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Investment Portfolios Have Become A Key Profit Generator For U.S. Large, Complex Banks

Publication date: 24-Jul-2012 09:07:47 EST

As U.S. bank earnings generally remain weak amid a sluggish economy, taking on additional risks to boost shareholder returns may seem tempting. Some bank management teams have attempted to boost profitability by undertaking riskier activity in their investment portfolios and using hedging strategies that could increase, rather than mitigate, risk. Given the lack of loan demand and the need to build liquidity to comply with proposed new Basel III capital and liquidity requirements, investment portfolios have grown significantly since 2007, before the financial crisis took full effect. As a result, investment portfolios now account for a larger proportion of large, complex banks' revenues and earnings relative to pre-crisis levels, which ultimately could lead to increasing revenue and earnings concentration.

Although we don't expect these riskier investment portfolios and hedging strategies to cause us to take any immediate rating actions, they are negative rating factors and could ultimately lead to rating actions for some large, complex banks.

U.S. large, complex banks hold most of their securities in available-for-sale (AFS) and held-to-maturity (HTM) portfolios. The composition of these portfolios can vary widely. Most large banks have straightforward investment strategies and hold a preponderance of Treasury and U.S. government-backed securities, which have relatively low credit risk. However, the investment portfolios of Citigroup (Citi), Wells Fargo (WFC), and JPMorgan Chase (JPM) have significant amounts of other types of securities, some of them riskier, such as foreign securities, nonagency mortgage–backed securities, and commercial mortgage-backed securities (see table 7 in the appendix).

For banks, the composition of their investment portfolios also needs to be viewed in terms of their asset-liability management strategy. Banks use their investment portfolios to help offset the mismatch in duration of assets and liabilities. Banks also often use their AFS investment portfolios in particular as natural a hedge to offset the risk of changes in the fair value of mortgage servicing rights. Still, we believe the composition of investment portfolios may call for greater scrutiny. For example, we believe it is possible to manage the mismatch between asset and liability maturities by changing the duration of relatively lower-risk securities.

Hedging strategies using derivatives are another means by which banks could augment profits. Strategies vary significantly across the banks we rate. For example, macro-hedging strategies, such as those JPM reportedly uses, involve using derivatives to hedge risk within a portfolio of financial assets and liabilities (including AFS and HTM portfolios), rather than risk at a transactional or micro-level. Under U.S. accounting rules, derivatives that do not qualify for hedge accounting (as is generally the case with macro-hedges), or are not elected for hedge accounting treatment (such as the case with some micro-hedges), are marked to market on the balance sheet, with gains and losses flowing directly through earnings. Without more robust disclosure of the offsetting accounts, it's often difficult to determine from SEC public filings alone the exact makeup of a bank's hedging strategy, how effective the hedge is, and whether certain derivative positions are merely speculative trades labeled as an "economic" hedge. That said, other than applying additional analytical procedures, including follow-up management discussions to obtain additional information, regulatory filings give us some indication of banks' hedging strategies, particularly as they relate to derivatives used for credit protection.

In our analysis of AFS and HTM portfolio composition, JPM, WFC, Citi, and PNC Financial Services Group (PNC) show up as outliers in terms of the amount of non-U.S. government-backed securities in these portfolios. Although some of these non-U.S. government-backed securities are highly rated, a portion of these holdings adds credit risk to these banks. In terms of riskier hedging activity, JPM shows up as an outlier versus peers.

Although PNC has a riskier investment portfolio, we apply punitive charges to a portion of the portfolio in our risk-adjusted capital framework (RACF). Thus, we believe our capital charges cover the risks inherent in its portfolio. Citi holds a higher proportion of foreign securities--largely government securities in the countries where it does business--some of which are rated lower than U.S. government securities. We incorporate this risk into our analysis through the economic risk in the anchor, which we use to derive a bank's stand-alone credit profile (SACP). (Our bank criteria use our Banking Industry Country Risk Assessment economic and industry risk scores to determine a bank's anchor, the starting point in assigning an issuer credit rating.) Our anchor for Citi is 'bbb' because its loan composition is mostly in emerging market countries, versus a 'bbb+' anchor for banks that operate only in the U.S. As for WFC, although it appears to have a riskier investment strategy than peers, its business model is less complex, and it maintains decent underwriting standards and relatively limited litigation exposure, which, in our view, offset some of the risks.

