Fair Value Disclosures

6 Months Ended

Jun. 30, 2011

3. Fair Value Disclosures.

Fair Value Measurements.

A description of the valuation techniques applied to the Company's major categories of assets and liabilities measured at fair value on a recurring basis follows.

Financial Instruments Owned and Financial Instruments Sold, Not Yet Purchased.

U.S. Government and Agency Securities.

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U.S. Treasury Securities. U.S. Treasury securities are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, U.S. Treasury securities are generally categorized in Level 1 of the fair value hierarchy.

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U.S. Agency Securities. U.S. agency securities are composed of three main categories consisting of agency-issued debt, agency mortgage pass-through pool securities and collateralized mortgage obligations. Non-callable agency-issued debt securities are generally valued using quoted market prices. Callable agency-issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. The fair value of agency mortgage pass-through pool securities is model-driven based on spreads of the comparable To-be-announced ("TBA") security. Collateralized mortgage obligations are valued using indices, quoted market prices and trade data for identical or comparable securities. Actively traded non-callable agency-issued debt securities are generally categorized in Level 1 of the fair value hierarchy. Callable agency-issued debt securities, agency mortgage pass-through pool securities and collateralized mortgage obligations are generally categorized in Level 2 of the fair value hierarchy.

Other Sovereign Government Obligations.

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Foreign sovereign government obligations are valued using quoted prices in active markets when available. To the extent quoted prices are not available, fair value is determined based on a valuation model that has as inputs interest rate yield curves, cross-currency basis index spreads, and country credit spreads for structures similar to the bond in terms of issuer, maturity and seniority. These bonds are generally categorized in Level 1 or Level 2 of the fair value hierarchy.

Corporate and Other Debt.

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State and Municipal Securities. The fair value of state and municipal securities is determined using recently executed transactions, market price quotations and pricing models that factor in, where applicable, interest rates, bond or credit default swap spreads and volatility. These bonds are generally categorized in Level 2 of the fair value hierarchy.

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Residential Mortgage-Backed Securities ("RMBS"), Commercial Mortgage-Backed Securities ("CMBS") and other Asset-Backed Securities ("ABS"). RMBS, CMBS and other ABS may be valued based on price or spread data obtained from observed transactions or independent external parties such as vendors or brokers. When position-specific external price data are not observable, the fair value determination may require benchmarking to similar instruments and/or analyzing expected credit losses, default and recovery rates. In evaluating the fair value of each security, the Company considers security collateral-specific attributes, including payment priority, credit enhancement levels, type of collateral, delinquency rates and loss severity. In addition, for RMBS borrowers, Fair Isaac Corporation ("FICO") scores and the level of documentation for the loan are also considered. Market standard models, such as Intex, Trepp or others, may be deployed to model the specific collateral composition and cash flow structure of each transaction. Key inputs to these models are market spreads, forecasted credit losses, default and prepayment rates for each asset category. Valuation levels of RMBS and CMBS indices are also used as an additional data point for benchmarking purposes or to price outright index positions.

RMBS, CMBS and other ABS are generally categorized in Level 2 of the fair value hierarchy. If external prices or significant spread inputs are unobservable or if the comparability assessment involves significant subjectivity related to property type differences, cash flows, performance and other inputs, then RMBS, CMBS and other ABS are categorized in Level 3 of the fair value hierarchy.

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Corporate Bonds. The fair value of corporate bonds is determined using recently executed transactions, market price quotations (where observable), bond spreads or credit default swap spreads obtained from independent external parties such as vendors and brokers adjusted for any basis difference between cash and derivative instruments. The spread data used are for the same maturity as the bond. If the spread data do not reference the issuer, then data that reference a comparable issuer are used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default swap spreads and recovery rates as significant inputs. Corporate bonds are generally categorized in Level 2 of the fair value hierarchy; in instances where prices, spreads or any of the other aforementioned key inputs are unobservable, they are categorized in Level 3 of the fair value hierarchy.

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Collateralized Debt Obligations ("CDO"). The Company holds cash CDOs that typically reference a tranche of an underlying synthetic portfolio of single name credit default swaps. The collateral is usually ABS or other corporate bonds. Credit correlation, a primary input used to determine the fair value of a cash CDO, is usually unobservable and derived using a benchmarking technique. The other model inputs such as credit spreads, including collateral spreads, and interest rates are typically observable. CDOs are categorized in Level 2 of the fair value hierarchy when the credit correlation input is insignificant. In instances where the credit correlation input is deemed to be significant, these instruments are categorized in Level 3 of the fair value hierarchy.

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Corporate Loans and Lending Commitments. The fair value of corporate loans is determined using recently executed transactions, market price quotations (where observable), implied yields from comparable debt, and market observable credit default swap spread levels obtained from independent external parties such as vendors and brokers adjusted for any basis difference between cash and derivative instruments, along with proprietary valuation models and default recovery analysis where such transactions and quotations are unobservable. The fair value of contingent corporate lending commitments is determined by using executed transactions on comparable loans and the anticipated market price based on pricing indications from syndicate banks and customers. The valuation of loans and lending commitments also takes into account fee income that is considered an attribute of the contract. Corporate loans and lending commitments are categorized in Level 2 of the fair value hierarchy except in instances where prices or significant spread inputs are unobservable, in which case they are categorized in Level 3 of the fair value hierarchy.

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Mortgage Loans. Mortgage loans are valued using observable prices based on transactional data or third party pricing for identical or comparable instruments, when available. Where observable prices are not available, the Company estimates fair value based on benchmarking to prices and rates observed in the primary market for similar loan or borrower types or based on the present value of expected future cash flows using its best estimates of the key assumptions, including forecasted credit losses, prepayment rates, forward yield curves and discount rates commensurate with the risks involved or a methodology that utilizes the capital structure and credit spreads of recent comparable securitization transactions. Mortgage loans valued based on observable market data for identical or comparable instruments are categorized in Level 2 of the fair value hierarchy. Where observable prices are not available, due to the subjectivity involved in the comparability assessment related to mortgage loan vintage, geographical concentration, prepayment speed and projected loss assumptions, mortgage loans are categorized in Level 3 of the fair value hierarchy.

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Auction Rate Securities ("ARS"). The Company primarily holds investments in Student Loan Auction Rate Securities ("SLARS") and Municipal Auction Rate Securities ("MARS") with interest rates that are reset through periodic auctions. SLARS are ABS backed by pools of student loans. MARS are municipal bonds often wrapped by municipal bond insurance. ARS were historically traded and valued as floating rate notes, priced at par due to the auction mechanism. Beginning in fiscal 2008, uncertainties in the credit markets have resulted in auctions failing for certain types of ARS. Once the auctions failed, ARS could no longer be valued using observations of auction market prices. Accordingly, the fair value of ARS is determined using independent external market data where available and an internally developed methodology to discount for the lack of liquidity and non-performance risk.

Inputs that impact the valuation of SLARS are independent external market data, the underlying collateral types, level of seniority in the capital structure, amount of leverage in each structure, credit rating and liquidity considerations. Inputs that impact the valuation of MARS are independent external market data when available, the maximum rate, quality of underlying issuers/insurers and evidence of issuer calls. ARS are generally categorized in Level 2 of the fair value hierarchy as the valuation technique relies on observable external data.

Corporate Equities.

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Exchange-Traded Equity Securities. Exchange-traded equity securities are generally valued based on quoted prices from the exchange. To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized in Level 1 of the fair value hierarchy; otherwise, they are categorized in Level 2 or Level 3 of the fair value hierarchy.

Derivative and Other Contracts.

