• | Mitigate income statement volatility caused by the differences in the measurement basis of elected instruments (for example, certain instruments elected were previously accounted for on an accrual basis) while the associated risk management arrangements are accounted for on a fair value basis; |
• | Eliminate the complexities of applying certain accounting models (e.g., hedge accounting or bifurcation accounting for hybrid instruments); and/or |
• | Better reflect those instruments that are managed on a fair value basis. |
• | Loans purchased or originated as part of securitization warehousing activity, subject to bifurcation accounting, or managed on a fair value basis. |
• | Securities financing arrangements with an embedded derivative and/or a maturity of greater than one year. |
• | Owned beneficial interests in securitized financial assets that contain embedded credit derivatives, which would otherwise be required to be separately accounted for as a derivative instrument. |
• | Certain investments that receive tax credits and other equity investments acquired as part of the Washington Mutual transaction. |
• | Structured notes issued as part of CIB’s client-driven activities. (Structured notes are predominantly financial instruments that contain embedded derivatives.) |
• | Long-term beneficial interests issued by CIB’s consolidated securitization trusts where the underlying assets are carried at fair value. |
2013 | 2012 | 2011 | ||||||||||||||||||||||||||||||
December 31, (in millions) | Principal transactions | Other income | Total changes in fair value recorded | Principal transactions | Other income | Total changes in fair value recorded | Principal transactions | Other income | Total changes in fair value recorded | |||||||||||||||||||||||
Federal funds sold and securities purchased under resale agreements | $ | (454 | ) | $ | — | $ | (454 | ) | $ | 161 | $ | — | $ | 161 | $ | 270 | $ | — | $ | 270 | ||||||||||||
Securities borrowed | 10 | — | 10 | 10 | — | 10 | (61 | ) | — | (61 | ) | |||||||||||||||||||||
Trading assets: | ||||||||||||||||||||||||||||||||
Debt and equity instruments, excluding loans | 582 | 7 | (c) | 589 | 513 | 7 | (c) | 520 | 53 | (6 | ) | (c) | 47 | |||||||||||||||||||
Loans reported as trading assets: | ||||||||||||||||||||||||||||||||
Changes in instrument-specific credit risk | 1,161 | 23 | (c) | 1,184 | 1,489 | 81 | (c) | 1,570 | 934 | (174 | ) | (c) | 760 | |||||||||||||||||||
Other changes in fair value | (133 | ) | 1,833 | (c) | 1,700 | (183 | ) | 7,670 | (c) | 7,487 | 127 | 5,263 | (c) | 5,390 | ||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||
Changes in instrument-specific credit risk | 36 | — | 36 | (14 | ) | — | (14 | ) | 2 | — | 2 | |||||||||||||||||||||
Other changes in fair value | 17 | — | 17 | 676 | — | 676 | 535 | — | 535 | |||||||||||||||||||||||
Other assets | 32 | (29 | ) | (d) | 3 | — | (339 | ) | (d) | (339 | ) | (49 | ) | (19 | ) | (d) | (68 | ) | ||||||||||||||
Deposits(a) | 260 | — | 260 | (188 | ) | — | (188 | ) | (237 | ) | — | (237 | ) | |||||||||||||||||||
Federal funds purchased and securities loaned or sold under repurchase agreements | 73 | — | 73 | (25 | ) | — | (25 | ) | (4 | ) | — | (4 | ) | |||||||||||||||||||
Other borrowed funds(a) | (399 | ) | — | (399 | ) | 494 | — | 494 | 2,986 | — | 2,986 | |||||||||||||||||||||
Trading liabilities | (46 | ) | — | (46 | ) | (41 | ) | — | (41 | ) | (57 | ) | — | (57 | ) | |||||||||||||||||
Beneficial interests issued by consolidated VIEs | (278 | ) | — | (278 | ) | (166 | ) | — | (166 | ) | (83 | ) | — | (83 | ) | |||||||||||||||||
Other liabilities | — | 2 | (d) | 2 | — | — | — | (3 | ) | (5 | ) | (d) | (8 | ) | ||||||||||||||||||
Long-term debt: | ||||||||||||||||||||||||||||||||
Changes in instrument-specific credit risk(a) | (271 | ) | — | (271 | ) | (835 | ) | — | (835 | ) | 927 | — | 927 | |||||||||||||||||||
Other changes in fair value(b) | 1,280 | — | 1,280 | (1,025 | ) | — | (1,025 | ) | 322 | — | 322 |
(a) | Total changes in instrument-specific credit risk related to structured notes were $(337) million, $(340) million, and $899 million for the years ended December 31, 2013, 2012 and 2011, respectively. These totals include adjustments for structured notes classified within deposits and other borrowed funds, as well as long-term debt. |