Finally, we revised our outlook on JPM to negative from stable in May after the company announced an unexpected pretax loss in its Chief Investment Office (CIO) portfolio (see "JPMorgan Chase & Co. And Banking Subsidiaries Outlook Revised To Negative On Unexpected Loss; Ratings Affirmed," published May 11, 2012, and "EARNINGS UPDATE: JPMorgan Chase & Co. Ratings Unaffected By Fair Second-Quarter Results," published July 13, 2012). We said that we could downgrade JPM if its derivative hedging losses impede its ability to build its RAC ratio to more than 7% over the next two years, if risk management issues are not limited to its Chief Investment Office synthetic credit portfolio, and if, in our view, management takes a more aggressive approach to investments than we had originally believed. We will measure the risk of JPM's investment strategy risk based on the composition of its AFS portfolio versus peers (also considering its investment of excess funds in other vehicles, such as reverse repurchase agreements and cash at central banks) and the size, profitability, and complexity of ongoing hedging activity. The company has already made management changes within the CIO, the unit responsible for the hedges that went awry. It also has shut down the CIO's synthetic credit group, which the company says added roughly $2 billion cumulatively to earnings from 2007-2011. This may indicate that JPM is reducing its risk appetite, though only time will tell.

How We Factor Risky Investment Portfolios And Hedging Strategies Into Our Ratings

The varying investment portfolio compositions and hedging strategies of large, complex banks are not, in and of themselves, enough to lead to rating actions. The main reason for this is that other subfactors within our business position and risk position assessments help to mitigate the impact of outsize risky investment portfolios and more complex hedging strategies. That said, a concerted effort to augment investment portfolio risks and hedging strategies could lead to downgrades.

Evidence that a bank has increased the risk composition of its corporate segment and AFS/HTM portfolios or has taken on aggressive hedging can affect the ratings through our business and risk position assessments (see table 1). If we deem that a bank has made a concerted effort to increase its risk, we could lower either of these scores. Within business position, we would incorporate a risky investment portfolio or hedging strategy through our analysis of management and strategy. When analyzing risk position, we look at growth and changes in exposure, risk concentration and diversification, complexity, risks that the RACF does not cover, and evidence of stronger or weaker loss experience. Evidence of a riskier or outsize investment strategy could hurt the "growth and changes in exposures," "risk concentration," or "risks that the RACF does not cover" subfactors.

Table 1

U.S. Large, Complex Banks
Business position score Risk position score Operating company SACP Operating company ICR

Bank of America Corp.

Strong Moderate bbb+ A/Negative/A-1

Citigroup Inc.

Strong Moderate bbb A/Negative/A-1

Wells Fargo & Co.

Very strong Strong a+ AA-/Negative/A-1+

U.S. Bancorp

Very strong Strong a+ A+/Stable/A-1

PNC Financial Services Group

Strong Strong a A/Stable/A-1

JPMorgan Chase & Co.

Very strong Adequate a A+/Negative/A-1
Note: As of March 2012. SACP--Stand-alone credit profile. ICR--Issuer credit rating. Source: Standard & Poor's Ratings Services.

Why Accounting Classification Matters

The accounting classification of a bank's investment portfolio plays an important role in understanding its financial position and performance. A bank must classify its investment securities into one of three categories--HTM, Trading, or AFS. Each category is determined largely based on management's intent with respect to the security. HTM debt securities are those that management intends to hold until the security matures, Trading securities are debt or equity investments that management intends to hold for short periods of time, with the intent of profiting from short-term price changes, and AFS securities are debt or equity investments that are not classified as either HTM or Trading. Although realized earnings are recognized similarly across the three categories, the balance sheet valuation and treatment of unrealized gains and losses can vary significantly (see table 2).

Table 2

U.S. GAAP Classification Of Investment Securities Summary
Category Balance sheet valuation Unrealized gains or losses Key category consideration
Held-to-maturity (HTM) Amortized cost Not recognized, unless the securities are impaired Positive intent and ability to hold until debt maturity
Trading Fair value Recognized in earnings Debt or equity securities purchased and held primarily for sale in the near term
Available-for-sale (AFS) Fair value Recognized in accumulated other comprehensive income (AOCI), a component of equity, unless the securities are impaired Debt or equity securities not categorized as HTM or trading--a "catch-all" category
Source: ASC 320.