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Listed Derivative Contracts. Listed derivatives that are actively traded are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy. Listed derivatives that are not actively traded are valued using the same approaches as those applied to OTC derivatives; they are generally categorized in Level 2 of the fair value hierarchy.

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OTC Derivative Contracts. OTC derivative contracts include forward, swap and option contracts related to interest rates, foreign currencies, credit standing of reference entities, equity prices or commodity prices.

Depending on the product and the terms of the transaction, the fair value of OTC derivative products can be either observed or modeled using a series of techniques and model inputs from comparable benchmarks, including closed-form analytic formulas, such as the Black-Scholes option-pricing model, and simulation models or a combination thereof. Many pricing models do not entail material subjectivity because the methodologies employed do not necessitate significant judgment, and the pricing inputs are observed from actively quoted markets, as is the case for generic interest rate swaps, certain option contracts and certain credit default swaps. In the case of more established derivative products, the pricing models used by the Company are widely accepted by the financial services industry. A substantial majority of OTC derivative products valued by the Company using pricing models fall into this category and are categorized in Level 2 of the fair value hierarchy.

Other derivative products, including complex products that have become illiquid, require more judgment in the implementation of the valuation technique applied due to the complexity of the valuation assumptions and the reduced observability of inputs. This includes derivative interests in certain mortgage-related CDO securities, certain types of ABS credit default swaps, basket credit default swaps and CDO-squared positions (a CDO-squared position is a special purpose vehicle that issues interests, or tranches, that are backed by tranches issued by other CDOs) where direct trading activity or quotes are unobservable. These instruments involve significant unobservable inputs and are categorized in Level 3 of the fair value hierarchy.

Derivative interests in complex mortgage-related CDOs and ABS credit default swaps, for which observability of external price data is extremely limited, are valued based on an evaluation of the market and model input parameters sourced from similar positions as indicated by primary and secondary market activity. Each position is evaluated independently taking into consideration the underlying collateral performance and pricing, behavior of the tranche under various cumulative loss and prepayment scenarios, deal structures (e.g., non-amortizing reference obligations, call features, etc.) and liquidity. While these factors may be supported by historical and actual external observations, the determination of their value as it relates to specific positions nevertheless requires significant judgment.

For basket credit default swaps and CDO-squared positions, the correlation input between reference credits is unobservable for each specific swap or position and is benchmarked to standardized proxy baskets for which correlation data are available. The other model inputs such as credit spread, interest rates and recovery rates are observable. In instances where the correlation input is deemed to be significant, these instruments are categorized in Level 3 of the fair value hierarchy; otherwise, these instruments are categorized in Level 2 of the fair value hierarchy.

The Company trades various derivative structures with commodity underlyings. Depending on the type of structure, the model inputs generally include interest rate yield curves, commodity underlier price curves, implied volatility of the underlying commodities and, in some cases, the implied correlation between these inputs. The fair value of these products is determined using executed trades and broker and consensus data to provide values for the aforementioned inputs. Where these inputs are unobservable, relationships to observable commodities and data points, based on historic and/or implied observations, are employed as a technique to estimate the model input values. Commodity derivatives are generally categorized in Level 2 of the fair value hierarchy; in instances where significant inputs are unobservable, they are categorized in Level 3 of the fair value hierarchy.

For further information on derivative instruments and hedging activities, see Note 10.

Investments.

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The Company's investments include investments in private equity funds, real estate funds and hedge funds (which include investments made in connection with certain employee deferred compensation plans) as well as direct investments in equity securities. Direct investments are presented in the fair value hierarchy table as Principal investments and Other. Initially, the transaction price is generally considered by the Company as the exit price and is the Company's best estimate of fair value.

After initial recognition, in determining the fair value of internally and externally managed funds, the Company generally considers the net asset value of the fund provided by the fund manager to be the best estimate of fair value. For non-exchange-traded investments either held directly or held within internally managed funds, fair value after initial recognition is based on an assessment of each underlying investment, considering rounds of financing and third-party transactions, discounted cash flow analyses and market-based information, including comparable company transactions, trading multiples and changes in market outlook, among other factors. Exchange-traded direct equity investments are generally valued based on quoted prices from the exchange.

Exchange-traded direct equity investments that are actively traded are categorized in Level 1 of the fair value hierarchy. Non-exchange-traded direct equity investments and investments in private equity and real estate funds are generally categorized in Level 3 of the fair value hierarchy. Investments in hedge funds that are redeemable at the measurement date or in the near future are categorized in Level 2 of the fair value hierarchy; otherwise, they are categorized in Level 3 of the fair value hierarchy.

Physical Commodities.

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The Company trades various physical commodities, including crude oil and refined products, natural gas, base and precious metals and agricultural products. Fair value for physical commodities is determined using observable inputs, including broker quotations and published indices. Physical commodities are generally categorized in Level 2 of the fair value hierarchy; in instances where significant inputs are unobservable, they are categorized in Level 3 of the fair value hierarchy.

Securities Available for Sale.

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Securities available for sale are composed of U.S. government and agency securities, including U.S. Treasury securities, agency-issued debt, agency mortgage pass-through securities and collateralized mortgage obligations. Actively traded U.S. Treasury securities and non-callable agency-issued debt securities are generally categorized in Level 1 of the fair value hierarchy. Callable agency-issued debt securities, agency mortgage pass-through securities and collateralized mortgage obligations are generally categorized in Level 2 of the fair value hierarchy. For further information on securities available for sale, see Note 4.

Deposits.

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Time Deposits. The fair value of certificates of deposit is determined using third-party quotations. These deposits are generally categorized in Level 2 of the fair value hierarchy.

Commercial Paper and Other Short-term Borrowings/Long-term Borrowings.

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Structured Notes. The Company issues structured notes that have coupon or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities. Fair value of structured notes is determined using valuation models for the derivative and debt portions of the notes. These models incorporate observable inputs referencing identical or comparable securities, including prices that the notes are linked to, interest rate yield curves, option volatility and currency, commodity or equity rates. Independent, external and traded prices for the notes are also considered. The impact of the Company's own credit spreads is also included based on the Company's observed secondary bond market spreads. Most structured notes are categorized in Level 2 of the fair value hierarchy.

Securities Sold under Agreements to Repurchase.

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In 2010, the fair value option was elected for certain securities sold under agreements to repurchase. The fair value of a repurchase agreement is computed using a standard cash flow discounting methodology. The inputs to the valuation include contractual cash flows and collateral funding spreads, which are estimated using various benchmarks, interest rate yield curves and option volatilities. In instances where the unobservable inputs are deemed significant, repurchase agreements are categorized in Level 3 of the fair value hierarchy; otherwise, they are categorized in Level 2 of the fair value hierarchy.

