UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of
Thethe Securities Exchange Act of 1934 |
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| For the fiscal year ended | | Commission file |
December 31, 20142017 | | number 1-5805 |
JPMorgan Chase & Co.
(Exact name of registrant as specified in its charter) |
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| Delaware | | 13-2624428 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. employer identification no.) |
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| 270 Park Avenue, New York, New York | | 10017 |
| (Address of principal executive offices) | | (Zip code) |
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Registrant’s telephone number, including area code: (212) 270-6000
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Name of each exchange on which registered |
| Common stock | | The New York Stock Exchange |
| | The London Stock Exchange |
| | The Tokyo Stock Exchange |
Warrants each to purchase one shareshares of Common Stock | | The New York Stock Exchange |
Depositary Shares, each representing a one-four hundredth interest in a share of 5.50% Non-Cumulative Preferred Stock, Series O | | The New York Stock Exchange |
| Depositary Shares, each representing a one-four hundredth interest in a share of 5.45% Non-Cumulative Preferred Stock, Series P | | The New York Stock Exchange |
| Depositary Shares, each representing a one-four hundredth interest in a share of 6.70% Non-Cumulative Preferred Stock, Series T | | The New York Stock Exchange |
| Depositary Shares, each representing a one-four hundredth interest in a share of 6.30% Non-Cumulative Preferred Stock, Series W | | The New York Stock Exchange |
GuaranteeDepositary Shares, each representing a one-four hundredth interest in a share of 6.70% Capital Securities,6.125% Non-Cumulative Preferred Stock, Series CC,Y | | The New York Stock Exchange |
Depositary Shares, each representing a one-four hundredth interest in a share of JPMorgan Chase Capital XXIX6.10% Non-Cumulative Preferred Stock, Series AA | | The New York Stock Exchange |
| Depositary Shares, each representing a one-four hundredth interest in a share of 6.15% Non-Cumulative Preferred Stock, Series BB | | The New York Stock Exchange |
| Alerian MLP Index ETNs due May 24, 2024 | | NYSE Arca, Inc. |
| Guarantee of Callable Step-Up Fixed Rate Notes due April 26, 2028 of JPMorgan Chase Financial Company LLC | | The New York Stock Exchange |
| Guarantee of Cushing 30 MLP Index ETNs due June 15, 2037 of JPMorgan Chase Financial Company LLC | | NYSE Arca, Inc.
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ýo Yes ox No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes ýx No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ýx Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ýx Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ýx
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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ýx Large accelerated filer
| o Accelerated filer | o Non-accelerated filer (Do not check if a smaller reporting company) | o Smaller reporting company | o Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes ýx No
The aggregate market value of JPMorgan Chase & Co. common stock held by non-affiliates as of June 30, 2014: $215,577,956,7432017: $319,702,076,316
Number of shares of common stock outstanding as of January 31, 2015: 3,728,312,5552018: 3,431,958,491
Documents incorporated by reference: Portions of the registrant’s Proxy Statement for the annual meeting of stockholders to be held on May 19, 2015,15, 2018, are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.
Form 10-K Index
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320–325291–296 |
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326–327297–298 |
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ITEM 1: BUSINESSItem 1. Business.
Overview
JPMorgan Chase & Co., (“JPMorgan Chase” or the “Firm”), a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide; the Firm had $2.62.5 trillion in assets and $232.1$255.7 billion in stockholders’ equity as of December 31, 2014.2017. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.
JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a national banking association with U.S. branches in 23 states, and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national banking association that is the Firm’s principal credit card–issuingcard-issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (“JPMorgan Securities”), the Firm’sa U.S. investment banking firm.broker-dealer. The bank and nonbanknon-bank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. One of theThe Firm’s principal operating subsidiariessubsidiary in the United Kingdom (“U.K.”) is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.
The Firm’s website is www.jpmorganchase.com. JPMorgan Chase makes available free of charge, through its website, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the U.S. Securities and Exchange Commission (the “SEC”). at www.sec.gov. The Firm has adopted, and posted on its website, a Code of Conduct for all employees of the Firm and a Code of Ethics for its Chairman and Chief Executive Officer, Chief Financial Officer, ChiefPrincipal Accounting Officer and all other finance professionals of the Firm.Firm worldwide serving in a finance, accounting, tax or investor relations role.
Business segments
JPMorgan Chase’s activities are organized, for management reporting purposes, into four major reportable business segments, as well as a Corporate segment. The Firm’s consumer business is the Consumer & Community Banking (“CCB”) segment. The Firm’s wholesale business segments are Corporate & Investment Bank (“CIB”), Commercial Banking (“CB”), and Asset & Wealth Management segments comprise the Firm’s wholesale businesses.
(“AWM”).A description of the Firm’s business segments and the products and services they provide to their respective client bases is provided in the “Business segment results” section
of Management’s discussion and analysis of financial condition and results of operations (“MD&A”), beginning on page 6440 and in Note 33.31.
Competition
JPMorgan Chase and its subsidiaries and affiliates operate in a highly competitive environment. Competitors include other banks, brokerage firms, investment banking companies, merchant banks, hedge funds, commodity trading companies, private equity firms, insurance companies, mutual fund companies, investment managers, credit card companies, mortgage banking companies, trust companies, securities processing companies, automobile financing companies, leasing companies, e-commerce and other Internet-based companies, financial technology companies, and a variety of other financial servicescompanies engaged in providing similar products and advisory companies. JPMorgan Chase’sservices. The Firm’s businesses generally compete on the basis of the quality and rangevariety of theirthe Firm’s products and services, transaction execution, innovation, reputation and price. Competition also varies based on the types of clients, customers, industries and geographies served. With respect to some of its geographies and products, JPMorgan Chase competes globally; with respect to others, the Firm competes on a national or regional basis. The Firm’s ability to compete also depends on its ability to attract and retain professional and other personnel, and on its reputation.
The financial services industry has experienced consolidation and convergence in recent years, as financial institutions involved in a broad range of financial products and services have merged and, in some cases, failed. This consolidation is expected to continue. Consolidation could result in competitors of JPMorgan Chase gaining greater capital and other resources, such as a broader range of products and services and geographic diversity. It is likely that competition in the financial services industry will become even morecontinue to be intense as the Firm’s businesses continue to compete with other financial institutions that may have a stronger local presence in certain geographies or that operate under different rules and regulatory regimes than the Firm.Firm, or with companies that provide new or innovative products or services that the Firm does not provide.
Supervision and regulation
The Firm is subject to extensive and comprehensive regulation under state and federal laws in the U.S., as well as the applicable laws of each of the various jurisdictions outside the U.S. in which the Firm does business.
As a resultThe Firm has experienced an extended period of rule-making followingsignificant change in regulation which has had and could continue to have significant consequences for how the enactment of the Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and other regulatory reforms enacted and proposedFirm conducts business in the U.S. and abroad, the Firm is currently experiencing a period of unprecedented change in regulation and such changes could have a significant impact on how the Firm conducts business.abroad. The Firm continues to work diligently in assessing the regulatory changes it is facing, and is devotingdevotes substantial resources to implementing all thecomplying with existing and new laws, rules and regulations, while, at the same time, endeavoring to best meetingmeet the needs and expectations of its
customers, clients and shareholders. As a result of legislative and regulatory changes and expanded supervision, the Firm has implemented and refined policies, procedures and controls, and made adjustments to its business and operations, legal entity structure, and capital and liquidity management. The combined effect of numerous rule-makings by multiple governmental agencies and regulators, and the potential conflicts or inconsistencies among such rules, continue to present challenges and risks to the Firm’s business and operations. Given the current status of the
Because regulatory developments,changes are ongoing, the Firm cannot currently quantify all of the possible effects on its business and operations of all of the significant changes that are currently underway. For more information, see Risk Factors on pages 8–17.26.
Financial holding company:
Consolidated supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). As a bank holding company (“BHC”) and a financial holding company, JPMorgan Chase is subject to comprehensive consolidated supervision, regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).Reserve. The Federal Reserve acts as an “umbrella regulator” and certain of JPMorgan Chase’s subsidiaries are regulated directly by additional regulatory authorities based on the particular activities of those subsidiaries. For example, JPMorgan Chase’s national bank subsidiaries, such as JPMorgan Chase Bank, N.A., and Chase Bank USA, N.A., are subject to supervision and regulation by the Office of the Comptroller of the Currency (“OCC”) and, with respect to certain matters, by the Federal Reserve and the Federal Deposit Insurance Corporation (the “FDIC”). Non-bankCertain non-bank subsidiaries, such as the Firm’s U.S. broker-dealers, are subject to supervision and regulation by the SecuritiesSEC, and Exchange Commission (“SEC”), and with respect tosubsidiaries of the Firm that engage in certain futures-related and swaps-related activities are subject to supervision and regulation by the Commodity Futures Trading Commission (“CFTC”). J.P. Morgan Securities plc, is a U.K. bank licensed within the European Economic Area (the “EEA”) to undertake all banking activity and is regulated by the U.K. Prudential Regulation Authority (the “PRA”), a subsidiary of the Bank of England which has responsibility for prudential regulation of banks and other systemically important institutions, and by the U.K. Financial Conduct Authority (“FCA”), which regulates conduct matters for all market participants. The Firm’s other non-U.S. subsidiaries are regulated by the banking and securities regulatory authorities in the countries in which they operate. See Securities and broker-dealer regulation, Investment management regulation and Derivatives regulation below.
As a result of In addition, the Dodd-Frank Act, JPMorgan Chase is, or will become,Firm’s consumer activities are subject to (among other things) significantly revisedsupervision and expanded regulation and supervision, additional limitations on the way it conducts its businesses, and heightened capital and liquidity requirements. In addition,by the Consumer Financial Protection Bureau (“CFPB”), and to regulation under various state statutes which was createdare enforced by the Dodd-Frank Act, has rulemaking, enforcement and examination authority over JPMorgan Chase and its subsidiaries with respect to federal consumer protection laws.respective state’s Attorney General.
Scope of permissible business activities. The Bank Holding Company Act generally restricts BHCs from engaging in business activities other than the business of banking and certain closely relatedclosely-related activities. Financial holding companies generally can engage in a broader range of financial activities than are otherwise permissible for BHCs, as long as they continueincluding underwriting, dealing and making markets in securities, and making merchant banking investments in non-financial companies. The Federal Reserve has the authority to limit a financial holding company’s ability to conduct otherwise permissible activities if the financial holding company or any of its depository institution subsidiaries ceases to meet the applicable eligibility
requirements for financial holding companies (including requirements that the financial holding company and each of its U.S. depository institution subsidiaries maintain their status as “well capitalized”“well-capitalized” and “well managed”“well-managed”). The broader range of permissible activities for financial holding companies includes underwriting, dealing and making markets in
securities, and making merchant banking investments in non-financial companies.
The Federal Reserve has the authority to limit a financial holding company’s ability to conduct activities that would otherwise be permissible if the financial holding company or any of its depositary institution subsidiaries ceases to meet the applicable eligibility requirements. The Federal Reserve may also impose corrective capital and/or managerial requirements on the financial holding company and may, for example, require divestiture of the holding company’s depository institutions if the deficiencies persist. Federal regulations also provide that if any depository institution controlled by a financial holding company fails to maintain a satisfactory rating under the Community Reinvestment Act, the Federal Reserve must prohibit the financial holding company and its subsidiaries from engaging in any activities other than those permissible for bank holding companies. In addition, a financial holding company must obtain Federal Reserve approval before engaging in certain banking and other financial activities both in the U.S. and internationally, as further described under Regulation of acquisitions below.
Activities restrictions under the Volcker Rule.Section 619 of the Dodd-Frank Act (the “Volcker Rule”) of the Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) prohibits banking entities, including the Firm, from engaging in certain “proprietary trading” activities, subject to exceptions for underwriting, market-making, risk-mitigating hedging and certain other activities. In addition, the Volcker Rule limits the sponsorship of, and investment in, “covered funds” (as defined by the Volcker Rule) and imposes limits on certain transactions between the Firm and its sponsored funds (see Investment management regulationJPMorgan Chase’s subsidiary banks — Restrictions on transactions with affiliates below). The period during which banking entities were required to bring covered funds into conformance with the Volcker Rule ended on July 21, 2017. The Volcker Rule requires banking entities to establish comprehensive compliance programs reasonably designed to help ensure and monitor compliance with the restrictions under the Volcker Rule, including, in order to distinguish permissible from impermissible risk-taking activities, the measurement, monitoring and monitoringreporting of sevencertain key metrics. The Firm has taken significant steps to comply with the Volcker Rule. However, given the complexity of the new framework, and the fact that many provisions of the Rule still require further regulatory guidance, the full impact of the Volcker Rule is still uncertain and will ultimately depend on the interpretation and implementation by the five regulatory agencies responsible for its oversight.
Capital and liquidity requirements. The Federal Reserve establishes capital and leverage requirements for the Firm and evaluates its compliance with such capital requirements. The OCC establishes similar capital and leverage requirements for the Firm’s national banking subsidiaries. For more information about the applicable requirements relating to risk-based capital and leverage, in the U.S. under the Basel Committee’s most recent capital framework (“Basel III”), see Regulatory capitalCapital Risk Management on pages 146–15382–91 and Note 28. It is likely that the banking supervisors will continue to refine and enhance the Basel III capital framework for financial institutions. Recent proposals being contemplated by the Basel Committee
include, among others, revisions to market risk capital for trading books, credit risk capital calculations, the measurement methodology to calculate counterparty credit risk and revisions to the securitization framework. After a proposal is finalized by the Basel Committee, U.S. banking regulators would then need to propose requirements applicable to U.S. financial institutions.26. Under Basel III, bank holding companies and banks are required to measure their liquidity against two specific liquidity tests: the liquidity coverage ratio (“LCR”) and the net stable funding ratio (“NSFR”). In the U.S., the final LCR rule (“U.S. LCR”) became effective on January 1, 2015. In April 2016, the U.S. banking regulators issued a proposed rule for NSFR, but no final rule has been issued. For additional information on these ratios,LCR, see Liquidity Risk Management on pages 156–160.92–97. On December 19, 2016, the Federal Reserve published final U.S. LCR public disclosure requirements. Beginning in the second quarter of 2017, the Firm began disclosing its
consolidated LCR pursuant to the U.S. LCR rule. On September 8, 2016, the Federal Reserve published the framework that will apply to the setting of the countercyclical capital buffer. The Federal Reserve reviews the amount of this buffer at least annually, and on December 1, 2017, the Federal Reserve reaffirmed setting this buffer at 0%. Banking supervisors globally continue to consider refinements and enhancements to the Basel III capital framework for financial institutions. On December 7, 2017, the Basel Committee issued Basel III: Finalizing post-crisis reforms (“Basel III Reforms”), which seeks to reduce excessive variability in RWA and converge capital requirements between Standardized and Advanced approaches. The Basel III Reforms include revisions to both the standardized and internal ratings-based approach for credit risk, streamlining of the available approaches under the credit valuation adjustment (“CVA”) framework, a revised approach for operational risk, revisions to the measurement and calibration of the leverage ratio, and a capital floor based on 72.5% of the revised Standardized approaches. The Basel Committee expects national regulatory authorities to implement the Basel III Reforms in the laws of their respective jurisdictions and to require banking organizations subject to such laws to meet most of the revised requirements by January 1, 2022, with certain elements being phased in through January 1, 2027. U.S. banking regulators will now propose requirements applicable to U.S. financial institutions.
Stress tests.Pursuant to the Dodd-Frank Act, the The Federal Reserve has adopted supervisory stress tests for large bank holding companies, including JPMorgan Chase, which form part of the Federal Reserve’s annual Comprehensive Capital Analysis and Review (“CCAR”) framework. Under the framework, the Firm must conduct semi-annual company-run stress tests and, in addition, must submit an annual capital plan to the Federal Reserve, taking into account the results of separate stress tests designed by the Firm and the Federal Reserve. In reviewing the Firm’s capital plan, the Federal Reserve will considerconsiders both quantitative and qualitative factors. Qualitative assessments will include, (amongamong other things)things, the comprehensiveness of the plan, the assumptions and analysis underlying the plan, and the extent to which the Firm has satisfied certain supervisory matters related to the Firm’s processes and analyses.analyses, including the design and operational effectiveness of the controls governing such processes. Moreover, the Firm is required to receive a notice of non-objection from the Federal Reserve before taking capital actions, such as paying dividends, implementing common equity repurchase programs or redeeming or repurchasing capital instruments. The OCC requires JPMorgan Chase Bank, N.A. to perform separate, similar annual stress tests. The Firm publishes on its website each year in July, the results of its mid-yearmid-cycle stress tests under the Firm’s internally-developed “severely adverse” scenario and in March, the results of its (and its two primary subsidiary banks)banks’) annual CCAR stress tests under the Federal Reserve’ssupervisory “severely adverse” scenario. Commencing withscenarios provided by the 2016 CCAR,Federal Reserve and the OCC. The Firm is required to file its 2018 annual CCAR submission will be dueon April 5,
th.2018. Results will be published by the Federal Reserve by June 30,th, 2018, with disclosures of results by BHCs, including the Firm, to follow within 15 days. Also commencing in 2016, theThe mid-cycle capital stress test submissions will beare due on October 5,th 2018 and BHCs, including the Firm, will publish results by November 4, 2018.th.
For additional information on the Firm’s CCAR, see Regulatory capitalCapital Risk Management on pages 146–153.82–91. In December 2017, the Federal Reserve released a set of proposals intended to provide more detailed disclosure and transparency concerning the Federal Reserve’s approach, design and governance of the supervisory stress testing process. The proposals were open for public comment through January 22, 2018.
Enhanced prudential standards. The Dodd-Frank Act established a new oversight body, the Financial Stability Oversight Council (“FSOC”), which (amongamong other things)things, recommends prudential standards and reporting and disclosure requirements to the Federal Reserve for systemically important financial institutions. BHCs with $50 billion or more in total consolidated assets,institutions (“SIFIs”), such as JPMorgan Chase, became automatically subject to the heightened prudential standards.Chase. The Federal Reserve has adopted several rules to
implement certain of the heightened prudential standards, contemplated by the Dodd-Frank Act, including final rules relating to risk management and corporate governance of subject bank holding companies. Beginning January 1, 2015, the rules requireBHCs. BHCs with $50 billion or more in total consolidated assets are required to comply with enhanced liquidity and overall risk management standards, including a buffer of highly liquid assets based on projected funding needs for 30 days, and increased involvement bytheir boards of directors in risk management. Several additional proposed rules are still being considered, including rules relating to single-counterparty credit limits and an “early remediation” framework to address financial distress or material management weaknesses.
Risk reporting. In January 2013, the Basel Committee issued new regulations relating to risk aggregation and reporting. Under these regulations, the banking institution’s risk governance framework must encompass risk-data aggregation and reporting, and data aggregation must be highly automated and allow for minimal manual intervention. The regulations also impose higher standards for the accuracy, comprehensiveness, granularity and timely distribution of data reporting, and call for regular supervisory review of the banking institution’s risk aggregation and reporting. Global systemically important banks (“G-SIBs”) will be required to comply with these new standards by January 1, 2016.conduct appropriate oversight of their risk management activities. For information on liquidity measures, see Liquidity Risk Management on pages 92–97.
Orderly liquidation authority and other financial stability measures. resolution and recovery.As a BHC with assets of $50 billion or more, the Firm is required to submit annuallyperiodically to the Federal Reserve and the FDIC a plan for resolution under the Bankruptcy Code in the event of material distress or failure (a “resolution plan”). On December 19, 2017, the Federal Reserve and the FDIC announced joint determinations on the 2017 resolution plans of eight systemically important domestic banking institutions, including that of JPMorgan Chase, and extended the filing deadline for the next resolution plan for each of these entities until July 1, 2019. The FDIC also requires each insured depositary institution with $50 billionagencies determined that JPMorgan Chase’s 2017 resolution plan did not have any “deficiencies,” which are weaknesses severe enough to trigger a resubmission process that could result in more stringent requirements, or moreany “shortcomings,” which are less-severe weaknesses that would need to be addressed in assets to provide athe next resolution plan. For more information about the Firm’s resolution plan, see Risk Factors on pages 8–17. In addition, under the Dodd-Frank Act, certain26.
Certain financial companies, including JPMorgan Chase and certain of its subsidiaries, can also be subjected to resolution under a newan “orderly liquidation authority.” The U.S. Treasury Secretary, in consultation with the President of the United States, must first make certain extraordinary financial distress and systemic risk determinations, and action must be recommended by the FDIC and the Federal Reserve. Absent such actions, the Firm, as a BHC, would remain subject to resolution under the Bankruptcy Code. In December 2013, the FDIC releasedissued a draft policy statement
describing its “single point of entry” strategy for resolution of systemically important financial institutions under the orderly liquidation authority. This strategy seeks to keep operating subsidiaries of the BHC open and impose losses on shareholders and creditors of the holding company in receivership according to their statutory order of priority. For further information see Risk Factors on pages 8–26.
The FDIC also requires each insured depository institution (“IDI”) with $50 billion or more in assets, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., to provide an IDI resolution plan.
The Firm has a comprehensive recovery plan detailing the actions it would take to avoid failure by remaining well-capitalized and well-funded in the case of an adverse event. JPMorgan Chase has provided the Federal Reserve with comprehensive confidential supervisory information and analyses about the Firm’s businesses, legal entities and corporate governance and about its crisis management governance, capabilities and available alternatives to generate liquidity and capital in severe market circumstances. The OCC has published guidelines establishing standards for recovery planning by insured national banks, and JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. have submitted their recovery plans to the OCC.In addition, certain of the Firm’s non-U.S. subsidiaries are subject to resolution and recovery planning requirements in the jurisdictions in which they operate.
Regulators in the U.S. and abroad continuehave proposed and implemented measures designed to address the possibility or perception that large financial institutions, including the Firm, may be focused on measures to address “too big to fail,” and to provide safeguards so that, if a large financial institution does fail, it can be resolved without the use of public funds. Higher
capital surcharges on G-SIBs,global systemically important banks (“GSIBs”), requirements recently introduced by the Federal Reserve thatfor certain large bank holding companies to maintain a minimum amount of long-term debt to facilitate orderly resolution of those firms (referred to as Total Loss Absorbing Capacity (“TLAC”)), and the recently adopted ISDAInternational Swaps and Derivatives Association (“ISDA”) protocol relating to the “close-out” of derivatives transactions during the resolution of a large cross-border financial institution, are examples of initiatives to address “too big to fail.” For further information on the potential impact of the G-SIBGSIB framework and Total Loss Absorbing Capacity (“TLAC”),TLAC, see Regulatory capitalCapital Risk Management on pages 146–153,82–91 and Risk Factors on pages 8–26, and on the ISDA close-out protocol, see Derivatives regulation below.
Holding company as source of strength for bank subsidiaries. JPMorgan Chase & Co. is required to serve as a source of financial strength for its depository institution subsidiaries and to commit resources to support those subsidiaries. This support may be required by the Federal Reserve at times when the Firm might otherwise determine not to provide it.
Regulation of acquisitions. FinancialAcquisitions by bank holding companies and their banks are subject to multiple requirements by the Federal Reserve and the OCC. For example, financial holding companies and bank holding companies are required to obtain the approval of the
Federal Reserve before they may acquire more than 5% of the voting shares of an unaffiliated bank. In addition, the Dodd-Frank Act restricts acquisitions by financial companies are prohibited if, as a result of the acquisition, the total liabilities of the financial company would exceed 10% of the total liabilities of all financial companies. This could have the effect of allowing a non-U.S. financial company to grow to hold significantly more than 10% of the U.S. market without exceeding the concentration limit. In addition, under the Dodd-Frank Act,for certain acquisitions, the Firm must provide written notice to the Federal Reserve prior to acquiring direct or indirect ownership or control of any voting shares of any company with over $10 billion in assets that is engaged in activities that are “financial in nature”.nature.”
JPMorgan Chase’s subsidiary banks:
The Firm’s two primaryprincipal subsidiary banks, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., are FDIC-insured national banks regulated by the OCC. As national banks, the activities of JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. are limited to those specifically authorized under the National Bank Act and related interpretations by the OCC.
FDIC deposit insurance.The FDIC deposit insurance fund provides insurance coverage for certain deposits whichand is funded through assessments on banks, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. Changes in the methodology of the calculation ofused to calculate such assessments, resulting from the enactment of the Dodd-Frank Act, significantly increased the assessments that the Firm’s bank subsidiaries pay annually to the FDIC. The FDIC and futureinstituted a new assessment surcharge on insured depository institutions with total consolidated assets greater than $10 billion in order to raise the reserve ratio for the FDIC rule-making could further increase such assessments.deposit insurance fund.
FDIC powers upon a bank insolvencyinsolvency.. Upon the insolvency of an insured depository institution, such as JPMorgan Chase Bank, N.A., the FDIC maycould be appointed as the conservator or receiver under the Federal Deposit Insurance Act (“FDIA”). In addition, as noted above, where a systemically important financial institution, such as JPMorgan Chase & Co., is in
default or danger of default, the FDIC may be appointed receiver in order to conduct an orderly liquidation. In both cases, theThe FDIC has broad powers to transfer any assets and liabilities without the approval of the institution’s creditors.
Cross-guaranteeCross-guarantee. . An FDIC-insured depository institution can be held liable for any loss incurred or expected to be incurred by the FDIC in connection withif another FDIC-insured institution that is under common control with such institution being “in default”is in default or is deemed to be “in danger of default” (commonly referred to as “cross-guarantee” liability). An FDIC cross-guarantee claim against a depository institution is generally superior in right of payment to claims of the holding company and its affiliates against such depository institution.
