structured notes are measured at fair value based on the Firm’s election under the fair value option. For further information on these elections, see Note 4 on pages 215–218 of this Annual Report. |
(d) | At December 31, 2013, 2012 and 2011 included structured notes DVA of $(337) million, $(340) million and $899 million, respectively. |
December 31, 2013 | December 31, 2012 | ||||||||||||||||||||||||||||||
Estimated fair value hierarchy | Estimated fair value hierarchy | ||||||||||||||||||||||||||||||
(in billions) | Carrying value | Level 1 | Level 2 | Level 3 | Total estimated fair value | Carrying value | Level 1 | Level 2 | Level 3 | Total estimated fair value | |||||||||||||||||||||
Financial assets | |||||||||||||||||||||||||||||||
Cash and due from banks | $ | 39.8 | $ | 39.8 | $ | — | $ | — | $ | 39.8 | $ | 53.7 | $ | 53.7 | $ | — | $ | — | $ | 53.7 | |||||||||||
Deposits with banks | 316.1 | 309.7 | 6.4 | — | 316.1 | 121.8 | 114.1 | 7.7 | — | 121.8 | |||||||||||||||||||||
Accrued interest and accounts receivable | 65.2 | — | 64.9 | 0.3 | 65.2 | 60.9 | — | 60.3 | 0.6 | 60.9 | |||||||||||||||||||||
Federal funds sold and securities purchased under resale agreements | 223.0 | — | 223.0 | — | 223.0 | 272.0 | — | 272.0 | — | 272.0 | |||||||||||||||||||||
Securities borrowed | 107.7 | — | 107.7 | — | 107.7 | 108.8 | — | 108.8 | — | 108.8 | |||||||||||||||||||||
Securities, held-to-maturity(a) | 24.0 | — | 23.7 | — | 23.7 | — | — | — | — | — | |||||||||||||||||||||
Loans, net of allowance for loan losses(b) | 720.1 | — | 23.0 | 697.2 | 720.2 | 709.3 | — | 26.4 | 685.4 | 711.8 | |||||||||||||||||||||
Other | 58.1 | — | 54.5 | 4.3 | 58.8 | 49.7 | — | 42.7 | 7.4 | 50.1 | |||||||||||||||||||||
Financial liabilities | |||||||||||||||||||||||||||||||
Deposits | $ | 1,281.1 | $ | — | $ | 1,280.3 | $ | 1.2 | $ | 1,281.5 | $ | 1,187.9 | $ | — | $ | 1,187.2 | $ | 1.2 | $ | 1,188.4 | |||||||||||
Federal funds purchased and securities loaned or sold under repurchase agreements | 175.7 | — | 175.7 | — | 175.7 | 235.7 | — | 235.7 | — | 235.7 | |||||||||||||||||||||
Commercial paper | 57.8 | — | 57.8 | — | 57.8 | 55.4 | — | 55.4 | — | 55.4 | |||||||||||||||||||||
Other borrowed funds | 14.7 | — | 14.7 | — | 14.7 | 15.0 | — | 15.0 | — | 15.0 | |||||||||||||||||||||
Accounts payable and other liabilities | 160.2 | — | 158.2 | 1.8 | 160.0 | 156.5 | — | 153.8 | 2.5 | 156.3 | |||||||||||||||||||||
Beneficial interests issued by consolidated VIEs | 47.6 | — | 44.3 | 3.2 | 47.5 | 62.0 | — | 57.7 | 4.4 | 62.1 | |||||||||||||||||||||
Long-term debt and junior subordinated deferrable interest debentures(c) | 239.0 | — | 240.8 | 6.0 | 246.8 | 218.2 | — | 220.0 | 5.4 | 225.4 |
(a) | Carrying value includes unamortized discount or premium. |
(b) | Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The difference between the estimated fair value and carrying value of a financial asset or liability is the result of the different methodologies used to determine fair value as compared with carrying value. For example, credit losses are estimated for a financial asset’s remaining life in a fair value calculation but are estimated for a loss emergence period in the allowance for loan loss calculation; future loan income (interest and fees) is incorporated in a fair value calculation but is generally not considered in the allowance for loan losses. For a further discussion of the Firm’s methodologies for estimating the fair value of loans and lending-related commitments, see Valuation hierarchy on pages 196–200 of this Annual Report. |
(c) | Carrying value includes unamortized original issue discount and other valuation adjustments. |
December 31, 2013 | December 31, 2012 | ||||||||||||||||||||||||||||||
Estimated fair value hierarchy | Estimated fair value hierarchy | ||||||||||||||||||||||||||||||
(in billions) | Carrying value(a) | Level 1 | Level 2 | Level 3 | Total estimated fair value | Carrying value(a) | Level 1 | Level 2 | Level 3 | Total estimated fair value | |||||||||||||||||||||
Wholesale lending-related commitments | $ | 0.7 | $ | — | $ | — | $ | 1.0 | $ | 1.0 | $ | 0.7 | $ | — | $ | — | $ | 1.9 | $ | 1.9 |
(a) | Represents the allowance for wholesale lending-related commitments. Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which are recognized at fair value at the inception of guarantees. |
Year ended December 31, (in millions) | 2013 | 2012 | 2011 | |||||||||
Trading assets – debt and equity instruments | $ | 340,449 | $ | 349,337 | $ | 393,890 | ||||||
Trading assets – derivative receivables | 72,629 | 85,744 | 90,003 | |||||||||
Trading liabilities – debt and equity instruments(a) | 77,706 | 69,001 | 81,916 | |||||||||
Trading liabilities – derivative payables | 64,553 | 76,162 | 71,539 |
(a) | Primarily represent securities sold, not yet purchased. |