Note 13.
Goodwill and Identifiable Intangible Assets
The tables below present the carrying values of goodwill and identifiable intangible assets, which are included in “Other assets.”
| Goodwill | ||||||||
| As of December | ||||||||
| in millions | 2013 | 2012 | ||||||
|
Investment Banking: |
||||||||
|
Financial Advisory |
$ 98 | $ 98 | ||||||
|
Underwriting |
183 | 183 | ||||||
|
Institutional Client Services: |
||||||||
|
Fixed Income, Currency and Commodities Client Execution |
269 | 269 | ||||||
|
Equities Client Execution |
2,404 | 2,402 | ||||||
|
Securities Services |
105 | 105 | ||||||
|
Investing & Lending |
60 | 59 | ||||||
|
Investment Management |
586 | 586 | ||||||
|
Total |
$3,705 | $3,702 | ||||||
|
Identifiable Intangible Assets |
||||||||
| As of December | ||||||||
| in millions | 2013 | 2012 | ||||||
|
Investment Banking: |
||||||||
|
Financial Advisory |
$ — | $ 1 | ||||||
|
Institutional Client Services: |
||||||||
|
Fixed Income, Currency and Commodities Client Execution 1 |
35 | 421 | ||||||
|
Equities Client Execution 2 |
348 | 565 | ||||||
|
Investing & Lending |
180 | 281 | ||||||
|
Investment Management |
108 | 129 | ||||||
|
Total |
$ 671 | $1,397 | ||||||
| 1. |
The decrease from December 2012 to December 2013 is related to the sale of the firm’s television broadcast royalties in the first quarter of 2013. |
| 2. |
The decrease from December 2012 to December 2013 is primarily related to the sale of a majority stake in the firm’s Americas reinsurance business in April 2013. See Note 3 for further information about this sale. |
Goodwill
Goodwill is the cost of acquired companies in excess of the fair value of net assets, including identifiable intangible assets, at the acquisition date.
Goodwill is assessed annually in the fourth quarter for impairment or more frequently if events occur or circumstances change that indicate impairment may exist. First, qualitative factors are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If results of the qualitative assessment are not conclusive, a quantitative test would be performed.
The quantitative goodwill impairment test consists of two steps.
| Ÿ |
The first step compares the estimated fair value of each reporting unit with its estimated net book value (including goodwill and identifiable intangible assets). If the reporting unit’s fair value exceeds its estimated net book value, goodwill is not impaired. |
| Ÿ |
If the estimated fair value of a reporting unit is less than its estimated net book value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. An impairment loss is equal to the excess of the carrying amount of goodwill over its fair value. |
The firm performed a quantitative goodwill impairment test during the fourth quarter of 2012 (2012 quantitative goodwill test) and determined that goodwill was not impaired.
When performing the quantitative test in 2012, the firm estimated the fair value of each reporting unit and compared it to the respective reporting unit’s net book value (estimated carrying value). The reporting units were valued using relative value and residual income valuation techniques because the firm believes market participants would use these techniques to value the firm’s reporting units. The net book value of each reporting unit reflected an allocation of total shareholders’ equity and represented the estimated amount of shareholders’ equity required to support the activities of the reporting unit under guidelines issued by the Basel Committee on Banking Supervision (Basel Committee) in December 2010. In performing its 2012 quantitative goodwill test, the firm determined that goodwill was not impaired, and the estimated fair value of the firm’s reporting units, in which substantially all of the firm’s goodwill is held, significantly exceeded their estimated carrying values.
During the fourth quarter of 2013, the firm assessed goodwill for impairment. Multiple factors were assessed with respect to each of the firm’s reporting units to determine whether it was more likely than not that the fair value of any of the reporting units was less than its carrying amount. The qualitative assessment considered changes since the 2012 quantitative goodwill test.