Prompt corrective action and early remediationremediation.. The Federal Deposit Insurance Corporation Improvement Act of 1991 requires the relevant federal banking regulator to take “prompt corrective action” with respect to a depository institution if that institution does not meet certain capital adequacy standards. While these regulations apply only to banks, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., the Federal Reserve is authorized to take appropriate action against the parent BHC, such as
JPMorgan Chase & Co., based on the undercapitalized status of any bank subsidiary. In certain instances, the BHC would be required to guarantee the performance of the capital restoration plan for its undercapitalized subsidiary.
OCC Heightened Standards.The OCC has released final regulations andestablished guidelines establishingsetting forth heightened standards for large banks. The guidelines establish minimum standards for the design and implementation of a risk governance framework for banks. While the bank maycan use certain components of the parent company’s risk governance framework, the framework must ensure that the bank’s risk profile is easily distinguished and separate from the parent for risk management purposes. The bank’s board or risk committee is responsible for approving the bank’s risk governance framework, providing active oversight of the bank’s risk-taking activities, and holding management accountable for adhering to the risk governance framework.
Restrictions on transactions with affiliatesaffiliates. . The bank subsidiaries of JPMorgan Chase (including subsidiaries of those banks) are subject to certain restrictions imposed by federal law on extensions of credit to, investments in stock or securities of, and derivatives, securities lending and certain other transactions with, JPMorgan Chase & Co. and certain other affiliates, and on investments in stock or securities of JPMorgan Chase and affiliates. These restrictions prevent JPMorgan Chase & Co. and other affiliates from borrowing from a bank subsidiarysuch subsidiaries unless the loans are secured in specified amounts and are subject tocomply with certain other limits.requirements. For more information, see Note 27. Under the Dodd-Frank Act, these restrictions were extended to derivatives and securities lending transactions.25. In addition, the Dodd-Frank Act’s Volcker Rule imposes similar restrictionsa prohibition on such transactions between banking entities, such asany JPMorgan Chase entity and its subsidiaries, and hedge funds or
private equitycovered funds for which the bankinga JPMorgan Chase entity serves as the investment manager, investment advisor, commodity trading advisor or sponsor.sponsor, as well as, subject to a limited exception, any covered fund controlled by such funds.
Dividend restrictions.Federal law imposes limitations on the payment of dividends by national banks, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. See Note 2725 for the amount of dividends that the Firm’s principal bank subsidiaries could pay, at January 1, 2015,2018, to their respective bank holding companies without the approval of their banking regulators.
In addition to the dividend restrictions described above, the OCC and the Federal Reserve and the FDIC have authority to prohibit or limit the payment of dividends byof the banking organizationsbank subsidiaries they supervise, including JPMorgan Chase and its bank and BHC subsidiaries, if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the banking organization.bank.
Depositor preferencepreference.. Under federal law, the claims of a receiver of an insured depository institution for administrative expense and the claims of holders of U.S. deposit liabilities (including the FDIC)FDIC and deposits in non-U.S. branches that are dually payable in the U.S. and in a non-U.S. branch) have priority over the claims of other unsecured creditors of the institution, including public noteholders and depositors in non-U.S. offices.branches. As a result, such persons could receive substantially less than the depositors in U.S. offices of the depository institution. The U.K. Prudential Regulation Authority (the “PRA”) has issued a proposal that may require the Firm to either obtain equal treatment for U.K. depositors or “subsidiarize” in the U.K. In September 2013, the FDIC issued a final rule, which clarifies that foreign deposits are considered deposits under the FDIA only if they are also payable in the U.S.
CFPB regulation and supervision, and other consumer regulations.The CFPB has rulemaking, enforcement and examination authority over JPMorgan Chase and its national bank subsidiaries, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., are subject to supervision and regulation by the CFPB with respect to federal consumer protection laws, including laws relating to fair lending and the prohibition under the Dodd-Frank Act of unfair, deceptive or abusive acts or practices in connection with the offer, sale or provision of consumer financial products and services. These laws include the Truth-in-Lending, Equal Credit Opportunity Act (“ECOA”), Fair Credit Reporting, Fair Debt Collection Practice, Electronic Funds Transfer, Credit Card Accountability, Responsibility and Disclosure (“CARD”) and Home Mortgage Disclosure Acts. The CFPB also has authority to impose new disclosure requirements for anycertain consumer financial product or service.products and services. The CFPB has issued informal guidance on a variety of topics (such as the collection of consumer debts and credit card marketing practices) and has taken enforcement actions against certain financial institutions. Much of the CFPB’s initial rulemakingrule-making efforts have addressed mortgage relatedmortgage-related topics, including ability-to-repayability to repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-cost mortgage requirements, Home Mortgage Disclosure Act requirements, appraisal and
escrow standards and requirements for higher-priced mortgages. The CFPB continues to issue informal guidance on a variety of topics (such as the collection of consumer debts and credit card marketing practices). Other areas of recent focus include sales incentives, pre-authorized electronic funds transfers, “add-on” products, matters involving consumer populations considered vulnerable by the CFPB, (such as students),credit reporting, and the furnishing of credit scores to individuals. TheAs part of its regulatory oversight, the CFPB has been focused on automobile dealer discretionary interest rate markups,authority to take enforcement actions against firms that offer certain products and on holding the Firm and other purchasers of such contracts (“indirect lenders”) responsible under the ECOA for statistical disparities in markups charged by the dealersservices to borrowers of different races or ethnicities. The Firm has adopted programs to address these risks,consumers, including an active dealer education, monitoring and review programs.
The activities of JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. as consumer lenders also are subject to regulation under various state statutes which are enforced by the respective state’s Attorney General.Chase.
Securities and broker-dealer regulation:
The Firm conducts securities underwriting, dealing and brokerage activities in the U.S. through J.P. Morgan Securities LLC and other non-bank broker-dealer subsidiaries, all of which are subject to regulations of the SEC, the Financial Industry Regulatory Authority and the New York Stock Exchange, among others. The Firm conducts similar securities activities outside the U.S. subject to local regulatory requirements. In the United Kingdom,U.K., those activities are conducted by J.P. Morgan Securities plc, which isa subsidiary of JPMorgan Chase Bank, N.A., and are regulated by the PRA (a subsidiary of the Bank of England which has responsibility for prudential regulation of banks and other systemically important institutions) and the Financial Conduct Authority (“FCA”) (which regulates prudential matters for other firms and conduct matters for all market participants).FCA. Broker-dealers are subject to laws and regulations covering all aspects of the securities business, including sales and trading practices, securities offerings, publication of research reports, use of customer’scustomers’ funds, the financing of clients’ purchases, capital structure, record-keeping and retention, and the conduct of their directors, officers and employees. For information on the net capital of J.P. Morgan Securities LLC, and J.P. Morgan Clearing Corp., and the applicable requirements relating to risk-based capital for J.P. Morgan Securities plc, see RegulatoryBroker-dealer regulatory capital on pages 146–153. Future rule-making mandatedpage 91. In addition, rules adopted by the Dodd-Frank Act will involveU.S. Department of Labor (“DOL”) have imposed (among other things) thea new standard of care applicable to broker-dealers when dealing
with retail customers and additional requirements regarding securitization practices.customers. For more information see Investment management regulation below.
Investment management regulation:
The Firm’s investmentasset and wealth management business isbusinesses are subject to significant regulation in numerous jurisdictions around the world relating to, among other things, the safeguarding and management of client assets, offerings of funds and marketing activities, transactions among affiliates and management of client funds.activities. Certain of the Firm’s subsidiaries are registered with, and subject to oversight by, the SEC as investment advisers. As such, the Firm’s registered investment advisers are subject to the fiduciary and other obligations imposed
under the Investment Advisers Act of 1940 and the rules and regulations promulgated thereunder, as well as various statesstate securities laws. For information regarding investigations and litigation in connection with disclosures to clients related to proprietary products, see Note 29.
The Firm’s asset and wealth management business continuesbusinesses continue to be affected by ongoing rule-making. Inrule-making and implementation of new regulations. The DOL’s fiduciary rule, which became effective June 9, 2017, has significantly expanded the universe of persons viewed as investment advice fiduciaries to retirement plans and individual retirement accounts (“IRAs”) under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The prohibited transaction exemptions issued in connection with the rule require adherence to “impartial conduct standards” (including a requirement to act in the “best interest” of retirement clients), although compliance with requirements relating to conditions requiring new client contracts, implementation of policies and procedures, websites and other disclosures to both investors and the DOL have been delayed until July 2013,1, 2019. Furthermore, the SEC adopted amendments to rules that govern money-market funds, requiringDOL is performing a floating net asset value for institutional prime money market funds. Manyreview of the Volcker Rule regulations regarding “covered funds”,rule and theirthe related exemptions in accordance with a February 2017 memorandum from the President. Subject to the outcome of the DOL’s review, it is expected that the rule and related prohibited transaction exemptions will have a significant impact on the fee and compensation practices at financial institutions that offer investment advice to retail retirement clients. In addition to the impact of the DOL’s fiduciary rule, the Firm’s asset and wealth management businesses may be affected by ongoing rule-making and implementation of new regulations by the SEC and certain U.S. states relating to enhanced standards of conduct for broker-dealers and certain other market participants.
In the European Union (“EU”), substantial revisions to the Markets in Financial Instruments Directive (“MiFID II”) became effective across EU member states beginning January 3, 2018. These revisions introduced expanded requirements for a broad range of investment management activities, particularlyincluding product governance, transparency on costs and charges, independent investment advice, inducements, record keeping and client reporting. In addition, final regulations on European Money Market Fund Reform were published in July 2017 and, following an 18-month transition period for existing funds, will implement
new requirements to enhance the seedingliquidity and stability of foreign publicmoney market funds andin the criteria for establishing foreign public funds status, await further guidance from the regulators.EU.
Derivatives regulation:
Under the Dodd-Frank Act, theThe Firm is subject to comprehensive regulation of its derivatives business.businesses. The regulations impose capital and margin requirements (including the collecting and posting of variation margin and initial margin in respect of non-centrally cleared derivatives), require central clearing of standardized over-the-counter (“OTC”) derivatives, require that theycertain standardized over-the-counter swaps be traded on regulated exchanges or execution facilities,trading venues, and provide for reporting of certain mandated information. In addition, the Dodd-Frank Act requires the registration of “swap dealers” and “major swap participants” with the CFTC and of “security-based swap dealers” and “major security-based swap participants” with the SEC. JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, J.P. Morgan Securities plc and J.P. Morgan Ventures Energy Corporation have registered with the CFTC as swap dealers, and JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC and J.P. Morgan Securities plc have registeredmay be required to register with the SEC as security-based swap dealers. As a result of suchtheir registration as swap dealers or security-based swap dealers, these entities will be subject to in additiona comprehensive regulatory framework applicable to newtheir swap or security-based swap activities, which includes capital requirements, new rules limiting the types ofregulating their swap activities, that may be engaged in by bank entities, a new margin regime forrules requiring the collateralization of uncleared swaps, new rules regarding segregation of customercounterparty collateral, and business conduct and documentation standards, with respect to other swaps counterparties, record-keeping and reporting obligations, and anti-fraud and anti-manipulation requirements related to their swaps activities.requirements. Further, some of the rules for derivatives apply extraterritorially to U.S. firms doing business with clients outside of the U.S.;, as well as to the overseas activities of non-U.S. subsidiaries of the Firm that either deal with U.S. persons or that are guaranteed by U.S. subsidiaries of the Firm; however, the full scope of the extra-territorial impact of the U.S. swaps regulation has not been finalized and therefore remains unclear. The effect of thethese rules issued under the Dodd-Frank Act will necessitatemay require banking entities, such as the Firm, to modify the structure of their derivatives businesses and face increased operational and regulatory costs. In the European Union (the “EU”),EU, the implementation of the European Market Infrastructure Regulation (“EMIR”) and the revision of the Markets in Financial Instruments Directive (“MiFID II”)II will result in comparable, but not identical, changes to the European regulatory regime for derivatives. The combined effect of the U.S. and EU requirements, and the potential conflicts and inconsistencies between them, present challenges and risks to the structure and operating model of the Firm’s derivatives businesses.
The Firm along with 17and other financial institutions have agreed in November 2014 to adhere to the 2015 Universal Resolution Stay Protocol (the “Protocol”) developed by the International Swaps and
Derivatives Association, Inc.ISDA in response to regulator concerns that the closeoutclose-out of derivatives and other financial transactions during the resolution of a large cross-border financial institution could impede resolution efforts and potentially destabilize markets. The Resolution Stay Protocol provides for the contractual recognition of cross-border stays under
various statutory resolution regimes and a contractual stay on certain cross-default rights.
In the U.S., two subsidiariesone subsidiary of the Firm, areJ.P. Morgan Securities LLC, is registered as a futures commission merchants,merchant, and other subsidiaries are either registered with the CFTC as commodity pool operators and commodity trading advisors or are exempt from such registration. These CFTC-registered subsidiaries are also members of the National Futures Association. The Firm’s financial commodities business is subject to regulation by the Federal Energy Regulatory Commission.
Data regulation:
The Firm and its subsidiaries also are subject to federal, state and international laws and regulations concerning the use and protection of certain customer, employee and other personal and confidential information, including those imposed by the Gramm-Leach-Bliley Act and the Fair Credit Reporting Act, as well as the EU Data Protection Directive. In addition, various U.S. regulators, including the Federal Reserve, the OCC and the SEC, have increased their focus on cybersecurity and data privacy through guidance, examinations and regulations.
In May 2018, the General Data Protection Regulation (“GDPR”) will replace the EU Data Protection Directive, among others. The Firm wasand it will have a significant impact on how businesses can collect and process the victimpersonal data of a cyberattack in 2014 that compromised user contact information for certain customers. For more information relating to this cyberattack, see Operational Risk Management on pages 141–143.EU individuals. In addition, numerous proposals regarding privacy and data protection are pending before U.S. and non-U.S. legislative and regulatory bodies.
The Bank Secrecy Act:Act and Economic Sanctions:
The Bank Secrecy Act (“BSA”) requires all financial institutions, including banks and securities broker-dealers, to, among other things, establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism. The BSA includes a variety of record-keeping and reporting requirements (such as cash transaction and suspicious activity reporting), as well as due diligence/know-your-customerknow your customer documentation requirements. The Firm has established a global anti-money laundering program in order to comply with BSA requirements. In January 2013, the Firm entered into Consent Orders with its banking regulators relating to the Firm’s Bank Secrecy Act/Anti-Money Laundering policies, procedures and controls; the Firm has taken significant steps to modify and enhance its processes and controls with respect to its Anti-Money Laundering procedures and to remediate the issues identified in the Consent Order. The Firm is also subject to the regulations and economic sanctions programs administered by the U.S. Treasury’s Office of Foreign Assets Control (“OFAC”).
Anti-Corruption:
The Firm is subject to laws and regulations relating to corrupt and illegal payments to government officials and others in the jurisdictions in which it operates, such asincluding the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act,Act. In November 2016, the Firm entered into a Consent Order with the Federal Reserve to resolve its investigation relating to corrupta former hiring program for candidates referred by clients, potential clients and illegal payments to government officials and others.in the Asia Pacific region. The Firm has implemented policies, procedures,taken significant steps to modify and internalenhance its processes and controls that are designed to comply with such laws and regulations. Any failure with respect
to the Firm’s programs in this area could subject the Firm to substantial liability and regulatory fines. For more information on a
current investigation relating to, among other things, the Firm's hiring of persons referred by government officialscandidates and clients, see Note 31.to remediate the issues identified in the Consent Order.
Compensation practices:
The Firm’s compensation practices are subject to oversight by the Federal Reserve, as well as other agencies. The Federal Reserve has issued guidance jointly with the FDIC and the OCC that is designed to ensure that incentive compensation paid by banking organizations does not encourage imprudent risk-taking that threatens the organizations’ safety and soundness. In addition, under the Dodd-Frank Act, federal regulators, including the Federal Reserve, must issue regulations or guidelines requiring covered financial institutions, including the Firm, to report the structure of all of their incentive-based compensation arrangements and prohibit incentive-based payment arrangements that encourage inappropriate risks by providing compensation that is excessive or that could lead to material financial loss to the entity.institution. The Federal Reserve has conducted a review of the incentive compensation policies and practices of a number of large banking institutions, including the Firm, and the supervisory findings of such review are incorporated in the Firm’s supervisory ratings. In addition to the Federal Reserve, theFirm. The Financial Stability Board has agreedestablished standards covering compensation principles for banks. In addition, the SEC has issued regulations that will require public companies to start disclosing, beginning with annual shareholder meetings in 2018, the pay ratio between the company’s median employee and the company’s chief executive officer or other principal executive officer in the proxy statement as of December 31, 2017. The Firm’s compensation practices are also subject to regulation and oversight by local regulators in other jurisdictions. In Europe, the Fourth Capital Requirements Directive (CRD IV)(“CRD IV”) includes compensation provisions. Inprovisions and the European Banking Authority has instituted guidelines on compensation policies which in certain countries, such as the U.K., compensation standards are governedimplemented or supplemented by the Remuneration Code of the PRA and the FCA.further local regulations or guidelines. The implementation of the Federal Reserve’s and other banking regulators’ guidelines regarding compensation are expected to evolve over the next several years, and may affect the manner in which the Firm structures its compensation.compensation programs and practices.
Significant international regulatory initiatives:
In the EU, there is an extensive and complex program of final and proposed regulatory enhancement that reflects, in part, the EU’s commitments to policies of the Group of Twenty Finance Ministers and Central Bank Governors (“G20”) together with other plans specific to the EU. The EU operates a European Systemic Risk Board whichthat monitors financial stability, together with a framework of European Supervisory Agencies which oversees the regulation of financial institutionsAuthorities (“ESA”) that set detailed regulatory rules and encourage supervisory convergence across the 28EU’s Member States. The EU is currently reviewing the ESA framework. The EU has also created a Single Supervisory Mechanism for the euro-zone, under which the regulation of all banks in that zone will be under the auspices of the European Central Bank, together with a Single Resolution Mechanism and Single Resolution Board, having jurisdiction over bank resolution in the zone. In addition, the Group of Twenty Finance Ministers and Central Bank Governors (“G-20”) formed the FSB. At both G-20the G20 and EU levels, various proposals are under consideration to address risks associated with global financial institutions. Some of the initiatives adopted include increased capital requirements for certain trading instruments or exposures and compensation limits on certain employees located in affected countries.
In the EU, there is an extensive and complex program of final and proposed regulatory enhancement which reflects, in part, the EU’s commitments to policies of the G-20 together with other plans specific to the EU. This program includes EMIR, which will require, among other things, the
central clearing of standardized derivatives and which will be phased in by 2015; and MiFID II, which gives effect to the G-20 commitment to trading of derivatives through central clearing houses and exchanges and also includes significantly enhanced requirements for pre- and post-trade transparency and a significant reconfiguration of the regulatory supervision of execution venues.
The EU is also currently considering or executing upon significant revisions to laws covering: depositary activities; credit rating activities; resolution of banks, investment firms and market infrastructures; anti-money-laundering controls; data security and privacy; and corporate governance in financial firms, together with implementation in the EU of the Basel III capital standards.
Following the issuance of the Report of the High Level Expert Group on Reforming the Structure of the EU Banking Sector (the “Liikanen Group”), the EU has proposed legislation providing for a proprietary trading ban and mandatory separation of other trading activities within certain banks, while various EU Member States have separately enacted similar measures. In the U.K., the Independent Commission on Banking (the “Vickers Commission”) proposed certain provisions, which have now been enacted by Parliament and upon which detailed implementing requirements are expected to be finalized during 2015, that mandate the separation (or “ring-fencing”) of deposit-taking activities from securities trading and other analogous activities within banks, subject to certain exemptions. The legislation includes the supplemental recommendation of the Parliamentary Commission on Banking Standards (the “Tyrie Commission”) that such ring-fences should be “electrified” by the imposition of mandatory forced separation on banking institutions that are deemed to test the limits of the safeguards. Parallel but distinct provisions have been enacted by the French and German governments, and others are under consideration in other countries. These measures may separately or taken together have significant implications for the Firm’s organizational structure in Europe, as well as its permitted activities and capital deployment in the EU.
levels, various proposals are under consideration to address risks associated with global financial institutions.
In the EU, this includes EMIR, which requires, among other things, the central clearing of certain standardized derivatives and risk mitigation for uncleared OTC derivatives, and MiFID II, which gives effect to the G20 commitment to move trading of standardized OTC derivatives to exchanges or electronic trading platforms. MiFID II significantly enhances requirements for pre- and post-trade transparency, transaction reporting and investor protection. MiFID II also introduces a commodities position limits and reporting regime. EMIR became effective in 2012, although some requirements apply on a phased basis and certain aspects of the regulation are currently being reviewed. MiFID II became effective across EU Member States on January 3, 2018, after a one-year delay.
The EU is also currently considering or implementing significant revisions to laws covering securities settlement; mutual funds and pensions; payments; anti-money laundering controls; data security and privacy; transparency and disclosure of securities financing transactions; benchmarks; resolution of banks, investment firms and market infrastructures; and capital and liquidity requirements for banks and investment firms. The capital and liquidity legislation for banks and investment firms will implement in the EU many of the finalized Basel III capital and liquidity standards, including in relation to the leverage ratio, market risk capital, and a net stable funding ratio. The legislation also proposes an intermediate parent undertaking (“IPU”) requirement for foreign banks, which will require non-EU banks operating in Europe (with total EU assets greater than EUR30 billion or which are part of a GSIB) to establish a single EU-located IPU. The full impact of the proposal on JPM’s EU operations and legal entities will be heavily influenced by the outcome of the EU legislative process, including whether any flexibility is introduced to the requirement.
Consistent with the G20 and EU policy frameworks, U.K. regulators have adopted a range of policy measures that have significantly changed the markets and prudential regulatory environment in the U.K. In addition, U.K. regulators have introduced measures to enhance accountability of individuals, and promote forward-looking conduct risk identification and mitigation, including by introducing the Senior Managers and Certification Regimes.
On June 23, 2016, the U.K. voted by referendum to leave the European Union. The U.K. government invoked Article 50 of the Lisbon Treaty on March 29, 2017, starting a two-year period for the formal exit negotiations. This means that the U.K. will leave the EU on March 29, 2019 unless the timeline is unanimously extended by the remaining 27 EU Member States (“EU27”) and the U.K. In December 2017, the EU27 agreed that “sufficient progress” had been made on the terms of the U.K.’s withdrawal to allow parallel talks on the future relationship, which are expected to begin in March 2018. The U.K.’s priorities in negotiating the future relationship are to seek a bilateral free trade agreement
with the EU27 that facilitates the “greatest possible access” to the Single Market. However, the U.K. will not seek to continue its membership in the Single Market. The current EU27 position is that a free trade agreement should be balanced, ambitious and wide-ranging, that the U.K.’s participation in the Single Market or parts thereof must end, and that there will not be any sector-specific carve-outs, such as for financial services. Both the EU27 and the U.K. are open to the idea of a “transitional arrangement.”The U.K.’s departure from the EU will have a significant impact across the Firm’s European businesses, including business and legal entity reorganization, and may lead to direct and indirect changes to EU27 and U.K. regulatory approaches. The situation remains highly uncertain, particularly in relation to whether a transition period is implemented and whether financial services will be included in any future free trade agreement.
Item 1A: RISK FACTORS1A. Risk Factors.
The following discussion sets forth the material risk factors that could affect JPMorgan Chase’s financial condition and operations. Readers should not consider any descriptions of suchthese factors to be a complete set of all potential risks that could affect the Firm.
Regulatory Risk
JPMorgan Chase operates within aChase’s businesses are highly regulated, industry, and the Firm’s businesses and results are significantly affected by the laws and regulations that apply to which the FirmJPMorgan Chase have a significant impact on its operations.
JPMorgan Chase is subject.
As a global financial services firm with operations worldwide. JPMorgan Chase must comply with the laws and regulations that apply to its operations in all of the jurisdictions around the world in which it does business. The regulation of financial services activities is subject totypically extensive and comprehensive regulation under federalcomprehensive.
In recent years, legislators and stateregulators adopted a wide range of new laws inand regulations affecting the U.S.financial services industry, both within and the laws of the various jurisdictions outside the U.S. in whichThe supervision of financial services firms also expanded significantly during this period. The wave of increased regulation and supervision of JPMorgan Chase has affected the Firm does business. Theseway that it conducts and structures its operations. Existing and new laws and regulations significantly affect the way that the Firm does business, and can restrict the scopeexpanded supervision could require JPMorgan Chase to make further changes to its operations. These changes could result in JPMorgan Chase incurring additional costs for complying with laws and regulations or losing a significant amount of the Firm’srevenue, and could reduce JPMorgan Chase’s profitability. More specifically, existing businesses, and new laws and regulations could require JPMorgan Chase to:
limit the Firm’s ability to expand the products and services that it offers or make its products and services more expensive for clients and customers.
The financial services industry continues to experience an unprecedented increase in regulations and supervision, and such changes could have a significant impact on how the Firm conducts business. Significant and comprehensive new legislation and regulations affecting the financial services industry have been adopted or proposed in recent years, both in the U.S. and globally. The Firm continues to make appropriate adjustments to its business and operations, legal entity structure and capital and liquidity management policies, procedures and controls to comply with these new laws and regulations. However, the cumulative effect of all of the new and proposed legislation and regulations on the Firm’s business, operations and profitability remains uncertain.
