| Derivatives and Hedging Activities | Derivatives and Hedging Activities Derivative Activities Derivatives are instruments that derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors. Derivatives may be traded on an exchange (exchange-traded) or they may be privately negotiated contracts, which are usually referred to as OTC derivatives. Certain of the firm’s OTC derivatives are cleared and settled through central clearing counterparties (OTC-cleared), while others are bilateral contracts between two counterparties (bilateral OTC). Market Making. As a market maker, the firm enters into derivative transactions to provide liquidity to clients and to facilitate the transfer and hedging of their risks. In this role, the firm typically acts as principal and is required to commit capital to provide execution, and maintains market-making positions in response to, or in anticipation of, client demand. Risk Management. The firm also enters into derivatives to actively manage risk exposures that arise from its market-making and investing and financing activities. The firm’s holdings and exposures are hedged, in many cases, on either a portfolio or risk-specific basis, as opposed to an instrument-by-instrument basis. The offsetting impact of this economic hedging is reflected in the same business segment as the related revenues. In addition, the firm may enter into derivatives designated as hedges under U.S. GAAP. These derivatives are used to manage interest rate exposure of certain fixed-rate unsecured borrowings and deposits and certain U.S. and non-U.S. government securities classified as available-for-sale, foreign exchange risk of certain available-for-sale securities and the net investment in certain non-U.S. operations. The firm enters into various types of derivatives, including: • Futures and Forwards. Contracts that commit counterparties to purchase or sell financial instruments, commodities or currencies in the future. • Swaps. Contracts that require counterparties to exchange cash flows, such as currency or interest payment streams. The amounts exchanged are based on the specific terms of the contract with reference to specified rates, financial instruments, commodities, currencies or indices. • Options. Contracts in which the option purchaser has the right, but not the obligation, to purchase from or sell to the option writer financial instruments, commodities or currencies within a defined time period for a specified price. Derivatives are reported on a net-by-counterparty basis (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) when a legal right of setoff exists under an enforceable netting agreement (counterparty netting). Derivatives are accounted for at fair value, net of cash collateral received or posted under enforceable credit support agreements (cash collateral netting). Derivative assets are included in trading assets trading liabilities Realized and unrealized gains and losses The tables below present the gross fair value and the notional amounts of derivative contracts by major product type, the amounts of counterparty and cash collateral netting in the consolidated balance sheets, as well as cash and securities collateral posted and received under enforceable credit support agreements that do not meet the criteria for netting under U.S. GAAP. As of March 2024 As of December 2023 $ in millions Derivative Derivative Derivative Derivative Not accounted for as hedges Exchange-traded $ 3,212 $ 1,029 $ 3,401 $ 1,129 OTC-cleared 65,966 64,067 67,815 64,490 Bilateral OTC 161,855 138,599 171,109 149,444 Total interest rates 231,033 203,695 242,325 215,063 OTC-cleared 1,551 1,741 1,271 1,533 Bilateral OTC 10,305 9,148 11,554 8,601 Total credit 11,856 10,889 12,825 10,134 Exchange-traded 90 5 708 15 OTC-cleared 422 493 1,033 1,632 Bilateral OTC 78,290 79,224 88,158 95,742 Total currencies 78,802 79,722 89,899 97,389 Exchange-traded 5,540 5,997 5,468 5,998 OTC-cleared 576 676 635 711 Bilateral OTC 10,226 10,764 10,739 11,234 Total commodities 16,342 17,437 16,842 17,943 Exchange-traded 50,237 63,174 31,315 39,247 OTC-cleared 127 205 122 171 Bilateral OTC 33,150 48,315 28,601 40,696 Total equities 83,514 111,694 60,038 80,114 Subtotal 421,547 423,437 421,929 420,643 