Beyond financial reporting, the classification of investments is also important because when calculating key regulatory capital measures, such as common equity Tier 1 capital, banks remove items such as unrealized gains and losses on AFS securities that reside in U.S. GAAP equity. However, the Fed's recently released Notice of Public Rulemaking for Basel III could change that treatment, with the exception of certain U.S. government and agency debt securities. The inclusion of unrealized gains and losses in capital measures would likely result in increased volatility of regulatory ratios and therefore could affect balance sheet management, an issue banks have been anticipating for years (see "For U.S. Banks, It’s Finally Time For The Full Basel Rules," published June 18, 2012).

AFS And HTM Portfolios Are Becoming More Important For U.S. Large, Complex Banks

Most banks' AFS/HTM portfolios have grown as lending activity has slowed amid strong deposit inflow. As a result, banks have sought to invest their excess funds, which, in our view, largely contributed to the purchases of securities that end up in their AFS and HTM portfolios. Acquisitions were also a major contributor to the buildup of some banks' investment portfolios. Notably, Bank of America (BAC), JPM, PNC, and WFC had major acquisitions of mortgage-related banks leading up to and during the economic crisis. BAC purchased Countrywide in July 2008, JPM acquired Washington Mutual (WaMu) in September 2008, PNC purchased National City in October 2008, and WFC bought Wachovia in January 2009.

To estimate the amount of investable funds available, we subtracted the loan balances from a bank's outstanding deposits (see table 3). Our figure of investable funds is likely understated because banks may also be investing cash from equity and long-term debt. We note that the amount of investable funds increased significantly from the end of 2007 to March 31, 2012. They totaled $889 billion for large, complex banks as of March 2012, versus negative $199 billion in December 2007. In addition to acquisitions, lack of loan demand from qualified customers, exacerbated by a large inflow of deposits, was another cause of the buildup in funds. Although U.S. large, complex banks didn't make any major acquisitions after 2009, investable funds still increased to $889 billion by March 2012 from $545 billion at year-end 2009.

Table 3

Growth In The AFS Portfolio
--Dec. 2007-- --Dec. 2009-- --March 2012--
(Bil. $) Deposits less loans AFS HTM Deposits less loans AFS HTM Deposits less loans AFS HTM

JPMorgan Chase & Co.

185.2 81.1 0.0 287.6 357.7 0.0 385.2 378.7 0.0

Wells Fargo & Co.

(62.6) 73.0 0.0 (2.0) 172.7 0.0 119.7 230.3 0.0

PNC Financial Services Group

10.5 30.2 0.0 26.9 50.8 5.2 27.5 53.4 11.2

Citigroup Inc.

(32.2) 192.5 0.0 216.3 239.4 51.5 234.8 270.6 10.1

Bank of America Corp.

(102.2) 238.4 0.6 32.6 314.4 9.8 95.5 302.1 34.2

U.S. Bancorp

(27.2) 43.0 0.1 (16.3) 44.7 0.0 18.9 52.7 21.5
Aggregate (199.0) 678.1 0.7 545.1 1,179.7 66.5 889.1 1,325.0 77.0
Sources: SEC filings and FRY9C.

The importance of AFS and HTM portfolios can also be seen from another perspective. Specifically, earnings from AFS portfolios as a percent of earnings assets have increased for most large U.S. large, complex banks since Dec. 31, 2007 (see table 4). This is particularly the case with JPM--its AFS portfolio rose to 19% of earning assets in March 2012 from 6% in 2007. The acquisition of WaMu, which took place in September 2008, was likely a major contributor to this growth. Notably, AFS as a percent of earning assets declined from December 2009 to March 2012, when JPM had no major acquisitions.

Table 4

Change In Portfolio Composition And Complexity 2007-2012
--AFS as % of earning assets-- --Level 3 AFS as % total AFS--
(%) December 2007 December 2009 March 2012 December 2009 March 2012

JPMorgan Chase & Co.

6 21 19.0 3.7 6.8

Citigroup Inc.

10 15 16.1 6.1 2.8

Wells Fargo & Co.

15 16 19.6 13.2 14.5

Bank of America Corp.

16 18 16.4 6.5 2.1

U.S. Bancorp

21 18 17.9 6.9 3.4

PNC Financial Services Group

28 23 21.4 19.6 13.6
Sources: Company filings and FRY9C. Details for Level 3 AFS securities not available from Y9Cs in 2007.

Revenue from AFS and HTM portfolios as a percent of total revenue has grown since December 2007, despite lower interest rate yields (see chart 1). Most U.S. large, complex banks reflect the results of their investment portfolios as a revenue item in their corporate segments. However, given that banks do not report this in a standard manner, we looked at the contribution to Standard & Poor's-adjusted revenue of AFS and HTM portfolios as a whole, disregarding which segment they are attributed to.