The recent legislative and regulatory developments, as well as future legislative or regulatory actions in the U.S. and in the other countries in which the Firm operates, and any required changes to the Firm’s business or operations resulting from such developments and actions, could result in a significant loss of revenue for the Firm, impose additional compliance and other costs on the Firm or otherwise reduce the Firm’s profitability, limit the products and servicesliquidity that the Firm offersit can provide through its market-making activities
stop or its ability to pursuediscourage it from engaging in business opportunities in whichthat it might otherwise consider engaging, require the Firm to dispose of or curtail certain businesses, affectpursue
recognize losses in the value of assets that it holds
pay higher assessments, levies or other governmental charges
dispose of certain assets, and do so at times or prices that are disadvantageous
impose restrictions on certain business activities, or
increase the Firm holds, requireprices that it charges for products and services, which could reduce the Firm to increase its prices and therefore reduce demand for its products,them.
Differences in financial services regulation can be disadvantageous for JPMorgan Chase’s business.
The content and application of laws and regulations affecting financial services firms sometimes vary according to factors such as the size of the firm, the jurisdiction in which it is organized or otherwise adversely affect the Firm’s businesses.operates, or other criteria. For example:
Non-U.S. regulationslarger firms are often subject to more stringent supervision and initiativesregulation
financial technology companies and other competitors may not be subject to banking regulation, or may be inconsistentsupervised by a national or state regulatory agency that does not have the same resources or regulatory priorities as the regulatory agencies which supervise more diversified financial services firms, or
the financial services regulatory framework in a particular jurisdiction may conflict with current or proposed regulationsfavor financial institutions that are based in the U.S., which could create increased compliance and other costs and adversely affect JPMorgan Chase’s business, operations or profitability.that country.
There can also be significant differences in the ways that similar regulatory initiatives affecting the financial services industry are implemented in the U.S. and in different countries and regions in which JPMorgan Chase does business. For example, recent EU legislative and regulatory initiatives includingwithin the EU could require JPMorgan Chase to make significant modifications to its operations and legal entity structure in that region in order to comply with those requirements. These include laws and regulations that have been adopted or proposed relating to to:
the resolution of financial institutions
the proposedestablishment by non-EU financial institutions of intermediate holding companies in the EU
the separation of trading activities from core banking services
mandatory on-exchange trading
position limits and reporting rules for derivatives
governance and accountability regimes
conduct of business requirements, and
restrictions on compensation,compensation.
These types of differences in financial services regulation, or inconsistencies or conflicts between laws and regulations between different jurisdictions, could require the FirmJPMorgan Chase to, make significant modifications toamong other things:
divest assets or restructure its non-U.S. business, operations and legal entity structure in order to comply with these requirements. These differences in implemented or proposed non-U.S. regulations and initiatives may be inconsistent or may conflict with current or proposed regulations in the U.S., which could subject the Firm to
absorb increased compliance and legal costs, as well as higher operational, capital and liquidity costs
change the prices that it charges for its products and services
curtail the products and services that it offers to its customers and clients, or
incur higher costs for complying with different legal and regulatory frameworks.
Any or all of whichthese factors could have an adverse effect onharm JPMorgan Chase’s ability to compete against other firms that are not subject to the Firm’s business,same laws and regulations or supervisory oversight, or harm JPMorgan Chase’s businesses, results of operations and profitability.
ExpandedGovernments in some countries in which JPMorgan Chase does business have adopted laws or regulations which require that JPMorgan Chase subsidiaries which operate in those countries maintain minimum amounts of capital or liquidity on a stand-alone basis. Some regulators outside the U.S. have also proposed that large banks which conduct certain businesses in their jurisdictions operate through separate subsidiaries located in those countries. These requirements, and any future laws or regulations that impose restrictions on the way JPMorgan Chase organizes its businesses or increase the capital or liquidity requirements that would apply to JPMorgan Chase subsidiaries, could hinder JPMorgan Chase’s ability to efficiently manage its operations, increase its funding and liquidity costs, and result in lower profitability.
Heightened regulatory and governmental oversightscrutiny of JPMorgan Chase’s businesses will continue to increase the Firm’shas increased its compliance costs and risks.could result in restrictions on its operations.
The Firm’s businesses andJPMorgan Chase’s operations are increasingly subject to heightened governmental and regulatory oversight and scrutiny. The Firmscrutiny from regulatory authorities in many jurisdictions where JPMorgan Chase does business. JPMorgan Chase has paid significant fines (or hasor provided significantother monetary and other relief) to resolve a number ofrelief in connection with resolving several investigations orand enforcement actions by governmental agencies. In addition,JPMorgan Chase could become subject to similar regulatory settlements or other actions in the Firm continues to devote substantial resources to satisfyingfuture, and addressing the requirements of regulatory consent orders and other settlements to which it is subject, including enhancing its procedures and controls, expanding its risk and control functions within its lines of business, investingany such settlement could result in technology and hiring significant numbers of additional risk, control and compliance personnel, all of which have increased the Firm’sJPMorgan Chase incurring higher operational and compliance costs.
If the Firm fails to meet the requirements of theIn connection with resolving specific regulatory settlements to which it is subject,investigations or more generally, to maintain risk and control procedures and processes that meet the heightened standards established by its regulators and other government agencies, it could be required to enter into further orders and settlements, pay additional fines, penalties or judgments, or accept material regulatory restrictions on its businesses. The extent of the Firm’s exposure to legal and regulatory matters may be unpredictable and could, in some cases, substantially exceed the amount of reserves that the Firm has established for such matters.
The Firm expects that it and the financial services industry as a whole will continue to be subject to heightened regulatory scrutiny and governmental investigations and enforcement actions, and that violations of law will more frequently be met with formal and punitive enforcement action, including the imposition of significant monetary and other sanctions, rather than with informal supervisory action.
In addition, certain regulators have announced policies, or taken measures in connection with specific enforcement actions, which make it more likely that the Firmrequired JPMorgan Chase and other financial institutions may be required to admit wrongdoing in connection with settling such matters. Suchrespect to the activities that gave rise to the settlement. These types of admissions can lead to, among other things, to:
greater exposure in civil litigation and reputational harm.
Finally, U.S. government officials have indicated and demonstrated a willingnessdamage to bring criminal actions against financial institutions, and have increasingly sought, and obtained, resolutions that include criminal pleasreputation
disqualification from those institutions. Such resolutions can have significant collateral consequences for a subject financial institution, including loss ofdoing business with certain clients or customers, and business and (absent the forbearance of, or the granting of waivers by, applicable regulators) the inability to offer certain products or services or operate certain businesses for a period of time.
Requirements for the orderly resolution of the Firm under the Dodd-Frank Act could require JPMorgan Chase to restructure or reorganize its businesses or make costly changes to its capital or funding structure.
Under Title I of the Dodd-Frank Act (“Title I”) and Federal Reserve and FDIC rules, the Firm is required to prepare and submit periodically to the Federal Reserve and the FDIC a detailed plan for the orderly resolution of JPMorgan Chase & Co. and certain of its subsidiaries under the U.S. Bankruptcy Code or other applicable insolvency laws in the event of future material financial distress or failure. In July 2014, the Firm submitted its third Title I resolution plan to the Federal Reserve and FDIC (the “2014 plan”). In August 2014, the Federal Reserve and the FDIC announced the completion of their reviews of the second round of Title I resolution plans submitted by eleven large, complex banking organizations (the “first wave filers”) in 2013, including the Firm’s Title I resolution plan submitted in 2013 (the “2013 plan”). Although the agencies noted some improvements from the original plans submitted by the first wave filers in 2012, the agencies also jointly identified specific shortcomings with the 2013 resolution plans, including the Firm’s 2013 plan, that will need to be addressed in 2015 submissions if not already addressed in the Firm’s 2014 plan. In addition, the FDIC board of directors determined under Title I that the 2013 resolution plans submitted by the first wave filers, including the Firm’s 2013 plan, are not credible and do not facilitate an orderly resolution under the U.S. Bankruptcy Code (although the Federal Reserve Board did not make such a determination). The Federal Reserve Board determined that the first wave filers must take immediate action to improve their resolvability and reflect those improvements in their 2015 submissions.
If the Federal Reserve Board and the FDIC were to jointly determine that the Firm’s Title I resolution plan, or any future update of that plan, is not credible, and the Firm is unable to remedy the identified deficiencies in a timely manner, the regulators may jointly impose more stringent capital, leverage or liquidity requirements on the Firmjurisdictions, or
restrictions on growth, activities or operations of the Firm, and could require the Firm to restructure, reorganize or divest businesses, legal entities, operational systems and/or intercompany transactions in ways that could materially and adversely affect the Firm’s operations and strategy. In addition, in order to develop a Title I resolution plan that the Federal Reserve Board and FDIC determine is credible, the Firm may need to take actions to restructure intercompany and external activities, which could result in increased funding or operational costs.
In addition to the Firm’s plan for orderly resolution, the Firm’s resolution plan also recommends to the Federal Reserve and the FDIC its proposed optimal strategy to resolve the Firm under the special resolution procedure provided in Title II of the Dodd-Frank Act (“Title II”). The Firm’s recommendation for its optimal Title II strategy would involve a “single point of entry” recapitalization model in which the FDIC would use its power to create a “bridge entity” for JPMorgan Chase, transfer the systemically important and viable parts of the Firm’s business, principally the stock of JPMorgan Chase & Co.’s main operating subsidiaries and any intercompany claims against such subsidiaries, to the bridge entity, recapitalize those businesses by contributing some or all of such intercompany claims to the capital of such subsidiaries, and by exchanging debt claims against JPMorgan Chase & Co. for equity in the bridge entity. The Federal Reserve is also expected to propose rules regarding the minimum levels of unsecured long-term debt and other loss absorbing capacity that bank holding companies would be required to have issued and outstanding, as well as guidelines defining the terms of qualifying debt instruments, to ensure that adequate levels of debt are maintained at the holding company level for purposes of recapitalization. Issuing debt in the amounts that would be required under these proposed rules could lead to increased funding costs for the Firm. In addition, if the Firm were to be resolved under its recommended Title II strategy, no assurance can be given that the value of the stock of the bridge entity distributed to the holders of debt obligations of JPMorgan Chase & Co. would be sufficient to repay or satisfy all or part of the principal amount of, and interest on, the debt obligations for which such stock was exchanged.
Market Risk
JPMorgan Chase’s results of operations have been, and may continue to be, adversely affected by U.S. and international financial market and economic conditions.
JPMorgan Chase’s businesses are materially affected by economic and market conditions, including the liquidity of the global financial markets; the level and volatility of debt and equity prices, interest rates and currency and commodities prices; investor sentiment; events that reduce confidence in the financial markets; inflation and unemployment; the availability and cost of capital and credit; the economic effects of natural disasters, severe weather conditions, outbreaks of hostilities or terrorism; monetary policies and actions taken by the Federal Reserve
other direct and indirect adverse effects.
Furthermore, U.S. government officials have demonstrated a willingness to bring criminal actions against financial institutions and have increasingly demanded that institutions plead guilty to criminal offenses or admit other wrongdoing in connection with resolving regulatory investigations or enforcement actions. In the case of JPMorgan Chase, these resolutions have included:
JPMorgan Chase’s agreement in May 2015 to plead guilty to a single violation of federal antitrust law in connection with its settlements with certain government authorities relating to its foreign exchange sales and trading activities and controls related to those activities, and
the non-prosecution agreement entered into by a subsidiary of JPMorgan Chase with the U.S. Department of Justice in November 2016 in connection with settlements to resolve various governmental investigations relating to a former hiring program for candidates referred by clients, potential clients and government officials in the Asia Pacific region.
Resolutions of this type can have significant collateral consequences for the subject financial institution, including loss of clients, customers and business, the inability to offer certain products or services, or losing permission to operate certain businesses, either temporarily or permanently.
JPMorgan Chase expects that it and other financial services firms will continue to be subject to expanded regulatory scrutiny and governmental investigations and enforcement actions. JPMorgan Chase also expects that regulators will continue to insist that financial institutions be penalized for actual or deemed violations of law with formal and punitive enforcement actions, including the imposition of significant monetary and other sanctions, rather than resolving these matters through informal supervisory actions. Furthermore, if JPMorgan Chase fails to meet the requirements of any governmental settlements and other actions to which it is subject, or to maintain risk and control processes that meet the heightened standards established by its regulators, it could be required to, among other things:
enter into further orders and settlements
pay additional regulatory fines, penalties or judgments, or
accept material regulatory restrictions on, or changes in the management of, its businesses.
The extent of JPMorgan Chase’s exposure to legal and regulatory matters can be unpredictable and could, in some cases, exceed the amount of reserves that JPMorgan Chase has established for those matters.
Requirements for the orderly resolution of JPMorgan Chase could result in JPMorgan Chase having to restructure or reorganize its businesses.
JPMorgan Chase is required under the Dodd-Frank Act and Federal Reserve and FDIC rules to prepare and submit
periodically to those agencies a detailed plan for rapid and orderly resolution in bankruptcy without extraordinary government support, in the event of material financial distress or failure. The agencies’ evaluation of the Firm’s resolution plan may change, and the requirements for resolution plans may be modified from time to time. Any such determinations or modifications could result in JPMorgan Chase making changes to its legal entity structure or to certain internal or external activities that could increase funding or operational costs.
If the Federal Reserve and the FDIC were to determine that a future resolution plan submitted by JPMorgan Chase has deficiencies, they could jointly impose more stringent capital, leverage or liquidity requirements or restrictions on JPMorgan Chase’s growth, activities or operations. After two years, if the deficiencies are not cured, the agencies could also require that JPMorgan Chase restructure, reorganize or divest assets or businesses in ways that could materially and adversely affect JPMorgan Chase’s operations and strategy.
Holders of JPMorgan Chase & Co.’s debt and equity securities will absorb losses if it were to enter into a resolution.
Federal Reserve rules require that JPMorgan Chase & Co. (the “holding company”) maintain minimum levels of unsecured external long-term debt and other loss-absorbing capacity with specific terms (“eligible LTD”) for purposes of recapitalizing JPMorgan Chase’s operating subsidiaries if the holding company were to enter into a resolution either:
in a bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code, or
in a receivership administered by the FDIC under Title II of the Dodd-Frank Act (“Title II”).
If the holding company were to enter into a resolution, holders of eligible LTD and other debt and equity securities of the holding company will absorb the losses of the holding company and its affiliates.
The preferred “single point of entry” strategy under JPMorgan Chase’s resolution plan contemplates that only the holding company would enter bankruptcy proceedings. JPMorgan Chase’s subsidiaries would be recapitalized as needed so that they could continue normal operations or subsequently be divested or wound down in an orderly manner. As a result, the holding company’s losses and any losses incurred by its subsidiaries would be imposed first on holders of the holding company’s equity securities and thereafter on its unsecured creditors, including holders of eligible LTD and other debt securities. Claims of holders of those securities would have a junior position to the claims of creditors of JPMorgan Chase’s subsidiaries and to the claims of priority (as determined by statute) and secured creditors of the holding company.
Accordingly, in a resolution of the holding company in bankruptcy, holders of eligible LTD and other debt securities of the holding company would realize value only to the
extent available to the holding company as a shareholder of JPMorgan Chase Bank, N.A. and its other subsidiaries, and only after any claims of priority and secured creditors of the holding company have been fully repaid.
The FDIC has similarly indicated that a single point of entry recapitalization model could be a desirable strategy to resolve a systemically important financial institution, such as the holding company, under Title II. However, the FDIC has not, to date, formally adopted a single point of entry resolution strategy.
If the holding company were to enter into a resolution, none of the holding company, the Federal Reserve or the FDIC is obligated to follow JPMorgan Chase’s preferred strategy, and losses to holders of eligible LTD and other debt and equity securities of the holding company, under whatever strategy is ultimately followed, could be greater.
Political
Political developments can cause uncertainty concerning the regulatory environment in which JPMorgan Chase operates its businesses.
Recent elections and referendums in the U.S. and abroad have introduced uncertainty regarding the regulatory environment in which JPMorgan Chase and other financial services firms will operate in the future. For example, the U.K.’s planned departure from the EU has engendered significant uncertainty concerning the regulatory framework under which global financial services institutions, including JPMorgan Chase, will need to conduct their business in the U.K. and the EU. Depending on the nature of the arrangements agreed between the U.K. and the EU, including with respect to the ability of financial services companies to engage in business in the EU from legal entities organized in or operating from the U.K., JPMorgan Chase may need to make significant changes to its legal entity structure and operations and the locations in which it operates. These types of structural and operational changes could result in JPMorgan Chase needing to implement an operating model across its European legal entities that is less efficient or cost-effective.
The result of an election may suggest that the new administration will ease the regulatory requirements that apply to financial services firms. However, it is equally possible that the potential for reduced regulation does not occur or is reversed by another regulator or by a subsequent administration, or that deregulation measures that are ultimately enacted deliver significant competitive advantages to financial services firms that are structured differently or serve different markets than JPMorgan Chase. JPMorgan Chase cannot predict political developments of this nature, or whether they will have favorable or unfavorable long-term effects on its businesses.
Economic uncertainty caused by political developments can hurt JPMorgan Chase’s businesses.
The economic environment and market conditions in which JPMorgan Chase operates continue to be uncertain due to
recent political developments in the U.S. and abroad. Certain policy proposals, including isolationist foreign policies, protectionist trade policies or the possible withdrawal or reduction of government support for GSEs, could cause a contraction in U.S. and global economic growth and higher volatility in the financial markets. These types of political developments could, among other things:
erode investor confidence in the U.S. economy and financial markets
heighten concerns about whether the U.S. government will be funded, and its outstanding debt serviced, at any particular time, and
undermine the status of the U.S. dollar as a safe haven currency.
These factors could lead to greater market volatility, large-scale sales of U.S. government debt and other U.S. debt and equity securities, the widening of credit spreads and other market dislocations. Any of these potential outcomes could cause JPMorgan Chase to suffer losses in its investment securities portfolio, reduce its capital levels, hamper its ability to deliver products and services to its clients and customers, and weaken its results of operations.
Political developments in other parts of the world have also led to uncertainty in global economic conditions, including:
concerns about the capabilities and intentions of the government of North Korea, and
regional hostilities, and political or social upheavals, in other parts of the world.
JPMorgan Chase’s results of operations can be adversely affected by the uncertainty arising from significant political developments and any market volatility or disruption that results from that uncertainty.
The positive impact of U.S. tax reform legislation on JPMorgan Chase may diminish over time.
The long-term impact of the tax reform legislation recently enacted in the U.S. on JPMorgan Chase and the U.S. economy is not yet known. While the tax reform will have a positive impact on JPMorgan Chase’s net income, the competitive environment and other factors will influence the extent to which these benefits are retained by JPMorgan Chase over the longer term. In addition, the specific impact on JPMorgan Chase’s businesses, products and geographies may vary.
Market
JPMorgan Chase’s businesses are materially affected by economic and market conditions.
JPMorgan Chase’s results of operations can be negatively affected by adverse changes in any of the following:
the liquidity in the U.S. and global financial markets
the level and volatility of market prices and rates, including those for debt and equity instruments,
currencies, commodities, interest rates and other market indices
investor, consumer and business sentiment
events that reduce confidence in the financial markets
inflation and unemployment
the availability and cost of capital and credit
the economic effects of natural disasters, severe weather conditions, health emergencies or pandemics, cyberattacks, outbreaks of hostilities, terrorism or other geopolitical instabilities
monetary and fiscal policies and actions taken by governmental authorities, including the Federal Reserve and other central banks;banks, and
the health of the U.S. and global economies.
JPMorgan Chase’s consumer businesses are particularly affected by U.S. domestic economic conditions, including:
U.S. interest rates
the rate of unemployment
housing prices
the level of consumer confidence
changes in consumer spending, and
the number of personal bankruptcies.
Sustained low growth in the U.S. economy could diminish customer demand for the products and services offered by JPMorgan Chase’s consumer businesses. It could also increase the cost to provide those products and services. Adverse economic conditions could also lead to an increase in delinquencies in mortgage, credit card, auto and other loans and higher net charge-offs, which can reduce JPMorgan Chase’s earnings. These conditions canconsequences could be significantly worse in certain geographies where high levels of unemployment have resulted from declining industrial or manufacturing activity.
JPMorgan Chase’s earnings from its consumer businesses could also be adversely affected by changes in government policies that affect consumers, including those relating to medical insurance, immigration and employment status, as well as governmental policies aimed at the Firm’s businesses both directlyeconomy more broadly, such as infrastructure spending and through their impact on the businesses and activities of the Firm’s clients and customers.global trade, which could result in, among other things, higher inflation or reductions in consumer disposable income.
In the Firm’s underwritingJPMorgan Chase’s wholesale businesses, market and advisory businesses, the above-mentionedeconomic factors can affect the volume of transactions that the FirmJPMorgan Chase executes for its clients and, customers and, therefore, the revenue that the FirmJPMorgan Chase receives from fees and commissions, as well asthose transactions. These factors can also influence the willingness of other financial institutions and investors to participate in capital markets transactions that JPMorgan Chase manages, such as loan syndications or securities underwritings. Furthermore, if a significant and sustained
deterioration in market conditions were to occur, the profitability of JPMorgan Chase’s capital markets businesses could be reduced to the extent that those businesses:
earn less fee revenue due to lower transaction volumes, including when clients are unwilling or unable to refinance their outstanding debt obligations in unfavorable market conditions
dispose of portions of credit commitments, such as loan syndications or securities underwritings, managed by the Firm.at a loss, or
The Firmhold larger residual positions in credit commitments that cannot be sold at favorable prices.
JPMorgan Chase’s investment securities portfolio and market-making positions can suffer losses due to adverse economic, market and political events and conditions.
JPMorgan Chase generally maintains extensive market-making positions in thevarious fixed income instruments in its investment securities portfolio, and positions in various fixed income, currency, commodities,commodity, credit and equity marketsinstruments as part of its market-making activities. Market-making positions are intended to facilitate client demand from JPMorgan Chase’s clients for these instruments and to provide liquidity tofor clients. The revenue derived from thesevalue of the positions isthat JPMorgan Chase holds can be significantly affected by many factors including the Firm’s success insuch as:
JPMorgan Chase’s ability to effectively hedging itshedge market and other risks; risks on its positions
volatility in interest rates and debt, equity debt and commodities markets;markets
changes in interest raterates and credit spreads;spreads, and
the availability of liquidity in the capital markets, allmarkets.
All of whichthese are affected by global economic, market and market conditions. Certain of the Firm’spolitical events and conditions, as well as regulatory restrictions on market-making positions could be adversely affected by the lack of pricing transparency or liquidity, which will be influenced by many of these factors. The Firm anticipates that revenue relating to itsactivities.
JPMorgan Chase’s investment securities portfolio and market-making businesses will continuecan also suffer losses due to experience volatility, which will affectunanticipated market events, including:
severe declines in asset values
unexpected credit events
unforeseen events or conditions that may cause previously uncorrelated factors to become correlated (and vice versa), or
other market risks that may not have been appropriately taken into account in the Firm’s ability to realize returnsdevelopment, structuring or pricing of a financial instrument.
If JPMorgan Chase experiences significant losses in its investment securities portfolio or from suchmarket-making activities, this could reduce JPMorgan Chase’s profitability and could adversely affectits capital levels, and thereby constrain the Firm’s earnings.growth of its businesses.
JPMorgan Chase’s asset and wealth management and custody businesses may earn lower fee revenue during adverse macroeconomic conditions.
The fees that the FirmJPMorgan Chase earns forfrom managing third-party assets are also dependent upon general economicor holding assets in custody for clients could be diminished by declining asset values or other adverse macroeconomic conditions. For example, a higher level of U.S. or non-U.S. interest rates or a downturn in financial markets could affect the valuations of the third-partyclient assets that the FirmJPMorgan Chase manages or holds in custody, which, in turn, could affect JPMorgan Chase’s revenue from fees that are based on the Firm’s revenue. Macroeconomicamount of assets under management or custody. Similarly, adverse macroeconomic or market concerns may alsoconditions could prompt outflows from the Firm’sJPMorgan Chase funds or accounts.accounts, or cause clients to invest in products that generate lower revenue. Substantial and unexpected withdrawals from a JPMorgan Chase fund can also hamper the investment performance of the fund, particularly if the outflows create the need for the fund to dispose of fund assets at disadvantageous times or prices, and could lead to further withdrawals based on the weaker investment performance.
Changes in interest rates willand credit spreads can adversely affect certain of JPMorgan Chase’s revenue and income streams.
JPMorgan Chase can generally be expected to earn higher net interest income when interest rates are high or increasing. However, higher interest rates can also lead to:
fewer originations of commercial and residential loans
lower returns on JPMorgan Chase’s investment securities portfolio, and
the loss of deposits to the extent that JPMorgan Chase makes incorrect assumptions about depositor behavior.
All of these outcomes could adversely affect JPMorgan Chase’s revenues and capital levels. Higher interest rates can also negatively affect the levelpayment performance on loans within JPMorgan Chase’s consumer and wholesale loan portfolios that are linked to variable interest rates. If borrowers of assetsvariable rate loans are unable to afford higher interest payments, those borrowers may reduce or stop making payments, thereby causing JPMorgan Chase to incur losses and liabilities held onincreased operational costs related to servicing a higher volume of delinquent loans.
On the Firm’s balance sheet and the revenue that the Firm earns from net interest income. Aother hand, a low interest rate environment has and may continue to have an adverse effect on certain of the Firm’s businesses by compressingcause JPMorgan Chase’s net interest margins reducing to be compressed, which could reduce:
the amounts that the FirmJPMorgan Chase earns on its investment securities portfolio or reducing the value of its mortgage servicing rights (“MSR”) asset, thereby reducing the Firm’s net interest income and other revenues. Conversely, increasing or high interest rates may result in increased funding costs, lower levels of commercial and residential loan originations and diminished returns on the available-for-sale investment securities portfolio (toto the extent that the Firmit is unable to reinvest contemporaneously in higher-yielding assets),instruments, and
the value of JPMorgan Chase’s mortgage servicing rights (“MSRs”) asset, thereby adversely affecting the Firm’s revenuesreducing its net interest income and capital levels.other revenues.