Accounted for as hedges OTC-cleared – 1 – – Bilateral OTC 234 9 298 9 Total interest rates 234 10 298 9 OTC-cleared 1 – – 7 Bilateral OTC 13 73 5 208 Total currencies 14 73 5 215 Subtotal 248 83 303 224 Total gross fair value $ 421,795 $ 423,520 $ 422,232 $ 420,867 Offset in the consolidated balance sheets Exchange-traded $ (50,321) $ (50,321) $ (32,722) $ (32,722) OTC-cleared (66,406) (66,406) (67,272) (67,272) Bilateral OTC (206,940) (206,940) (221,395) (221,395) Counterparty netting (323,667) (323,667) (321,389) (321,389) OTC-cleared (1,960) (226) (1,335) (486) Bilateral OTC (50,549) (40,506) (48,388) (42,238) Cash collateral netting (52,509) (40,732) (49,723) (42,724) Total amounts offset $ (376,176) $ (364,399) $ (371,112) $ (364,113) Included in the consolidated balance sheets Exchange-traded $ 8,758 $ 19,884 $ 8,170 $ 13,667 OTC-cleared 277 551 2,269 786 Bilateral OTC 36,584 38,686 40,681 42,301 Total $ 45,619 $ 59,121 $ 51,120 $ 56,754 Not offset in the consolidated balance sheets Cash collateral $ (969) $ (1,316) $ (877) $ (2,732) Securities collateral (13,631) (5,104) (13,425) (6,516) Total $ 31,019 $ 52,701 $ 36,818 $ 47,506 Notional Amounts as of March December $ in millions 2024 2023 Not accounted for as hedges Exchange-traded $ 3,932,033 $ 3,854,689 OTC-cleared 17,125,644 16,007,915 Bilateral OTC 11,840,949 12,390,595 Total interest rates 32,898,626 32,253,199 Exchange-traded 118 299 OTC-cleared 574,525 498,720 Bilateral OTC 628,230 619,975 Total credit 1,202,873 1,118,994 Exchange-traded 8,604 11,586 OTC-cleared 313,499 268,293 Bilateral OTC 7,080,379 6,363,700 Total currencies 7,402,482 6,643,579 Exchange-traded 355,834 306,787 OTC-cleared 3,193 3,323 Bilateral OTC 196,857 199,270 Total commodities 555,884 509,380 Exchange-traded 1,733,433 1,564,341 OTC-cleared 1,749 1,487 Bilateral OTC 1,276,830 1,204,140 Total equities 3,012,012 2,769,968 Subtotal 45,071,877 43,295,120 Accounted for as hedges OTC-cleared 230,554 241,160 Bilateral OTC 2,816 2,914 Total interest rates 233,370 244,074 OTC-cleared 3,952 1,227 Bilateral OTC 6,773 9,130 Total currencies 10,725 10,357 Subtotal 244,095 254,431 Total notional amounts $ 45,315,972 $ 43,549,551 In the tables above: • Gross fair values exclude the effects of both counterparty netting and collateral, and therefore are not representative of the firm’s exposure. • Where the firm has received or posted collateral under credit support agreements, but has not yet determined such agreements are enforceable, the related collateral has not been netted. • Notional amounts, which represent the sum of gross long and short derivative contracts, provide an indication of the volume of the firm’s derivative activity and do not represent anticipated losses. • Total gross fair value of derivatives included derivative assets of $7.51 billion as of March 2024 and $8.98 billion as of December 2023, a nd derivative liabilities of $12.38 billion as of March 2024 and $16.03 billion as of December 2023, which are not subject to an enforceable netting agreement or are subject to a netting agreement that the firm has not yet determined to be enforceable. OTC Derivatives The table below presents OTC derivative assets and liabilities by tenor and major product type. $ in millions Less than 1 - 5 Greater than 5 Years Total As of March 2024 Assets Interest rates $ 4,886 $ 11,995 $ 49,502 $ 66,383 Credit 495 3,243 2,438 6,176 Currencies 9,376 7,736 5,162 22,274 Commodities 3,111 2,021 1,427 6,559 Equities 7,548 2,438 1,646 11,632 Counterparty netting in tenors (2,581) (2,396) (3,559) (8,536) Subtotal $ 22,835 $ 25,037 $ 56,616 $ 104,488 Cross-tenor counterparty netting (15,118) Cash collateral netting (52,509) Total OTC derivative assets $ 36,861 Liabilities Interest rates $ 7,518 $ 15,552 $ 17,917 $ 40,987 Credit 1,501 2,603 1,106 5,210 Currencies 8,471 7,383 7,485 23,339 Commodities 3,070 2,876 1,266 7,212 Equities 9,130 12,813 4,932 26,875 Counterparty netting in tenors (2,581) (2,396) (3,559) (8,536) Subtotal $ 27,109 $ 38,831 $ 29,147 $ 95,087 Cross-tenor counterparty netting (15,118) Cash collateral netting (40,732) Total OTC derivative liabilities $ 39,237 As of December 2023 Assets Interest rates $ 9,511 $ 12,178 $ 49,045 $ 70,734 Credit 1,814 3,283 