PNC, WFC, and JPM posted the largest increases in investment-related revenue from 2007-2011. As the investment portfolios have grown relative to the overall balance sheets, they account for a more significant portion of overall revenue. This is currently not a ratings factor for these banks, but it could become one over time if other sources of revenue decline.

Chart 1

Most Large, Complex Banks Have Invested In A Higher Proportion Of Government-Backed Securities

Over the past four years, most large, complex banks increased the amount of U.S. Treasuries and U.S. government-backed securities in their AFS portfolios (see chart 2). This is likely the result of several factors. First, riskier portfolios, which included a large amount of nonagency residential mortgage-backed securities (RMBS), resulted in significant securities write-downs in 2008. The decline in valuation of these securities caused an increase in the percentage of U.S. government-backed securities. In addition, in December 2010, the Basel Committee proposed the implementation of a liquidity coverage ratio (LCR) under Basel III by 2015. The LCR would require that a bank's liquidity be able to withstand a liability run-off under a 30-day stress scenario. Although U.S. regulators have not finalized rules for the LCR, most U.S. banks have begun to increase Treasury and U.S. government-backed securities in an effort to increase their LCR ratios.

Chart 2

Notably, BAC and U.S. Bancorp's Treasury and government-backed securities increased to 85% and 80%, respectively, as of March 31, 2012, from 63% and 62% on Dec. 31, 2007. On the other hand, JPM's U.S. Treasury and government-backed securities declined to 30% from 81%. The change in the composition of JPM's AFS portfolio likely helped the bank earn higher interest income during this time, as well as added to JPM's need to hedge its credit risk. JPM has stated that its LCR ratio is significantly below the 100% threshold that Basel III's proposed methodology would require. Some of its peers have said that their LCR ratios are already more than 100%. We believe JPM's lower ratio is partially a result of its smaller amount of holdings of U.S. Treasuries and U.S. government-backed securities.

A Closer Look At U.S. Large, Complex Banks' AFS and HTM Portfolios Sheds Light On Risk Differentiation

Most large, complex banks have relatively straightforward investment strategies for their AFS and HTM portfolios. The strategies consist of buying a predominance of U.S. Treasuries, U.S. government agency mortgage-backed securities, and residential pass-throughs guaranteed by government agencies. These securities have relatively low credit risk, act as a natural hedge to banks' mortgage servicing rights, and add to a bank's liquidity (see table 5). However, a deeper dive into the composition of these portfolios provides some interesting insights into the types of risks that banks are assuming.

Table 5

AFS Portfolio--Key Metrics As Of March 31, 2012
--AFS portfolio-- --HTM portfolio--
Treasury and agency securities (%) AFS % of earning assets Level 3 securities in AFS (%) Total AFS securities (bil. $) Treasury and agency securities (%) HTM % of earning assets Total HTM securities (bil. $) Securities yield (%)*

Bank of America Corp.

85 16.4 2.1 302.1 99.3 1.9 34.2 3.18

U.S. Bancorp

80 17.9 3.4 52.7 99.0 7.3 21.5 2.78

PNC Financial Services Group

64 21.4 13.6 53.4 45.0 4.5 11.2 3.35

Citigroup Inc.

49 16.1 2.8 270.6 0.0 0.6 10.1 2.49

Wells Fargo & Co.

47 19.6 14.5 230.3 0.0 0.0 0.0 4.20

JPMorgan Chase & Co.

30 19.0 6.8 378.7 100.0 0.0 0.0 2.55
*Yield on securities is interest and dividend income on U.S. Treasury securities and U.S. government agency and corporation obligations, plus taxable securities issued by states and political subdivisions in the U.S., plus tax-exempt securities issued by states and political subdivisions in the U.S., plus U.S. and foreign debt securities, plus U.S. and foreign equity securities (annualized), divided by year-over-year average of period-end securities. Source: FRY9C.

BAC's AFS portfolio seems to have the lowest credit risk, as of March 31, 2012, relative to large, complex peers, as measured by holdings of U.S. government-backed securities. U.S. Treasuries and U.S. government-backed securities accounted for 85% of its portfolio. On the opposite end of the spectrum, several large, complex banks (JPM, WFC, and Citi) hold less than 50% of these securities in their AFS portfolios (see table 7 in the appendix).