The Firm’s consumer businesses are particularly affected by U.S. domestic economic conditions, including U.S. interestWhen credit spreads widen, it becomes more expensive for JPMorgan Chase to borrow. JPMorgan Chase’s credit spreads
rates; the rate of unemployment; housing prices; the level of consumer confidence; changes in consumer spending; and the number of personal bankruptcies. If the current positive trends in the U.S. economy are not sustained, this could diminish demand for the products and services of the Firm’s consumer businesses, or increase the cost to provide such products and services. In addition, adverse economic conditions, such as declines in home prices or persistent high levels of unemployment, could lead to an increase in mortgage, credit card, auto, student and other loan delinquencies and higher net charge-offs, which can reduce the Firm’s earnings.
Widening of credit spreads makes it more expensive for the Firm to borrow on both a secured and unsecured basis. Credit spreadsmay widen or narrow not only in response to Firm-specific events and circumstances that are specific to JPMorgan Chase but also as a result of general economic and geopolitical events and conditions. Changes in the Firm’sJPMorgan Chase’s credit spreads will impact,affect, positively or negatively, the Firm’sJPMorgan Chase’s earnings on certain liabilities, such as derivatives, that are recorded at fair value.
SuddenHigh market volatility can impact JPMorgan Chase’s markets businesses.
While JPMorgan Chase’s markets businesses may earn higher flow revenue during periods of elevated market volatility, sudden and significant volatility in the prices of securities, loans, derivatives and other assets (including loan and derivatives) may instruments can:
curtail the trading markets for such securities and assets, those instruments
make it difficult to sell or hedge such securities and assets, those instruments
increase JPMorgan Chase’s funding costs, or
adversely affect the Firm’sJPMorgan Chase’s profitability, capital or liquidity.
The Federal Reserve has observed that market volatility may be exacerbated by regulatory restrictions. It noted that market participants that are subject to the Volcker Rule are likely to decrease their market-making activities, and thereby constrain market liquidity, during periods of market stress. Furthermore, market participants that are not required to hold substantial amounts of capital may retreat more quickly from volatile markets, which could further reduce market liquidity.
In a difficult or increaseless liquid market environment, JPMorgan Chase’s risk management strategies may not be effective because other market participants may be attempting to use the Firm’s funding costs. same or similar strategies. In these circumstances, it may be difficult for JPMorgan Chase to reduce its risk positions due to the activity of other market participants or widespread market dislocations.
Sustained volatility in the financial markets may also negatively affect consumer or investor confidence, which could lead to lower client activity and decreased fee-based income for the Firm.reduce JPMorgan Chase’s revenues.
Credit Risk
TheJPMorgan Chase can be adversely affected by the financial condition of its clients, customers and counterparties.
JPMorgan Chase’s customers, clients and counterparties, particularly other financial institutions, could adversely affect the Firm.
Financial services institutions are interrelated as a result of market-making, trading, clearing, counterparty or other relationships. The FirmChase routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks,and investment banks, mutual and hedge funds, investment managers and other institutional clients.types of financial institutions. Many of these transactions expose JPMorgan Chase to the Firm to credit risk of its clients and counterparties, and can involve JPMorgan Chase in some cases, disputes and litigation in the event ofthat a default by theclient or counterparty defaults. JPMorgan Chase can also be subject to losses or client. In recent years, the perceived interrelationship amongliability where a financial institutionsinstitution that it has also ledappointed to claims by other market participants and regulators that the Firm and other financial institutions have allegedly violated anti-trust or anti-competition laws by colluding to manipulate markets, prices or indices.
The Firm is a market leader in providing clearing and custodial services, and also acts as a clearing and custody bank in the securities and repurchase transaction market, including the U.S. tri-party repurchase transaction market. Many of these services expose the Firm to credit risk in the event of a default by the counterparty or client, a central counterparty (“CCP”) or another market participant.
provide custody services for assets of JPMorgan Chase’s clients becomes insolvent.
Disputes may arise with counterparties to derivatives contracts with regard to the terms, the settlement procedures or the value of underlying collateral. The disposition of those disputes could cause JPMorgan Chase to incur unexpected transaction, operational and legal costs, or result in credit losses. These consequences can also impair JPMorgan Chase’s ability to effectively manage its credit risk exposure from its market activities.
JPMorgan Chase’s markets businesses can be harmed by the insolvency of a significant market participant.
The failure of a significant market participant, or concerns about the creditworthiness of such a firm, can have a cascading effect within the financial markets. JPMorgan Chase’s markets businesses could be significantly disrupted by such an event, particularly if it leads to other market participants incurring significant losses, experiencing liquidity issues or defaulting.
JPMorgan Chase’s clearing services business is exposed to the risk of client or counterparty default.
As part of providingits clearing services the Firmactivities, JPMorgan Chase is a member of a numbervarious central counterparty clearinghouses (“CCPs”). In the event that another member of CCPs, andsuch an organization defaults on its obligations to the CCP, JPMorgan Chase may be required to pay a portion of theany losses incurred by such organizationsthe CCP as a result of the default of other members.that default. As a clearing member, the FirmJPMorgan Chase is also exposed to the risk of non-performance by its clients, which it seeks to mitigate through the maintenance ofby requiring clients to provide adequate collateral. In its role as custodian bank in the securities and repurchase transaction market, the Firm can beJPMorgan Chase is exposed to intra-day credit risk of its clients in connection with providing cash management, clearing, custodial and other transaction services to those clients. If a client tofor which the FirmJPMorgan Chase provides suchthese services becomes bankrupt or insolvent, the FirmJPMorgan Chase may incur losses, become involved in disputes and litigation with various parties, including one or more CCPs, the client’s bankruptcy estate and other creditors, or involved inbe subject to regulatory investigations. All of suchthe foregoing events can increase the Firm’sJPMorgan Chase’s operational and litigation costs, and JPMorgan Chase may result insuffer losses to the extent that any collateral that it has received is insufficient to cover those losses.
JPMorgan Chase may suffer losses if anythe value of collateral received by the Firm declines in value.stressed market conditions.
During periods of market stress or illiquidity, the Firm’sJPMorgan Chase’s credit risk also may be further increased when the FirmJPMorgan Chase cannot realize the fair value of the collateral held by it or when collateral is liquidated at prices that are not sufficient to recover the full amount of the loan, derivative or other exposure due to the Firm. Further,it. Furthermore, disputes with obligors as tocounterparties concerning the valuation of collateral couldmay increase in times of significant market stress, volatility or illiquidity, and the FirmJPMorgan Chase could suffer losses during suchthese periods if it is unable to realize the fair value of collateral or to manage declines in the value of collateral.
Concentration
JPMorgan Chase could incur significant losses arising from concentrations of credit and market risk could increase the potential for significant losses.risk.
JPMorgan Chase has exposureis exposed to increased levelsgreater credit and market risk to the extent that groupings of risk when customers are engagedits clients or counterparties:
engage in similar businesses
do business activities or activities in the same geographic region, or when they
have similar economic featuresbusiness profiles, models or strategies that wouldcould cause their ability to meet contractualtheir obligations to be similarly affected by changes in economic conditions. As
For example, a result,significant deterioration in the Firmcredit quality of one of JPMorgan Chase’s borrowers or counterparties could lead to concerns about the creditworthiness of other borrowers or counterparties in similar, related or dependent industries. This type of interrelationship could exacerbate JPMorgan Chase’s credit and market risk exposure and potentially cause it to incur losses, including fair value losses in its trading businesses.
Similarly, challenging economic conditions that affect a particular industry or geographic area could lead to concerns about the credit quality of JPMorgan Chase’s borrowers or counterparties not only in that particular industry or geography but in related or dependent industries, wherever located. These conditions could also heighten concerns about the ability of customers of JPMorgan Chase’s consumer businesses who live in those areas or work in those affected industries or related or dependent industries to meet their obligations to JPMorgan Chase. JPMorgan Chase regularly monitors various segments of its portfoliocredit and market risk exposures to assess the potential risks of concentration risks. The Firm’sor contagion, but its efforts to diversify or hedge its credit portfolioexposures against concentrationthose risks may not be successful.
In addition, disruptionsJPMorgan Chase’s consumer businesses can also be harmed by an excessive, industry-wide expansion of consumer credit. For example, heightened competition among financial institutions for certain types of consumer loans, including credit card, mortgage, auto or other loans, could prompt significant reductions in the pricing of those loans and thereby decrease their profitability, or result in loans being extended to less-creditworthy borrowers. If large numbers of consumers subsequently default on their loans, whether due to weak credit profiles, an economic downturn or other factors, this could impair their ability to repay obligations owed to JPMorgan Chase and result in higher charge-offs and other credit-related losses. More broadly, widespread defaults on consumer debt could lead to recessionary conditions in the U.S. economy, and JPMorgan Chase’s consumer businesses may earn lower revenues in such an environment.
Disruptions in the liquidity or transparency of the financial markets may result in the Firm’s inabilitycould cause JPMorgan Chase to be unable to sell, syndicate or realize the value of its positions in various debt instruments, loans, derivatives and other obligations, and thereby leadinglead to increased risk concentrations. The inabilityIf JPMorgan
Chase is unable to reduce the Firm’s positions may not onlyeffectively during a market dislocation, this can increase both the market and credit risks associated with suchthose positions but may also increaseand the level of risk-weighted assets (“RWA”) that JPMorgan Chase holds on the Firm’sits balance sheet, thereby increasing itssheet. These factors could increase JPMorgan Chase’s capital requirements and funding costs all of which couldand adversely affect the operations and profitability of the Firm’sJPMorgan Chase’s businesses.
Liquidity Risk
IfLiquidity is critical to JPMorgan Chase does not effectively manageChase’s ability to fund and operate its liquidity, its business could suffer.businesses.
JPMorgan Chase’s liquidity is critical to its ability to operate its businesses. Some potential conditions that could impair the Firm’s liquidity include markets that become illiquidbe impaired at any given time by factors such as:
market-wide illiquidity or
disruptionare otherwise experiencing disruption, unforeseen cash or capital requirements (including, among others, commitments that may be triggered to special purpose entities (“SPEs”) or other entities), difficulty in selling or
inability to sell assets, unforeseenor to sell assets at favorable times or prices
default by a CCP or other significant market participant
unanticipated outflows of cash or collateral, and
lack of market or customer confidence in the FirmJPMorgan Chase or financial marketsinstitutions in general. These conditions
A diminution of JPMorgan Chase’s liquidity may be caused by events over which the Firmit has little or no control. The widespreadFor example, during the 2008-2009 financial crisis, inperiods of low investor confidence and resulting liquidity crisis experiencedsignificant market illiquidity resulted in 2008 and into early 2009 increased the Firm’s cost ofhigher funding costs for JPMorgan Chase and limited its access to some of its traditional sources of liquidity, (such asincluding securitized debt offerings backed by mortgages, credit card receivables and other assets) during that time, and thereissuances. There is no assurance that these severe conditions couldof this type will not occur in the future.
If the Firm’sJPMorgan Chase may need to raise funding from alternative sources if its access to stable and low costlower-cost sources of funding, such as bank deposits and borrowings from Federal Home Loan Banks, is reduced, the Firm may need to raise alternativereduced. Alternative sources of funding which maycould be more expensive or of limited in availability. In addition, regulations regarding the amount and types of securitiesJPMorgan Chase’s funding costs could also be negatively affected by actions that the FirmJPMorgan Chase may use to take in order to:
satisfy applicable liquidity coverage ratio and net stable funding ratio requirements may also
continue to satisfy requirements under the TLAC rules concerning the amount of eligible LTD that JPMorgan Chase must have outstanding
address obligations under its resolution plan, or
satisfy regulatory requirements in countries outside the U.S. relating to the pre-positioning of liquidity in subsidiaries that are material legal entities.
More generally, if JPMorgan Chase fails to effectively manage its liquidity, this could constrain its ability to fund or invest in its businesses, and thereby adversely affect its results of operations.
JPMorgan Chase & Co. is a holding company and depends on the Firm’s costcash flows of funding.its subsidiaries to make payments on its outstanding securities.
AsJPMorgan Chase & Co. is a holding company that holds the stock of JPMorgan Chase Bank, N.A. and an intermediate holding company, JPMorgan Chase & Co. reliesHoldings LLC (the “IHC”). The IHC in turn holds the stock of substantially all of JPMorgan Chase’s subsidiaries other than JPMorgan Chase Bank, N.A. and its subsidiaries. The IHC also owns other assets and intercompany indebtedness owing to the holding company.
The holding company is obligated to contribute to the IHC substantially all the net proceeds received from securities issuances (including issuances of senior and subordinated debt securities and of preferred and common stock).
The ability of JPMorgan Chase Bank, N.A. and the IHC to make payments to the holding company is also limited. JPMorgan Chase Bank, N.A. is subject to restrictions on its dividend distributions, as well as capital adequacy and liquidity requirements and other regulatory restrictions on its ability to make payments to the earningsholding company. The IHC is prohibited from paying dividends or extending credit to the holding company if certain capital or liquidity “thresholds” are breached or if limits are otherwise imposed by JPMorgan Chase’s management or Board of Directors.
As a result of these arrangements, the ability of the holding company to make various payments is dependent on its subsidiaries forreceiving dividends from JPMorgan Chase Bank, N.A. and dividends and extensions of credit from the IHC. These limitations could affect the holding company’s ability to:
pay interest on its cash flowdebt securities
pay dividends on its equity securities
redeem or repurchase outstanding securities, and consequently,
fulfill its other payment obligations.
Collectively, these regulatory restrictions and limitations could significantly limit the holding company’s ability to pay dividends and satisfy its debt and other obligations. These payments by subsidiaries may take the form of dividends, loans or other payments. Several of JPMorgan Chase & Co.’s principal subsidiaries are subject to dividend distribution, capital adequacy or liquidity coverage requirements or other regulatory restrictions on their ability to provide such payments. LimitationsThey could also result in the payments that JPMorgan Chase & Co. receives from its subsidiaries could reduce its ability to pay dividends and satisfy its debt and other obligations.
Regulators in some countries in whichholding company seeking protection under bankruptcy laws at a time earlier than would have been the Firm has operations have proposed legislation or regulations requiring large banks to conduct certain businesses through separate subsidiaries incase absent the existence of those countries, and to maintain independent capital and liquidity for such subsidiaries. If adopted, these requirements could hinder the Firm’s ability to efficiently manage its funding and liquidity in a centralized manner.thresholds.
Reductions in JPMorgan Chase’s credit ratings may adversely affect its liquidity and cost of funding, as well as the value of debt obligations issued by the Firm.funding.
JPMorgan Chase & Co. and certain of its principal subsidiaries are currently rated by credit rating agencies. Rating agencies evaluate both general and firm- and industry-specific factors when determining their credit ratings for a particular financial institution, including including:
economic and geopolitical trends
regulatory developments
expected future profitability risk management practices, legal expenses, assumptions surrounding government support and ratings differentials between bank holding companies and their bank subsidiaries. Although the Firm closely
risk management practices
legal expenses
assumptions about government support, and
ratings differentials between bank holding companies and their bank and non-bank subsidiaries.
JPMorgan Chase closely monitors and manages, to the extent that it is able, factors that could influence its credit ratings,ratings. However, there is no assurance that the Firm’sJPMorgan Chase’s credit ratings will not be lowered in the future, or thatfuture. Furthermore, any such downgrade would notcould occur at times of broader market instability when the Firm’sJPMorgan Chase’s options for responding to events may be more limited and general investor confidence is low.
Furthermore, aA reduction in the Firm’sJPMorgan Chase’s credit ratings could curtail JPMorgan Chase’s business activities and reduce the Firm’sits profitability in a number of ways, including by:
reducing access to capital markets
materially increaseincreasing the cost of issuing and servicing securities trigger
triggering additional collateral or funding requirements, and decrease
decreasing the number of investors and counterparties that are willing or permitted contractually or otherwise, to do business with or lend to the Firm, thereby curtailing the Firm’s business operations and reducing its profitability. In addition, any suchJPMorgan Chase.
Any rating reduction in credit ratings maycould also increase the credit spreads charged by the market for taking credit risk on JPMorgan Chase & Co. and its subsidiaries and, as a result,subsidiaries. This could, in turn, adversely affect the value of debt and other obligations thatof JPMorgan Chase & Co. and its subsidiariessubsidiaries.
Regulation and reform of benchmarks could have adverse consequences on securities and other instruments that are linked to those benchmarks.
Interest rate, equity, foreign exchange rate and other types of indices which are deemed to be “benchmarks” are the subject of recent international, national and other regulatory guidance and proposals for reform. Some of these reforms are already effective while others are still to be implemented. These reforms may cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences which cannot be fully anticipated.
Any of the international, national or other proposals for reform or the general increased regulatory scrutiny of benchmarks could also increase the costs and risks of administering or otherwise participating in the setting of benchmarks and complying with any such regulations or requirements. Such factors may have the effect of discouraging market participants from continuing to administer or contribute to certain benchmarks, trigger changes in the rules or methodologies used in certain benchmarks or lead to the disappearance of certain benchmarks.
On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates the London interbank offered rate (“LIBOR”), announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021, and it appears likely that LIBOR will be discontinued or modified by 2021.
Any of the these developments, and any future initiatives to regulate, reform or change the manner of administration of benchmarks, could result in adverse consequences to the return on, value of and market for securities and other instruments whose returns are linked to any such benchmark, including those issued by JPMorgan Chase or its subsidiaries.
Operational
JPMorgan Chase’s businesses are highly dependent on the effectiveness of its operational systems and those of other market participants.
JPMorgan Chase’s businesses rely comprehensively on the ability of JPMorgan Chase’s financial, accounting, trading, data processing and other operational systems to process, record, monitor and report a large number of transactions on a continuous basis, and to do so accurately and quickly. In addition to proper design, installation, maintenance and training, the effective functioning of JPMorgan Chase’s operational systems depends on, among other things:
the quality of the information contained in those systems, as inaccurate, outdated or corrupted data can significantly compromise the functionality of a particular operational system and other systems to which it transmits information, and
JPMorgan Chase’s ability to appropriately maintain and upgrade its systems on a regular basis, and to ensure that any changes introduced to its systems are managed carefully to ensure operational continuity.
JPMorgan Chase also depends on its ability to access and use the operational systems of its vendors, custodians and other market participants, including clearing and payment systems, CCPs, securities exchanges and data processing, security and technology companies.
The ineffectiveness, failure or other disruption of the operational systems of JPMorgan Chase or another significant market participant, including due to a cyberbreach, could result in unfavorable ripple effects in the financial markets and for JPMorgan Chase and its clients and customers, including:
delays or other disruptions in providing information, services and liquidity to clients and customers
the inability to settle transactions or obtain access to funds and other assets
the possibility that transactions such as funds transfers or capital markets trades are executed erroneously, illegally or with unintended consequences
financial losses, including possible restitution to clients and customers
higher operational costs associated with replacing services provided by a system that is unavailable
customer dissatisfaction and loss of confidence in JPMorgan Chase’s products and services, and
harm to reputation.
Furthermore, the interconnectivity of multiple financial institutions with central agents, CCPs, payment processors, securities exchanges, clearing houses and other financial market infrastructures, and the increased importance of these entities, increases the risk that an operational failure at one institution or entity may cause an industry-wide operational failure that could materially affect JPMorgan Chase’s ability to conduct business.
As the speed, frequency, volume and complexity of transactions increases, it becomes more challenging to effectively maintain JPMorgan Chase’s operational systems and infrastructure, especially due to the heightened risks that:
errors, whether inadvertent or malicious, cause widespread system disruption
isolated or seemingly insignificant errors in operational systems compound, or migrate to other systems over time, to become larger issues
failures in synchronization or encryption software, or degraded performance of microprocessors due to design flaws, causes disruptions in operational systems, or the inability of systems to communicate with each other, and
third parties attempt to block the use of key technology solutions by claiming that the use infringes on their intellectual property rights.
If JPMorgan Chase’s operational systems, or those of third parties on which JPMorgan Chase’s businesses depend, are unable to meet the demanding standards of JPMorgan Chase’s businesses and operations, or if they fail or have other significant shortcomings, JPMorgan Chase could be materially and adversely affected.
JPMorgan Chase relies on the skill and integrity of its employees and those of third parties in running its operational systems.
The effective functioning of JPMorgan Chase’s operational systems also depends on the competence and reliability of its employees, as well as the employees of third parties on whom JPMorgan Chase depends for technological support, security or other services. JPMorgan Chase could be materially and adversely affected by a significant operational breakdown or failure caused by human error or
misconduct by an employee of JPMorgan Chase or a third party.
JPMorgan Chase can be negatively affected if it fails to identify and address operational risks associated with new products or processes.
When JPMorgan Chase changes processes or introduces new products and services or new connectivity solutions, JPMorgan Chase may not fully appreciate or identify new operational risks that may arise from those changes, or may issuefail to implement adequate controls to mitigate the risks associated with new business activities. Any of these occurrences could diminish JPMorgan Chase’s ability to operate one or more of its businesses or result in:
potential liability to clients and customers
increased operating expenses
higher litigation costs, including regulatory fines, penalties and other sanctions
damage to JPMorgan Chase’s reputation
impairment of JPMorgan Chase’s liquidity
regulatory intervention, or
weaker competitive standing.
Any of the foregoing consequences could materially and adversely affect JPMorgan Chase’s businesses and results of operations.
JPMorgan Chase’s connections to third-party operational systems expose it to greater operational risks.
Third parties with which JPMorgan Chase does business, as well as retailers, data aggregators and other third parties with which JPMorgan Chase’s customers do business, can also be sources of operational risk to JPMorgan Chase. This is particularly the case where activities of customers or those third parties are beyond JPMorgan Chase’s security and control systems, including through the use of the internet, personal smart phones and other mobile devices or services.
If a third party obtains access to customer account data on JPMorgan Chase’s systems, and that third party experiences a cyberbreach of its own systems or misappropriates that data, this could result in a variety of negative outcomes for JPMorgan Chase and its customers, including:
heightened risk that third parties will be able to execute fraudulent transactions using JPMorgan Chase’s systems
losses from fraudulent transactions, as well as potential liability for losses that exceed thresholds established in consumer protection laws and regulations
increased operational costs to remediate the future.consequences of the third party’s security breach, and
Legal Riskharm to reputation arising from the perception that JPMorgan Chase’s systems may not be secure.
As JPMorgan Chase’s interconnectivity with customers and other third parties expands, JPMorgan Chase increasingly faces the risk of operational failure with respect to their systems. Security breaches affecting JPMorgan Chase’s customers, or systems breakdowns or failures, security breaches or human error or misconduct affecting those other third parties, may require JPMorgan Chase to take steps to protect the integrity of its own operational systems or to safeguard confidential information. These actions can increase JPMorgan Chase’s operational costs and potentially diminish customer satisfaction.
JPMorgan Chase faces substantial legal and operational risks in safeguarding personal information.
JPMorgan Chase’s businesses are subject to complex and evolving laws and regulations, both within and outside the U.S., governing the privacy and protection of personal information of individuals. The protected parties can include:
JPMorgan Chase’s clients and customers
clients and customers of JPMorgan Chase’s clients and customers
JPMorgan Chase’s employees, and
employees of JPMorgan Chase’s suppliers, counterparties and other third parties.
Ensuring that JPMorgan Chase’s collection, use, transfer and storage of personal information comply with all applicable laws and regulations in all relevant jurisdictions, including where the laws of different jurisdictions are in conflict, can:
increase JPMorgan Chase’s operating costs
affect the development of new products or services
demand significant legal risks, bothoversight by JPMorgan Chase’s management, and
require JPMorgan Chase to structure its businesses, operations and systems in less efficient ways.
Furthermore, JPMorgan Chase cannot ensure that all of its clients and customers, suppliers, counterparties and other third parties have appropriate controls in place to protect the confidentiality of the information exchanged between them and JPMorgan Chase, particularly where information is transmitted by electronic means. JPMorgan Chase could be exposed to litigation or regulatory fines, penalties or other sanctions if personal, confidential or proprietary information of clients, customers, employees or others were to be mishandled or misused, such as situations where such information is:
erroneously provided to parties who are not permitted to have the information, or
intercepted or otherwise compromised by third parties.
Concerns regarding the effectiveness of JPMorgan Chase’s measures to safeguard personal information, or even the perception that those measures are inadequate, could cause
JPMorgan Chase to lose existing or potential clients and customers, and thereby reduce JPMorgan Chase’s revenues. Furthermore, any failure or perceived failure by JPMorgan Chase to comply with applicable privacy or data protection laws and regulations may subject it to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices, significant liabilities or regulatory fines, penalties or other sanctions. Any of these could damage JPMorgan Chase’s reputation and otherwise adversely affect its businesses.
JPMorgan Chase’s operations and results could be vulnerable to catastrophes or other events that disrupt its business.
JPMorgan Chase’s business and operational systems could be seriously disrupted by events that are wholly or partially beyond its control, including:
cyberbreaches or breaches of physical premises
electrical or telecommunications outages
failures of, or loss of access to, operational systems, including computer systems, servers, networks and other technology assets
damage to or loss of property or assets
natural disasters or severe weather conditions
health emergencies or pandemics, or
events arising from regulatory investigations and proceedings and from private actions brought against the Firm.local or larger-scale political events, including outbreaks of hostilities or terrorist acts.