1,961 7,058 Currencies 9,117 7,579 5,479 22,175 Commodities 2,993 2,574 1,451 7,018 Equities 6,625 3,155 1,655 11,435 Counterparty netting in tenors (3,046) (2,765) (3,648) (9,459) Subtotal $ 27,014 $ 26,004 $ 55,943 $ 108,961 Cross-tenor counterparty netting (16,288) Cash collateral netting (49,723) Total OTC derivative assets $ 42,950 Liabilities Interest rates $ 11,952 $ 15,972 $ 17,540 $ 45,464 Credit 792 2,508 1,067 4,367 Currencies 15,335 7,934 7,299 30,568 Commodities 2,526 3,643 1,419 7,588 Equities 10,183 10,048 3,340 23,571 Counterparty netting in tenors (3,046) (2,765) (3,648) (9,459) Subtotal $ 37,742 $ 37,340 $ 27,017 $ 102,099 Cross-tenor counterparty netting (16,288) Cash collateral netting (42,724) Total OTC derivative liabilities $ 43,087 In the table above: • Tenor is based on the remaining contractual maturity for substantially all written credit derivatives. • Counterparty netting within the same product type and tenor category is included within such product type and tenor category. • Counterparty netting across product types within the same tenor category is included in counterparty netting in tenors. Where the counterparty netting is across tenor categories, the netting is included in cross-tenor counterparty netting. See Note 4 for an overview of the firm’s fair value measurement policies, valuation techniques and significant inputs used to determine the fair value of derivatives, and Note 5 for information about derivatives within the fair value hierarchy. Credit Derivatives The firm enters into a broad array of credit derivatives to facilitate client transactions and to manage the credit risk associated with market-making and investing and financing activities. Credit derivatives are actively managed based on the firm’s net risk position. Credit derivatives are generally individually negotiated contracts and can have various settlement and payment conventions. Credit events include failure to pay, bankruptcy, acceleration of indebtedness, restructuring, repudiation and dissolution of the reference entity. The firm enters into the following types of credit derivatives: • Credit Default Swaps. Single-name credit default swaps protect the buyer against the loss of principal on one or more bonds, loans or mortgages (reference obligations) in the event the issuer of the reference obligations suffers a credit event. The buyer of protection pays an initial or periodic premium to the seller and receives protection for the period of the contract. If there is no credit event, as defined in the contract, the seller of protection makes no payments to the buyer. If a credit event occurs, the seller of protection is required to make a payment to the buyer, calculated according to the terms of the contract. • Credit Options. In a credit option, the option writer assumes the obligation to purchase or sell a reference obligation at a specified price or credit spread. The option purchaser buys the right, but does not assume the obligation, to sell the reference obligation to, or purchase it from, the option writer. The payments on credit options depend either on a particular credit spread or the price of the reference obligation. • Credit Indices, Baskets and Tranches. Credit derivatives may reference a basket of single-name credit default swaps or a broad-based index. If a credit event occurs in one of the underlying reference obligations, the protection seller pays the protection buyer. The payment is typically a pro-rata portion of the transaction’s total notional amount based on the underlying defaulted reference obligation. In certain transactions, the credit risk of a basket or index is separated into various portions (tranches), each having different levels of subordination. The most junior tranches cover initial defaults and once losses exceed the notional amount of these junior tranches, any excess loss is covered by the next most senior tranche. • Total Return Swaps. A total return swap transfers the risks relating to economic performance of a reference obligation from the protection buyer to the protection seller. Typically, the protection buyer receives a floating rate of interest and protection against any reduction in fair value of the reference obligation, and