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Fair Values | 9 Months Ended
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Sep. 30, 2011
Fair Value Disclosures [Abstract] |
Fair Values | 3. Fair Values Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date, and is based on the Company's principal or most advantageous market for t he specific asset or liability. U.S. generally accepted accounting p rinciples (GAAP) provide for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows: Level 1 ― Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 ― Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including: - Quoted prices for similar assets or liabilities in active markets - Quoted prices for identical or similar assets or liabilities in markets that are not active - I nputs other than quoted prices that are observable for the asset or liability - Inputs that are derived principally from or corroborated by observable market data by correlation or other means Level 3 ― Inputs that are unobservable and reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances (e.g., internally derived assumptions surrounding the timing and a mount of expected cash flows). Financial Assets and Financial Liabilities Carried at Fair Value The following table summarizes the Company's financial assets and financial liabilities measured at fair value on a recurring basis, categorized by GAAP's valuation hierarchy (as described in the preceding paragraphs), as of September 30, 2011 and December 31, 2010:
|  |  |  |  | 2011 |  | 2010
(Millions) |  | Total |  | Level 1 |  | Level 2 |  | Total |  | Level 1 |  | Level 2
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities:(a) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Equity securities |  | $ | 313 |  | $ | 313 |  | $ | ― |  | $ | 475 |  | $ | 475 |  | $ | ―
| Debt securities and other |  |  | 8,956 |  |  | ― |  |  | 8,956 |  |  | 13,535 |  |  | ― |  |  | 13,535
Derivatives(b) |  |  | 1,790 |  |  | ― |  |  | 1,790 |  |  | 1,089 |  |  | ― |  |  | 1,089
Total assets |  | $ | 11,059 |  | $ | 313 |  | $ | 10,746 |  | $ | 15,099 |  | $ | 475 |  | $ | 14,624
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives(b) |  | $ | 221 |  | $ | ― |  | $ | 221 |  | $ | 419 |  | $ | ― |  | $ | 419
Total liabilities |  | $ | 221 |  | $ | ― |  | $ | 221 |  | $ | 419 |  | $ | ― |  | $ | 419
Refer to Note 6 for the fair values of investment securities on a further disaggregated basis. Refer to Note 9 for the fair values of derivative assets and liabilities on a further disaggregated basis, as well as the n etting of both (i) cash collateral rec eived or posted under credit support agreements and (ii) derivative assets and derivative liabilities under master netting agreement s. These balances have been presented gross in the table above. The Company did not measure any financial instruments at fair value using significantly unobservable inputs (Level 3) during the nine months ended September 30, 2011 or during the year ended December 31, 2010, nor were there transfers between Level 1 and Level 2 of the valuation hierarchy during those periods. GAAP requires disclosure of the estimated fair value of all financial instruments. A financial instrument is defined as cash, evidence of an ownership in an entity, or a contract between two entities to deliver cash or another financial instrument or to exchange other financial instruments. The disclosure requirements for the fair value of financial instruments exclude leases, equity method investments, affiliate investments, pension and benefit obligations, insurance contracts and all non-financial instruments. Valuation Techniques Used in Measuring Fair Value For the financial assets and liabilities measured at fair value on a recurring basis (categorized in the valuation hierarchy table above) the Company applies the following valuation techniques to measure fair value: Investment Securities When available, quoted market prices in active markets are used to determine fair value. Such investment securities are classified within Level 1 of the fair value hierarchy. When quoted prices in an active market are not available, the fair values for the Company's investment securities are obtained primarily from pricing services engaged by the Company, and the Company receives one price for each security. The fair values provided by the pricing services are estimated using pricing models, where the inputs to those models are based on observable market inputs. The inputs to the valuation techniques applied by the pricing services vary depending on the type of security being priced but are typically benchmark yields, benchmark security prices, credit spreads, prepayment speeds, reported trades and broker-dealer quotes, all with reasonable levels of transparency. The pricing services did not apply any adjustments to the pricing models used. In addition, the Company did not apply any adjustments to prices received from the pricing services. The Company classifies the prices obtained from the pricing services within Level 2 of the fair value hierarchy because the underlying inputs are directly observable from active markets or recent trades of similar securities in inactive markets. However, the pricing models used do entail a certain amount of subjectivity and therefore differing judgments in how the underlying inputs are modeled could result in different estimates of fair value. The Company reaffirms its understanding of the valuation techniques used by its pricing services at least annually. In addition, the Company corroborates the prices provided by its pricing services to test their reasonableness by comparing their prices to valuations from different pricing sources as well as comparing prices to the