v3.21.2
Trading Cash Instruments
 9 Months Ended
Sep. 30, 2021
Text Block [Abstract]  
Trading Cash Instruments
Note 6.
Trading Cash Instruments
Trading cash instruments consists of instruments held in connection with the firm’s market-making or risk management activities. These instruments are carried at fair value and the related fair value gains and losses are recognized in the consolidated statements of earnings.
Fair Value of Trading Cash Instruments by Level
The table below presents trading cash instruments by level within the fair value hierarchy.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
         
$ in millions
     Level 1       Level 2       Level 3       Total  
As of September 2021
                                
Assets
                                
Government and agency obligations:
 
                        
U.S.
  
 
$   76,579
 
  
 
$  23,883
 
  
 
$    
 
17
 
  
 
$ 100,479
 
Non-U.S.
  
 
40,510
 
  
 
15,600
 
  
 
16
 
  
 
56,126
 
Loans and securities backed by:
                                
Commercial real estate
  
 
–
 
  
 
1,049
 
  
 
136
 
  
 
1,185
 
Residential real estate
  
 
–
 
  
 
10,160
 
  
 
122
 
  
 
10,282
 
Corporate debt instruments
  
 
588
 
  
 
38,493
 
  
 
1,096
 
  
 
40,177
 
State and municipal obligations
  
 
–
 
  
 
752
 
  
 
1
 
  
 
753
 
Other debt obligations
  
 
72
 
  
 
2,145
 
  
 
53
 
  
 
2,270
 
Equity securities
  
 
99,930
 
  
 
2,755
 
  
 
75
 
  
 
102,760
 
Commodities
  
 
–
 
  
 
7,383
 
  
 
–
 
  
 
7,383
 
Total
  
 
$ 217,679
 
  
 
$102,220
 
  
 
$1,516
 
  
 
$ 321,415
 
Liabilities
                                
Government and agency obligations:
 
                        
U.S.
  
 
$  (28,554
) 
  
 
$      
  
(30
) 
  
 
$       –
 
  
 
$  (28,584
) 
Non-U.S.
  
 
(39,190
) 
  
 
(2,886
) 
  
 
–
 
  
 
(42,076
) 
Loans and securities backed by:
                                
Commercial real estate
  
 
–
 
  
 
(42
) 
  
 
(1
) 
  
 
(43
) 
Residential real estate
  
 
–
 
  
 
–
 
  
 
(11
) 
  
 
(11
) 
Corporate debt instruments
  
 
(72
) 
  
 
(16,380
) 
  
 
(99
) 
  
 
(16,551
) 
Equity securities
  
 
(62,824
) 
  
 
(639
) 
  
 
(27
) 
  
 
(63,490
) 
Commodities
  
 
–
 
  
 
(8
) 
  
 
–
 
  
 
(8
) 
Total
  
 
$(130,640
) 
  
 
$
  
(19,985
) 
  
 
$
  
(138
) 
  
 
$(150,763
) 
 
As of December 2020
                                
Assets
                                
Government and agency obligations:
 
                        
U.S.
     $   
  
93,670		       $  44,863       $       
  
–		       $
  
 138,533		  
Non-U.S.
     46,147       11,261       15       57,423  
Loans and securities backed by:
                                
Commercial real estate
     –       597       203       800  
Residential real estate
     –       6,948       131       7,079  
Corporate debt instruments
     915       29,639       797       31,351  
State and municipal obligations
     –       200       –       200  
Other debt obligations
     338       1,055       19       1,412  
Equity securities
     75,300       2,505       72       77,877  
Commodities
     –       9,374       –       9,374  
Total
     $ 
  
216,370		       $106,442       $1,237       $ 
  
324,049		  
Liabilities
                                
Government and agency obligations:
 
                        
U.S.
     $  (16,880 )      $        (13 )      $
  
       –		       $
  
  (16,893		 ) 
Non-U.S.
     (22,092 )      (1,792 )      –       (23,884 ) 
Loans and securities backed by:
                                
Commercial real estate
     –       (17 )      (1 )      (18 ) 
Residential real estate
     –       (1 )      –       (1 ) 
Corporate debt instruments
     (2 )      (7,970 )      (50 )      (8,022 ) 
State and municipal obligations
     –       (5 )      –       (5 ) 
Other debt obligations
     –       –       (2 )      (2 ) 
Equity securities
     (45,734 )      (550 )      (27 )      (46,311 ) 
Total
     $  
  
(84,708		 )      $ (10,348 )      $    (80 )      $  (95,136 ) 
In the table above:
 
•  
Trading cash instrument assets are shown as positive amounts and trading cash instrument liabilities are shown as negative amounts.
 