As of March 31, 2012, Citi held only 49% of U.S. Treasuries and U.S. government-backed securities in its AFS portfolio. The preponderance of its remaining securities is foreign government securities (36%), likely because of Citi's relatively global business model. As of March 31, 2012, JPM's and WFC's U.S. Treasuries and U.S. government-backed securities comprised only 30% and 47%, respectively, of their AFS portfolios--the rest is largely foreign securities, corporate, nonagency RMBS, and asset-backed securities. Some of these securities have higher credit risk than U.S. Treasuries and U.S. government-backed securities. That said, JPM has stated that the average credit rating of the debt securities in its AFS portfolio is 'AA+' with a 2.6-year average duration.

We note that AFS and HTM portfolios are not the only places where banks invest excess funds. Banks also invest some of their excess cash in depository institutions such as central banks and reverse repurchase agreements. But, even when we add deposits at central banks to their holdings of Treasuries and U.S. government-backed securities, WFC, JPM, and Citi, relative to peers, still have the lowest percentages of investment in U.S. government-backed securities.

To gauge AFS portfolio risk in a different way, we calculated the amount of Level 3 assets in each bank's portfolio. U.S. accounting standards require that banks report the fair value of their securities based on the liquidity of the inputs used to determine the securities' fair value (in other words, Levels 1-3, with Level 3 the least liquid). Level 3 asset values use inputs that are unobservable and are often based on internal modeling. Because they are the most subjective (and least liquid) of the three types of assets, we believe they carry the most risk relative to others in the portfolio (see table 5). WFC has the highest amount of Level 3 securities as of March 2012 (14.5%), followed by PNC (13.6%) and JPM (6.8%).

We also compared the banks' AFS and HTM securities yields. A higher investment securities yield likely indicates greater credit risk in a portfolio but could also point to higher duration. WFC and PNC have the highest yields on their AFS portfolios as of March 2012.

It's important to note that credit risk is not the only factor to consider when assessing a bank's AFS portfolio. Interest rate risk (a price decline in securities resulting from a rise in interest rates) is also a factor. This is particularly noteworthy right now given that the yield on the 10-year U.S. Treasury note is hovering around historical lows. That said, the Fed has stated that it will not raise interest rates until 2014, so interest rate risk is not an immediate concern. However, interest rate risk will likely become a concern in the industry over time. (For more information, see "U.S. Banks' Interest Rate Risk Scorecard: First-Quarter Update," published June 11 2012.)

A Hedge By Any Other Name?

Many banks hedge specific risks in their portfolios using derivative instruments. At times, these types of hedges qualify for, and are designated for, hedge accounting treatment under stringent U.S. GAAP accounting rules. Hedge accounting, if available, must be tested for effectiveness each reporting period and generally provides for more symmetrical accounting treatment. For example, hedge accounting treatment may allow banks to defer unrealized gains and losses on derivative hedging instruments in accumulated other comprehensive income (AOCI) until the hedged item is also recognized in earnings. The size of these types of hedges, sometimes referred to as micro-hedges, varies by bank. Some banks may have derivative positions that qualify for hedge accounting treatment but choose to forgo the use of hedge accounting because of the additional complexity and expense of proving that the hedge is effective at mitigating risk.

Certain banks also incorporate a macro-hedge strategy in an attempt to mitigate the risk of a portfolio of assets. This is a more difficult hedging technique because it's meant to cover a wide array of assets that may not move in unison. The macro-hedge strategies that we have observed typically involve the purchase of credit protection in some form, but they could result in the bank selling some of this protection quarterly to reduce the amount of a hedge.

To the extent some banks use derivative instruments to hedge their AFS portfolios, the potential for "asymmetrical" accounting treatment exists. That is, the derivatives fair values flow into earnings, but the offsetting fair value accounts the derivatives are intended to hedge (in other words, AFS securities) are within equity (AOCI). Many banks refer to these types of hedging activities as "economic" hedges. However, absent more robust disclosure on the specifics of how economic hedges offset the underlying securities portfolio, this type of hedging activity could rapidly morph into speculative trading for a variety of reasons, including the complexity of the hedge, management's volition, or other factors. In addition, because there is a lack of quantifiable information on an economic hedge, management could offset unexpected derivative exposure by selectively selling securities from its AFS portfolio. This could introduce the potential for a bank to manage its earnings.

