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Derivatives and Hedging Activities | 9 Months Ended
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Sep. 30, 2014
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Activities | 8. Derivatives and Hedging Activities The Company uses derivative financial instruments (derivatives) to manage exposures to various market risks. Derivatives derive their value from an underlying variable or multiple variables, including interest rate, foreign exchange, and equity index or price. These instruments enable end users to increase, reduce or alter exposure to various market risks and, for that reason, are an integral component of the Com pany’s market risk management. The Compan y does not engage in derivatives for trading purposes. For information on the Company’s derivative instruments and the related accounting policies, refer to Note 12 on pages 87 – 90 of the Annual Report. In relation to the Company’s credit risk, under t he terms of the derivative agreements it has with its various counterparties, the Company is not required to either immediately settle any outstanding liability balances or post collateral upon the occurrence of a specified credit risk-related event. Base d on the assessment of credit risk of the Company’s derivative counterparties as of September 30, 2014 and December 31, 2013, the Company does not have derivative positions that warrant credit valuation adjustments. The Company’s derivatives are carried at fair value on th e Consolidated Balance Sheets. Refer to Note 3 on pages 68 – 71 of the Annual Report for a description of the Company’s methodology for determining the fair value of derivatives. The following t able summarizes the total fair val ue, excluding interest acc ruals, of derivative assets and l iabilities as of September 30, 2014 and December 31, 2013:
|  |  | Other Assets |  | Other Liabilities
|  |  | Fair Value |  | Fair Value
(Millions) |  | 2014 |  | 2013 |  | 2014 |  | 2013
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  |  |  |  |  |  |  |  |  |  |
| Fair value hedges |  | $ | 309 |  | $ | 455 |  | $ | 27 |  | $ | 2
Total return contract |  |  |  |  |  |  |  |  |  |  |  |
| Fair value hedge |  |  | ― |  |  | 8 |  |  | ― |  |  | ―
Foreign exchange contracts |  |  |  |  |  |  |  |  |  |  |  |
| Net investment hedges |  |  | 384 |  |  | 174 |  |  | 57 |  |  | 116
Total derivatives designated as hedging instruments |  |  | 693 |  |  | 637 |  |  | 84 |  |  | 118
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
| Foreign exchange contracts, including certain embedded derivatives(a) |  |  | 129 |  |  | 64 |  |  | 162 |  |  | 95
Total derivatives, gross |  |  | 822 |  |  | 701 |  |  | 246 |  |  | 213
Less: Cash collateral netting(b) |  |  | (125) |  |  | (336) |  |  | (27) |  |  | ―
Derivative asset and derivative liability netting(c) |  |  | (126) |  |  | (36) |  |  | (126) |  |  | (36)
Total derivatives, net(d) |  | $ | 571 |  | $ | 329 |  | $ | 93 |  | $ | 177
Includes foreign currency derivatives embedded in certain operating agreements. Represents the offsetting of derivative instruments and the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from derivative instrument(s) executed with the same counterparty under an enforceable master netting arrangement. Additionally, the Company received noncash collateral from a counterparty in the form of security interest in U.S. Treasury securities with a fair value of $111 million and nil as of September 30, 2014 and December 31, 2013, respectively, none of which was sold or repledged. Such noncash collateral economically reduces the Company’s risk exposure to $460 million as of September 30, 2014, but d oes not reduce the net exposure on the Company’s Consolidated Balance Sheets. Additionally, the Company posted $97 million and $26 million as of September 30, 2014 and December 31, 2013, respectively, as initial margin on its cent rally cleared interest rate swaps; such amounts are recorded within other receivables on the Company’s Consolidated Balance Sheets and are not netted against the derivative balances. Represents the amount of netting of derivative assets and derivative liab ilities executed with the same counterparty under an enforceable master netting arrangement. The Company has no individually significant derivative counterparties and therefore, no significant risk exposure to any single derivative counterparty. The total net derivative assets and derivative liabilities are presented within O ther assets and O ther liabilities on the Company’s Consolidated Balance Sheets. A majority of the Company’s derivative assets and liabilities as of September 30, 2014 and December 31, 2013 are subject to master netting agreements with its derivative counterparties. In addition, the Company has no derivative amounts subject to enforceable master netting arrangements that are not offset on the Company’s Consolidated Balance Sheets. Der ivative Financial Instruments that Qualify for Hedge Accounting Refer to Note 12 on pages 89 – 90 of the Annual Report for information on derivatives that qualify for hedge accounting. Fair Value Hedges Interest Rate Contracts The Company is exposed to interest rate risk associated with its fixed-rate long-term debt. The Company uses interest rate swaps to economically convert certain fixed-rate debt obligations to floating-rate obligations at the time of issuance. As of September 30, 2014 and December 31, 2013, the Company hedged $18.2 billion