•  
Corporate debt instruments includes corporate loans, debt securities, convertible debentures, prepaid commodity transactions and transfers of assets accounted for as secured loans rather than purchases.
 
•  
Other debt obligations includes other asset-backed securities and money market instruments.
 
•  
Equity securities includes public equities and exchange-traded funds.
See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of trading cash instruments. See Note 7 for information about hedging activities for precious metals included in commodities and accounted for at the low
e
r of cost or net realizable value. These precious metals are designated in a fair value hedging relationship, and therefore their carrying value equals fair value.
Significant Unobservable Inputs
The table below presents the amount of level 3 assets, and ranges and weighted averages of significant unobservable inputs used to value level 3 trading cash instruments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       
   
As of September 2021
    
  
     As of December 2020  
           
$ in millions
  
 
 
Amount or
Range
 
 
  
 
Weighted
Average
 
 
  
 
 
 
    
 
 Amount or
Range
  
 
     Weighted
Average		  
 
Loans and securities backed by commercial real estate
 
        
Level 3 assets
  
 
$136
 
                     $203          
Yield
  
 
3.5% to 27.1%
 
  
 
13.1%
 
             1.7% to 22.0%       9.0%  
Recovery rate
  
 
7.9% to 97.0%
 
  
 
61.7%
 
             5.1% to 94.9%       57.7%  
Duration (years)
  
 
0.4 to 4.6
 
  
 
1.9
 
  
 
 
 
     1.1 to 9.1       5.0  
Loans and securities backed by residential real estate
 
        
Level 3 assets
  
 
$122
 
                     $131          
Yield
  
 
1.0% to 27.2%
 
  
 
8.9%
 
             0.6% to 15.7%       6.3%  
Cumulative loss rate
  
 
1.1% to 37.5%
 
  
 
16.2%
 
             3.4% to 45.6%       20.8%  
Duration (years)
  
 
0.2 to 16.6
 
  
 
6.6
 
  
 
 
 
     0.9 to 16.1       6.5  
Corporate debt instruments
 
        
Level 3 assets
  
 
$1,096
 
                     $797          
Yield
  
 
0.2% to 15.5%
 
  
 
5.8%
 
             0.6% to 30.6%       9.5%  
Recovery rate
  
 
9.0% to 80.0%
 
  
 
64.4%
 
             0.0% to 73.6%       58.7%  
Duration (years)
  
 
1.5 to 28.8
 
  
 
4.7
 
  
 
 
 
     0.3 to 25.5       4.0  
Level 3 government and agency obligations, state and municipal obligations, other debt obligations and equity securities were not material as of both September 2021 and December 2020, and therefore are not included in the table above. 
In the table above:
 
•  
Ranges represent the significant unobservable inputs that were used in the valuation of each type of trading cash instrument.
 
•  
Weighted averages are calculated by weighting each input by the relative fair value of the trading cash instruments.
 
•  
The ranges and weighted averages of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one trading cash instrument. For example, the highest recovery rate for corporate debt instruments is appropriate for valuing a specific corporate debt instrument, but may not be appropriate for valuing any other corporate debt instrument. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 trading cash instruments.
 
•  
Increases in yield, duration or cumulative loss rate used in the valuation of level 3 trading cash instruments would have resulted in a lower fair value measurement, while increases in recovery rate would have resulted in a higher fair value measurement as of both September 2021 and December 2020. Due to the distinctive nature of each level 3 trading cash instrument, the interrelationship of inputs is not necessarily uniform within each product type.
 
•  
Trading cash instruments are valued using discounted cash flows.
Level 3 Rollforward
The table below presents a summary of the changes in fair value for level 3 trading cash instruments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       
    Three Months
Ended September		            Nine Months
Ended September		  
           
$ in millions
  
 
2021
 
      2020    
 
  
 
2021
 
      2020  
Total trading cash instrument assets
 
                     
Beginning balance
  
 
$1,304
 
      $1,804        
 
$1,237
 
      $1,242  
Net realized gains/(losses)
  
 
27
 
      15        
 
63
 
      59  
Net unrealized gains/(losses)
  
 
11
 
      34        
 
64
 
      (146 ) 
Purchases
  
 
223
 
      244        
 
793
 
      685  
Sales
  
 
(133
) 
      (701 )       
 
(455
) 
      (438 ) 
Settlements
  
 
(113
) 
      (124 )       
 
(287
) 
      (264 ) 
Transfers into level 3
  
 
358
 
      157        
 
306
 
      313  
Transfers out of level 3
  
 
(161
) 
      (164 )   
 
  
 