In accordance with ASC 350, the firm considered the following factors in the 2013 qualitative assessment performed in the fourth quarter when evaluating whether it was more likely than not that the fair value of a reporting unit was less than its carrying amount:
| Ÿ |
Macroeconomic conditions. Since the 2012 quantitative goodwill test was performed, the firm’s general operating environment improved as credit spreads tightened, global equity prices increased significantly, levels of volatility were generally lower and industry-wide equity underwriting activity improved. |
| Ÿ |
Industry and market considerations. Since the 2012 quantitative goodwill test was performed, industry-wide metrics have trended positively and many industry participants, including the firm, experienced increases in stock price, price-to-book multiples and price-to-earnings multiples. In addition, clarity was obtained on a number of regulations. It is early in the process of determining the impact of these regulations, the rules are highly complex and their full impact will not be known until market practices are fully developed. However, the firm does not expect compliance to have a significant negative impact on reporting unit results. |
| Ÿ |
Cost factors. Although certain expenses increased, there were no significant negative changes to the firm’s overall cost structure since the 2012 quantitative goodwill test was performed. |
| Ÿ |
Overall financial performance. During 2013, the firm’s net earnings, pre-tax margin, diluted earnings per share, return on average common shareholders’ equity and book value per common share increased as compared with 2012. |
| Ÿ |
Entity-specific events. There were no entity-specific events since the 2012 quantitative goodwill test was performed that would have had a significant negative impact on the valuation of the firm’s reporting units. |
| Ÿ |
Events affecting reporting units. There were no events since the 2012 quantitative goodwill test was performed that would have had a significant negative impact on the valuation of the firm’s reporting units. |
| Ÿ |
Sustained changes in stock price. Since the 2012 quantitative goodwill test was performed, the firm’s stock price has increased significantly. In addition, the stock price exceeded book value per common share throughout most of 2013. |
The firm also considered other factors in its qualitative assessment, including changes in the book value of reporting units, the estimated excess of the fair values as compared with the carrying values for the reporting units in the 2012 quantitative goodwill test, projected earnings and the cost of equity. The firm considered all of the above factors in the aggregate as part of its qualitative assessment.
As a result of the 2013 qualitative assessment, the firm determined that it was more likely than not that the fair value of each of the reporting units exceeded its respective carrying amount. Therefore, the firm determined that goodwill was not impaired and that a quantitative goodwill impairment test was not required.
Identifiable Intangible Assets
The table below presents the gross carrying amount, accumulated amortization and net carrying amount of identifiable intangible assets and their weighted average remaining lives.
| As of December | ||||||||||||
| $ in millions | 2013 | Weighted Average Remaining Lives (years) |
2012 | |||||||||
|
Customer lists |
Gross carrying amount | $ 1,102 | $ 1,099 | |||||||||
| Accumulated amortization | (706 | ) | (643 | ) | ||||||||
| Net carrying amount | 396 | 7 | 456 | |||||||||
|
Commodities-related intangibles 1 |
Gross carrying amount | 510 | 513 | |||||||||
| Accumulated amortization | (341 | ) | (226 | ) | ||||||||
| Net carrying amount | 169 | 8 | 287 | |||||||||
|
Television broadcast royalties 2 |
Gross carrying amount | — | 560 | |||||||||
| Accumulated amortization | — | (186 | ) | |||||||||
| Net carrying amount | — | N/A 2 | 374 | |||||||||
|
Insurance-related intangibles 3 |
Gross carrying amount | — | 380 | |||||||||
| Accumulated amortization | — | (231 | ) | |||||||||
| Net carrying amount | — | N/A 3 | 149 | |||||||||
|
Other 4 |
Gross carrying amount | 906 | 950 | |||||||||
| Accumulated amortization | (800 | ) | (819 | ) | ||||||||
| Net carrying amount | 106 | 11 | 131 | |||||||||
|
Total |
Gross carrying amount | 2,518 | 3,502 | |||||||||
| Accumulated amortization | (1,847 | ) | (2,105 | ) | ||||||||
| Net carrying amount | $ 671 | 8 | $ 1,397 | |||||||||
| 1. |
Primarily includes commodities-related customer contracts and relationships, permits and access rights. |
| 2. |
These assets were sold in the first quarter of 2013 and total proceeds received approximated carrying value. |
| 3. |
These assets were related to the firm’s Americas reinsurance business, in which a majority stake was sold in April 2013. See Note 3 for further information about this sale. |
| 4. |
Primarily includes the firm’s exchange-traded fund lead market maker rights. |
Substantially all of the firm’s identifiable intangible assets are considered to have finite lives and are amortized over their estimated lives or based on economic usage for certain commodities-related intangibles. Substantially all of the amortization expense for identifiable intangible assets is included in “Depreciation and amortization.”
The tables below present amortization expense for identifiable intangible assets for 2013, 2012 and 2011, and the estimated future amortization expense through 2018 for identifiable intangible assets as of December 2013.
| Year Ended December | ||||||||||||
| in millions | 2013 | 2012 | 2011 | |||||||||
|
Amortization expense |
$205 | $338 | $389 | |||||||||
| in millions | |
As of December 2013 |
|
|
|
Estimated future amortization expense: |
||||
|
2014 |
$127 | |||
|
2015 |
95 | |||
|
2016 |
92 | |||
|
2017 |
90 | |||
|
2018 |
80 | |||
See Note 12 for information about impairment testing and impairments of the firm’s identifiable intangible assets.