The following fair value hierarchy tables present information about the Company's assets and liabilities measured at fair value on a recurring basis at June 30, 2011 and December 31, 2010.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at June 30, 2011


	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Counterparty and Cash Collateral Netting			Balance at June 30, 2011
	(dollars in millions)
Assets
Financial instruments owned:
U.S. government and agency securities:
U.S. Treasury securities	$	13,062		$	21		$	—		$	—		$	13,083
U.S. agency securities		2,499			20,092			2			—			22,593

Total U.S. government and agency securities		15,561			20,113			2			—			35,676
Other sovereign government obligations		30,743			8,297			132			—			39,172
Corporate and other debt:
State and municipal securities		—			3,166			—			—			3,166
Residential mortgage-backed securities		—			3,025			509			—			3,534
Commercial mortgage-backed securities		—			2,586			136			—			2,722
Asset-backed securities		—			1,639			298			—			1,937
Corporate bonds		—			36,972			1,179			—			38,151
Collateralized debt obligations		—			1,932			1,650			—			3,582
Loans and lending commitments		—			17,055			10,420			—			27,475
Other debt		—			8,429			163			—			8,592

Total corporate and other debt		—			74,804			14,355			—			89,159
Corporate equities(1)		62,535			3,057			461			—			66,053
Derivative and other contracts:
Interest rate contracts		1,660			578,414			4,919			—			584,993
Credit contracts		—			96,664			15,622			—			112,286
Foreign exchange contracts		—			55,956			517			—			56,473
Equity contracts		1,900			38,839			1,240			—			41,979
Commodity contracts		5,638			42,934			1,297			—			49,869
Other		—			233			312			—			545
Netting(2)		(8,020	)		(720,762	)		(11,253	)		(59,943	)		(799,978	)

Total derivative and other contracts		1,178			92,278			12,654			(59,943	)		46,167
Investments:
Private equity funds		—			—			2,160			—			2,160
Real estate funds		—			7			1,290			—			1,297
Hedge funds		—			436			827			—			1,263
Principal investments		213			228			3,120			—			3,561
Other		188			26			525			—			739

Total investments		401			697			7,922			—			9,020
Physical commodities		—			8,878			673			—			9,551

Total financial instruments owned		110,418			208,124			36,199			(59,943	)		294,798
Securities available for sale:
U.S. government and agency securities		9,378			14,928			—			—			24,306
Securities received as collateral		15,778			84			—			—			15,862
Intangible assets(3)		—			—			133			—			133
Liabilities
Deposits	$	—		$	2,830		$	—		$	—		$	2,830
Commercial paper and other short-term borrowings		—			1,687			23			—			1,710
Financial instruments sold, not yet purchased:
U.S. government and agency securities:
U.S. Treasury securities		25,315			—			—			—			25,315
U.S. agency securities		2,191			14			—			—			2,205

Total U.S. government and agency securities		27,506			14			—			—			27,520
Other sovereign government obligations		19,903			2,576			—			—			22,479
Corporate and other debt:
State and municipal securities		—			4			—			—			4
Residential mortgage-backed securities		—			—			41			—			41
Commercial mortgage-backed securities		—			18			—			—			18
Corporate bonds		—			7,962			35			—			7,997
Unfunded lending commitments		—			669			240			—			909
Other debt		—			19			178			—			197

Total corporate and other debt		—			8,672			494			—			9,166
Corporate equities(1)		26,563			1,054			1			—			27,618
Derivative and other contracts:
Interest rate contracts		1,560			551,231			4,602			—			557,393
Credit contracts		—			93,508			8,230			—			101,738
Foreign exchange contracts		—			57,275			473			—			57,748
Equity contracts		1,758			43,459			2,901			—			48,118
Commodity contracts		6,196			43,852			981			—			51,029
Other		—			612			709			—			1,321
Netting(2)		(8,020	)		(720,762	)		(11,253	)		(36,199	)		(776,234	)

Total derivative and other contracts		1,494			69,175			6,643			(36,199	)		41,113

Total financial instruments sold, not yet purchased		75,466			81,491			7,138			(36,199	)		127,896
Obligation to return securities received as collateral		20,657			84			—			—			20,741
Securities sold under agreements to repurchase		—			—			358			—			358
Other secured financings		—			15,890			742			—			16,632
Long-term borrowings		12			42,171			1,251			—			43,434

(1)	The Company holds or sells short for trading purposes equity securities issued by entities in diverse industries and of varying size.

(2)

For positions with the same counterparty that cross over the levels of the fair value hierarchy, both counterparty netting and cash collateral netting are included in the column titled "Counterparty and Cash Collateral Netting." For contracts with the same counterparty, counterparty netting among positions classified within the same level is included within that level. For further information on derivative instruments and hedging activities, see Note 10.

(3)	Amount represents mortgage servicing rights ("MSR") accounted for at fair value. See Note 6 for further information on MSRs.

Transfers Between Level 1 and Level 2 During the Quarter Ended June 30, 2011.

Financial instruments owned—Derivative and other contracts and Financial instruments sold, not yet purchased—Derivative and other contracts. During the quarter ended June 30, 2011, the Company reclassified approximately $0.9 billion of derivative assets and approximately $1.3 billion of derivative liabilities from Level 2 to Level 1 as these listed derivatives became actively traded and were valued based on quoted prices from the exchange.

Transfers Between Level 1 and Level 2 During the Six Months Ended June 30, 2011.

Financial instruments owned—Derivative and other contracts and Financial instruments sold, not yet purchased—Derivative and other contracts. During the six months ended June 30, 2011, the Company reclassified approximately $1.1 billion of derivative assets and approximately $0.9 billion of derivative liabilities from Level 2 to Level 1 as these listed derivatives became actively traded and were valued based on quoted prices from the exchange.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2010


	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Counterparty and Cash Collateral Netting			Balance at December 31, 2010
	(dollars in millions)
Assets
Financial instruments owned:
U.S. government and agency securities:
U.S. Treasury securities	$	19,226		$	—		$	—		$	—		$	19,226
U.S. agency securities		3,827			25,380			13			—			29,220

Total U.S. government and agency securities		23,053			25,380			13			—			48,446
Other sovereign government obligations		25,334			8,501			73			—			33,908
Corporate and other debt:
State and municipal securities		—			3,229			110			—			3,339
Residential mortgage-backed securities		—			3,690			319			—			4,009
Commercial mortgage-backed securities		—			2,692			188			—			2,880
Asset-backed securities		—			2,322			13			—			2,335
Corporate bonds		—			39,569			1,368			—			40,937
Collateralized debt obligations		—			2,305			1,659			—			3,964
Loans and lending commitments		—			15,308			11,666			—			26,974
Other debt		—			3,523			193			—			3,716

Total corporate and other debt		—			72,638			15,516			—			88,154
Corporate equities(1)		65,009			2,923			484			—			68,416
Derivative and other contracts:
Interest rate contracts		3,985			616,016			966			—			620,967
Credit contracts		—			95,818			14,316			—			110,134
Foreign exchange contracts		1			61,556			431			—			61,988
Equity contracts		2,176			36,612			1,058			—			39,846
Commodity contracts		5,464			57,528			1,160			—			64,152
Other		—			108			135			—			243
Netting(2)		(8,551	)		(761,939	)		(7,168	)		(68,380	)		(846,038	)

Total derivative and other contracts		3,075			105,699			10,898			(68,380	)		51,292
Investments:
Private equity funds		—			—			1,986			—			1,986
Real estate funds		—			8			1,176			—			1,184
Hedge funds		—			736			901			—			1,637
Principal investments		286			486			3,131			—			3,903
Other(3)		403			79			560			—			1,042

Total investments		689			1,309			7,754			—			9,752
Physical commodities		—			6,778			—			—			6,778

Total financial instruments owned		117,160			223,228			34,738			(68,380	)		306,746
Securities available for sale:
U.S. government and agency securities		20,792			8,857			—			—			29,649
Securities received as collateral		15,646			890			1			—			16,537
Intangible assets(4)		—			—			157			—			157

Liabilities
Deposits	$	—		$	3,011		$	16		$	—		$	3,027
Commercial paper and other short-term borrowings		—			1,797			2			—			1,799
Financial instruments sold, not yet purchased:
U.S. government and agency securities:
U.S. Treasury securities		25,225			—			—			—			25,225
U.S. agency securities		2,656			67			—			—			2,723

Total U.S. government and agency securities		27,881			67			—			—			27,948
Other sovereign government obligations		19,708			2,542			—			—			22,250
Corporate and other debt:
State and municipal securities		—			11			—			—			11
Asset-backed securities		—			12			—			—			12
Corporate bonds		—			9,100			44			—			9,144
Collateralized debt obligations		—			2			—			—			2
Unfunded lending commitments		—			464			263			—			727
Other debt		—			828			194			—			1,022