(205
) 
      (186 ) 
Ending balance
  
 
$1,516
 
      $1,265    
 
  
 
$1,516
 
      $1,265  
 
Total trading cash instrument liabilities
 
 
                     
Beginning balance
  
 
$  
  
(78
) 
      $  (156 )       
 
$  
  
(80
) 
      $  (273 ) 
Net realized gains/(losses)
  
 
2
 
      –        
 
5
 
      –  
Net unrealized gains/(losses)
  
 
(2
) 
      (79 )       
 
(1
) 
      18  
Purchases
  
 
22
 
      13        
 
35
 
      50  
Sales
  
 
(55
) 
      (20 )       
 
(86
) 
      (35 ) 
Settlements
  
 
–
 
      (3 )       
 
8
 
      (2 ) 
Transfers into level 3
  
 
(32
) 
      (34 )       
 
(22
) 
      (28 ) 
Transfers out of level 3
  
 
5
 
      11    
 
  
 
3
 
      2  
Ending balance
  
 
$
  
(138
) 
      $  (268 )   
 
  
 
$
  
(138
) 
      $  (268 ) 
In the table above:
 
•  
Changes in fair value are presented for all trading cash instruments that are classified in level 3 as of the end of the period.
 
•  
Net unrealized gains/(losses) relates to trading cash instruments that were still held at
period-end.
 
•  
Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a trading cash instrument was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3.
 
•  
For level 3 trading cash instrument assets, increases are shown as positive amounts, while decreases are shown as negative amounts. For level 3 trading cash instrument liabilities, increases are shown as negative amounts, while decreases are shown as positive amounts.
 
•  
Level 3 trading cash instruments are frequently economically hedged with level 1 and level 2 trading cash instruments and/or level 1, level 2 or level 3 derivatives. Accordingly, gains or losses that are classified in level 3 can be partially offset by gains or losses attributable to level 1 or level 2 trading cash instruments and/or level 1, level 2 or level 3 derivatives. As a result, gains or losses included in the level 3 rollforward below do not necessarily represent the overall impact on the firm’s results of operations, liquidity or capital resources.
The table below presents information, by product type, for assets included in the summary table above.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       
    Three Months
Ended September		            Nine Months
Ended September		  
           
$ in millions
  
 
2021
 
      2020    
 
  
 
2021
 
      2020  
Loans and securities backed by commercial real estate
 
Beginning balance
  
 
$    
 
96
 
      $ 430        
 
$  
 
203
 
      $ 191  
Net realized gains/(losses)
  
 
2
 
      2        
 
6
 
      15  
Net unrealized gains/(losses)
  
 
(4
) 
      (2 )       
 
(7
) 
      (36 ) 
Purchases
  
 
28
 
      7        
 
54
 
      77  
Sales
  
 
(2
) 
      (228 )       
 
(39
) 
      (19 ) 
Settlements
  
 
(7
) 
      (3 )       
 
(13
) 
      (55 ) 
Transfers into level 3
  
 
31
 
      7        
 
15
 
      30  
Transfers out of level 3
  
 
(8
) 
      (17 )   
 
  
 
(83
) 
      (7 ) 
Ending balance
  
 
$  
 
136
 
      $ 196    
 
  
 
$  
 
136
 
      $ 196  
 
Loans and securities backed by residential real estate
 
 
         
Beginning balance
  
 
$  
 
130
 
      $ 307        
 
$  
 
131
 
      $ 231  
Net realized gains/(losses)
  
 
2
 
      4        
 
6
 
      7  
Net unrealized gains/(losses)
  
 
5
 
      5        
 
16
 
      17  
Purchases
  
 
11
 
      78        
 
29
 
      97  
Sales
  
 
(4
) 
      (177 )       
 
(48
) 
      (79 ) 
Settlements
  
 
(25
) 
      (11 )       
 
(36
) 
      (33 ) 
Transfers into level 3
  
 
14
 
      4        
 
39
 
      22  
Transfers out of level 3
  
 
(11
) 
      (30 )   
 
  
 
(15
) 
      (82 ) 
Ending balance
  
 
$  
 
122
 
      $ 180    
 
  
 
$  
 
122
 
      $ 180  
 
Corporate debt instruments
                                      
Beginning balance
  
 
$  
 
891
 
      $ 764        
 
$  
 
797
 
      $ 692  
Net realized gains/(losses)
  
 
24
 
      10        
 
48
 
      28  
Net unrealized gains/(losses)
  
 
12
 
      25        
 
57
 
      (102 ) 
Purchases
  
 
152
 
      139        
 
634
 
      455  
Sales
  
 
(88
) 
      (89 )       
 