(b) | Structured notes are predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk. Although the risk associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such risk. |
(c) | Reported in mortgage fees and related income. |
(d) | Reported in other income. |
• | Loans and lending-related commitments: For floating-rate instruments, all changes in value are attributed to instrument-specific credit risk. For fixed-rate instruments, an allocation of the changes in value for the period is made between those changes in value that are interest rate-related and changes in value that are credit-related. Allocations are generally based on an analysis of borrower-specific credit spread and recovery information, where available, or benchmarking to similar entities or industries. |
• | Long-term debt: Changes in value attributable to instrument-specific credit risk were derived principally from observable changes in the Firm’s credit spread. |
• | Resale and repurchase agreements, securities borrowed agreements and securities lending agreements: Generally, for these types of agreements, there is a requirement that collateral be maintained with a market value equal to or in excess of the principal amount loaned; as a result, there would be no adjustment or an immaterial adjustment for instrument-specific credit risk related to these agreements. |
2013 | 2012 | ||||||||||||||||||||
December 31, (in millions) | Contractual principal outstanding | Fair value | Fair value over/(under) contractual principal outstanding | Contractual principal outstanding | Fair value | Fair value over/(under) contractual principal outstanding | |||||||||||||||
Loans(a) | |||||||||||||||||||||
Nonaccrual loans | |||||||||||||||||||||
Loans reported as trading assets | $ | 5,156 | $ | 1,491 | $ | (3,665 | ) | $ | 4,217 | $ | 960 | $ | (3,257 | ) | |||||||
Loans(d) | 209 | 154 | (55 | ) | 293 | 236 | (57 | ) | |||||||||||||
Subtotal | 5,365 | 1,645 | (3,720 | ) | 4,510 | 1,196 | (3,314 | ) | |||||||||||||
All other performing loans | |||||||||||||||||||||
Loans reported as trading assets | 33,069 | 29,295 | (3,774 | ) | 44,084 | 40,581 | (3,503 | ) | |||||||||||||
Loans(d) | 1,618 | 1,563 | (55 | ) | 2,034 | 1,927 | (107 | ) | |||||||||||||
Total loans | $ | 40,052 | $ | 32,503 | $ | (7,549 | ) | $ | 50,628 | $ | 43,704 | $ | (6,924 | ) | |||||||
Long-term debt | |||||||||||||||||||||
Principal-protected debt | $ | 15,797 | (c) | $ | 15,909 | $ | 112 | $ | 16,541 | (c) | $ | 16,391 | $ | (150 | ) | ||||||
Nonprincipal-protected debt(b) | NA | 12,969 | NA | NA | 14,397 | NA | |||||||||||||||
Total long-term debt | NA | $ | 28,878 | NA | NA | $ | 30,788 | NA | |||||||||||||
Long-term beneficial interests | |||||||||||||||||||||
Nonprincipal-protected debt(b) | NA | $ | 1,996 | NA | NA | $ | 1,170 | NA | |||||||||||||
Total long-term beneficial interests | NA | $ | 1,996 | NA | NA | $ | 1,170 | NA |
(a) | There were no performing loans that were ninety days or more past due as of December 31, 2013 and 2012, respectively. |
(b) | Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. |
(c) | Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflected as the remaining contractual principal is the final principal payment at maturity. |
(d) | During 2013, certain loans that resulted from restructurings that were previously classified as performing were reclassified as nonperforming loans. Prior periods were revised to conform with the current presentation. |
December 31, 2013 | December 31, 2012 | ||||||||||||||||||||||||
(in millions) | Long-term debt | Other borrowed funds | Deposits | Total | Long-term debt | Other borrowed funds | Deposits | Total | |||||||||||||||||
Risk exposure | |||||||||||||||||||||||||
Interest rate | $ | 9,516 | $ | 615 | $ | 1,270 | $ | 11,401 | $ | 8,669 | $ | 1,143 | $ | 559 | $ | 10,371 | |||||||||
Credit | 4,248 | 13 | — | 4,261 | 6,166 | — | — | 6,166 | |||||||||||||||||
Foreign exchange | 2,321 | 194 | 27 | 2,542 | 2,819 | — | 29 | 2,848 | |||||||||||||||||
Equity | 11,082 | 11,936 | 3,736 | 26,754 | 11,580 | 9,809 | 2,972 | 24,361 | |||||||||||||||||
Commodity | 1,260 | 310 | 1,133 | 2,703 | 1,379 | 332 | 1,555 | 3,266 | |||||||||||||||||
Total structured notes | $ | 28,427 | $ | 13,068 | $ | 6,166 | $ | 47,661 | $ | 30,613 | $ | 11,284 | $ | 5,115 | $ | 47,012 |