Total corporate and other debt		—			10,417			501			—			10,918
Corporate equities(1)		19,696			127			15			—			19,838
Derivative and other contracts:
Interest rate contracts		3,883			591,378			542			—			595,803
Credit contracts		—			87,904			7,722			—			95,626
Foreign exchange contracts		2			64,301			385			—			64,688
Equity contracts		2,098			42,242			1,820			—			46,160
Commodity contracts		5,871			58,885			972			—			65,728
Other		—			520			1,048			—			1,568
Netting(2)		(8,551	)		(761,939	)		(7,168	)		(44,113	)		(821,771	)

Total derivative and other contracts		3,303			83,291			5,321			(44,113	)		47,802

Total financial instruments sold, not yet purchased		70,588			96,444			5,837			(44,113	)		128,756
Obligation to return securities received as collateral		20,272			890			1			—			21,163
Securities sold under agreements to repurchase		—			498			351			—			849
Other secured financings		—			7,474			1,016			—			8,490
Long-term borrowings		—			41,393			1,316			—			42,709

(1)	The Company holds or sells short for trading purposes equity securities issued by entities in diverse industries and of varying size.

(2)

(3)

In June 2010, the Company voluntarily contributed $25 million to certain other investments in funds that it manages in connection with upcoming rule changes regarding net asset value disclosures for money market funds. Based on current liquidity and fund performance, the Company does not expect to provide additional voluntary support to non-consolidated funds that it manages.

(4)	Amount represents MSRs accounted for at fair value. See Note 6 for further information on MSRs.

Transfers Between Level 1 and Level 2 during the Quarter Ended June 30, 2010.

Financial instruments owned—Derivative and other contracts and Financial instruments sold, not yet purchased—Derivative and other contracts. During the quarter ended June 30, 2010, the Company reclassified approximately $1.5 billion of derivative assets and approximately $1.5 billion of derivative liabilities from Level 2 to Level 1 as these listed derivatives became actively traded and were valued based on quoted prices from the exchange.

Financial instruments owned—Corporate equities. During the quarter ended June 30, 2010, the Company reclassified approximately $0.5 billion of certain Corporate equities from Level 2 to Level 1 as transactions in these securities occurred with sufficient frequency and volume to constitute an active market. During the quarter ended June 30, 2010, the Company reclassified approximately $1.0 billion of certain Corporate equities from Level 1 to Level 2 as transactions in these securities did not occur with sufficient frequency and volume to constitute an active market.

Transfers Between Level 1 and Level 2 During the Six Months Ended June 30, 2010.

Financial instruments owned—Derivative and other contracts and Financial instruments sold, not yet purchased—Derivative and other contracts. During the six months ended June 30, 2010, the Company reclassified approximately $1.8 billion of derivative assets and approximately $1.9 billion of derivative liabilities from Level 2 to Level 1 as these listed derivatives became actively traded and were valued based on quoted prices from the exchange.

Financial instruments owned—Corporate equities. During the six months ended June 30, 2010, the Company reclassified approximately $1.1 billion of certain Corporate equities from Level 2 to Level 1 as transactions in these securities occurred with sufficient frequency and volume to constitute an active market.

Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis.

The following tables present additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter and six months ended June 30, 2011 and for the quarter and six months ended June 30, 2010, respectively. Level 3 instruments may be hedged with instruments classified in Level 1 and Level 2. As a result, the realized and unrealized gains (losses) for assets and liabilities within the Level 3 category presented in the tables below do not reflect the related realized and unrealized gains (losses) on hedging instruments that have been classified by the Company within the Level 1 and/or Level 2 categories.

Additionally, both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains (losses) during the period for assets and liabilities within the Level 3 category presented in the tables below may include changes in fair value during the period that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

For assets and liabilities that were transferred into Level 3 during the period, gains (losses) are presented as if the assets or liabilities had been transferred into Level 3 at the beginning of the period; similarly, for assets and liabilities that were transferred out of Level 3 during the period, gains (losses) are presented as if the assets or liabilities had been transferred out at the beginning of the period.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended June 30, 2011


	Beginning Balance at March 31, 2011			Total Realized and Unrealized Gains (Losses)(1)			Purchases			Sales			Issuances			Settlements			Net Transfers			Ending Balance at June 30, 2011			Unrealized Gains (Losses) for Level 3 Assets/ Liabilities Outstanding at June 30, 2011(2)
	(dollars in millions)
Assets
Financial instruments owned:
U.S. agency securities	$	57		$	1		$	29		$	(72	)	$	—		$	—		$	(13	)	$	2		$	—
Other sovereign government obligations		126			9			—			(4	)		—			—			1			132			9
Corporate and other debt:
State and municipal securities		4			—			21			(25	)		—			—			—			—			—
Residential mortgage-backed securities		361			(10	)		101			(54	)		—			—			111			509			—
Commercial mortgage-backed securities		132			(21	)		81			(10	)		—			—			(46	)		136			(1	)
Asset-backed securities		—			259			4			—			—			—			35			298			259
Corporate bonds		1,366			(93	)		216			(353	)		—			—			43			1,179			(57	)
Collateralized debt obligations		1,593			17			357			(352	)		—			(19	)		54			1,650			14
Loans and lending commitments		11,218			(168	)		1,898			(676	)		—			(1,285	)		(567	)		10,420			(236	)
Other debt		165			5			6			(13	)		—			—			—			163			1

Total corporate and other debt		14,839			(11	)		2,684			(1,483	)		—			(1,304	)		(370	)		14,355			(20	)
Corporate equities		502			11			127			(144	)		—			—			(35	)		461			24
Net derivative and other contracts(3):
Interest rate contracts		(58	)		472			22			—			(45	)		(62	)		(12	)		317			376
Credit contracts		6,079			1,002			1,089			—			(109	)		(737	)		68			7,392			958
Foreign exchange contracts		46			(34	)		2			—			—			30			—			44			(39	)
Equity contracts		(645	)		58			77			(7	)		(1,163	)		52			(33	)		(1,661	)		60
Commodity contracts		330			(129	)		330			—			(146	)		(99	)		30			316			(139	)
Other		(508	)		(74	)		2			—			(112	)		296			(1	)		(397	)		(81	)

Total net derivative and other contracts		5,244			1,295			1,522			(7	)		(1,575	)		(520	)		52			6,011			1,135
Investments:
Private equity funds		2,006			153			91			(90	)		—			—			—			2,160			129
Real estate funds		1,251			81			17			(59	)		—			—			—			1,290			148
Hedge funds		871			(17	)		20			(120	)		—			—			73			827			(17	)
Principal investments		3,057			182			75			(108	)		—			—			(86	)		3,120			(15	)
Other		398			2			2			(3	)		—			—			126			525			(2	)

Total investments		7,583			401			205			(380	)		—			—			113			7,922			243
Physical commodities		—			(48	)		721			—			—			—			—			673			(48	)
Intangible assets		144			(11	)		1			—			—			(1	)		—			133			(11	)

Liabilities
Commercial paper and other short-term borrowings	$	4		$	7		$	—		$	—		$	29		$	(3	)	$	—		$	23		$	7
Financial instruments sold, not yet purchased:
Corporate and other debt:
Residential mortgage-backed securities		—			(13	)		(13	)		41			—			—			—			41			(13	)
Corporate bonds		150			49			(324	)		336			—			—			(78	)		35			60
Collateralized debt obligations		2			—			(1	)		—			—			—			(1	)		—			—
Unfunded lending commitments		171			(69	)		—			—			—			—			—			240			(69	)
Other debt		180			13			—			13			—			—			(2	)		178			13

Total corporate and other debt		503			(20	)		(338	)		390			—			—			(81	)		494			(9	)
Corporate equities		9			13			(8	)		12			—			—			1			1			3
Securities sold under agreements to repurchase		352			(5	)		—			—			1			—			—			358			(5	)
Other secured financings		605			(9	)		—			—			145			(17	)		—			742			(9	)
Long-term borrowings		1,374			38			—			—			215			(175	)		(125	)		1,251			20

(1)	Total realized and unrealized gains (losses) are primarily included in Principal transactions-Trading in the condensed consolidated statements of income except for $401 million related to Financial instruments owned-Investments, which is included in Principal transactions-Investments.

