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Derivatives and Hedging Activities | 9 Months Ended
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Sep. 30, 2018
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Activities | 9. Derivatives and Hedging Activities We use derivative fin ancial instruments to manage exposures to various market risks. These instruments derive their value from an underlying variable or multiple variables, including interest rates, foreign exchange rates, and equity index or price, and are carried at fair value on the Consolidated Balance Sheets. These instruments enable end users to increase, reduce or alter exposure to various market risks and, for that reason, are an int egral component of our market r isk management. We do not transact in derivatives for trading purposes. In relation to our credit risk, under the terms of the derivative agreements we have with our various counterpartie s, we are not required to eith er immediately settle any outstanding liability balances or post collateral upon the occurrence of a specified credit risk-related event. Based on our assessment of the credit risk of our derivative counterparties as of September 30, 2018 and December 31, 2017, no credit risk adjustment to the derivative portfolio was required. The following table summarizes the total fair value, excluding interest accruals, of derivative assets and liabilities as of September 30, 2018 and December 31, 2017:
|  |  |  | Other Assets Fair Value |  | Other Liabilities Fair Value
(Millions) |  | 2018 |  | 2017 |  | 2018 |  | 2017
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
| Fair value hedges - Interest rate contracts(a) |  | $ | ― |  | $ | 11 |  | $ | 180 |  | $ | 34
| Net investment hedges - Foreign exchange contracts |  |  | 247 |  |  | 117 |  |  | 85 |  |  | 89
Total derivatives designated as hedging instruments |  |  | 247 |  |  | 128 |  |  | 265 |  |  | 123
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
| Foreign exchange contracts, including certain embedded derivatives(b) |  |  | 80 |  |  | 82 |  |  | 137 |  |  | 95
Total derivatives, gross |  |  | 327 |  |  | 210 |  |  | 402 |  |  | 218
Less: | Cash collateral netting(c)(d) |  |  | (22) |  |  | (6) |  |  | (180) |  |  | (45)
|  | Derivative asset and derivative liability netting(e) |  |  | (122) |  |  | (80) |  |  | (122) |  |  | (80)
Total derivatives, net |  | $ | 183 |  | $ | 124 |  | $ | 100 |  | $ | 93
F or centrally cleared derivatives, variation margin payments are legally characterized as settlement payments as opposed to collateral. Accordingly, assets and liabilities are disclosed for centrally cleared derivatives, each net of variation margin. We also maintained several bilateral interest rate contracts that are shown gross of any collateral exchanged. Includes foreign currency derivatives embedded in certain operating agreements. Represents the offsetting of the fair value of bilateral interest rate contracts and certain foreign exchange contracts with the right to reclaim cash collateral or the obligation to return cash collateral. We posted $99 million and $146 million as of September 30, 2018 and December 31, 201 7, respectively, as initial margin on our centrally cleared interest rate swaps; such amounts are recorded within Other receivables on the Consolidated Balance Sheets and are not netted against the derivative balances. Represents the amount of netting of deri vative assets and derivative liabilities executed with the same counterparty under an enforceable master netting arrangement. A majority of our derivative assets and liabilities as of September 30, 2018 and December 31, 2017 are subject to master netting agreements with our derivative counterparties. We have no derivative amounts subject to enforceable master netting arrangements that are not offset on the Consolidated Balance Sheets. Fair Value Hedges We are exposed to intere st rate risk associated with our fixed-rate long-term debt obligations. At the time of issuance, certain fixed-rate debt obligations are designated in fair value hedging relationships, using interest rate swaps, to economically convert the fixed interest rate to a floating interest ra t e. We have $24.8 billion and $23.8 billion of fixed-rat e debt obligations designated in fair value hedging relationships as of September 30, 2018 and December 31, 2017, respectively. The following table represents the gains and losses associated with the fair value hedges of our fixed-rate long-term debt:
|  | Gains (losses)
|  |  | Three Months Ended September 30, |  |  | Nine Months Ended September 30,
(Millions) |  | 2018 |  | 2017 |  | 2018 |  | 2017
|  |  | Interest expense(a) |  |  | Other expenses |  |  | Interest expense(a) |  |  | Other expenses
Fixed-rate long-term debt |  | $ | 63 |  | $ | 39 |  | $ | 331 |  | $ | 64
Derivatives designated as hedging instruments |  |  | (65) |  |  | (31) |  |  | (323) |  |  | (100)
Total |  | $ | (2) |  | $ | 8 |  | $ | 8 |  | $ | (36)
We adopted new accounting guidance providing targeted improvements to the accounting for hedging activities effective January 1, 2018. In compliance with the standard, amounts previously recorded in Other expenses have been prospectively recorded in Total interest expense. Refer to Note 1 for additional information. The carrying values of the hedged liabilities, recorded within Long-term debt on the Consolidated Balance Sheets, were $24.2 billion and $23.6 billion as of September 30, 2018 and December 31, 2017, respectively, including offsetting amounts of $513 million and $182 million for the respective periods, related to the cumulative amount of fair value hedging adjustments. We recognized a net increase of $20 million and a net reduction of $24 million in Interest expense on Long-term debt for the three mon ths ended September 30, 2018 and 2017, respectively, and a net increase of $19 million and a net reduction of $105 million for the nine months ended September 30, 2018 and 2017, respectively, primarily related to the net settlements (interest accruals) on our interest rate derivatives designated as fair value hedges. Net Investment Hedges The gain or loss on net investment hedges, net of taxes, recorded in AOCI as part of the cumulative translation ad justment, were losses of $22 million and $184 million for the three months ended September 30, 2018 and 2017, respectively, and a gain of $136 million and a loss of $515 million for the nine months ended September 30, 2018 and 2017, respectively. Accumulated losses within AOCI of nil and $18 million for the three months ended September 30, 2018 and 2017, respectively, and gains of $1 million and losses of $18 million for the nine months ended September 30, 2018 and 2017, respectively, were reclassified int o Other expenses upon investment sale s or liquidations. Derivatives Not Designated as Hedges The changes in the fair value of derivatives that are not designated as hedges are intended to offset the related foreign exchange gains or losses of the underlying foreign currency exposures. The changes in the fair value of the derivatives and the related underlying foreign currency exposu res resulted in net losses of $8 million and $15 million for the three months ended September 30, 2018 and 2017, respectively, and a net gain of $26 million and a net loss of $36 millio n for the nine months ended September 30, 2018 and 2017, respectively, and are recognized in Other expenses. The changes in the fair value of an em bedded derivative resulted in a loss of $5 million and a gain of $1 million for the three months ended September 30, 2018 and 2017, respectively, and losses of $11 million and $1 million for the nine months ended September 30, 2018 and 2017, respectively, and are recognized in Card M ember services expense.

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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 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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