(327
) 
      (256 ) 
Settlements
  
 
(67
) 
      (103 )       
 
(195
) 
      (157 ) 
Transfers into level 3
  
 
292
 
      129        
 
187
 
      214  
Transfers out of level 3
  
 
(120
) 
      (93 )   
 
  
 
(105
) 
      (92 ) 
Ending balance
  
 
$1,096
 
      $ 782    
 
  
 
$1,096
 
      $ 782  
 
Other
                                      
Beginning balance
  
 
$  
 
187
 
      $ 303        
 
$  
 
106
 
      $ 128  
Net realized gains/(losses)
  
 
(1
) 
      (1 )       
 
3
 
      9  
Net unrealized gains/(losses)
  
 
(2
) 
      6        
 
(2
) 
      (25 ) 
Purchases
  
 
32
 
      20        
 
76
 
      56  
Sales
  
 
(39
) 
      (207 )       
 
(41
) 
      (84 ) 
Settlements
  
 
(14
) 
      (7 )       
 
(43
) 
      (19 ) 
Transfers into level 3
  
 
21
 
      17        
 
65
 
      47  
Transfers out of level 3
  
 
(22
) 
      (24 )   
 
  
 
(2
) 
      (5 ) 
Ending balance
  
 
$  
 
162
 
      $ 107    
 
  
 
$  
 
162
 
      $ 107  
In the table above, other includes U.S. and
non-U.S.
government and agency obligations, other debt obligations and equity securities.
Level 3 Rollforward Commentary
Three Months Ended September 2021.
The net realized and unrealized gains on level 3 trading cash instrument assets of $38 million (reflecting $27 million of net realized gains and $11 million of net unrealized gains) for the three months ended September 2021 included gains of $17 million reported in market making and $21 million reported in interest income.
The drivers of the net unrealized gains on level 3 trading cash instrument assets for the three months ended September 2021 were not material.
Transfers into level 3 trading cash instrument assets during the three months ended September 2021 primarily reflected transfers of certain corporate debt instruments from level 2 (principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments).
Transfers out of level 3 trading cash instrument assets during the three months ended September 2021 primarily reflected transfers of certain corporate debt instruments to level 2 (principally due to increased price transparency as a result of market evidence, including market transactions in these instruments).
Nine Months Ended September 2021.
The net realized and unrealized gains on level 3 trading cash instrument assets of $127 million (reflecting $63 million of net realized gains and $64 million of net unrealized gains) for the nine months ended September 2021 included gains of $63 million reported in market making and $64 million reported in interest income.
The drivers of the net unrealized gains on level 3 trading cash instrument assets for the nine months ended September 2021 were not material.
Transfers into level 3 trading cash instrument assets during the nine months ended September 2021 primarily reflected transfers of certain corporate debt instruments from level 2 (principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments).
Transfers out of level 3 trading cash instrument assets during the nine months ended September 2021 primarily reflected transfers of certain corporate debt instruments to level 2 (principally due to increased price transparency as a result of market evidence, including market transactions in these instruments).
Three Months Ended September 2020.
The net realized and unrealized gains on level 3 trading cash instrument assets of $49 million (reflecting $15 million of net realized gains and $34 million of net unrealized gains) for the three months ended September 2020 included gains of $25 million reported in market making and $24 million reported in interest income.
The drivers of the net unrealized gains on level 3 trading cash instrument assets for the three months ended September 2020 were not material.
Transfers into level 3 trading cash instrument assets during the three months ended September 2020 primarily reflected transfers of certain corporate debt instruments from level 2 (principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments).
Transfers out of level 3 trading cash instrument assets during the three months ended September 2020 primarily reflected transfers of certain corporate debt instruments to level 2 (principally due to increased price transparency as a result of market evidence, including market transactions in these instruments).
Nine Months Ended September 2020.
The net realized and unrealized losses on level 3 trading cash instrument assets of $87 million (reflecting $59 million of net realized gains and $146 million of net unrealized losses) for the nine months ended September 2020 included gains/(losses) of $(171) million reported in market making and $84 million reported in interest income.
The net unrealized losses on level 3 trading cash instrument assets for the nine months ended September 2020 primarily reflected losses on certain corporate debt instruments (principally driven by corporate performance).
Transfers into level 3 trading cash instrument assets during the nine months ended September 2020 primarily reflected transfers of certain corporate debt instruments from level 2 (principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments).
Transfers out of level 3 trading cash instrument assets during the nine months ended September 2020 primarily reflected transfers of certain corporate debt instruments, and loans and securities backed by residential real estate to level 2 (in each case, principally due to increased price transparency as a result of market evidence, including market transactions in these instruments).