(2)	Amounts represent unrealized gains (losses) for the quarter ended June 30, 2011 related to assets and liabilities still outstanding at June 30, 2011.

(3)	Net derivative and other contracts represent Financial instruments owned-Derivative and other contracts net of Financial instruments sold, not yet purchased-Derivative and other contracts. For further information on Derivative instruments and hedging activities, see Note 10.

Financial instruments owned—Corporate and other debt. During the quarter ended June 30, 2011, the Company reclassified approximately $1.2 billion of certain Corporate and other debt, primarily corporate loans, from Level 3 to Level 2. The Company reclassified the corporate loans as external prices and/or spread inputs for these instruments became observable.

The Company also reclassified approximately $0.8 billion of certain Corporate and other debt from Level 2 to Level 3. The reclassifications were primarily related to corporate loans and were generally due to a reduction in market price quotations for these or comparable instruments, or a lack of available broker quotes, such that unobservable inputs had to be utilized for the fair value measurement of these instruments.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 30, 2011


	Beginning Balance at December 31, 2010			Total Realized and Unrealized Gains (Losses)(1)			Purchases			Sales			Issuances			Settlements			Net Transfers			Ending Balance at June 30, 2011			Unrealized Gains (Losses) for Level 3 Assets/ Liabilities Outstanding at June 30, 2011(2)
	(dollars in millions)
Assets
Financial instruments owned:
U.S. agency securities	$	13		$	—		$	34		$	(40	)	$	—		$	—		$	(5	)	$	2		$	—
Other sovereign government obligations		73			8			56			—			—			—			(5	)		132			8
Corporate and other debt:
State and municipal securities		110			(1	)		—			(96	)		—			—			(13	)		—			—
Residential mortgage-backed securities		319			(62	)		279			(193	)		—			(1	)		167			509			(71	)
Commercial mortgage-backed securities		188			(19	)		96			(30	)		—			—			(99	)		136			(18	)
Asset-backed securities		13			259			13			(17	)		—			—			30			298			258
Corporate bonds		1,368			(26	)		273			(409	)		—			34			(61	)		1,179			42
Collateralized debt obligations		1,659			273			641			(862	)		—			(55	)		(6	)		1,650			70
Loans and lending commitments		11,666			213			2,321			(537	)		—			(2,038	)		(1,205	)		10,420			212
Other debt		193			—			5			(33	)		—			—			(2	)		163			(9	)

Total corporate and other debt		15,516			637			3,628			(2,177	)		—			(2,060	)		(1,189	)		14,355			484
Corporate equities		484			(207	)		219			(176	)		—			—			141			461			1
Net derivative and other contracts(3):
Interest rate contracts		424			702			19			—			(704	)		(192	)		68			317			600
Credit contracts		6,594			388			1,148			—			(197	)		(614	)		73			7,392			772
Foreign exchange contracts		46			(159	)		1			—			—			159			(3	)		44			(130	)
Equity contracts		(762	)		105			119			—			(1,236	)		98			15			(1,661	)		96
Commodity contracts		188			165			455			—			(321	)		(281	)		110			316			153
Other		(913	)		117			2			—			(116	)		428			85			(397	)		110

Total net derivative and other contracts		5,577			1,318			1,744			—			(2,574	)		(402	)		348			6,011			1,601
Investments:
Private equity funds		1,986			260			88			(245	)		—			—			71			2,160			209
Real estate funds		1,176			145			31			(62	)		—			—			—			1,290			255
Hedge funds		901			(25	)		15			(172	)		—			—			108			827			(25	)
Principal investments		3,131			242			(26	)		(195	)		—			—			(32	)		3,120			(105	)
Other		560			51			(4	)		(11	)		—			—			(71	)		525			41

Total investments		7,754			673			104			(685	)		—			—			76			7,922			375
Physical commodities		—			(48	)		721			—			—			—			—			673			(48	)
Securities received as collateral		1			—			—			(1	)		—			—			—			—			—
Intangible assets		157			(26	)		5			(1	)		(1	)		(1	)		—			133			(26	)

Liabilities
Deposits	$	16		$	2		$	—		$	—		$	—		$	(14	)	$	—		$	—		$	—
Commercial paper and other short-term borrowings		2			7			—			—			29			(1	)		—			23			7
Financial instruments sold, not yet purchased:
Corporate and other debt:
Residential mortgage-backed securities		—			(13	)		(12	)		40			—			—			—			41			(13	)
Commercial mortgage-backed securities		—			1			—			1			—			—			—			—			—
Corporate bonds		44			40			(367	)		426			—			—			(28	)		35			30
Unfunded lending commitments		263			23			—			—			—			—			—			240			23
Other debt		194			4			(10	)		14			—			—			(16	)		178			4

Total corporate and other debt		501			55			(389	)		481			—			—			(44	)		494			44
Corporate equities		15			5			(19	)		6			—			—			4			1			3
Obligation to return securities received as collateral		1			—			(1	)		—			—			—			—			—			—
Securities sold under agreements to repurchase		351			(6	)		1			—			—			—			—			358			(8	)
Other secured financings		1,016			(12	)		—			—			142			(122	)		(306	)		742			(12	)
Long-term borrowings		1,316			(28	)		—			—			388			(342	)		(139	)		1,251			(22	)

(1)	Total realized and unrealized gains (losses) are primarily included in Principal transactions-Trading in the condensed consolidated statements of income except for $673 million related to Financial instruments owned-Investments, which is included in Principal transactions-Investments.

(2)	Amounts represent unrealized gains (losses) for the six months ended June 30, 2011 related to assets and liabilities still outstanding at June 30, 2011.

(3)	Net derivative and other contracts represent Financial instruments owned-Derivative and other contracts net of Financial instruments sold, not yet purchased-Derivative and other contracts. For further information on Derivative instruments and hedging activities, see Note 10.

Financial instruments owned—Corporate and other debt. During the six months ended June 30, 2011, the Company reclassified approximately $1.8 billion of certain Corporate and other debt, primarily corporate loans, from Level 3 to Level 2. The Company reclassified these corporate loans as external prices and/or spread inputs for these instruments became observable.