JPMorgan Chase maintains a global resiliency and crisis management program that is named asintended to ensure the ability to recover critical business functions and supporting assets, including staff, technology and facilities, in the event of a defendantbusiness interruption. There can be no assurance that JPMorgan Chase’s resiliency plans will fully mitigate all potential business continuity risks to JPMorgan Chase or its clients and customers. Any significant failure or disruption of JPMorgan Chase’s operations or operational systems could, among other things:
hinder its ability to provide services to its clients and customers
require it to expend significant resources to correct the failure or disruption
cause it to incur financial losses, both from loss of revenue and damage to or loss of property, and
expose it to litigation or regulatory fines, penalties or other sanctions.
A successful cyberattack against JPMorgan Chase could cause significant harm to JPMorgan Chase or its clients and customers.
JPMorgan Chase experiences numerous cyberattacks on its computer systems, software, networks and other technology assets on a daily basis. These cyberattacks can
take many forms, but a common objective of many of these attacks is otherwiseto introduce computer viruses or malware into JPMorgan Chase’s systems. These viruses or malicious code are typically designed to, among other things:
obtain unauthorized access to confidential information belonging to JPMorgan Chase or its clients and customers
manipulate or destroy data
disrupt, sabotage or degrade service on JPMorgan Chase’s systems, or
steal money.
JPMorgan Chase has also been the target of significant distributed denial-of-service attacks which are intended to disrupt online banking services.
JPMorgan Chase devotes significant resources to maintain and regularly upgrade its systems to protect them against cyberattacks. However, JPMorgan Chase has experienced security breaches due to cyberattacks in the past, and it is inevitable that additional breaches will occur in the future. Any such breach could result in serious and harmful consequences for JPMorgan Chase or its clients and customers.
A principal reason that JPMorgan Chase cannot provide absolute security against cyberattacks is that it may not always be possible to anticipate, detect or recognize threats to JPMorgan Chase’s systems, or to implement effective preventive measures against all breaches. This is because, among other things:
the techniques used in cyberattacks change frequently and may not be recognized until launched
cyberattacks can originate from a wide variety of sources, including third parties who are or may be involved in variousorganized crime or linked to terrorist organizations or hostile foreign governments, and
third parties may seek to gain access to JPMorgan Chase’s systems either directly or using equipment or security passwords belonging to employees, customers, third-party service providers or other users of JPMorgan Chase’s systems.
The risk of a security breach due to a cyberattack could increase in the future as JPMorgan Chase continues to expand its mobile-payment and other internet-based product offerings and its internal use of web-based products and applications.
A successful penetration or circumvention of the security of JPMorgan Chase’s systems or the systems of a supplier, governmental body or another market participant could cause serious negative consequences, including:
significant disruption of JPMorgan Chase’s operations and those of its clients, customers and counterparties, including losing access to operational systems
misappropriation of confidential information of JPMorgan Chase or that of its clients, customers, counterparties or employees
damage to computers or systems of JPMorgan Chase and those of its clients, customers and counterparties
inability to fully recover and restore data that has been stolen, manipulated or destroyed, or to prevent systems from processing fraudulent transactions
violations by JPMorgan Chase of applicable privacy and other laws
financial loss to JPMorgan Chase or to its clients and customers
loss of confidence in JPMorgan Chase’s cybersecurity measures
client and customer dissatisfaction
significant exposure to litigation and regulatory fines, penalties or other sanctions, or
harm to JPMorgan Chase’s reputation.
JPMorgan Chase could also suffer some of the above consequences if a third party were to misappropriate confidential information obtained by intercepting signals or communications from mobile devices used by JPMorgan Chase’s employees.
JPMorgan Chase may not be able to immediately address the consequences of a security breach due to a cyberattack.
A successful breach of JPMorgan Chase’s computer systems, software, networks or other technology assets due to a cyberattack could occur and persist for an extended period of time before being detected due to, among other things:
the breadth of JPMorgan Chase’s operations and the high volume of transactions that it processes
the large number of customers, counterparties and third-party service providers with which JPMorgan Chase does business
the proliferation and increasing sophistication of cyberattacks, and
the possibility that a third party, after establishing a foothold on an internal network without being detected, might obtain access to other networks and systems.
The extent of a particular cyberattack and the steps that JPMorgan Chase may need to take to investigate the attack may not be immediately clear, and it may take a significant amount of time before such an investigation can be completed and full and reliable information about the attack is known. While such an investigation is ongoing, JPMorgan Chase may not necessarily know the extent of the harm or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, any or all of which could
further increase the costs and consequences of a cyberattack.
JPMorgan Chase’s risk management framework and procedures may not be effective in identifying and mitigating every risk to JPMorgan Chase.
JPMorgan Chase’s risk management framework is intended to mitigate risk and loss. JPMorgan Chase has established processes and procedures to identify, measure, monitor, report and analyze the types of risk to which JPMorgan Chase is subject. However, there are inherent limitations to risk management strategies because there may be existing or future risks that JPMorgan Chase has not appropriately anticipated or identified.
JPMorgan Chase could be exposed to unexpected losses, and JPMorgan Chase’s financial condition or results of operations could be materially and adversely affected, by any inadequacy or lapse in its risk management framework, governance structure, procedures and practices, models or reporting systems. An inadequacy or lapse could:
require significant resources to remediate
attract heightened regulatory scrutiny
expose JPMorgan Chase to regulatory investigations or legal proceedings including class actions
subject it to litigation or regulatory fines, penalties or other sanctions
harm its reputation, or
diminish confidence in JPMorgan Chase.
JPMorgan Chase relies on data to assess its various risk exposures. Any deficiencies in the quality or effectiveness of JPMorgan Chase’s data gathering and validation processes could result in ineffective risk management practices. These deficiencies could also result in inaccurate risk reporting.
JPMorgan Chase establishes allowances for probable credit losses that are inherent in its credit exposures. It then employs stress testing and other techniques to determine the capital and liquidity necessary in the event of adverse economic or market events. These processes are critical to JPMorgan Chase’s results of operations and financial condition. They require difficult, subjective and complex judgments, including forecasts of how economic conditions might impair the ability of JPMorgan Chase’s borrowers and counterparties to repay their loans or other obligations. It is possible that JPMorgan Chase will fail to identify the proper factors or that it will fail to accurately estimate the impact of factors that it identifies.
Many of JPMorgan Chase’s risk management strategies and techniques consider historical market behavior. These strategies and techniques are based to some degree on management’s subjective judgment. For example, many models used by JPMorgan Chase are based on assumptions regarding correlations among prices of various asset classes or other market indicators. In times of market stress, including difficult or less liquid market environments, or in
the event of other unforeseen circumstances, previously uncorrelated indicators may become correlated. Conversely, previously-correlated indicators may make unrelated movements at those times. Sudden market movements and unanticipated or unidentified market or economic movements have, in some circumstances, limited the effectiveness of JPMorgan Chase’s risk management strategies, causing it to incur losses.
JPMorgan Chase could incur significant losses and face greater regulatory scrutiny if its models or estimations are inadequate.
JPMorgan Chase has developed and uses a variety of models and other analytical and judgment-based estimations to assess and implement mitigating controls over its market, credit, operational and other risks. These models and estimations are based on a variety of assumptions and historical trends, and are periodically reviewed and modified as necessary. The models and estimations that JPMorgan Chase uses may not be effective in all cases to observe and mitigate risk due to a variety of factors, such as:
reliance on historical trends that may not accurately predict future events, including assumptions underlying the models and estimations which predict correlation among certain market indicators or asset prices
inherent limitations associated with forecasting uncertain economic and financial outcomes
historical trend information may be incomplete, or may not anticipate severely negative market conditions such as extreme volatility, dislocation or lack of liquidity
technology that is introduced to run models or estimations may not perform as expected, or may not be well understood by the personnel using the technology
models and estimations may contain erroneous data, valuations, formulas or algorithms, and
review processes may fail to detect flaws in models and estimations.
JPMorgan Chase could incur substantial losses, its capital levels could be reduced and it could face greater regulatory scrutiny if its models or estimations prove to be inadequate.
Some of the models and other analytical and judgment-based estimations used by JPMorgan Chase in managing risks are subject to review by, and require the approval of, JPMorgan Chase’s regulators. These reviews are required before JPMorgan Chase may use those models and estimations in connection with calculating market risk RWA, credit risk RWA and operational risk RWA under Basel III. If JPMorgan Chase’s models or estimations are not approved by its regulators, it may be subject to higher capital charges, which could adversely affect its financial results or limit the ability to expand its businesses. JPMorgan Chase’s capital actions could also be constrained if a CCAR submission is not approved by its banking regulators due to the perceived inadequacy of its models or estimations.
Enhanced standards for vendor risk management can result in higher costs and other potential exposures.
JPMorgan Chase must comply with enhanced standards for the assessment and management of risks associated with doing business with vendors and other third-party service providers. These requirements are contained both in bank regulatory regulations and guidance and in certain consent orders to which JPMorgan Chase has been subject. JPMorgan Chase incurs significant costs and expenses in connection with its initiatives to address the risks associated with oversight of its third party relationships. JPMorgan Chase’s failure to appropriately assess and manage third-party relationships, especially those involving significant banking functions, shared services or other critical activities, could materially adversely affect JPMorgan Chase. Specifically, any such failure could subject JPMorgan Chase to:
potential liability to clients and customers
regulatory fines, penalties or other sanctions
increased operational costs, or
harm to its reputation.
Requirements for physical settlement and delivery in trading agreements could expose JPMorgan Chase to operational and other risks.
Certain of JPMorgan Chase’s markets transactions require the physical settlement by delivery of securities or other obligations that JPMorgan Chase does not own. If JPMorgan Chase is unable to obtain the obligations within the required timeframe, JPMorgan Chase could forfeit payments otherwise due. Failures could also result in settlement delays, which could damage JPMorgan Chase’s reputation and ability to transact business. Failure to timely settle and confirm transactions could also subject JPMorgan Chase to heightened credit and operational risk, and in the event of a default, market and operational losses.
JPMorgan Chase could incur unexpected losses if estimates and judgments underlying its financial statements are incorrect.
Under U.S. generally accepted accounting principles (“U.S. GAAP”), JPMorgan Chase is required to use estimates and apply judgments in preparing its financial statements, including in determining allowances for credit losses and reserves related to litigation, among other items. Certain financial instruments require a determination of their fair value in order to prepare JPMorgan Chase’s financial statements, including:
trading assets and liabilities
instruments in the investment securities portfolio
certain loans
MSRs
structured notes, and
certain repurchase and resale agreements.
Where quoted market prices are not available for these types of instruments, JPMorgan Chase may make fair value determinations based on internally developed models or other means which ultimately rely to some degree on management estimates and judgment. Sudden illiquidity in markets or declines in prices of certain loans and securities may make it more difficult to value certain balance sheet items, which could lead to valuations being subsequently changed or adjusted. If estimates or judgments underlying JPMorgan Chase’s financial statements prove to have been incorrect, JPMorgan Chase may experience material losses.
Lapses in controls over disclosure or financial reporting could materially affect JPMorgan Chase’s profitability or reputation.
There can be no assurance that JPMorgan Chase’s disclosure controls and procedures will be effective in every circumstance, or that a material weakness or significant deficiency in internal control over financial reporting will not occur. Any such lapses or deficiencies could:
materially and adversely affect JPMorgan Chase’s business and results of operations or financial condition
restrict its ability to access the capital markets
require it to expend significant resources to correct the lapses or deficiencies
expose it to litigation or disputesregulatory fines, penalties or other sanctions
harm its reputation, or
otherwise diminish investor confidence in JPMorgan Chase.
Strategic
If JPMorgan Chase’s management fails to develop and execute effective business strategies, JPMorgan Chase’s competitive standing and results could suffer.
JPMorgan Chase’s business strategies significantly affect its competitive standing and results of operations. These strategies relate to:
the products and services that JPMorgan Chase offers
the geographies in which it operates
the types of clients and customers that it serves
the counterparties with which it does business, and
the methods and distribution channels by which it offers products and services.
The franchise values and growth prospects of JPMorgan Chase’s businesses, and its earnings and results of operations, may suffer and revenues could decline if management makes choices about these strategies and goals that:
prove to be incorrect
do not accurately assess the competitive landscape and industry trends, or
fail to address changing regulatory and market environments in the U.S. and abroad.
JPMorgan Chase’s growth and prospects also depend on management’s ability to develop and execute effective business plans to address these strategic priorities, both in the near term and over longer time horizons. Management’s effectiveness in this regard will affect JPMorgan Chase’s ability to develop and enhance its resources, control expenses and return capital to shareholders. Each of these objectives could be adversely affected by management’s failure to:
devise effective business plans and strategies
effectively implement business decisions, including by minimizing bureaucratic processes
institute controls that appropriately address the risks associated with business activities and any changes in those activities
offer products and services that meet the expectations of clients and customers, and in ways that enhance their satisfaction with those products and services
allocate capital to JPMorgan Chase’s businesses in a manner that promotes their long-term profitability
adequately respond to regulatory requirements
appropriately address shareholder concerns
react quickly to changes in market conditions or market structures, or
develop and enhance the operational, technology, risk, financial and managerial resources necessary to grow and manage JPMorgan Chase’s businesses.
Additionally, JPMorgan Chase’s Board of Directors plays an important role in exercising appropriate oversight of management’s strategic decisions, and a failure by the Board to perform this function could also impair JPMorgan Chase’s results of operations.
Conduct
Misconduct by JPMorgan Chase employees can harm its clients and customers, damage its reputation and trigger litigation and regulatory action.
JPMorgan Chase’s employees interact with clients, customers and counterparties, and with each other, every day. All employees are expected to demonstrate values and exhibit the culture and behaviors that are an integral part of JPMorgan Chase’s How We Do Business Principles, including JPMorgan Chase’s commitment to “do first class business in a first class way.” JPMorgan Chase endeavors to embed culture and conduct risk management throughout an employee’s life cycle, including recruiting, onboarding, training and development, and performance management. Culture and conduct risk management are
also important to JPMorgan Chase’s promotion and compensation processes.
Notwithstanding these expectations, policies and practices, certain employees have in the past engaged in improper or illegal conduct resulting in litigation as well as settlements involving consent orders, deferred prosecution agreements and non-prosecution agreements, as well as other civil and criminal settlements with regulators and other governmental entities. There is no assurance that further inappropriate actions by employees will not occur or that any such actions will always be deterred or quickly prevented.
JPMorgan Chase’s reputation could be harmed, and collateral consequences could result, from a failure by one or more employees to act consistently with JPMorgan Chase’s expectations, including by acting in ways that harm clients, customers, other market participants or other employees. Some examples of this include:
improperly selling and marketing JPMorgan Chase’s products or services
engaging in insider trading, market manipulation or unauthorized trading
facilitating illegal or aggressive tax-motivated transactions, or transactions designed to circumvent economic sanction programs
failing to fulfill fiduciary obligations or other duties owed to clients or customers
violating anti-trust or anti-competition laws by colluding with other market participants to manipulate markets, prices or indices
making risk decisions in ways that subordinate JPMorgan Chase’s risk appetite to employee compensation objectives, and
misappropriating property or confidential or proprietary information or technology belonging to JPMorgan Chase, its clients and customers or third parties. Actions currently pending against the Firm may
The consequences of any failure by employees to act consistently with JPMorgan Chase’s expectations could include litigation, or regulatory or other governmental investigations or enforcement actions. Any of these proceedings or actions could result in judgments, settlements, fines, penalties or other results adverse to sanctions, or lead to:
financial losses
increased operational and compliance costs
greater regulatory scrutiny
requirements that JPMorgan Chase restructure, curtail or cease certain of its activities
the Firm, which could materiallyneed for significant oversight by JPMorgan Chase’s management
the undermining of JPMorgan Chase’s culture
loss of clients or customers, and adversely affect the Firm’s business, financial condition or results of operations, or cause serious reputational
harm to JPMorgan Chase’s reputation.
Reputation
Damage to JPMorgan Chase’s reputation could harm its businesses.
Maintaining trust in JPMorgan Chase is critical to its ability to attract and retain clients, customers, investors and employees. Damage to JPMorgan Chase’s reputation can therefore cause significant harm to JPMorgan Chase’s business and prospects. Harm to JPMorgan Chase’s reputation can arise from numerous sources, including:
employee misconduct
security breaches
compliance failures
litigation or regulatory fines, penalties or other sanctions, or
regulatory investigations, enforcement actions or settlements.
JPMorgan Chase’s reputation could also be harmed by the Firm. As a participantfailure or perceived failure of certain third parties to comply with laws or regulations, including companies in which JPMorgan Chase has made principal investments, parties to joint ventures with JPMorgan Chase, and vendors and other third parties with which JPMorgan Chase does business.
JPMorgan Chase’s reputation or prospects may be significantly damaged by adverse publicity or negative information regarding JPMorgan Chase, whether or not true, that may be posted on social media, non-mainstream news services or other parts of the internet, and this risk can be magnified by the speed and pervasiveness with which information is disseminated through those channels.
Actions by the financial services industry itgenerally or by certain members of or individuals in the industry can also affect JPMorgan Chase’s reputation. For example, concerns that consumers have been treated unfairly by a financial institution, or that a financial institution has acted inappropriately with respect to the methods used to offer products to customers, can damage the reputation of the industry as a whole. If JPMorgan Chase is likelyperceived to have engaged in these types of behaviors, the measures needed to address the associated reputational issues could increase JPMorgan Chase’s operational and compliance costs and negatively affect its earnings. Furthermore, events that the Firm will continueundermine JPMorgan Chase’s reputation can hinder its ability to experience a high levelattract and retain clients, customers, investors and employees.
Failure to effectively manage potential conflicts of interest can result in litigation relatedand enforcement actions, as well as damage JPMorgan Chase’s reputation.
JPMorgan Chase’s ability to manage potential conflicts of interest has become increasingly complex as its businessesbusiness activities encompass more transactions, obligations and operations.
In addition,
interests with and as noted above, the Firm’s businessesamong JPMorgan Chase’s clients and operations are alsocustomers. JPMorgan Chase can become subject to heightened regulatory oversightlitigation and scrutiny, which may lead to additional regulatory investigations or enforcement actions. As the regulators and other government agencies continue to examine the operations of the Firmactions, and its subsidiaries, there is no assurancereputation can be damaged, by the failure or perceived failure to, among other things:
adequately address or appropriately disclose conflicts of interest
deliver appropriate standards of service and quality
treat clients and customers fairly
use client and customer data responsibly and in a manner that they will not pursue additionalmeets legal requirements and regulatory settlements or other enforcement actions against the Firm in the future. A single event may give rise to numerous and overlapping investigations and proceedings, either by multiple federal and state agencies and officials in the U.S. or, in some instances, regulators and other governmental officials in non-U.S. jurisdictions. These and other initiatives from U.S. and non-U.S. governmental authorities and officials may subject the Firm to further judgments, settlements, fines or penalties, or cause the Firm to be required to restructure its operations and activities or to cease offering certainexpectations
provide fiduciary products or services in accordance with the applicable legal and regulatory standards, or
handle or use confidential information of customers or clients appropriately or in compliance with applicable data protection and privacy laws and regulations.
In the future, a failure or perceived failure to appropriately address conflicts or fiduciary obligations could result in customer dissatisfaction, litigation and regulatory fines, penalties or other sanctions, and heightened regulatory scrutiny and enforcement actions, all of which couldcan lead to lost revenue and higher operating costs and cause serious harm the Firm’s reputation or lead to
JPMorgan Chase’s reputation.higher operational costs, thereby reducing the Firm’s profitability.
Other Business RisksCountry
JPMorgan Chase’s operations are subjectChase can incur losses due to risk of loss from unfavorable economic monetary and political developments in the U.S. and around the world.
JPMorgan Chase’s businesses and earnings are affected by the monetary, fiscal and other policies that are adopted by various U.S. and non-U.S. regulatory authorities and agencies. TheFor example, the Federal Reserve regulates the supply of money and credit in the U.S. and its policies determine in large part the cost of funds for lending and investing in the U.S. and the return earned on those loans and investments. Changes in Federal Reservefiscal policies (as well as the fiscal and monetary policies of non-U.S.by central banks or regulatory authorities, and agencies, such as “pegging” the exchange rate of their currency to the currencies of others)manner in which those policies are executed, are beyond the Firm’sJPMorgan Chase’s control and may be difficult to predict, and consequently,predict. Consequently, unanticipated changes in these policies or the ways in which they are implemented could have a negative impact on the Firm’s activitiesJPMorgan Chase’s businesses and results of operations.
The Firm’sJPMorgan Chase’s businesses and revenuerevenues are also subject to the risks inherent in investing and market-making in securities, loans and other obligations of companies worldwide. These risks include, among others, others:
negative effects from slowing growth rates or recessionary economic conditions or
the risk of loss from unfavorable political, legal or other developments, including social or political instability, in the countries or regions in which suchthose companies operate, as well as and
the other risks and considerations as described furtherdiscussed below.
Several of the Firm’s businesses engage
Adverse economic and political developments in transactions with,a country or trade in obligations of, U.S. and non-U.S. governmental entities, including national, state, provincial, municipal and local authorities. These activitiesregion can expose the Firm to enhanced sovereign, credit-related, operational and reputational risks, including the risks thathave a governmental entity may defaultwider negative impact on JPMorgan Chase’s businesses.
Some countries or restructure its obligations or may claim that actions taken by government officials were beyond the legal authority of those officials, which could adversely affect the Firm’s financial condition and results of operations.
Further, various countriesregions in which the FirmJPMorgan Chase operates or invests, or in which the FirmJPMorgan Chase may do sobusiness in the future, have in the past experienced severe economic disruptions particular to those countries or regions. The ongoing crisis in Russia and impact of sanctions, coupled with sharp oil price declines, a potential slowdown in the macroeconomic prospects in China, and concerns about potential economic weaknesses in the Eurozone (including the permanent resolution of the Greek “bailout” program), could undermine investor confidence and affect the operating environment in 2015. In some cases, concerns regarding the fiscal condition of one or more countries can cause a contraction of available credit and reduced commercial activity among trading partners within the affected countries or region. These developments can also create market volatility that couldwhich can lead to “market contagion”a contagion affecting other countries in the same
region or beyond the region. Accordingly, it is possible that economic disruptionsbeyond. Furthermore, governments in certainparticular countries even in countriesor regions in which the Firm does not conductJPMorgan Chase or its clients do business may choose to adopt protectionist economic or have operationstrade policies in response to concerns about domestic economic conditions. Any or engagesall of these developments could lead to diminished cross-border trade and financing activity within that country or region, all of which could negatively affect JPMorgan Chase’s business and earnings in only limited activities,those jurisdictions. If JPMorgan Chase takes steps to reduce its market and credit risk exposure within a particular country or region that is experiencing economic or political disruption, it may incur losses that are higher than expected because it will adversely affect the Firm.be disposing of assets when market conditions are likely to be highly unfavorable.
JPMorgan Chase’s business activities with governmental entities pose a greater risk of loss.
Several of JPMorgan Chase’s businesses engage in transactions with, or trade in obligations of, governmental entities, including national, state, provincial, municipal and local authorities, both within and outside the U.S. These activities can expose JPMorgan Chase to enhanced sovereign, credit-related, operational and reputation risks, including the risks that a governmental entity may:
default on or restructure its obligations
claim that actions taken by government officials were beyond the legal authority of those officials, or
repudiate transactions authorized by a previous incumbent government.
Any or all of these actions could adversely affect JPMorgan Chase’s financial condition and results of operations and could hurt its reputation, particularly if JPMorgan Chase pursues claims against a government obligor in a jurisdiction in which it has significant business relationships with clients or customers.
JPMorgan Chase’s business and revenues in emerging markets maycan be hinderedhampered by local political, social and economic factors, and will be subject to additional compliance costs and risks.factors.
Some of the countries in which JPMorgan Chase conducts its wholesale businessesbusiness have economies or markets that are less developed and more volatile, and may have legal and regulatory regimes that are less established or predictable,
than the U.S. and other developed markets in which the Firm currentlyJPMorgan Chase operates. Some of these countries have in the past experienced severe economic disruptions, including including:
extreme currency fluctuations
high inflation or
low or negative growth, among other negative conditions,or
defaults or potential defaults on sovereign debt.
The governments in these countries have imposedsometimes reacted to these developments by imposing restrictive monetary policies such as currency exchange controls and other laws and restrictions that adversely affect the local and regional business environment. In addition, these countries, as well as certain more developed countries, have historically been more susceptible to unfavorable social developments arising from poor economic conditions and related governmental actions, including:
social unrest
general strikes and demonstrations
crime and corruption
security and personal safety issues
outbreaks of hostilities
overthrow of incumbent governments
terrorist attacks, or
other forms of internal discord.
These economic, political and social or economic developments which have in the past resulted in, and may in the future could lead to, social unrest, general strikes and demonstrations, outbreaks of hostilities, overthrow of incumbent governments, terrorist attacks or other forms of internal discord, all of whichconditions that can adversely affect JPMorgan Chase’s operations in those countries and impair the Firm’s operations or investments in such countries. Political, social or economic disruption or dislocation in certain countries or regions in which the Firm conducts its wholesale businesses can hinder therevenues, growth and profitability of those operations.