and $14.7 billion, respectively, of its fixed-rate debt to floating-rate debt using interest rate swaps. Total Return Contract The Company hedged its exposure to changes in the fair value of its equity investment in ICBC in local currency. The Company used a total return contract (TRC) to transfer this exposure to its derivative counterparty. On July 18, 2014, the Company sold its remaining 34.3 million shares in ICBC and terminated the TRC. As of December 31, 2013, the fair value of the equity investment in ICBC was $122 million (180.7 million shares). Prior to termination, to the extent the hedge was effective, the gain or loss on the TRC offset the gain or loss on th e investment in ICBC. Any difference between the changes in the fair value of the derivative and the hedged item resulted in hedge ineffectiveness and was recognized in Other expenses in the Consolidated Statements of Income. The following table summarizes the impact on the Consolidated Statements of Income associated with the Company’s hedges of its fixed-rate long-term debt and its investment in ICBC for the three and nine months ended September 30:
For the Three Months Ended September 30: (Millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Gains (losses) recognized in income
|  | Derivative contract |  | Hedged item |  | Net hedge
|  |  |  | Amount |  |  |  | Amount |  | ineffectiveness
Derivative relationship |  | Income Statement Line Item |  | 2014 |  | 2013 |  | Income Statement Line Item |  | 2014 |  | 2013 |  | 2014 |  | 2013
Interest rate contracts |  | Other expenses |  | $ | (109) |  | $ | (11) |  | Other expenses |  | $ | 112 |  | $ | 5 |  | $ | 3 |  | $ | (6)
Total return contract |  | Other non-interest revenues |  |  | ― |  |  | (21) |  | Other non-interest revenues |  |  | ― |  |  | 21 |  |  | ― |  |  | ―
For the Nine Months Ended September 30: (Millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Gains (losses) recognized in income
|  | Derivative contract |  | Hedged item |  | Net hedge
|  |  |  | Amount |  |  |  | Amount |  | ineffectiveness
Derivative relationship |  | Income Statement Line Item |  | 2014 |  | 2013 |  | Income Statement Line Item |  | 2014 |  | 2013 |  | 2014 |  | 2013
Interest rate contracts |  | Other expenses |  | $ | (170) |  | $ | (305) |  | Other expenses |  | $ | 176 |  | $ | 295 |  | $ | 6 |  | $ | (10)
Total return contract |  | Other non-interest revenues |  |  | 11 |  |  | (10) |  | Other non-interest revenues |  |  | (11) |  |  | 10 |  |  | ― |  |  | ―
The Company also recognized a net reduction in interest expense on long-term debt of $74 million and $76 million for the three months ended September 30, 2014 and 2013, respectively, and $217 million and $280 million for the nine months ended September 30, 2014 and 2013, respectively, primarily related to the net settlements (interest accruals) on the Company’s interest rate derivatives designated as fair value hedges. Net Investment Hedges The effective portion of the gain or (loss) on net investment hedges, net of taxes, recorded in AOCI as part of the cu mulative translation adjustment was $246 million and $(123) million for the three months ended September 30, 2014 and 2013, respectively, and was $113 million and $160 million for the nine months ended September 30, 2014 and 2013, respectively. Any ineffective portion of the gain or (loss) on net investmen t hedges is recognized in o ther expenses d uring the period of change. During the three months ended September 30, 2014 and 2013, the Company reclassified $(1) million and nil, respectively, and $9 million and nil for the nine months ended September 30, 2014 and 2013, respectively, from AOCI to earnings as a component of o ther expenses. No ineffectiveness associated with net investment hedges was reclassified from AOCI into income during the three and nine months ended September 30, 2014 and 2013. Derivatives Not Designated as Hedges For information on derivatives not designated as hedges, refer to Note 12 on page 90 of the Annual Report. The following table summarizes the impact on pretax earnings of derivatives not designated as hedges, as reported on the Consolidated Statements of Income for the three and nine months ended September 30:
|  |  |  | Pretax gains
|  |  |  | For the Three Months Ended |  | For the Nine Months Ended
|  |  |  | September 30, |  | September 30,
|  |  |  | Amount |  | Amount
Description (Millions) |  | Income Statement Line Item |  | 2014 |  | 2013 |  | 2014 |  | 2013
Interest rate contracts |  | Other expenses |  | $ | ― |  | $ | 1 |  | $ | ― |  | $ | 1
Foreign exchange contracts (a) |  | Other expenses |  |  | 2 |  |  | 25 |  |  | 84 |  |  | 108
|  | Cost of Card Member services |  |  | ― |  |  | ― |  |  | 4 |  |  | ―
Total |  |  |  | $ | 2 |  | $ | 26 |  | $ | 88 |  | $ | 109
Foreign exchange contracts include forwards and embedded foreign currency derivatives.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708775-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80784-113994 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624177-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579245-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5580258-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579240-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41641-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 20: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624171-113959 + Details
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