The Company also reclassified approximately $0.6 billion of certain Corporate and other debt from Level 2 to Level 3. The reclassifications were primarily related to corporate loans and were generally due to a reduction in market price quotations for these or comparable instruments, or a lack of available broker quotes, such that unobservable inputs had to be utilized for the fair value measurement of these instruments.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended June 30, 2010


	Beginning Balance at March 31, 2010			Total Realized and Unrealized Gains (Losses)(1)			Purchases, Sales, Other Settlements and Issuances, net			Net Transfers			Ending Balance at June 30, 2010			Unrealized Gains (Losses) for Level 3 Assets/ Liabilities Outstanding at June 30, 2010(2)
	(dollars in millions)
Assets
Financial instruments owned:
U.S. agency securities	$	1		$	—		$	(5	)	$	5		$	1		$	—
Other sovereign government obligations		80			(1	)		70			(76	)		73			—
Corporate and other debt:
State and municipal securities		398			19			(180	)		(16	)		221			1
Residential mortgage-backed securities		625			(37	)		(97	)		(15	)		476			(42	)
Commercial mortgage-backed securities		779			23			133			(322	)		613			13
Asset-backed securities		149			8			(75	)		19			101			6
Corporate bonds		1,145			86			154			(41	)		1,344			79
Collateralized debt obligations		1,512			(25	)		40			(14	)		1,513			42
Loans and lending commitments		13,503			(40	)		152			(868	)		12,747			(64	)
Other debt		1,921			(61	)		(28	)		(22	)		1,810			(68	)

Total corporate and other debt		20,032			(27	)		99			(1,279	)		18,825			(33	)
Corporate equities		536			(33	)		(183	)		26			346			(1	)
Net derivative and other contracts(3):
Interest rate contracts		384			310			(132	)		(46	)		516			311
Credit contracts		7,952			315			265			(431	)		8,101			499
Foreign exchange rate contracts		206			(1	)		(134	)		—			71			(2	)
Equity contracts		(701	)		(137	)		(191	)		31			(998	)		(129	)
Commodity contracts		90			(152	)		53			23			14			(126	)
Other		(579	)		(402	)		(40	)		(18	)		(1,039	)		(352	)

Total net derivative and other contracts		7,352			(67	)		(179	)		(441	)		6,665			201
Investments:
Private equity funds		1,634			82			123			—			1,839			21
Real estate funds		1,751			4			(115	)		3			1,643			109
Hedge funds		1,027			(29	)		5			(93	)		910			(29	)
Principal investments		2,700			(132	)		7			—			2,575			(83	)
Other		434			64			(60	)		6			444			3

Total investments		7,546			(11	)		(40	)		(84	)		7,411			21
Intangible assets		175			(15	)		(21	)		—			139			(27	)

Liabilities
Deposits	$	15		$	1		$	—		$	—		$	14		$	—
Commercial paper and other short-term borrowings		300			—			(293	)		—			7			—
Financial instruments sold, not yet purchased:
Corporate and other debt:
Residential mortgage-backed securities		—			(6	)		(4	)		—			2			(5	)
Asset-backed securities		4			—			(4	)		—			—			—
Corporate bonds		17			14			80			(3	)		80			19
Unfunded lending commitments		213			(110	)		12			—			335			(110	)
Other debt		317			15			(81	)		—			221			13

Total corporate and other debt		551			(87	)		3			(3	)		638			(83	)
Corporate equities		13			1			(4	)		(3	)		5			—
Other secured financings		1,811			69			5			163			1,910			69
Long-term borrowings		6,728			92			20			(147	)		6,509			92

(1)	Total realized and unrealized gains (losses) are primarily included in Principal transactions-Trading in the condensed consolidated statements of income except for $(11) million related to Financial instruments owned-Investments, which is included in Principal transactions-Investments.

(2)	Amounts represent unrealized gains (losses) for the quarter ended June 30, 2010 related to assets and liabilities still outstanding at June 30, 2010.

(3)	Net derivative and other contracts represent Financial instruments owned-Derivative and other contracts net of Financial instruments sold, not yet purchased-Derivative and other contracts. For further information on Derivative instruments and hedging activities, see Note 10.

Financial instruments owned—Corporate and other debt. During the quarter ended June 30, 2010, the Company reclassified approximately $1.9 billion of certain Corporate and other debt, primarily corporate loans, from Level 3 to Level 2. The Company reclassified the corporate loans as external prices and/or spread inputs for these instruments became observable.

The Company also reclassified approximately $0.6 billion of certain Corporate and other debt from Level 2 to Level 3. The Company reclassified corporate loans as external prices and/or spread inputs became unobservable.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 30, 2010


	Beginning Balance at December 31, 2009			Total Realized and Unrealized Gains (Losses)(1)			Purchases, Sales, Other Settlements and Issuances, net			Net Transfers			Ending Balance at June 30, 2010			Unrealized Gains (Losses) for Level 3 Assets/ Liabilities Outstanding at June 30, 2010(2)
	(dollars in millions)
Assets
Financial instruments owned:
U.S. agency securities	$	36		$	—		$	(35	)	$	—		$	1		$	—
Other sovereign government obligations		3			(1	)		63			8			73			(1	)
Corporate and other debt:
State and municipal securities		713			(56	)		(436	)		—			221			(58	)
Residential mortgage-backed securities		818			12			(392	)		38			476			(6	)
Commercial mortgage-backed securities		1,573			128			(774	)		(314	)		613			28
Asset-backed securities		591			3			(491	)		(2	)		101			9
Corporate bonds		1,038			(44	)		256			94			1,344			(53	)
Collateralized debt obligations		1,553			122			(171	)		9			1,513			60
Loans and lending commitments		12,506			76			629			(464	)		12,747			126
Other debt		1,662			185			(14	)		(23	)		1,810			160

Total corporate and other debt		20,454			426			(1,393	)		(662	)		18,825			266
Corporate equities		536			67			(161	)		(96	)		346			21
Net derivative and other contracts(3):
Interest rate contracts		387			300			(146	)		(25	)		516			302
Credit contracts		8,824			(163	)		383			(943	)		8,101			340
Foreign exchange rate contracts		254			(102	)		(123	)		42			71			(308	)
Equity contracts		(689	)		(208	)		(184	)		83			(998	)		(161	)
Commodity contracts		7			(68	)		14			61			14			66
Other		(437	)		(575	)		(12	)		(15	)		(1,039	)		(511	)

Total net derivative and other contracts		8,346			(816	)		(68	)		(797	)		6,665			(272	)
Investments:
Private equity funds		1,628			139			72			—			1,839			116
Real estate funds		1,087			186			350			20			1,643			289
Hedge funds		1,678			(218	)		(270	)		(280	)		910			(220	)
Principal investments		2,642			(105	)		38			—			2,575			(87	)
Other		578			47			(180	)		(1	)		444			(3	)

Total investments		7,613			49			10			(261	)		7,411			95
Securities received as collateral		23			—			(23	)		—			—			—
Intangible assets		137			24			(22	)		—			139			4

Liabilities
Deposits	$	24		$	2		$	—		$	(8	)	$	14		$	2
Commercial paper and other short-term borrowings		—			—			7			—			7			—
Financial instruments sold, not yet purchased:
Corporate and other debt:
Residential mortgage-backed securities		—			(1	)		1			—			2			(1	)
Commercial mortgage-backed securities		—			1			1			—			—			—
Asset-backed securities		4			—			(4	)		—			—			—
Corporate bonds		29			(1	)		22			28			80			8
Collateralized debt obligations		3			—			(3	)		—			—			—
Unfunded lending commitments		252			(140	)		(57	)		—			335			(138	)
Other debt		431			20			(175	)		(15	)		221			20

Total corporate and other debt		719			(121	)		(215	)		13			638			(111	)
Corporate equities		4			(1	)		(7	)		7			5			1
Obligation to return securities received as collateral		23			—			(23	)		—			—			—
Other secured financings		1,532			(67	)		222			89			1,910			(80	)
Long-term borrowings		6,865			99			(26	)		(231	)		6,509			99

(1)	Total realized and unrealized gains (losses) are primarily included in Principal transactions-Trading in the condensed consolidated statements of income except for $49 million related to Financial instruments owned-Investments, which is included in Principal transactions-Investments.

(2)	Amounts represent unrealized gains (losses) for the six months ended June 30, 2010 related to assets and liabilities still outstanding at June 30, 2010.

(3)	Net derivative and other contracts represent Financial instruments owned-Derivative and other contracts net of Financial instruments sold, not yet purchased-Derivative and other contracts. For further information on derivative instruments and hedging activities, see Note 10.