Less developedIf the legal and regulatory systemssystem in certaina particular country is less established or predictable, this can create a more difficult environment in which to conduct business. For example, any of the following could hamper JPMorgan Chase’s operations and reduce its earnings in countries can also have adverse consequences on the Firm’s operations in those countries, including, among others, with less established or predictable legal and regulatory regimes:
the absence of a statutory or regulatory basis or guidance for engaging in specific types of business or transactions; transactions
the promulgationadoption of conflicting or ambiguous laws and regulations, or the inconsistent application or interpretation of existing laws and regulations; regulations
uncertainty as toconcerning the enforceability of contractual obligations; obligations
difficulty in competing in economies in which the government controls or protects all or a portion of the local economy or specific businesses, or where graft or corruption may be pervasive;pervasive, and
the threat of arbitrary regulatory investigations, civil litigations or criminal prosecutions.prosecutions, the termination of licenses required to operate in the local market or the suspension of business relationships with governmental bodies.
RevenueJPMorgan Chase’s operations in or involving emerging markets countries can also be affected by governmental actions such as:
monetary policies
expropriation, nationalization or confiscation of assets
price, capital or exchange controls, and
changes in laws and regulations.
The impact of these actions could be accentuated in trading markets that are smaller, less liquid and more volatile than more-developed markets. These types of government actions can negatively affect JPMorgan Chase’s operations in the relevant country, either directly or by suppressing the business activities of local clients or multi-national clients that conduct business in the jurisdiction. For example, some or all of these governmental actions can result in funds belonging to JPMorgan Chase, or that it places with a local custodian on behalf of a client, being effectively trapped in a country. In addition to the ultimate risk of losing the funds entirely, JPMorgan Chase could be exposed for an extended period of time to the credit risk of a local custodian that is now operating in a deteriorating domestic economy.
JPMorgan Chase’s revenues from international operations and trading in non-U.S. securities and other obligations maycan be subject to negative fluctuations asnegatively affected by the foregoing economic, political and social conditions in a result of the above considerations, as well as due to governmental actions including expropriation, nationalization, confiscation of assets, price controls, capital controls, exchange controls, and changesparticular country in laws and regulations. The impact of these fluctuations could be accentuated as some trading markets are smaller, less liquid and more volatile than larger markets. Also,which it does business. In addition, any of the above-mentioned events or circumstances in one country can affect and in the past
conditions of these types have affected, the Firm’sJPMorgan Chase’s operations and investments in another country or countries, including in the Firm’sU.S.
JPMorgan Chase’s operations in the U.S. As a result, any such unfavorable conditions or developments could have an adverse impact on the Firm’s businessemerging markets can subject it to higher operational and results of operations.compliance costs.
Conducting business in countries with less developedless-developed legal and regulatory regimes often requires the FirmJPMorgan Chase to devote significant additional resources to understanding, and monitoring changes in, local laws and regulations, as well as structuring its operations to comply with local laws and regulations and implementing and administering related internal policies and procedures. There can be no assurance that the FirmJPMorgan Chase will always be successful in its efforts to conduct its business in compliance with laws and regulations in countries with less predictable legal and regulatory systems. In addition,systems or that JPMorgan Chase will be able to develop effective working relationships with local regulators.
Complying with economic sanctions and anti-corruption and anti-money laundering laws and regulations can increase JPMorgan Chase’s operational and compliance costs and risks.
JPMorgan Chase must comply with economic sanctions and embargo programs administered by OFAC and similar national and multi-national bodies and governmental agencies outside the FirmU.S., as well as anti-corruption and anti-money laundering laws and regulations throughout the world. JPMorgan Chase can also incur higher costs and face greater compliance risks in structuring and operating its businesses outside the U.S. to comply with U.S.these requirements. Furthermore, a violation of a sanction or embargo program or anti-corruption andor anti-money laundering laws and regulations.
regulations could subject JPMorgan Chase, relies on the integrity of its operating systems and individual employees, and those of third parties, and certain failures of such systems or misconduct by such employees could materially and adversely affect the Firm’s operations.
JPMorgan Chase’s businesses are dependent on the Firm’s ability to process, record and monitor an increasingly large number of complex transactions and to do so on a faster and more frequent basis. The Firm’s front- and back-office trading systems similarly rely on their access to, and on the functionality of, the operating systems maintained by third parties such as clearing and payment systems, central counterparties, securities exchanges and data processing and technology companies. If the Firm’s financial, accounting, trading or other data processing systems, or the operating systems of third parties on which the Firm’s businesses are dependent, are unable to meet these increasingly demanding standards, or if they fail or have other significant shortcomings, the Firm could be materially and adversely affected. The Firm is similarly dependent on its employees. The Firm could be materially and adversely affected if one or more of its employees causes a significant operational breakdown or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates the Firm’s operations or systems. In addition, when the Firm changes processes or introduces new products and services and new remote connectivity solutions (including Internet and mobile banking services), the Firm may not fully appreciate or identify new operational risks that may arise from such changes. Any of these occurrences could diminish the Firm’s ability to operate one or more of its businesses, or result in potential liability to clients and customers, increased operating expenses, higher litigation costs (including fines and sanctions), reputational damage, regulatory
intervention or weaker competitive standing, any of which could materially and adversely affect the Firm.
Third parties with which the Firm does business, enforcement actions as well as retailerssignificant civil and other third parties with which the Firm’s customers do business, can also be sources of operational risk to the Firm, particularly where activities of customers are beyond the Firm’s security and control systems, such as through the use of the internet, personal smart phones and other mobile services. Security breaches affecting the Firm’s customers, or systems breakdowns or failures, security breaches or employee misconduct affecting such other third parties, may require the Firm to take steps to protect the integrity of its own operational systems or to safeguard confidential information of the Firm or its customers, thereby increasing the Firm’s operational costs and potentially diminish customer satisfaction.criminal penalties.
If personal, confidential or proprietary information of customers or clients in the Firm’s possession were to be mishandled or misused, the Firm could suffer significant regulatory consequences, reputational damage and financial loss. Such mishandling or misuse could include circumstances where, for example, such information was erroneously provided to parties who are not permitted to have the information, either through the fault of the Firm’s systems, employees or counterparties, or where such information was intercepted or otherwise compromised by third parties.
The Firm may be subject to disruptions of its operating systems arising from events that are wholly or partially beyond the Firm’s control, which may include, for example, security breaches (as discussed further below); electrical or telecommunications outages; failures of computer servers or other damage to the Firm’s property or assets; natural disasters or severe weather conditions; health emergencies or pandemics; or events arising from local or larger-scale political events, including outbreaks of hostilities or terrorist acts. JPMorgan Chase maintains a global resiliency and crisis management program that is intended to ensure that the Firm has the ability to recover its critical business functions and supporting assets, including staff, technology and facilities, in the event of a business interruption. While the Firm believes that its current resiliency plans are both sufficient and adequate, there can be no assurance that such plans will fully mitigate all potential business continuity risks to the Firm or its customers and clients. Any failures or disruptions of the Firm’s systems or operations could give rise to losses in service to customers and clients, adversely affect the Firm’s business and results of operations by subjecting the Firm to losses or liability, or require the Firm to expend significant resources to correct the failure or disruption, as well as by exposing the Firm to litigation, regulatory fines or penalties or losses not covered by insurance.
A breach in the security of JPMorgan Chase’s systems could disrupt its businesses, result in the disclosure of confidential information, damage its reputation and
create significant financial and legal exposure for the Firm.
Although JPMorgan Chase devotes significant resources to maintain and regularly update its systems and processes that are designed to protect the security of the Firm’s computer systems, software, networks and other technology assets and the confidentiality, integrity and availability of information belonging to the Firm and its customers and clients, there is no assurance that all of the Firm’s security measures will provide absolute security. JPMorgan Chase and other companies have reported significant breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage, including through the introduction of computer viruses or malware, cyberattacks and other means. A cyberattack against the Firm in 2014 resulted in customer and internal data of the Firm being compromised. The Firm is regularly targeted by unauthorized parties using malicious code and viruses, and has also experienced several significant distributed denial-of-service attacks from technically sophisticated and well-resourced third parties which were intended to disrupt online banking services.
Despite the Firm’s efforts to ensure the integrity of its systems, it is possible that the Firm may not be able to anticipate, detect or recognize threats to its systems or to implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently or are not recognized until launched, and because cyberattacks can originate from a wide variety of sources, including third parties outside the Firm such as persons who are associated with external service providers or who are or may be involved in organized crime or linked to terrorist organizations or hostile foreign governments. Those parties may also attempt to fraudulently induce employees, customers, third-party service providers or other users of the Firm’s systems to disclose sensitive information in order to gain access to the Firm’s data or that of its customers or clients. These risks may increase in the future as the Firm continues to increase its mobile-payment and other internet-based product offerings and expands its internal usage of web-based products and applications.
A successful penetration or circumvention of the security of the Firm’s systems could cause serious negative consequences for the Firm, including significant disruption of the Firm’s operations, misappropriation of confidential information of the Firm or that of its customers, or damage to computers or systems of the Firm and those of its customers and counterparties, and could result in violations of applicable privacy and other laws, financial loss to the Firm or to its customers, loss of confidence in the Firm’s security measures, customer dissatisfaction, significant litigation exposure and harm to the Firm’s reputation, all of which could have a material adverse effect on the Firm.
Risk Management
JPMorgan Chase’s framework for managing risks and its risk management procedures and practices may not be effective in identifying and mitigating every risk to the Firm, thereby resulting in losses.
JPMorgan Chase’s risk management framework seeks to mitigate risk and loss to the Firm. The Firm has established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which the Firm is subject. However, as with any risk management framework, there are inherent limitations to the Firm’s risk management strategies because there may exist, or develop in the future, risks that the Firm has not appropriately anticipated or identified. Any lapse in the Firm’s risk management framework and governance structure or other inadequacies in the design or implementation of the Firm’s risk management framework, governance, procedures or practices could, individually or in the aggregate, cause unexpected losses for the Firm, materially and adversely affect the Firm’s financial condition and results of operations, require significant resources to remediate any risk management deficiency, attract heightened regulatory scrutiny, expose the Firm to regulatory investigations or legal proceedings, subject the Firm to fines, penalties or judgments, harm the Firm’s reputation, or otherwise cause a decline in investor confidence.
The Firm’s products, including loans, leases, lending commitments, derivatives, trading account assets and assets held-for-sale, as well as cash management and clearing activities, expose the Firm to credit risk. As one of the nation’s largest lenders, the Firm has exposures arising from its many different products and counterparties, and the credit quality of the Firm’s exposures can have a significant impact on its earnings. The Firm establishes allowances for probable credit losses inherent in its credit exposure, including unfunded lending-related commitments. The Firm also employs stress testing and other techniques to determine the capital and liquidity necessary to protect the Firm in the event of adverse economic or market events. These processes are critical to the Firm’s financial results and condition, and require difficult, subjective and complex judgments, including forecasts of how economic conditions might impair the ability of the Firm’s borrowers and counterparties to repay their loans or other obligations. As is the case with any such assessments, there is always the possibility that the Firm will fail to identify the proper factors or that the Firm will fail to accurately estimate the impact of factors that it identifies.
JPMorgan Chase’s market-making businesses may expose the Firm to unexpected market, credit and operational risks that could cause the Firm to suffer unexpected losses. Severe declines in asset values, unanticipated credit events, or unforeseen circumstances that may cause previously uncorrelated factors to become correlated (and vice versa) may create losses resulting from risks not appropriately taken into account in the development, structuring or
pricing of a financial instrument such as a derivative. Certain of the Firm’s derivative transactions require the physical settlement by delivery of securities or other obligations that the Firm does not own; if the Firm is unable to obtain such securities or obligations within the required timeframe for delivery, this could cause the Firm to forfeit payments otherwise due to it and could result in settlement delays, which could damage the Firm’s reputation and ability to transact future business. In addition, in situations where trades are not settled or confirmed on a timely basis, the Firm may be subject to heightened credit and operational risk, and in the event of a default, the Firm may be exposed to market and operational losses. In particular, disputes regarding the terms or the settlement procedures of derivative contracts could arise, which could force the Firm to incur unexpected costs, including transaction, legal and litigation costs, and impair the Firm’s ability to manage effectively its risk exposure from these products.
In a difficult or less liquid market environment, the Firm’s risk management strategies may not be effective because other market participants may be attempting to use the same or similar strategies to deal with the challenging market conditions. In such circumstances, it may be difficult for the Firm to reduce its risk positions due to the activity of such other market participants.
Many of the Firm’s risk management strategies or techniques have a basis in historical market behavior, and all such strategies and techniques are based to some degree on management’s subjective judgment. For example, many models used by the Firm are based on assumptions regarding correlations among prices of various asset classes or other market indicators. In times of market stress, or in the event of other unforeseen circumstances, previously uncorrelated indicators may become correlated, or conversely, previously correlated indicators may make unrelated movements. These sudden market movements or unanticipated or unidentified market or economic movements have in some circumstances limited and could again limit the effectiveness of the Firm’s risk management strategies, causing the Firm to incur losses.
Many of the models used by the Firm are subject to review not only by the Firm’s Model Risk function but also by the Firm’s regulators in order that the Firm may utilize such models in connection with the Firm’s calculations of market risk risk-weighted assets (“RWA”), credit risk RWA and operational risk RWA under the Advanced Approach of Basel III. The Firm may be subject to higher capital charges, which could adversely affect its financial results or limit its ability to expand its businesses, if such models do not receive approval by its regulators.
In addition, the Firm must comply with enhanced standards for the assessment and management of risks associated with vendors and other third parties that provide services to the Firm. These requirements apply to the Firm both under general guidance issued by its banking regulators and, more specifically, under certain of the consent orders to which the Firm is subject. The Firm has incurred and expects to
incur additional costs and expenses in connection with its initiatives to address the risks associated with oversight of its third party relationships. Failure by the Firm to appropriately assess and manage third party relationships, especially those involving significant banking functions, shared services or other critical activities, could result in potential liability to clients and customers, fines, penalties or judgments imposed by the Firm’s regulators, increased operating expenses and harm to the Firm’s reputation, any of which could materially and adversely affect the Firm.
Lapses in disclosure controls and procedures or internal control over financial reporting could materially and adversely affect the Firm’s operations, profitability or reputation.
There can be no assurance that the Firm’s disclosure controls and procedures will be effective in every circumstance or that a material weakness or significant deficiency in internal control over financial reporting will not occur. Any such lapses or deficiencies may materially and adversely affect the Firm’s business and results of operations or financial condition, restrict its ability to access the capital markets, require the Firm to expend significant resources to correct the lapses or deficiencies, expose the Firm to regulatory or legal proceedings, subject it to fines, penalties or judgments, harm the Firm’s reputation, or otherwise cause a decline in investor confidence.
Other RisksCompetition
The financial services industry is highly competitive, and JPMorgan Chase’s inability to compete successfully may adversely affect its results of operations.operations will suffer if it is not a strong and effective competitor.
JPMorgan Chase operates in a highly competitive environment, and the Firm expects that competition in the U.S. and global financial services industry will continue to be intense. Competitors of the Firm include include:
other banks brokerageand financial institutions
trading, advisory and investment management firms investment banking companies, merchant banks, hedge funds, commodity trading companies, private equity firms, insurance companies, mutual fund companies, investment managers, credit card companies, mortgage banking companies, trust companies, securities processing companies, automobile financing companies, leasing companies, e-commerce and other Internet-based
finance companies and a variety of technology companies, and
other financial services and advisory companies. Technological advances and the growth of e-commerce have made it possible for non-depository institutions to offerfirms that are engaged in providing similar products and services that traditionally were banking products, and for financial institutions and other companies to provide electronic and Internet-based financial solutions, including electronic securities trading and payment processing. The Firm’s businesses generally compete on the basis of the quality and variety of the Firm’s products and services, transaction execution, innovation, reputation and price. Ongoing or increased competition in any one or all of these areas may put downward pressure on prices for the Firm’s products and services or may cause the Firm to lose market share. Increased competition also
services.may require the Firm to make additional capital investments in its businesses in order to remain competitive. These investments may increase expense or may require the Firm to extend more of its capital on behalf of clients in order to execute larger, more competitive transactions. The FirmJPMorgan Chase cannot provide assurance that the significant competition in the financial services industry will not materially and adversely affect its future results of operations.
CompetitorsNew competitors have emerged. For example, technological advances and the growth of e-commerce have made it possible for non-depository institutions to offer products and services that traditionally were banking products. These advances have also allowed financial institutions and other companies to provide electronic and internet-based financial solutions, including electronic securities trading, payment processing and online automated algorithmic-based investment advice. Furthermore, both financial institutions and their non-banking competitors face the Firm’s non-U.S.risk that payment processing and other services could be disrupted by technologies, such as cryptocurrencies, that require no intermediation. New technologies have required and could require JPMorgan Chase to spend more to modify or adapt its products to attract and retain clients and customers or to match products and services offered by its competitors, including technology companies.
Ongoing or increased competition may put downward pressure on prices and fees for JPMorgan Chase’s products and services or may cause JPMorgan Chase to lose market share. This competition may be on the basis of, among other factors, quality and variety of products and services offered, transaction execution, innovation, reputation and price. The failure of any of JPMorgan Chase’s businesses to
meet the expectations of clients and customers, whether due to general market conditions or underperformance, could affect JPMorgan Chase’s ability to attract or retain clients and customers. Any such impact could, in turn, reduce JPMorgan Chase’s revenues. Increased competition also may require JPMorgan Chase to make additional capital investments in its businesses, or to extend more of its capital on behalf of its clients in order to remain competitive.
Non-U.S. competitors of JPMorgan Chase’s wholesale businesses outside the U.S. are typically subject to different, and in some cases, less stringent, legislative and regulatory regimes. For example, the regulatory objectives underlying several provisions of the Dodd-Frank Act, including the prohibition on proprietary trading under the Volcker Rule, have not been embraced by governments and regulatory agencies outside the U.S. and may not be implemented into law in most countries. The more restrictive laws and regulations applicable to JPMorgan Chase and other U.S. financial services institutions such ascan put JPMorgan Chase can put the Firmand those firms at a competitive disadvantage to its non-U.S. competitors, including prohibitingcompetitors. This could reduce the Firm fromrevenue and profitability of JPMorgan Chase’s wholesale businesses, resulting from:
prohibitions on engaging in certain transactions imposing
higher capital and liquidity requirements on the Firm,
making the Firm’sJPMorgan Chase’s pricing of certain transactions more expensive for clients, or and
adversely affecting the Firm’sJPMorgan Chase’s cost structure for providing certain products, all of which can reduce the revenue and profitability of the Firm’s wholesale businesses.products.
People
JPMorgan Chase’s ability to attract and retain qualified employees is critical to its success.
JPMorgan Chase’s employees are the Firm’sits most important resource, and in many areas of the financial services industry, competition for qualified personnel is intense. The FirmJPMorgan Chase endeavors to attract talented and diverse new employees and retain and motivate its existing employees. The Firm also seeks to retain a pipeline of senior employees with superior talent, augmented from time to time by external hires, to provide continuity of succession for the Firm’s Operating Committee, including the Chief Executive Officer position, and senior positions below the Operating Committee. The Firm regularly reviews candidates for senior management positions to assess whether they currently are ready for a next-level role. In addition, the Firm’s Board of Directors is deeply involved in succession planning, including review of the succession plans for the Chief Executive Officer and the members of the Operating Committee. If for any reason the FirmJPMorgan Chase were unable to continue to attract or retain qualified employees, including successors to the Chief Executive Officer or members of the Operating Committee, the Firm’sJPMorgan Chase’s performance, including its competitive position, could be materially and adversely affected.
Changes in immigration policies could adversely affect JPMorgan Chase’s financial statements are basedChase.
There is the potential for changes in part on assumptions and estimates which, if incorrect, could cause unexpected lossesimmigration policies in multiple jurisdictions around the future.
Under accounting principles generally acceptedworld, including in the U.S. (“U.S. GAAP”), If immigration policies were to unduly restrict or otherwise make it more difficult for qualified employees to work in, or transfer among, jurisdictions in which JPMorgan Chase has operations or conducts its business, JPMorgan Chase could be adversely affected.
Legal
JPMorgan Chase faces significant legal risks from private actions and formal and informal regulatory investigations.
JPMorgan Chase is requirednamed as a defendant or is otherwise involved in various legal proceedings, including class actions and other litigation or disputes with third parties. Actions currently pending against JPMorgan Chase may result in judgments, settlements, fines, penalties or other results adverse to useJPMorgan Chase. Any of these matters could materially and adversely affect JPMorgan Chase’s business, financial condition or results of operations, or cause serious reputational harm. As a participant in the financial services industry, it is likely that JPMorgan Chase will continue to experience a high level of litigation related to its businesses and operations.
Regulators and other government agencies conduct examinations of JPMorgan Chase and its subsidiaries both on a routine basis and in targeted exams, and JPMorgan Chase’s businesses and operations are subject to heightened regulatory oversight. This heightened regulatory scrutiny, or the results of such an investigation or examination, may lead to additional regulatory investigations or enforcement actions. There is no assurance that those actions will not result in regulatory settlements or other enforcement actions against JPMorgan Chase. Furthermore, a single event involving a potential violation of law or regulation may give rise to numerous and overlapping investigations and proceedings, either by multiple federal and state agencies and officials in the U.S. or, in some instances, regulators and other governmental officials in non-U.S. jurisdictions.
If another financial institution violates a law or regulation relating to a particular business activity or practice, this will often give rise to an investigation by regulators and other governmental agencies of the same or similar activity or practice by JPMorgan Chase.
These and other initiatives by U.S. and non-U.S. governmental authorities may subject JPMorgan Chase to judgments, settlements, fines or penalties, or require JPMorgan Chase to restructure its operations and activities or to cease offering certain assumptions and estimatesproducts or services. All of these potential outcomes could harm JPMorgan Chase’s reputation or lead to higher operational costs, thereby reducing JPMorgan Chase’s profitability, or result in preparing its financialcollateral consequences.
Item 1B. Unresolved Staff Comments.
None.
statements, including in determining allowances for credit losses and reserves related to litigation, among other items. Certain of the Firm’s financial instruments, including trading assets and liabilities, available-for-sale securities, certain loans, MSRs, structured notes and certain repurchase and resale agreements, among other items, require a determination of their fair value in order to prepare the Firm’s financial statements. Where quoted market prices are not available, the Firm may make fair value determinations based on internally developed models or other means which ultimately rely to some degree on management estimates and judgment. In addition, sudden illiquidity in markets or declines in prices of certain loans and securities may make it more difficult to value certain balance sheet items, which may lead to the possibility that such valuations will be subject to further change or adjustment. If assumptions or estimates underlying the Firm’s financial statements are incorrect, the Firm may experience material losses.
Damage to JPMorgan Chase’s reputation could damage its businesses.
Maintaining trust in JPMorgan Chase is critical to the Firm’s ability to attract and maintain customers, investors and employees. Damage to the Firm’s reputation can therefore cause significant harm to the Firm’s business and prospects. Harm to the Firm’s reputation can arise from numerous sources, including, among others, employee misconduct, security breaches, compliance failures, litigation or regulatory outcomes or governmental investigations. The Firm’s reputation could also be harmed by the failure of an affiliate, joint-venturer or merchant banking portfolio company, or a vendor or other third party with which the Firm does business, to comply with laws or regulations. In addition, a failure or perceived failure to deliver appropriate standards of service and quality, to treat customers and clients fairly, or to handle or use confidential information of customers or clients appropriately or in compliance with applicable privacy laws and regulations can result in customer dissatisfaction, litigation and heightened regulatory scrutiny, all of which can lead to lost revenue, higher operating costs and harm to the Firm’s reputation. Adverse publicity or negative information posted on social media websites regarding the Firm, whether or not true, may result in harm to the Firm’s prospects. Actions by the financial services industry generally or by certain members of or individuals in the industry can also affect the Firm’s reputation. For example, the role played by financial services firms during the financial crisis, including concerns that consumers have been treated unfairly by financial institutions, has damaged the reputation of the industry as a whole. Should any of these or other events or factors that can undermine the Firm’s reputation occur, there is no assurance that the additional costs and expenses that the Firm may need to incur to address the issues giving rise to the reputational harm could not adversely affect the Firm’s earnings and results of operations, or that damage to the Firm’s reputation will not impair the Firm’s ability to retain its existing or attract new customers, investors and employees.
Management of potential conflicts of interests has become increasingly complex as the Firm continues to expand its business activities through more numerous transactions, obligations and interests with and among the Firm’s clients. The failure or perceived failure to adequately address conflicts of interest could affect the willingness of clients to deal with the Firm, or give rise to litigation or enforcement actions, as well as cause serious reputational harm to the Firm.
ITEM 1B: UNRESOLVED SEC STAFF COMMENTS
None.
ITEM 2: PROPERTIESItem 2. Properties.
JPMorgan Chase’s headquarters is located in New York City at 270 Park Avenue, a 50-story office building owned by JPMorgan Chase. This location contains 1.3 million square feet of space.that it owns.