sale prices received from sold securities. Refer to Note 6 for additional fair value information. Derivative Financial Instruments The fair value of the Company's derivative financial instruments, which could be presented as either assets or liabilities on the Consolidated B alance Sheets, is estimated either by third-party valuation service s that use proprietary pricing models or by internal pricing models. The pricing models do not contain a high level of subjectivity as the valuation techniques used do not require significant judgment, and inputs to those models are readily observable from actively quoted markets. The pricing models used are consistently applied and reflect the contractual terms of the derivatives, including the period of maturity, and market-based parameters such as interest rates, foreign exchange rates, equity indices or prices, and volatility. Credit valuation adjustments are necessary when the market parameters, such as a benchmark curve, used to value derivatives are not indicative of the credit quality of the Company or its counterparties. The Company considers the counterparty credit risk by applying an observable forecasted defau lt rate to the current exposure, which is adjusted by agreements to exchange collateral and/or net derivative assets and derivative liabilities, as applicable. Refer to Note 9 for additional fair value information. Financial Assets and Financial Liabilities Carried at Other Than Fair Value The following table discloses the estimated fair value for the Company's financial assets and financial liabilities that are not carried at fair value, as of September 30, 2011 and December 31, 2010:
|  |  |  |  | 2011 |  | 2010 |
|  |  |  |  | Carrying |  | Fair |  | Carrying |  | Fair |
(Billions) |  | Value | Value |  | Value | Value |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
| Assets for which carrying values equal or |  |  |  |  |  |  |  |  |  |  |  |  |
|  | approximate fair value |  | $ | 68 |  | $ | 68 | (a) | $ | 61 |  | $ | 61 | (b)
| Loans, net |  | $ | 56 |  | $ | 57 | (a) | $ | 58 |  | $ | 58 | (b)
Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
| Liabilities for which carrying values equal or |  |  |  |  |  |  |  |  |  |  |  |  |
|  | approximate fair value |  | $ | 47 |  | $ | 47 |  | $ | 43 |  | $ | 43 |
| Certificates of deposit |  | $ | 10 |  | $ | 11 |  | $ | 13 |  | $ | 13 |
| Long-term debt |  | $ | 62 |  | $ | 64 | (a) | $ | 66 |  | $ | 69 | (b)
(a) Includes fair values of cardmember recei vables and loans of $7.1 billion and $30.9 billion, respectively, available to settle obligations of consolidated variable interest entities (VIE s) and long-term debt of $17.8 billion issued by consolidated VIEs as of September 30, 2011. Refer to the Consolidated Balance Sheets for the related carrying values. (b) Includes fair values of cardmember recei vables and loans of $8.1 billion and $33.2 billion, respectively, availabl e to settle obligations of consolidated VIEs and long-term debt of $23.6 billion issued by consolidated VIEs as of December 31, 2010. Refer to the Consolidated Balance Sheets f or the related carrying values. The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of September 30, 2011 and December 31, 2010, and require management judgment. These figures may not be indicative of their future fair values. The fair value of the Company cannot be re l i ably estimated by agg regating the amounts presented. The following methods were used to determine estimated fair values: F inancial A ssets for W hich C arrying V alues E qual or A pproximate F air V alue Financial assets for which carrying values equal or approximate fair value include cash and cash equivalents, cardmember receivables, accrued interest and certain other assets. For these assets, the carrying values approximate fair value because they are short term in duration or variable rate in nature. F inancial A ssets C arried at O ther T han F air V alue Loans, net L oans are recorded at historical cost, less reserves, on the Consolidated Balance Sheets. In estimating the fair value for the Company's loans the principal market is assumed to be the se curitization market and the Company uses the hypothetical securitization price to determine the fair value of the portfolio. The securitization price is estimated from the assumed proceeds of the hypothetical securitization in the current market, adjusted for securitization uncertainties such as market conditions and liquidity. F inancial L iabilities for W hich C arrying V alues E qual or A pproximate F air V alue Financial liabilities for which carrying values equal or approximate fair value include accrued interest, customer deposits (excluding certificates of deposit, which are described further below), Travelers Cheques outstanding, short-term borrowings and certain other liabilities for which the carrying values approximate fair value because they are short term in duration, variable rate in nature or have no defined maturity. F inancial L iabilities C arried at O ther T han F air V alue Certificates of Deposit Certificates of deposit (CDs) are recorded at their historical issuance cost on the Consolidated Balance Sheets. Fair value is estimated using a discounted cash flow methodology based on the Company's current borrowing rates for similar types of CDs. Long-term Debt Long-term debt is recorded at historical issuance cost on the Consolidated Balance Sheets. Fair value is estimated using either quoted market prices or discounted cash flows based on the Company's current borrowing rates for similar types of borrowings.

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- 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
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