Financial instruments owned—Corporate and other debt. During the six months ended June 30, 2010, the Company reclassified approximately $1.4 billion of certain Corporate and other debt, primarily corporate loans, from Level 3 to Level 2. The Company reclassified the corporate loans as external prices and/or spread inputs for these instruments became observable.

The Company also reclassified approximately $0.8 billion of certain Corporate and other debt from Level 2 to Level 3. The Company reclassified corporate loans as external prices and/or spread inputs became unobservable.

Fair Value of Investments that Calculate Net Asset Value.

The Company's Investments measured at fair value were $9,020 million and $9,752 million at June 30, 2011 and December 31, 2010, respectively. The following table presents information solely about the Company's investments in private equity funds, real estate funds and hedge funds measured at fair value based on net asset value at June 30, 2011 and December 31, 2010, respectively.


	At June 30, 2011				At December 31, 2010
	Fair Value		Unfunded Commitment		Fair Value		Unfunded Commitment
	(dollars in millions)
Private equity funds	$	2,119	$	1,019	$	1,947	$	1,047
Real estate funds		1,262		538		1,154		500
Hedge funds(1):
Long-short equity hedge funds		571		5		1,046		4
Fixed income/credit-related hedge funds		123		—		305		—
Event-driven hedge funds		183		—		143		—
Multi-strategy hedge funds		385		—		140		—

Total	$	4,643	$	1,562	$	4,735	$	1,551

(1)

Fixed income/credit-related hedge funds, event-driven hedge funds, and multi-strategy hedge funds are redeemable at least on a six-month period basis primarily with a notice period of 90 days or less. At June 30, 2011, approximately 40% of the fair value amount of long-short equity hedge funds is redeemable at least quarterly, 32% is redeemable every six months and 28% of these funds have a redemption frequency of greater than six months. At December 31, 2010, approximately 49% of the fair value amount of long-short equity hedge funds is redeemable at least quarterly, 24% is redeemable every six months and 27% of these funds have a redemption frequency of greater than six months. The notice period for long-short equity hedge funds is primarily greater than 90 days.

Private Equity Funds. Amount includes several private equity funds that pursue multiple strategies including leveraged buyouts, venture capital, infrastructure growth capital, distressed investments, and mezzanine capital. In addition, the funds may be structured with a focus on specific domestic or foreign geographic regions. These investments are generally not redeemable with the funds. Instead, the nature of the investments in this category is that distributions are received through the liquidation of the underlying assets of the fund. At June 30, 2011, it is estimated that 7% of the fair value of the funds will be liquidated in the next five years, another 32% of the fair value of the funds will be liquidated between five to 10 years and the remaining 61% of the fair value of the funds have a remaining life of greater than 10 years.

Real Estate Funds. Amount includes several real estate funds that invest in real estate assets such as commercial office buildings, retail properties, multi-family residential properties, developments or hotels. In addition, the funds may be structured with a focus on specific geographic domestic or foreign regions. These investments are generally not redeemable with the funds. Distributions from each fund will be received as the underlying investments of the funds are liquidated. At June 30, 2011, it is estimated that 18% of the fair value of the funds will be liquidated within the next five years, another 35% of the fair value of the funds will be liquidated between five to 10 years and the remaining 47% of the fair value of the funds have a remaining life of greater than 10 years.

Hedge Funds. Investments in hedge funds may be subject to initial period lock-up restrictions or gates. A hedge fund lock-up provision is a provision that provides that, during a certain initial period, an investor may not make a withdrawal from the fund. The purpose of a gate is to restrict the level of redemptions that an investor in a particular hedge fund can demand on any redemption date.

•

Long-short Equity Hedge Funds. Amount includes investments in hedge funds that invest, long or short, in equities. Equity value and growth hedge funds purchase stocks perceived to be undervalued and sell stocks perceived to be overvalued. Investments representing approximately 12% of the fair value of the investments in this category cannot be redeemed currently because the investments include certain initial period lock-up restrictions. The remaining restriction period for these investments subject to lock-up restrictions ranged from one to three years at June 30, 2011. Investments representing approximately 26% of the fair value of the investments in long-short equity hedge funds cannot be redeemed currently because an exit restriction has been imposed by the hedge fund manager. The restriction period for these investments subject to an exit restriction was primarily two years or less at June 30, 2011.

•

Fixed Income/Credit-Related Hedge Funds. Amount includes investments in hedge funds that employ long-short, distressed or relative value strategies in order to benefit from investments in undervalued or overvalued securities that are primarily debt or credit related. At June 30, 2011, investments representing approximately 36% of the fair value of the investments in fixed income/credit-related hedge funds cannot be redeemed currently because the investments include certain initial period lock-up restrictions. The remaining restriction period for these investments subject to lock-up restrictions was one year or less at June 30, 2011.

•

Event-Driven Hedge Funds. Amount includes investments in hedge funds that invest in event-driven situations such as mergers, hostile takeovers, reorganizations, or leveraged buyouts. This may involve the simultaneous purchase of stock in companies being acquired and the sale of stock in its acquirer, hoping to profit from the spread between the current market price and the ultimate purchase price of the target company. At June 30, 2011, investments representing approximately 34% of the value of the investments in this category cannot be redeemed currently because the investments include certain initial period lock-up restrictions. The remaining restriction period for these investments was primarily one year or less at June 30, 2011.

•

Multi-strategy Hedge Funds. Amount includes investments in hedge funds that pursue multiple strategies to realize short- and long-term gains. Management of the hedge funds has the ability to overweight or underweight different strategies to best capitalize on current investment opportunities. At June 30, 2011, investments representing approximately 76% of the fair value of the investments in this category cannot be redeemed currently because the investments include certain initial period lock-up restrictions. The remaining restriction period for these investments subject to lock-up restrictions was primarily three years or less at June 30, 2011. Investments representing approximately 9% of the fair value of investments in multi-strategy hedge funds cannot be redeemed currently because of an exit restriction that has been imposed by the hedge fund manager. The restriction period for these investments subject to an exit restriction was indefinite at June 30, 2011.

Fair Value Option.

The Company elected the fair value option for certain eligible instruments that are risk managed on a fair value basis to mitigate income statement volatility caused by measurement basis differences between the elected instruments and their associated risk management transactions or to eliminate complexities of applying certain accounting models. The following tables present net gains (losses) due to changes in fair value for items measured at fair value pursuant to the fair value option election for the quarters and six months ended June 30, 2011 and 2010, respectively.


	Principal Transactions- Trading			Interest Expense			Gains (Losses) Included in Net Revenues
	(dollars in millions)
Three Months Ended June 30, 2011
Deposits	$	18		$	(30	)	$	(12	)
Commercial paper and other short-term borrowings		49			—			49
Securities sold under agreements to repurchase		2			—			2
Long-term borrowings		(42	)		(270	)		(312	)

Six Months Ended June 30, 2011
Deposits	$	31		$	(60	)	$	(29	)
Commercial paper and other short-term borrowings		44			—			44
Securities sold under agreements to repurchase		—			—			—
Long-term borrowings		(1,308	)		(560	)		(1,868	)

Three Months Ended June 30, 2010
Deposits	$	10		$	(45	)	$	(35	)
Commercial paper and other short-term borrowings		55			—			55
Long-term borrowings		2,409			(285	)		2,124

Six Months Ended June 30, 2010
Deposits	$	(15	)	$	(93	)	$	(108	)
Commercial paper and other short-term borrowings		68			—			68
Long-term borrowings		2,527			(484	)		2,043

In addition to the amounts in the above table, as discussed in Note 2 to the consolidated financial statements for the year ended December 31, 2010 included in the Form 10-K, all of the instruments within Financial instruments owned or Financial instruments sold, not yet purchased are measured at fair value, either through the election of the fair value option, or as required by other accounting guidance.