In total, JPMorgan ChaseThe Firm owned or leased 10.5 million square feet of commercial office and retail spacefacilities in New York Citythe following locations at December 31, 2014. JPMorgan Chase2017.
|
| | |
December 31, 2017 (in millions) | Approximate square footage |
| |
United States(a) | |
| New York City, New York | |
| 270 Park Ave, New York, New York | 1.3 |
|
| All other New York City locations | 8.8 |
|
| Total New York City, New York | 10.1 |
|
| |
| Other U.S. locations | |
| Columbus/Westerville, Ohio | 3.7 |
|
| Chicago, Illinois | 2.8 |
|
| Phoenix/Tempe, Arizona | 2.6 |
|
| Wilmington/Newark, Delaware | 2.2 |
|
| Dallas/Plano, Texas | 2.1 |
|
| Houston, Texas | 2.1 |
|
| Jersey City, New Jersey | 1.5 |
|
| All other U.S. locations | 34.8 |
|
| Total United States | 61.9 |
|
| |
| Europe, the Middle East and Africa (“EMEA”) | |
| 25 Bank Street, London, U.K. | 1.4 |
|
| All other U.K. locations | 3.0 |
|
| All other EMEA locations | 0.9 |
|
| Total EMEA | 5.3 |
|
| |
| Asia Pacific, Latin America and Canada | |
| India | 3.1 |
|
| All other locations | 3.9 |
|
| Total Asia Pacific, Latin America and Canada | 7.0 |
|
| Total | 74.2 |
|
| |
| (a) | At December 31, 2017, the Firm owned or leased 5,130 retail branches in 23 states. |
The premises and its subsidiaries also own or lease significant administrative and operational facilities in Columbus/Westerville, Ohio (3.7 million square feet); Chicago, Illinois (3.4 million square feet); Wilmington/Newark, Delaware (2.2 million square feet); Houston, Texas (2.2 million square feet); Dallas/Fort Worth, Texas (2.0 million square feet); Phoenix/Tempe, Arizona (1.8 million square feet); Jersey City, New Jersey (1.2 million square feet); as well as owning or leasing 5,602 retail branches in 23 states. At December 31, 2014, the Firm occupied a total of 65.5 million square feet of space in the U.S.
At December 31, 2014, the Firm also owned or leased 5.5 million square feet of space in Europe, the Middle East and Africa. In the U.K., at December 31, 2014, JPMorgan Chase owned or leased 4.5 million square feet of space, including 1.4 million square feet at 25 Bank Street, the European headquarters of the Corporate & Investment Bank.
In 2008, JPMorgan Chase acquired a 999-year leasehold interest in land at London’s Canary Wharf. JPMorgan Chase has a building agreement in place through October 30, 2016, to develop the Canary Wharf site for future use.
JPMorgan Chase and its subsidiaries also occupy offices and other administrative and operational facilities in the Asia/Pacific region, Latin America and Canada under ownership and leasehold agreements aggregating 5.8 million square feet of space at December 31, 2014. This includes leases for administrative and operational facilities in India (2.0 million square feet).
The properties occupied by JPMorgan Chase are used across all of the Firm’s business segments and for corporate purposes. JPMorgan Chase continues to evaluate its current and projected space requirements and may determine from time to time that certain of its properties (including the premises and facilities noted above) are no longer necessary for its operations. There is no assurance that the Firm will be able to dispose of any such excess
Parts I properties, premises, and II
premisesfacilities or that it will not incur chargescosts in connection with such dispositions. Such disposition costs may be material to the Firm’s results of operations in a given period. For information on occupancy expense, see the Consolidated Results of Operations on pages 68–71.44–46.
ITEM 3: LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
For a description of the Firm’s material legal proceedings, see Note 31.29.
ITEM 4: MINE SAFETY DISCLOSURESItem 4. Mine Safety Disclosures.
Not applicable.
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market for registrant’s common equity
The outstanding shares of JPMorgan Chase common stock are listed and traded on the New York Stock Exchange, the London Stock Exchange and the Tokyo Stock Exchange. For the quarterly high and low prices of JPMorgan Chase’s common stock and cash dividends declared on JPMorgan Chase’s common stock for the last two years, see the section entitled “Supplementary information – Selected quarterly financial data (unaudited)” on pages 307–308.page 277. For a comparison of the cumulative total return for JPMorgan Chase common stock with the comparable total return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index over the five-year period ended December 31, 2014,2017, see “Five-year stock performance”,performance,” on page 63.39.
For information on the common dividend payout ratio, see Capital actions in the Capital Risk Management section of Management’s discussion and analysis on page 154.pages 89-90. For a discussion of restrictions on dividend payments, see Note 2220 and Note 27. At25. On January 31, 2015,2018, there were 205,115192,658 holders of record of JPMorgan Chase common stock. For information regarding securities authorized for issuance under the Firm’s employee stock-basedshare-based compensation plans, see Part III, Item 12 on page 23.31.
Repurchases under the common equity repurchase program
For information regarding repurchases under the Firm’s common equity repurchase program, see Capital actions in the Capital Risk Management section of Management’s discussion and analysis on page 154.pages 89-90.
Shares repurchased, on a settlement-date basis, pursuant to the common equity repurchase program during 20142017 were as follows.
| | | Year ended December 31, 2014 | | Total shares of common stock repurchased | | Average price paid per share of common stock(a) | | Aggregate repurchases of common equity (in millions)(a) | | Dollar value of remaining authorized repurchase (in millions)(a) | |
| Year ended December 31, 2017 | | | Total shares of common stock repurchased | | Average price paid per share of common stock(a) | | Aggregate repurchases of common equity (in millions)(a) | | Dollar value of remaining authorized repurchase (in millions)(a) | |
| First quarter | | 6,733,494 |
| | $ | 57.31 |
| | $ | 386 |
| | $ | 8,258 |
| | 32,132,964 |
| | $ | 88.14 |
| | $ | 2,832 |
| | $ | 3,221 |
| |
| Second quarter | | 24,769,261 |
| | 55.53 |
| | 1,375 |
| | 6,883 |
| | 34,940,127 |
| | 86.05 |
| | 3,007 |
| | 214 |
| (b) |
| Third quarter | | 25,503,377 |
| | 58.37 |
| | 1,489 |
| | 5,394 |
| | 51,756,892 |
| | 92.02 |
| | 4,763 |
| | 14,637 |
| |
| October | | 9,527,323 |
| | 57.92 |
| | 552 |
| | 4,842 |
| | 14,248,307 |
| | 98.04 |
| | 1,397 |
| | 13,241 |
| |
| November | | 6,180,664 |
| | 60.71 |
| | 375 |
| | 4,467 |
| | 19,472,405 |
| | 98.92 |
| | 1,926 |
| | 11,314 |
| |
| December | | 9,538,119 |
| | 61.08 |
| | 583 |
| | 3,884 |
| | 14,006,503 |
| | 106.02 |
| | 1,485 |
| | 9,830 |
| |
| Fourth quarter | | 25,246,106 |
| | 59.80 |
| | 1,510 |
| | 3,884 |
| | 47,727,215 |
| | 100.74 |
| | 4,808 |
| | 9,830 |
| |
| Year-to-date | | 82,252,238 |
| | $ | 57.87 |
| | $ | 4,760 |
| | $ | 3,884 |
| | 166,557,198 |
| | $ | 92.52 |
| | $ | 15,410 |
| | $ | 9,830 |
| (c) |
| |
| (a) | Excludes commissions cost. |
| |
| (b) | The $214 million unused portion under the prior Board authorization was canceled when the $19.4 billion repurchase program was authorized by the Board of Directors on June 28, 2017. |
| |
| (c) | Represents the amount remaining under the $19.4 billion repurchase program. |
Repurchases under the stock-based incentive plansParticipants in the Firm’s stock-based incentive plans may have shares of common stock withheld to cover income taxes. Shares withheld to pay income taxes are repurchased pursuant to the terms of the applicable plan and not under the Firm’s repurchase program. Shares repurchased, on a settlement-date basis, pursuant to these plans during 2014 were as follows.
|
| | | | | | |
Year ended
December 31, 2014 | Total shares of common stock repurchased | | Average price paid per share of common stock |
| First quarter | 1,245 |
| | $ | 57.99 |
|
| Second quarter | — |
| | — |
|
| Third quarter | — |
| | — |
|
| Fourth quarter | — |
| | — |
|
| Year-to-date | 1,245 |
| | $ | 57.99 |
|
ITEM 6: SELECTED FINANCIAL DATAItem 6. Selected Financial Data.
For five-year selected financial data, see “Five-year summary of consolidated financial highlights (unaudited)” on page 62.38.
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s discussion and analysis of financial condition and results of operations, entitled “Management’s discussion and analysis,” appears on pages 64–169.40–145. Such information should be read in conjunction with the Consolidated Financial Statements and Notes thereto, which appear on pages 172–306.148–276.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
For a discussion of the quantitative and qualitative disclosures about market risk, see the Market Risk Management section of Management’s discussion and analysis on pages 131–136.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAItem 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements, together with the Notes thereto and the report thereon dated February 24, 2015,27, 2018, of PricewaterhouseCoopers LLP, the Firm’s independent registered public accounting firm, appear on pages 171–306.146–276.
Supplementary financial data for each full quarter within the two years ended December 31, 2014,2017, are included on pages 307–308page 277 in the table entitled “Selected quarterly financial
data (unaudited).” Also included is a “Glossary of terms’Terms and Acronyms’’ on pages 309–313.283-289.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREItem 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
ITEM 9A: CONTROLS AND PROCEDURES
In May 2013,The internal control framework promulgated by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued its updated(“COSO”), “Internal Control -— Integrated Framework (2013)”. The 2013 framework, whichFramework” (“COSO 2013”) provides guidance for designing, implementing and conducting internal control and assessing its effectiveness, updates the original COSO framework, which was published in 1992.effectiveness. The Firm used the COSO 2013 COSO framework to assess the effectiveness of the Firm’s internal control over financial reporting as of December 31, 2014.2017. See “Management’s report on internal control over financial reporting” on page 170.146.
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Firm’s management, including its Chairman and Chief Executive Officer and its Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chairman and Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective. See Exhibits 31.1 and 31.2 for the Certification statementsCertifications issued by the Chairman and Chief Executive Officer and Chief Financial Officer.
The Firm is committed to maintaining high standards of internal control over financial reporting. Nevertheless, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, in a firm as large and complex as JPMorgan Chase, lapses or deficiencies in internal controls may occur from time to time, and there can be no assurance that any such deficiencies will not result in significant deficiencies or material weaknesses in internal controlscontrol in the future. For further information, see “Management’s report on internal control over financial reporting” on page 170.146. There was no change in the Firm’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the three months ended December 31, 2014,2017, that has materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting.
Item 9B. Other Information.
ITEM 9B: OTHER INFORMATIONIran threat reduction disclosure
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generallymay be required even where the activities, transactions or dealings were conducted in compliance with applicable law. Except as set forth below, as of the date of this report, the Firm is not aware of any other activity, transaction or dealing by any of its affiliates during the calendar year ended December 31, 20142017 that requires disclosure under Section 219.
Carlson Wagonlit Travel (“CWT”),As previously disclosed, during the first quarter of 2017, a business travel management firm in whichnon-U.S. subsidiary of JPMorgan Chase had invested throughprocessed a payment in the amount of EUR 1,466 for its merchant banking activities, may be deemedclient, a non-U.S. international organization, where the payment originated from entities owned or controlled by the Government of Iran. JPMorgan Chase charged a fee of EUR 2.50 for this transaction. In addition to be an affiliate ofthe previously disclosed transaction, the Firm asidentified four other payments made in 2017 in the amounts of $68,567, $66,280, $98,143, and $110,831, that term is defined in Exchange Act Rule 12b-2. CWT informed the Firm that, during the period January 1, 2014 through August 15, 2014 (the date on which the Firm sold its investment in CWT), CWT booked approximately 2 flights (of the approximately 37 million transactions it booked during the period) to Iran on Iran Air for passengers, including employees of foreign governments and/or non-governmental organizations. Both flights originated outside of the U.S. from countries that permit travel to Iran, and none of such passengers were persons designated under Executive Orders 13224 or 13382 or were employees of foreign governments that are targets of U.S. sanctions. CWT and the Firm believe that this activity is permissible pursuant to certain exemptions from U.S. sanctions for travel-related transactions under the International Emergency Economic Powers Act, as amended. CWT had approximately $5,000 in gross revenues attributable to these transactions.
In addition, during 2014,processed by JPMorgan Chase Bank N.A. processed one payment from Iran Air on behalfand a non-U.S. subsidiary of a U.S. client into such client’s account at JPMorgan Chase Bank, N.A. Iran Air is designatedfor a client, a U.S.-based international publishing business, where the payments originated from educational institutions owned or controlled by the Government of Iran. JPMorgan Chase charged total fees of $3,930 for these transactions.
Each of the above payments received into both clients’ accounts, were for the purchase of informational materials, and they were therefore exempt transactions pursuant to Executive Order 13382. This transaction was authorized by31. C.F.R. 560.210(c), and conducted pursuant to a license from the Treasury Department’s Office of Foreign Assets Control (“OFAC”). JPMorgan Chase Bank, N.A. charged a fee of US$ 3.50 for this transaction. Iran Air overpaid such U.S. client when it made the initial payment to the client. Therefore, upon its U.S. client’s request, the Firm transferred the overpayment back to Iran Airwere all processed in the fourth quarter of 2014 and charged a fee of US$ 5.50 for the transfer. Ascompliance with the initial transaction, the transfer of the overpayment to Iran Air was authorized by and conducted pursuant to an OFAC license. Iran-related sanctions regulations.
JPMorgan Chase Bank, N.A. has no current intention to continue such activities but may in the future engage in similar transactions for its clients to the extent permitted by U.S. law.
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
Executive officers of the registrant(a)
|
| | |
| | Age | |
| Name | (at December 31, 2014)2017) | Positions and offices |
| James Dimon | 5861 | Chairman of the Board and Chief Executive Officer and President.Officer; he had been President from July 2004 until January 2018. |
| Ashley Bacon | 4548 | Chief Risk Officer since June 2013. He had been Deputy Chief Risk Officer since June 2012, prior to which he had been Global Head of Market Risk for the Investment Bank (now part of Corporate & Investment Bank). |
Stephen M. CutlerLori A. Beer(a) | 5350 | General Counsel. |
John L. Donnelly | 58 | Chief Information Officer since September 2017, prior to which she had been Chief Information Officer of the Corporate & Investment Bank since June 2016. She was Global Head of Human Resources sinceBanking Technology from January 2009.2014 until May 2016. Prior to joining JPMorgan Chase in 2014, she was Executive Vice President of Specialty Businesses and Information Technology for Anthem, Inc.
|
| Mary Callahan Erdoes | 4750 | Chief Executive Officer of Asset & Wealth Management since September 2009.2009, prior to which she had been Chief Executive Officer of Wealth Management. |
| Stacey Friedman | 49 | General Counsel since January 2016, prior to which she was Deputy General Counsel since July 2015 and General Counsel for the Corporate & Investment Bank since August 2012. Prior to joining JPMorgan Chase in 2012, she was a partner at the law firm of Sullivan & Cromwell LLP. |
| Marianne Lake | 4548 | Chief Financial Officer since January 1, 2013, prior to which she had been Chief Financial Officer of Consumer & Community Banking since 2009. She previously |
Robin Leopold(b) | 53 | Head of Human Resources since January 2018, prior to which she had served as Global Controllerbeen Head of Human Resources for the Investment Bank (now part of Corporate & Investment Bank)Bank since 2012. She was a Human Resources Executive serving the Firm’s Corporate functions from 2007 to 2009.February 2010 until August 2012.
|
| Douglas B. Petno | 4952 | Chief Executive Officer of Commercial Banking since January 2012. He2012, prior to which he had been Chief Operating Officer of Commercial Banking since October 2010, prior to which he had been Global Head of Natural Resources in the Investment Bank (now part of Corporate & Investment Bank).Banking. |
Daniel E. Pinto(c) | 5255 | Co-President and Co-Chief Operating Officer since January 30, 2018, Chief Executive Officer of the Corporate & Investment Bank since March 2014, and Chief Executive Officer of Europe, the Middle East and Africa since June 2011. He had been Co-Chief Executive Officer of the Corporate & Investment Bank from July 2012 until March 2014, prior to which he had been head or co-headCo-head of the Global Fixed Income business from November 2009 until July 2012. He was Global |
Peter Scher(a) | 56 | Head of Emerging Markets from 2006 until 2009,Corporate Responsibility since 2011 and was also responsible forChairman of the Global Credit Trading & Syndicate business from 2008 until 2009.Mid-Atlantic Region since 2015.
|
Gordon A. Smith(c) | 5659 | Co-President and Co-Chief Operating Officer since January 30, 2018, and Chief Executive Officer of Consumer & Community Banking since December 2012 prior to which he2012. He had been Co-Chief Executive Officer sincefrom July 2012. He2012 until December 2012, prior to which he had been Chief Executive Officer of Card Services sincefrom 2007 until 2012 and of the Auto Finance and Student Lending businesses since 2011. |
Matthew E. Zames | 44 | Chief Operating Officer since April 2013 and head of Mortgage Banking Capital Markets since January 2012. He had been Co-Chief Operating Officer from July 2012 until April 2013. He had been Chief Investment Officer from May until September 2012, co-head of the Global Fixed Income business from November 2009 until May 2012 and co-head of Mortgage Banking Capital Markets from July 2011 until January 2012, prior to which he had served in a number of senior Investment Banking Fixed Income management roles.2012. |
(a) All of the executive officers listed in this table are currently members of the Firm’s Operating Committee.
Unless otherwise noted, during the five fiscal years ended December 31, 2014,2017, all of JPMorgan Chase’s above-named executive officers have continuously held senior-level positions with JPMorgan Chase. There are no family relationships among the foregoing executive officers. Information to be provided in Items 10, 11, 12, 13 and 14 of the Form 10-K and not otherwise included herein is incorporated by reference to the Firm’s definitive proxy statementDefinitive Proxy Statement for its 20152018 Annual Meeting of Stockholders to be held on May 19, 2015,15, 2018, which will be filed with the SEC within 120 days of the end of the Firm’s fiscal year ended December 31, 2014.2017.
| |
| (a) | The Chief Information Officer and Head of Corporate Responsibility were both named as executive officers in 2017. |
| |
| (b) | On January 1, 2018, Ms. Leopold was named Head of Human Resources. At that date, Mr. John L. Donnelly, formerly Head of Human Resources, became a Vice Chairman of JPMorgan Chase; he is no longer an executive officer of the Firm. |
| |
| (c) | On January 30, 2018, Mr. Pinto and Mr. Smith were named Co-Presidents and Co-Chief Operating Officers of the Firm. |
ITEM 11: EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
See Item 10.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
For security ownership of certain beneficial owners and management, see Item 10.
The following table sets forth the total number of shares available for issuance under JPMorgan Chase’s employee stock-basedshare-based incentive plans (including shares available for issuance to nonemployeenon-employee directors). The Firm is not authorized to grant stock-basedshare-based incentive awards to nonemployees,non-employees, other than to nonemployeenon-employee directors.
| | | December 31, 2014 | Number of shares to be issued upon exercise of outstanding options/SARs | | Weighted-average exercise price of outstanding options/SARs | | Number of shares remaining available for future issuance under stock compensation plans | |
| December 31, 2017 | | Number of shares to be issued upon exercise of outstanding options/stock appreciation rights | | Weighted-average exercise price of outstanding options/stock appreciation rights | | Number of shares remaining available for future issuance under stock compensation plans |
| Plan category | | | | | | | | | | | | |
| Employee stock-based incentive plans approved by shareholders | 59,194,831 |
| | $ | 45.00 |
| | 266,037,974 |
| (a) | |
| Employee share-based incentive plans approved by shareholders | | 17,492,607 |
| (a) | | $ | 40.76 |
| | 66,828,172 |
| (b) |
| Total | 59,194,831 |
| | $ | 45.00 |
| | 266,037,974 |
| | 17,492,607 |
| | $ | 40.76 |
| | 66,828,172 |
| |
| |
| (a) | Represents future shares availableDoes not include restricted stock units or performance stock units granted under the shareholder-approved Long-Term Incentive Plan (“LTIP”), as amended and restated effective May 17, 2011.19, 2015. For further discussion, see Note 9. |
| |
| (b) | Represents shares available for future issuance under the shareholder-approved LTIP. |
All shares available for future sharesissuance will be issued under the shareholder-approved Long-Term Incentive Plan, as amended and restated effective May 17, 2011.LTIP. For further discussion, see Note 10.9.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEItem 13. Certain Relationships and Related Transactions, and Director Independence.
See Item 10.
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICESItem 14. Principal Accounting Fees and Services.
See Item 10.
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, financial statement schedulesFinancial Statement Schedules.