Regulatory filings offer some additional perspective, particularly related to a bank's use of credit protection. Most credit default swaps are likely bought on behalf of bank customers (see chart 3). We believe that, if a bank was selling protection on a customer's behalf, it likely would attempt to even out its position by purchasing protection. Some banks could also use credit protection as a means to hedge their own portfolios. That said, it's not typical for a bank to be in a large net long credit position (selling more protection than buying), for banks, by their nature, have net long credit exposure by their normal day-to-day activity of issuing loans. By selling more credit protection than it's purchasing, in our view, a bank could be making a bet that the economy will improve, or the nature of its hedging strategy is too complex. Interestingly, JPM was the only large, complex bank with a large excess sold credit default swap position versus a purchased position ($148 billion difference) as of March 31. The sold position has been higher than the bought position since first-quarter 2010, and, for the most part, the gap has widened since then.

Chart 3

Another aspect of publicly available data that we believe is useful in revealing hedging strategies can be found in regulatory filings as follows (see table 6):

  • Net gains (losses) on credit derivatives held for trading
  • Net gains (losses) on credit derivatives held for other purposes

When the economy and financial markets improve, we would expect the derivative hedges to show a loss, and when the economy and financial markets decline, we would expect the derivative hedges to show a gain. (We recognize the timing of the derivative hedge transactions as well as other factors could affect this assumption.) If a bank's derivative hedges move in the opposite direction and are an outlier relative to peers, this would be cause for concern.

The hedging gains and losses for large, complex banks are largely in line with movements in the economy and financial markets. However, the amount of gains and losses could give an indication of the size of the hedge, though we must also consider balance sheet size. It seems that JPM's hedge has been larger than that of two comparably sized peers--Citi and BAC. Given JPM's $5.8 billion synthetic credit portfolio hedging loss in 2012 through the second quarter, the company's hedging results using credit derivatives information within the regulatory filings will likely diverge from peers.

Table 6

Total Net Gains (Losses) Recognized In Earnings On Credit Derivatives That Economically Hedge Credit Exposures Held Outside The Trading Account
(Mil. $) March 2012 December 2011 September 2011 June 2011 March 2011 December 2010

Bank of America Corp.

(356.3) 86.8 269.2 (142.5) (133.1) (486.4)

Citigroup Inc.

(429.0) 115.0 361.0 (224.0) (185.0) (502.0)

U.S. Bancorp

(6.0) 1.0 2.0 (1.0) (1.0) (6.0)

JPMorgan Chase & Co.

(808.0) 836.0 906.0 (361.0) (380.0) 46.0

PNC Financial Services Group

(24.2) 1.8 3.0 2.5 1.8 1.0

Wells Fargo & Co.

(8.0) 9.0 (12.0) (9.0) (6.0) (2.0)
Source: FRY9C.

Aggressive Efforts To Increase Earnings Could Lead To Downgrades For Some Banks

As the economy and financial markets remain weak and the recovery sluggish, U.S. banks likely will continue to struggle to increase their earnings. As a result, we expect some banks will continue to look to riskier investments to abet revenues and profits. This could come in the form of riskier investment portfolios and, possibly, more aggressive hedging strategies that are identified as benign economic hedges. If this occurs in a significant manner, we could lower our ratings on a bank that is undertaking such activity.

Related Criteria And Research

Appendix

Table 7

Composition Of AFS Portfolios As Of First-Quarter 2012
(%) JPMorgan Chase & Co. Citigroup Inc. Bank of America Corp. Wells Fargo & Co. PNC Financial Services Group U.S. Bancorp
U.S. Treasury securities 1.9 20.3 12.2 0.5 3.5 1.0
U.S. government agency debt 1.2 12.7 1.1 1.6 1.8 0.6
Securities issued by state and political divisions 5.1 5.2 1.7 14.9 3.6 12.3
Mutual funds and equity securities 0.7 0.9 0.9 1.4 0.6 0.7
Mortgage-backed securities
Agency 27.2 16.0 72.0 44.6 58.4 78.2
Nonagency 20.5 2.3 4.2 7.7 11.5 2.9
CMBS 3.4 0.8 1.6 8.1 7.2 0.3
Asset-backed securities 3.5 2.9 3.0 8.1 9.3 1.3
Structured products 6.7 1.1 0.2 4.0 0.6 0.4
Other debt securities
Foreign debt securities 26.7 36.1 2.8 4.5 3.5 0.2
Other domestic debt securities 3.2 1.6 0.6 4.8 0.0 1.9
Source: FRY9C.
Primary Credit Analyst:Stuart Plesser, New York (1) 212-438-6870;
stuart_plesser@standardandpoors.com
Secondary Contact:Jonathan Nus, New York (1) 212-438-3471;
jonathan_nus@standardandpoors.com
Research Contributor:Shameer Bandeally, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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