The changes in overall fair value of the short-term and long-term borrowings (primarily structured notes) are attributable to changes in foreign currency exchange rates, interest rates, movements in the reference price or index for structured notes and (as presented in the table below) an adjustment to reflect the change in credit quality of the Company.

The following tables present information on the Company's short-term and long-term borrowings (primarily structured notes), loans and unfunded lending commitments for which the fair value option was elected.

Gains (Losses) due to Changes in Instrument Specific Credit Risk


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(dollars in millions)
Short-term and long-term borrowings(1)	$	244		$	750		$	55		$	803
Loans(2)		(146	)		(348	)		(108	)		(1	)
Unfunded lending commitments(3)		(223	)		(94	)		(213	)		(164	)

(1)	The change in the fair value of short-term and long-term borrowings (primarily structured notes) includes an adjustment to reflect the change in credit quality of the Company based upon observations of the Company's secondary bond market spreads.

(2)	Instrument-specific credit gains were determined by excluding the non-credit components of gains and losses, such as those due to changes in interest rates.

(3)	Gains (losses) were generally determined based on the differential between estimated expected client yields and contractual yields at each respective period end.

Amount by Which Contractual Principal Amount Exceeds Fair Value


	At June 30, 2011		At December 31, 2010
	(dollars in billions)
Short-term and long-term borrowings(1)	$	0.9	$	0.6
Loans(2)		24.5		24.3
Loans 90 or more days past due and/or on non-accrual status(2)(3)		21.4		21.2

(1)	These amounts do not include structured notes where the repayment of the initial principal amount fluctuates based on changes in the reference price or index.

(2)	The majority of this difference between principal and fair value amounts emanates from the Company's distressed debt trading business, which purchases distressed debt at amounts well below par.

(3)

The aggregate fair value of loans that were in non-accrual status, which includes all loans 90 or more days past due, was $2.3 billion and $2.2 billion at June 30, 2011 and December 31, 2010, respectively. The aggregate fair value of loans that were 90 or more days past due was $1.8 billion and $2.0 billion at June 30, 2011 and December 31, 2010, respectively.

The tables above exclude non-recourse debt from consolidated VIEs, liabilities related to failed sales, pledged commodities and other liabilities that have specified assets attributable to them.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

Certain assets were measured at fair value on a non-recurring basis and are not included in the tables above. These assets may include loans, equity method investments, premises and equipment, intangible assets and real estate investments.

The following tables present, by caption on the condensed consolidated statements of financial condition, the fair value hierarchy for those assets measured at fair value on a non-recurring basis for which the Company recognized a non-recurring fair value adjustment for the quarters and six months ended June 30, 2011 and 2010, respectively.

Three and Six Months Ended June 30, 2011.


			Fair Value Measurements Using:
	Carrying Value At June 30, 2011(1)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses) for the Three Months Ended June 30, 2011(2)			Total Gains (Losses) for the Six Months Ended June 30, 2011(2)
	(dollars in millions)
Loans(3)	$	183	$	—	$	92	$	91	$	3		$	18
Other investments(4)		84		—		—		84		(20	)		(28	)
Intangible assets(5)		—		—		—		—		—			(3	)

Total	$	267	$	—	$	92	$	175	$	(17	)	$	(13	)

(1)

Carrying values relate only to those assets that had fair value adjustments during the quarter ended June 30, 2011. These amounts do not include assets that had fair value adjustments during the six months ended June 30, 2011, unless the assets also had a fair value adjustment during the quarter ended June 30, 2011.

(2)	Losses are recorded within Other expenses in the condensed consolidated statement of income except for fair value adjustments related to Loans and losses related to Other investments, which are included in Other revenues.

(3)

Non-recurring change in fair value for loans held for investment was calculated based upon the fair value of the underlying collateral. The fair value of the collateral was determined using internal expected recovery models. The non-recurring change in fair value for mortgage loans held for sale is based upon a valuation model incorporating market observable inputs.

(4)	Losses recorded were determined primarily using discounted cash flow models.

(5)	Losses primarily related to investment management contracts and were determined primarily using discounted cash flow models.

There were no liabilities measured at fair value on a non-recurring basis during the quarter and six months ended June 30, 2011.

Three and Six Months Ended June 30, 2010.


			Fair Value Measurements Using:
	Carrying Value At June 30, 2010(1)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses for the Three Months Ended June 30, 2010(2)			Total Losses for the Six Months Ended June 30, 2010(2)
	(dollars in millions)
Loans(3)	$	622	$	—	$	—	$	622	$	(25	)	$	(28	)
Other investments(4)		—		—		—		—		—			(5	)
Intangible assets(5)		3		—		—		3		(17	)		(27	)

Total	$	625	$	—	$	—	$	625	$	(42	)	$	(60	)

(1)

Carrying values relate only to those assets that had fair value adjustments during the quarter ended June 30, 2010. These amounts do not include assets that had fair value adjustments during the six months ended June 30, 2010, unless the assets also had a fair value adjustment during the quarter ended June 30, 2010.

(2)	Losses are recorded within Other expenses in the condensed consolidated statement of income except for fair value adjustments related to Loans and losses related to Other investments, which are included in Other revenues.

(3)	Non-recurring change in fair value for loans held for investment were calculated based upon the fair value of the underlying collateral. The fair value of the collateral was determined using internal expected recovery models.

(4)	Losses recorded were determined primarily using discounted cash flow models.

(5)	Losses primarily related to investment management contracts and were determined using discounted cash flow models.

In addition to the losses included in the table above, the Company incurred a loss of approximately $951 million in connection with the planned disposition of Revel, which was included in discontinued operations. The loss primarily related to premises and equipment and was included in discontinued operations (see Note 1). The fair value of Revel, net of estimated costs to sell, included in Premises, equipment and software costs was approximately $240 million at June 30, 2010 and was classified in Level 3. Fair value was determined using discounted cash flow models.

There were no liabilities measured at fair value on a non-recurring basis during the quarter and six months ended June 30, 2010.

Financial Instruments Not Measured at Fair Value.

Some of the Company's financial instruments are not measured at fair value on a recurring basis but nevertheless are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include: Cash and due from banks, Interest bearing deposits with banks, Cash deposited with clearing organizations or segregated under federal and other regulations or requirements, Federal funds sold and Securities purchased under agreements to resell, Securities borrowed, certain Securities sold under agreements to repurchase, Securities loaned, Receivables—Customers, Receivables—Brokers, dealers and clearing organizations, Payables—Customers, Payables—Brokers, dealers and clearing organizations, certain Commercial paper and other short-term borrowings, certain Deposits and certain Other secured financings.

The Company's long-term borrowings are recorded at amortized amounts unless elected under the fair value option or designated as a hedged item in a fair value hedge. For long-term borrowings not measured at fair value, the fair value of the Company's long-term borrowings was estimated using either quoted market prices or discounted cash flow analyses based on the Company's current borrowing rates for similar types of borrowing arrangements. At June 30, 2011, the carrying value of the Company's long-term borrowings not measured at fair value was approximately $1.0 billion higher than fair value. At December 31, 2010, the carrying value of the Company's long-term borrowings not measured at fair value was approximately $1.8 billion higher than fair value.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 159
-Paragraph 17-22, 27, 28
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 10
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15C, 15D
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 28
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 16
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
-Subparagraph a-d
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 21
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44A, 44B
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 30
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 3, 10, 14, 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15B
-Subparagraph a, b
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 32, 33, 34
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

+ Details