the protection seller receives the cash flows associated with the reference obligation, plus any increase in the fair value of the reference obligation. The firm economically hedges its exposure to written credit derivatives primarily by entering into offsetting purchased credit derivatives with identical underliers. Substantially all of the firm’s purchased credit derivative transactions are with financial institutions and are subject to stringent collateral thresholds. In addition, upon the occurrence of a specified trigger event, the firm may take possession of the reference obligations underlying a particular written credit derivative, and consequently may, upon liquidation of the reference obligations, recover amounts on the underlying reference obligations in the event of default. The table below presents information about credit derivatives. Credit Spread on Underlier (basis points) $ in millions 0 - 250 251 - 501 - Greater Total As of March 2024 Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor Less than 1 year $ 131,505 $ 15,462 $ 627 $ 2,961 $ 150,555 1 - 5 years 326,348 10,983 4,762 6,280 348,373 Greater than 5 years 66,302 8,465 1,418 780 76,965 Total $ 524,155 $ 34,910 $ 6,807 $ 10,021 $ 575,893 Maximum Payout/Notional Amount of Purchased Credit Derivatives Offsetting $ 411,502 $ 18,542 $ 5,663 $ 8,738 $ 444,445 Other 165,727 13,698 1,533 1,577 182,535 Total $ 577,229 $ 32,240 $ 7,196 $ 10,315 $ 626,980 Fair Value of Written Credit Derivatives Asset $ 11,974 $ 690 $ 185 $ 167 $ 13,016 Liability 2,587 175 100 439 3,301 Net asset/(liability) $ 9,387 $ 515 $ 85 $ (272) $ 9,715 As of December 2023 Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor Less than 1 year $ 126,667 $ 12,594 $ 892 $ 3,611 $ 143,764 1 - 5 years 324,577 11,371 5,613 5,802 347,363 Greater than 5 years 30,406 1,316 671 249 32,642 Total $ 481,650 $ 25,281 $ 7,176 $ 9,662 $ 523,769 Maximum Payout/Notional Amount of Purchased Credit Derivatives Offsetting $ 396,984 $ 11,857 $ 6,241 $ 8,246 $ 423,328 Other 155,468 12,862 1,948 1,619 171,897 Total $ 552,452 $ 24,719 $ 8,189 $ 9,865 $ 595,225 Fair Value of Written Credit Derivatives Asset $ 11,147 $ 654 $ 221 $ 165 $ 12,187 Liability 1,723 47 201 1,034 3,005 Net asset/(liability) $ 9,424 $ 607 $ 20 $ (869) $ 9,182 In the table above: • Fair values exclude the effects of both netting of receivable balances with payable balances under enforceable netting agreements, and netting of cash received or posted under enforceable credit support agreements, and therefore are not representative of the firm’s credit exposure. • Tenor is generally based on remaining contractual maturity. • The credit spread on the underlier, together with the tenor of the contract, are indicators of payment/performance risk. The firm is less likely to pay or otherwise be required to perform where the credit spread and the tenor are lower. • Offsetting purchased credit derivatives represent the notional amount of purchased credit derivatives that economically hedge written credit derivatives with identical underliers. • Other purchased credit derivatives represent the notional amount of all other purchased credit derivatives not included in offsetting. • Written and purchased credit derivatives primarily consist of credit default swaps. Impact of Credit and Funding Spreads on Derivatives The firm realizes gains or losses on its derivative contracts. These gains or losses include credit valuation adjustments (CVAs) relating to uncollateralized derivative assets and liabilities, which represent the gains or losses (including hedges) attributable to the impact of changes in credit exposure, counterparty credit spreads, liability funding spreads (which include the firm’s own credit), probability of default and assumed recovery. These gains or losses also include funding valuation adjustments (FVA) relating to uncollateralized derivative assets, which represent the gains or losses (including hedges) attributable to the impact of changes in expected funding exposures and funding spreads. The table below presents information about CVA and FVA. Three Months $ in millions 2024 2023 CVA, net of hedges $ (59) $ (99) FVA, net of hedges 127 14 Total $ 68 $ (85) Bifurcated Embedded Derivatives The table below presents the fair value and the notional amount of derivatives that have been bifurcated from their related borrowings. As of March December $ in millions 2024 2023 Fair value of assets $ 427 $ 450 Fair value of liabilities (265) (307) Net asset/(liability) $ 162 $ 143 Notional amount $ 7,871 $ 8,082 In the table above, derivatives that have been bifurcated from their related borrowings are recorded at fair value and primarily consist of interest rate, equity and commodity products. These derivatives are included in unsecured short- and long-term borrowings, as well as other secured financings, with the related borrowings. Derivatives with Credit-Related Contingent Features Certain of the firm’s derivatives have been transacted under bilateral agreements with counterparties who may require the firm to post collateral or terminate the transactions based on changes in the firm’s credit ratings. The firm assesses the impact of these bilateral agreements by determining the collateral or termination payments that would occur assuming a downgrade by all rating agencies. A downgrade by any one rating agency, depending on the agency’s relative ratings of the firm at the time of the downgrade, may have an impact which is comparable to the impact of a downgrade by all rating agencies. The table below presents information about net derivative liabilities under bilateral agreements (excluding collateral posted), the fair value of collateral posted and additional collateral or termination payments that could have been called by counterparties in the event of a one- or two-notch downgrade in the firm’s credit ratings. As of March December $ in millions 2024 2023 Net derivative liabilities under bilateral agreements $ 30,458 $ 30,021 Collateral posted $ 20,473 $ 20,758 Additional collateral or termination payments: One-notch downgrade $ 309 $ 271 Two-notch downgrade $ 1,590 $ 1,584 Hedge Accounting The firm applies hedge accounting for (i) interest rate swaps used to manage the interest rate exposure of certain fixed-rate unsecured long- and short-term borrowings, certain fixed-rate certificates of deposit and certain U.S. and non-U.S. government securities classified as available-for-sale, (ii) foreign currency forward contracts used to manage the foreign exchange risk of certain securities classified as available-for-sale and (iii) foreign currency forward contracts and foreign currency-denominated debt used to manage foreign exchange risk on the firm’s net investment in certain non-U.S. operations. To qualify for hedge accounting, the hedging instrument must be highly effective at reducing the risk from the exposure being hedged. Additionally, the firm must formally document the hedging relationship at inception and assess the hedging relationship at least on a quarterly basis to ensure the hedging instrument continues to be highly effective over the life of the hedging relationship. Fair Value Hedges The firm designates interest rate swaps as fair value hedges of certain fixed-rate unsecured long- and short-term debt and fixed-rate certificates of deposit and of certain U.S. and non-U.S. government securities classified as available-for-sale. These interest rate swaps hedge changes in fair value attributable to the designated benchmark interest rate (e.g., Secured Overnight Financing Rate (SOFR), Overnight Index Swap Rate or Sterling Overnight Index Average), effectively converting a substantial portion of these fixed-rate financial instruments into floating-rate financial instruments. The firm applies a statistical method that utilizes regression analysis when assessing the effectiveness of these hedging relationships in achieving offsetting changes in the fair values of the hedging instrument and the risk being hedged (i.e., interest rate risk). An interest rate swap is considered highly effective in offsetting changes in fair value attributable to changes in the hedged risk when the regression analysis results in a coefficient of determination of 80% or greater and a slope between 80% and 125%. For qualifying interest rate fair value hedges, gains or losses on derivatives are included in interest income/expense. The change in fair value of the hedged items attributable to the risk being hedged is reported as an adjustment to its carrying value (hedging adjustment) and is also included in interest income/expense. When a derivative is no longer designated as a hedge, any remaining difference between the carrying value and par value of the hedged item is amortized in interest income/expense over the remaining life of the hedged item using the effective interest method. See Note 23 for further information about interest income and interest expense. The table below presents the gains/(losses) from interest rate derivatives accounted for as hedges and the related hedged items. Three Months $ in millions 2024 2023 Investments Interest rate hedges $ 191 $ (90) Hedged investments (188) 86 Gains/(losses) $ 3 $ (4) Borrowings and deposits Interest rate hedges $ (1,855) $ 2,712 Hedged borrowings and deposits 1,762 (2,847) Gains/(losses) $ (93) $ (135) The table below presents the carrying value of investments, deposits and unsecured borrowings that are designated in an interest rate hedging relationship and the related cumulative hedging adjustment (increase/(decrease)) from current and prior hedging relationships included in such carrying values. $ in millions Carrying Cumulative As of March 2024 Assets Investments $ 20,361 $ (305) Liabilities Deposits $ 3,008 $ (116) Unsecured short-term borrowings $ 12,544 $ (188) Unsecured long-term borrowings $ 125,072 $ (12,314) As of December 2023 Assets Investments $ 16,523 $ (104) Liabilities Deposits $ 3,435 $ (123) Unsecured short-term borrowings $ 14,449 $ (94) Unsecured long-term borrowings $ 134,992 $ (10,810) In the table above: • Cumulative hedging adjustment included $(6.40) billion as of March 2024 and $(5.63) billion as of December 2023 of hedging adjustments from prior hedging relationships that were de-designated and substantially all were related to unsecured long-term borrowings. • The amortized cost of investments was $21.05 billion as of March 2024 and $17.33 billion as of December 2023. In addition, cumulative hedging adjustments for items no longer designated in a hedging relationship were not material as of both March 2024 and December 2023. The firm designates foreign currency forward contracts as fair value hedges of the foreign exchange risk of non-U.S. government securities classified as available-for-sale. See Note 8 for information about the amortized cost and fair value of such securities. The effectiveness of such hedges is assessed based on changes in spot rates. The gains/(losses) on the hedges (relating to both spot and forward points) and the foreign exchange gains/(losses) on the related available-for-sale securities are included in market making. The gross and net gains/(losses) on hedges and the related hedged available-for-sale securities were not material for both the three months ended March 2024 and March 2023. Net Investment Hedges The firm seeks to reduce the impact of fluctuations in foreign exchange rates on its net investments in certain non-U.S. operations through the use of foreign currency forward contracts and foreign currency-denominated debt. For foreign currency forward contracts designated as hedges, the effectiveness of the hedge is assessed based on the overall changes in the fair value of the forward contracts (i.e., based on changes in forward rates). For foreign currency-denominated debt designated as a hedge, the effectiveness of the hedge is assessed based on changes in spot rates. For qualifying net investment hedges, all gains or losses on the hedging instruments are included in currency translation. The table below presents the gains/(losses) from net investment hedging. Three Months $ in millions 2024 2023 Hedges: Foreign currency forward contract $ 172 $ (117) Foreign currency-denominated debt $ 733 $ (231) Gains or losses on individual net investments in non-U.S. operations are reclassified from accumulated other comprehensive income/(loss) to other principal transactions in the consolidated statements of earnings when such net investments are sold or substantially liquidated. The gross and net gains/(losses) reclassified to earnings from accumulated other comprehensive income/(loss) were not material for both the three months ended March 2024 and March 2023. |