|
| | |
| 1 | | Financial statements |
| | | The Consolidated Financial Statements, the Notes thereto and the report of the Independent Registered Public Accounting Firm thereon listed in Item 8 are set forth commencing on page 171.147. |
| | | |
| 2 | | Financial statement schedules |
| | | |
| 3 | | Exhibits |
| | | |
| 3.1 | | |
| | | |
| 3.2 | | |
| | | |
| 3.3 | | |
| | |
| | | |
| 3.4 | | Certificate of Designations for 5.50% Non-Cumulative Preferred Stock, Series O (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed August 27, 2012). |
| | |
3.5 | | |
| | | |
3.63.5 | | |
| | | |
3.9 |
| | |
| 3.8 | | |
| | | |
3.103.9 | | |
| | | |
3.113.10 | | |
| | | |
3.123.11 | | |
| | | |
3.133.12 | | |
| 3.13 | | |
3.14 | | By-laws |
| | |
| 3.14 | | |
| | |
| 3.15 | | |
| | |
| 3.16 | | |
| | |
| 3.17 | |
|
| | | |
|
| | |
4.13.18 | |
|
| 4.1(a) | | |
| | | |
4.24.1(b) | | |
| | |
| 4.2(a) | | |
| | | |
4.34.2(b) | | |
| | |
| 4.3(a) | | |
| | |
| 4.3(b) | | |
| | | |
| 4.4 | | |
| | |
|
| | |
| 4.5 | | |
| | | |
4.54.6 | | |
| | | |
| Other instruments defining the rights of holders of long-term debt securities of JPMorgan Chase & Co. and its subsidiaries are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. JPMorgan Chase & Co. agrees to furnish copies of these instruments to the SEC upon request. |
| | | |
| 10.1 | | |
| | | |
| 10.2 | | |
| | | |
|
| | |
| 10.3 | | |
| | | |
| 10.4 | | |
| | | |
| 10.5 | | |
| | | |
| 10.6 | | |
| | | |
| 10.7 | | 1995 Stock Incentive Plan of J.P. Morgan & Co. Incorporated and Affiliated Companies, as amended, dated December 11, 1996 (incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a)
|
| | |
10.8 | | |
| | |
10.9 | | Bank One Corporation Stock Performance Plan, as amended and restated effective February 20, 2001 (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a)
|
| | | |
|
| | |
10.1010.8 | | |
| | | |
10.1110.9 | | |
| | | |
10.1210.10 | | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of January 22, 2008 stock appreciation rights (incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007).(a)
|
| | |
10.13 | | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of January 22, 2008 stock appreciation rights for James Dimon (incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007).(a)
|
| | |
10.14 | | |
| | | |
10.1510.11 | | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for Operating Committee member stock appreciation rights, dated as of January 20, 2009 (incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a)
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| | |
10.16 | | |
| | | |
10.1710.12 | | |
| | | |
|
| | |
10.1810.13 | | |
| | | |
10.1910.14 | | |
| | |
| 10.15 | | |
| | |
|
| | |
| 10.16 | | |
| | |
| 10.17 | | |
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| 10.18 | | |
| | |
| 10.19 | | |
| | | |
| 10.20 | | |
| | | |
| 10.21 | | |
| | | |
| 10.22 | | Deferred Prosecution |
| | | |
| 12.1 | | |
| | | |
| 12.2 | | |
| | | |
| 21 | | |
| | | |
22.122 | | Annual Report on Form 11-K of The JPMorgan Chase 401(k) Savings Plan for the year ended December 31, 20142017 (to be filed pursuant to Rule 15d-21 under the Securities Exchange Act of 1934). |
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| | |
| 101.INS | | XBRL Instance Document.(b)(d) |
| | | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document.(b) |
| | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document.(b) |
| | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document.(b) |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document.(b) |
| | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document.(b) |
| | |
| |
| (a) | This exhibit is a management contract or compensatory plan or arrangement. |
| |
| (c) | Furnished herewith. This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. |
| |
| (d) | Pursuant to Rule 405 of Regulation S-T, includes the following financial information included in the Firm’s Annual Report on Form 10-K for the year ended December 31, 2014,2017, formatted in XBRL (eXtensible Business Reporting Language) interactive data files: (i) the Consolidated statements of income for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, (ii) the Consolidated statements of comprehensive income for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, (iii) the Consolidated balance sheets as of December 31, 20142017 and 2013,2016, (iv) the Consolidated statements of changes in stockholders’ equity for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, (v) the Consolidated statements of cash flows for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, and (vi) the Notes to Consolidated Financial Statements. |
Pages 28–60page 36 not used
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| | | | | | |
| Financial: | | | | |
| | | | | | | |
| 62 | | Five-Year Summary of Consolidated Financial Highlights | | Audited financial statements: |
| | | | | | | |
| 63 | | Five-Year Stock Performance | | 170 | | Management’s Report on Internal Control Over Financial Reporting |
| | | | | | | |
| Management’s discussion and analysis: | | 171 | | Report of Independent Registered Public Accounting Firm |
| | | | | | | |
| 64 | | Introduction | | 172 | | Consolidated Financial Statements |
| | | | | | | |
| 65 | | Executive Overview | | 177 | | Notes to Consolidated Financial Statements |
| | | | | | | |
| 68 | | Consolidated Results of Operations | | |
| | | | | | | |
| 72 | | Consolidated Balance Sheets Analysis | | | | |
| 74 | | Off–Balance Sheet Arrangements and Contractual Cash Obligations | | | | |
| | | | | | | |
| 76 | | Consolidated Cash Flows Analysis | | | | |
| | | | | | | |
| 77 | | Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures | | Supplementary information: |
| | | | | | | |
| 79 | | Business Segment Results | | 307 | | Selected Quarterly Financial Data |
| | | | | | | |
| 105 | | Enterprise-wide Risk Management | | 309 | | Glossary of Terms |
| | | | | | | |
| 110 | | Credit Risk Management | | | | |
| | | | | | | |
| 131 | | Market Risk Management | | | | |
| | | | | | | |
| 137 | | Country Risk Management | | | | |
| | | | | | | |
| 139 | | Model Risk Management | | | | |
| | | | | | | |
| 140 | | Principal Risk Management | | | | |
| | | | | | | |
| 141 | | Operational Risk Management | | | | |
| | | | | | | |
| 144 | | Legal Risk Management & Compliance Risk Management | | | | |
| | | | | | | |
| 145 | | Fiduciary Risk Management | | | | |
| | | | | | | |
| 145 | | Reputation Risk Management | | | | |
| | | | | | | |
| 146 | | Capital Management | | | | |
| | | | | | | |
| 156 | | Liquidity Risk Management | | | | |
| | | | | | | |
| 161 | | Critical Accounting Estimates Used by the Firm | | | | |
| | | | | | | |
| 166 | | Accounting and Reporting Developments | | | | |
| | | | | | | |
| 168 | | Nonexchange-Traded Commodity Derivative Contracts at Fair Value | | | | |
| | | | | | | |
| 169 | | Forward-Looking Statements | | | | |
| | | | | | | |
|
| | | | | | |
| Financial: | | | | |
| | | | | | | |
| 38 | | | | Audited financial statements: |
| | | | | | | |
| 39 | | | | 146 | | |
| | | | | | | |
| Management’s discussion and analysis: | | 147 | | |
| | | | | | | |
| 40 | | | | 148 | | |
| | | | | | | |
| 41 | | | | 153 | | |
| | | | | | | |
| 44 | | | | |
| | | | | | | |
| 47 | | | | | | |
| | | | | | | |
| 50 | | | | | | |
| | | | | | | |
| 52 | | | | Supplementary information: |
| | | | | | | |
| 55 | | | | 277 | | |
| | | | | | | |
| 75 | | | | 278 | | |
| | | | | | |
| | | | | | | |
| 81 | | | | 283 | | |
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| 99 | | | | | | |
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| 121 | | | | | | |
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| 129 | | | | | | |
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| 131 | | | | | | |
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| 138 | | | | | | |
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| 141 | | | | | | |
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| 145 | | | | | | |
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| | |
JPMorgan Chase & Co./20142017 Annual Report | | 6137 |
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS | | (unaudited) As of or for the year ended December 31, | | | |
| (in millions, except per share, ratio, headcount data and where otherwise noted) | | 2014 | 2013 | 2012 | 2011 | 2010 | |
(unaudited) As of or for the year ended December 31, (in millions, except per share, ratio, headcount data and where otherwise noted) | | | | | |
| | 2017 | 2016 | | 2015 | 2014 | 2013 |
| Selected income statement data | | | | | | |
| Total net revenue | | $ | 94,205 |
| $ | 96,606 |
| $ | 97,031 |
| $ | 97,234 |
| $ | 102,694 |
| | $ | 99,624 |
| $ | 95,668 |
| | $ | 93,543 |
| $ | 95,112 |
| $ | 97,367 |
|
| Total noninterest expense | | 61,274 |
| 70,467 |
| 64,729 |
| 62,911 |
| 61,196 |
| | 58,434 |
| 55,771 |
| | 59,014 |
| 61,274 |
| 70,467 |
|
| Pre-provision profit | | 32,931 |
| 26,139 |
| 32,302 |
| 34,323 |
| 41,498 |
| | 41,190 |
| 39,897 |
| | 34,529 |
| 33,838 |
| 26,900 |
|
| Provision for credit losses | | 3,139 |
| 225 |
| 3,385 |
| 7,574 |
| 16,639 |
| | 5,290 |
| 5,361 |
| | 3,827 |
| 3,139 |
| 225 |
|
| Income before income tax expense | | 29,792 |
| 25,914 |
| 28,917 |
| 26,749 |
| 24,859 |
| | 35,900 |
| 34,536 |
| | 30,702 |
| 30,699 |
| 26,675 |
|
| Income tax expense | | 8,030 |
| 7,991 |
| 7,633 |
| 7,773 |
| 7,489 |
| | 11,459 |
| 9,803 |
| | 6,260 |
| 8,954 |
| 8,789 |
|
Net income | | $ | 21,762 |
| $ | 17,923 |
| $ | 21,284 |
| $ | 18,976 |
| $ | 17,370 |
| | $ | 24,441 |
| $ | 24,733 |
| | $ | 24,442 |
| $ | 21,745 |
| $ | 17,886 |
|
| Earnings per share data | | | | | | |
| Net income: Basic | | $ | 5.34 |
| $ | 4.39 |
| $ | 5.22 |
| $ | 4.50 |
| $ | 3.98 |
| | $ | 6.35 |
| $ | 6.24 |
| | $ | 6.05 |
| $ | 5.33 |
| $ | 4.38 |
|
| Diluted | | 5.29 |
| 4.35 |
| 5.20 |
| 4.48 |
| 3.96 |
| | 6.31 |
| 6.19 |
| | 6.00 |
| 5.29 |
| 4.34 |
|
| Average shares: Basic | | 3,763.5 |
| 3,782.4 |
| 3,809.4 |
| 3,900.4 |
| 3,956.3 |
| | 3,551.6 |
| 3,658.8 |
| | 3,741.2 |
| 3,808.3 |
| 3,832.4 |
|
| Diluted | | 3,797.5 |
| 3,814.9 |
| 3,822.2 |
| 3,920.3 |
| 3,976.9 |
| | 3,576.8 |
| 3,690.0 |
| | 3,773.6 |
| 3,842.3 |
| 3,864.9 |
|
| Market and per common share data | | | | | | |
| Market capitalization | | $ | 232,472 |
| $ | 219,657 |
| $ | 167,260 |
| $ | 125,442 |
| $ | 165,875 |
| | $ | 366,301 |
| $ | 307,295 |
| | $ | 241,899 |
| $ | 232,472 |
| $ | 219,657 |
|
| Common shares at period-end | | 3,714.8 |
| 3,756.1 |
| 3,804.0 |
| 3,772.7 |
| 3,910.3 |
| | 3,425.3 |
| 3,561.2 |
| | 3,663.5 |
| 3,714.8 |
| 3,756.1 |
|
Share price(a) | | | |
Share price:(b) | | | | | |
| High | | $ | 63.49 |
| $ | 58.55 |
| $ | 46.49 |
| $ | 48.36 |
| $ | 48.20 |
| | $ | 108.46 |
| $ | 87.39 |
| | $ | 70.61 |
| $ | 63.49 |
| $ | 58.55 |
|
| Low | | 52.97 |
| 44.20 |
| 30.83 |
| 27.85 |
| 35.16 |
| | 81.64 |
| 52.50 |
| | 50.07 |
| 52.97 |
| 44.20 |
|
| Close | | 62.58 |
| 58.48 |
| 43.97 |
| 33.25 |
| 42.42 |
| | 106.94 |
| 86.29 |
| | 66.03 |
| 62.58 |
| 58.48 |
|
| Book value per share | | 57.07 |
| 53.25 |
| 51.27 |
| 46.59 |
| 43.04 |
| | 67.04 |
| 64.06 |
| | 60.46 |
| 56.98 |
| 53.17 |
|
Tangible book value per share (“TBVPS”)(b)(c) | | 44.69 |
| 40.81 |
| 38.75 |
| 33.69 |
| 30.18 |
| | 53.56 |
| 51.44 |
| | 48.13 |
| 44.60 |
| 40.72 |
|
| Cash dividends declared per share | | 1.58 |
| 1.44 |
| 1.20 |
| 1.00 |
| 0.20 |
| | 2.12 |
| 1.88 |
| | 1.72 |
| 1.58 |
| 1.44 |
|
| Selected ratios and metrics | | | | | | |
| Return on common equity (“ROE”) | | 10 | % | 9 | % | 11 | % | 11 | % | 10 | % | | 10 | % | 10 | % | | 11 | % | 10 | % | 9 | % |
Return on tangible common equity (“ROTCE”)(b)(c) | | 13 |
| 11 |
| 15 |
| 15 |
| 15 |
| | 12 |
| 13 |
| | 13 |
| 13 |
| 11 |
|
| Return on assets (“ROA”) | | 0.89 |
| 0.75 |
| 0.94 |
| 0.86 |
| 0.85 |
| | 0.96 |
| 1.00 |
| | 0.99 |
| 0.89 |
| 0.75 |
|
| Overhead ratio | | 65 |
| 73 |
| 67 |
| 65 |
| 60 |
| | 59 |
| 58 |
| | 63 |
| 64 |
| 72 |
|
| Loans-to-deposits ratio | | 56 |
| 57 |
| 61 |
| 64 |
| 74 |
| | 64 |
| 65 |
| | 65 |
| 56 |
| 57 |
|
High quality liquid assets (“HQLA“) (in billions)(c) | | $ | 600 |
| $ | 522 |
| $ | 341 |
| NA |
| NA |
| |
High quality liquid assets (“HQLA”) (in billions)(d) | | | $ | 556 |
| $ | 524 |
| | $ | 496 |
| $ | 600 |
| $ | 522 |
|
Common equity tier 1 (“CET1”) capital ratio(d)(e) | | 10.2 | % | 10.7 | % | 11.0 | % | 10.1 | % | 9.8 | % | | 12.2 | % | 12.3 | % | (i) | 11.8 | % | 10.2 | % | 10.7 | % |
Tier 1 capital ratio (d)(e) | | 11.6 |
| 11.9 |
| 12.6 |
| 12.3 |
| 12.1 |
| | 13.9 |
| 14.0 |
| (i) | 13.5 |
| 11.6 |
| 11.9 |
|
Total capital ratio(d)(e) | | 13.1 |
| 14.4 |
| 15.3 |
| 15.4 |
| 15.5 |
| | 15.9 |
| 15.5 |
| | 15.1 |
| 13.1 |
| 14.3 |
|
Tier 1 leverage ratio(d)(e) | | 7.6 |
| 7.1 |
| 7.1 |
| 6.8 |
| 7.0 |
| | 8.3 |
| 8.4 |
| | 8.5 |
| 7.6 |
| 7.1 |
|
| Selected balance sheet data (period-end) | | | | | | |
| Trading assets | | $ | 398,988 |
| $ | 374,664 |
| $ | 450,028 |
| $ | 443,963 |
| $ | 489,892 |
| | $ | 381,844 |
| $ | 372,130 |
| | $ | 343,839 |
| $ | 398,988 |
| $ | 374,664 |
|
Securities(e) | | 348,004 |
| 354,003 |
| 371,152 |
| 364,793 |
| 316,336 |
| | 249,958 |
| 289,059 |
| | 290,827 |
| 348,004 |
| 354,003 |
|
| Loans | | 757,336 |
| 738,418 |
| 733,796 |
| 723,720 |
| 692,927 |
| | 930,697 |
| 894,765 |
| | 837,299 |
| 757,336 |
| 738,418 |
|
| Core Loans | | | 863,683 |
| 806,152 |
| | 732,093 |
| 628,785 |
| 583,751 |
|
| Average core loans | | | 829,558 |
| 769,385 |
| | 670,757 |
| 596,823 |
| 563,809 |
|
| Total assets | | 2,573,126 |
| 2,415,689 |
| 2,359,141 |
| 2,265,792 |
| 2,117,605 |
| | 2,533,600 |
| 2,490,972 |
| | 2,351,698 |
| 2,572,274 |
| 2,414,879 |
|
| Deposits | | 1,363,427 |
| 1,287,765 |
| 1,193,593 |
| 1,127,806 |
| 930,369 |
| | 1,443,982 |
| 1,375,179 |
| | 1,279,715 |
| 1,363,427 |
| 1,287,765 |
|
Long-term debt(f) | | 276,836 |
| 267,889 |
| 249,024 |
| 256,775 |
| 270,653 |
| | 284,080 |
| 295,245 |
| | 288,651 |
| 276,379 |
| 267,446 |
|
| Common stockholders’ equity | | 212,002 |
| 200,020 |
| 195,011 |
| 175,773 |
| 168,306 |
| | 229,625 |
| 228,122 |
| | 221,505 |
| 211,664 |
| 199,699 |
|
| Total stockholders’ equity | | 232,065 |
| 211,178 |
| 204,069 |
| 183,573 |
| 176,106 |
| | 255,693 |
| 254,190 |
| | 247,573 |
| 231,727 |
| 210,857 |
|
| Headcount | | 241,359 |
| 251,196 |
| 258,753 |
| 259,940 |
| 239,515 |
| | 252,539 |
| 243,355 |
| | 234,598 |
| 241,359 |
| 251,196 |
|
| Credit quality metrics | | | | | | |
| Allowance for credit losses | | $ | 14,807 |
| $ | 16,969 |
| $ | 22,604 |
| $ | 28,282 |
| $ | 32,983 |
| | $ | 14,672 |
| $ | 14,854 |
| | $ | 14,341 |
| $ | 14,807 |
| $ | 16,969 |
|
| Allowance for loan losses to total retained loans | | 1.90 | % | 2.25 | % | 3.02 | % | 3.84 | % | 4.71 | % | | 1.47 | % | 1.55 | % | | 1.63 | % | 1.90 | % | 2.25 | % |
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(g) | | 1.55 |
| 1.80 |
| 2.43 |
| 3.35 |
| 4.46 |
| | 1.27 |
| 1.34 |
| | 1.37 |
| 1.55 |
| 1.80 |
|
| Nonperforming assets | | $ | 7,967 |
| $ | 9,706 |
| $ | 11,906 |
| $ | 11,315 |
| $ | 16,682 |
| | $ | 6,426 |
| $ | 7,535 |
| | $ | 7,034 |
| $ | 7,967 |
| $ | 9,706 |
|
| Net charge-offs | | 4,759 |
| 5,802 |
| 9,063 |
| 12,237 |
| 23,673 |
| |
| Net charge-off rate | | 0.65 | % | 0.81 | % | 1.26 | % | 1.78 | % | 3.39 | % | |
Net charge-offs(h) | | | 5,387 |
| 4,692 |
| | 4,086 |
| 4,759 |
| 5,802 |
|
Net charge-off rate(h) | | | 0.60 | % | 0.54 | % | | 0.52 | % | 0.65 | % | 0.81 | % |
| |
| (a) | ShareOn December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The Firm’s results included a $2.4 billion decrease to net income as a result of the enactment of the TCJA. For additional information related to the impact of the TCJA, see Note 24. |
| |
| (b) | Based on daily prices shown for JPMorgan Chase’s common stock are fromreported by the New York Stock Exchange. JPMorgan Chase’s common stock is also listed and traded on the London Stock Exchange and the Tokyo Stock Exchange. |
| |
(b)(c) | TBVPS and ROTCE are non-GAAP financial measures. TBVPS represents the Firm’s tangible common equity divided by common shares at period-end. ROTCE measures the Firm’s annualized earnings as a percentage of tangible common equity. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial Performance Measures on pages 77–78.52–54. |
| |
(c)(d) | HQLA represents the Firm’s estimate of the amount of assets that qualify for inclusion in the liquidity coverage ratioratio. For December 31, 2017, the balance represents the average of quarterly reported results per the U.S. LCR public disclosure requirements effective April 1, 2017. Prior periods represent period-end balances under the final U.S. rule (“U.S. LCR”) as offor December 31, 2016 and 2015, and the Firm’s estimated amount for December 31, 2014 prior to the effective date of the final rule, and under the Basel III liquidity coverage ratio (“Basel III LCR”) for prior periods. The Firm did not begin estimating HQLA until December 31, 2012.2013. For additional information, see LCR and HQLA on page 157.93. |
| |
(d)(e) | Basel III Transitional rules became effective on January 1, 2014; prior period data is based on Basel I rules. As of December 31, 2014 the ratiosRatios presented are calculated under the Basel III Advanced Transitional Approach. CET1 capital under Basel III replaced Tier 1 common capital under Basel I. Prior to Basel III becomingrules, which became effective on January 1, 2014, Tier 1 commonand for the capital ratios, represent the Collins Floor. Prior to 2014, the ratios were calculated under the Basel I was a non-GAAP financial measure.rules. See Regulatory capitalCapital Risk Management on pages 146–15382–91 for additional information on Basel III and non-GAAP financial measures of regulatory capital. |
| |
(e) | Included held-to-maturity securities of $49.3 billion and $24.0 billion at December 31, 2014 and 2013, respectively. Held-to-maturity balances for the other periods were not material.III. |
| |
| (f) | Included unsecured long-term debt of $207.5$218.8 billion, $199.4$212.6 billion, $200.6$211.8 billion, $231.3$207.0 billion and $238.2$198.9 billion respectively, as of December 31, of each year presented. |
| |
| (g) | ExcludesExcluded the impact of residential real estate purchased credit-impaired (“PCI”) loans.loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 52–54, and the Allowance for credit losses on pages 128–130.117–119. |
| |
| (h) | Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for the year ended December 31, 2017 would have been 0.55%. |
| |
| (i) | The prior period ratios have been revised to conform with the current period presentation. |
|
| | |
6238 | | JPMorgan Chase & Co./20142017 Annual Report |
FIVE-YEAR STOCK PERFORMANCE
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”) common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index. The S&P 500 Index is a commonly referenced U.S. equity benchmark in the United States of America (“U.S.”), consisting of leading companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are publicly traded in the U.S. and is composed of 24leading national money center and regional banks and thrifts. The S&P Financial Index is an index of85 financial companies, all of which are components of the S&P 500. The Firm is a component of all three industry indices.
The following table and graph assume simultaneous investments of $100$100 on December 31, 2009,2012, in JPMorgan Chase common stock and in each of the above indices. The comparison assumes that all dividends are reinvested.
| | December 31, (in dollars) | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | 2012 |
| | 2013 |
| | 2014 |
| | 2015 |
| | 2016 |
| | 2017 |
|
| JPMorgan Chase | $ | 100.00 |
| | $ | 102.30 |
| | $ | 81.87 |
| | $ | 111.49 |
| | $ | 152.42 |
| | $ | 167.48 |
| $ | 100.00 |
| | $ | 136.71 |
| | $ | 150.22 |
| | $ | 162.79 |
| | $ | 219.06 |
| | $ | 277.62 |
|
| KBW Bank Index | 100.00 |
| | 123.36 |
| | 94.75 |
| | 125.91 |
| | 173.45 |
| | 189.69 |
| 100.00 |
| | 137.76 |
| | 150.66 |
| | 151.39 |
| | 194.55 |
| | 230.72 |
|
| S&P Financial Index | 100.00 |
| | 112.13 |
| | 93.00 |
| | 119.73 |
| | 162.34 |
| | 186.98 |
| 100.00 |
| | 135.59 |
| | 156.17 |
| | 153.72 |
| | 188.69 |
| | 230.47 |
|
| S&P 500 Index | 100.00 |
| | 115.06 |
| | 117.48 |
| | 136.27 |
| | 180.39 |
| | 205.07 |
| 100.00 |
| | 132.37 |
| | 150.48 |
| | 152.55 |
| | 170.78 |
| | 208.05 |
|
December 31,
(in dollars)
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 6339 |
Management’s discussion and analysis
This section of JPMorgan Chase’s Annual Report for the year ended December 31, 20142017 (“Annual Report”), provides Management’s discussion and analysis (“MD&A”) of the financial condition and results of operations (“MD&A”) of JPMorgan Chase. See the Glossary of Terms and Acronyms on pages 309–313283-289 for definitions of terms used throughout this Annual Report. The MD&A included in this Annual Report contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. Certain of such risks and uncertainties are described herein (see Forward-looking Statements on page 169145) and in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 20142017 (“20142017 Form 10-K”), in Part I, Item 1A: Risk factors; reference is hereby made to both.
JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide; the Firm had $2.6$2.5 trillion in assets and $232.1$255.7 billion in stockholders’ equity as ofDecember 31, 2014.2017. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.
JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a national banking association with U.S. branches in 23 states, and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national banking association that is the Firm’s principal credit card–issuingcard-issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (“JPMorgan Securities”), the Firm’sa U.S. investment banking firm.broker-dealer. The bank and nonbanknon-bank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. One of theThe Firm’s principal operating subsidiariessubsidiary in the U.K. is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.
JPMorgan Chase’sFor management reporting purposes, the Firm’s activities are organized for management reporting purposes, into four major reportable business segments, as well as a Corporate segment. The Firm’s consumer business is the Consumer & Community Banking (“CCB”) segment. The Firm’s wholesale business segments are Corporate & Investment Bank (“CIB”), Commercial Banking (“CB”), and Asset & Wealth Management (“AM”AWM”) segments comprise the Firm’s wholesale businesses.. For a description of the Firm’s business segments, and the products and services they provide to their respective client bases, refer to Business Segment Results on pages 79–104,55–74, and Note 33.31.
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6440 | | JPMorgan Chase & Co./20142017 Annual Report |
This executive overview of the MD&A highlights selected information and may not contain all of the information that is important to readers of this Annual Report. For a complete description of events,the trends and uncertainties, as well as the enterprise risks and critical accounting estimates affecting the Firm and its various lines of business, this Annual Report should be read in its entirety.
| | | Financial performance of JPMorgan Chase | Financial performance of JPMorgan Chase | | | Financial performance of JPMorgan Chase | | |
| Year ended December 31, | | |
| (in millions, except per share data and ratios) | 2014 | | 2013 | | Change | |
Year ended December 31, (in millions, except per share data and ratios) | | |
| 2017 | 2016 | | Change |
| Selected income statement data | | | | | | | | |
| Total net revenue | $ | 94,205 |
| | $ | 96,606 |
| | (2 | )% | $ | 99,624 |
| $ | 95,668 |
| | 4 | % |
| Total noninterest expense | 61,274 |
| | 70,467 |
| | (13 | ) | 58,434 |
| 55,771 |
| | 5 |
|
| Pre-provision profit | 32,931 |
| | 26,139 |
| | 26 |
| 41,190 |
| 39,897 |
| | 3 |
|
| Provision for credit losses | 3,139 |
| | 225 |
| | NM | 5,290 |
| 5,361 |
| | (1 | ) |
| Net income | 21,762 |
| | 17,923 |
| | 21 |
| 24,441 |
| 24,733 |
| | (1 | ) |
| Diluted earnings per share | 5.29 |
| | 4.35 |
| | 22 |
| 6.31 |
| 6.19 |
| | 2 |
|
| Selected ratios and metrics | | | | |
| Return on common equity | 10 | % | | 9 | % | | | 10 | % | 10 | % | | |
| Return on tangible common equity | | 12 |
| 13 |
| | |
| Book value per share | | $ | 67.04 |
| $ | 64.06 |
| | 5 |
|
| Tangible book value per share | | 53.56 |
| 51.44 |
| | 4 |
|
Capital ratios(a) | | | | | | | | |
| CET1 | 10.2 |
| | 10.7 |
| | | 12.2 | % | 12.3 | % | (b) | |
| Tier 1 capital | 11.6 |
| | 11.9 |
| | | 13.9 |
| 14.0 |
| (b) | |
| Total capital | | 15.9 |
| 15.5 |
| | |
| |
| (a) | Basel III Transitional rules became effective on January 1, 2014; December 31, 2013 data is based on Basel I rules. As of December 31, 2014 the ratiosRatios presented are calculated under the Basel III Advanced Transitional Approach. CET1 capital under Basel III replaced Tier 1 common capital under Basel I. Prior to Basel III becoming effective on January 1, 2014, Tier 1 common capital under Basel I was a non-GAAP financial measure.rules and represent the Collins Floor. See Regulatory capitalCapital Risk Management on pages 146–15382–91 for additional information on Basel III and non-GAAP financial measures of regulatory capital.III. |
| |
| (b) | The prior period ratios have been revised to conform with the current period presentation. |
Comparisons noted in the sections below are calculated for the full year of 2017 versus the full year of 2016, unless otherwise specified.
Summary of 2014 Results2017 results
JPMorgan Chase reported record full-year 2014strong results for full year 2017 with net income of $21.8$24.4 billion, and record earningsor $6.31 per share, of $5.29, on net revenue of $94.2$99.6 billion. The Firm reported ROE of 10% and ROTCE of 12%. The Firm’s results included a $2.4 billion decrease to net income as a result of the enactment of the Tax Cuts and Jobs Act (“TCJA”), driven by a deemed repatriation charge and adjustments to the value of the Firm’s tax-oriented investments, partially offset by a benefit from the revaluation of the Firm’s net deferred tax liability. For additional information related to the impact of the TCJA, refer to Note 24.
Net income increased by $3.8 billion, or 21%, compared with net income of $17.9 billion, or $4.35 per share, in 2013. ROE for the year was 10%, compared with 9% for the prior year.
The increase in net income in 2014 wasdecreased 1% driven by lowerhigher noninterest expense largelyand income tax expense, predominantly offset by higher provision for credit lossesnet interest income.
Total net revenue increased by 4% driven by higher net interest income and investment banking fees, partially
offset by lower netFixed Income Markets and Home Lending noninterest revenue. The decrease in noninterest
Noninterest expense was $58.4 billion, up 5%, driven by lower legalhigher compensation expense, as well as lower compensation expense.auto lease depreciation expense and continued investments across the businesses.
The provision for credit losses increased fromwas $5.3 billion, relatively flat compared with the prior year, as result ofreflecting a lower level of benefit from reductionsdecrease in the wholesale provision driven by credit quality improvements in the Oil & Gas, Natural Gas Pipelines and Metals & Mining portfolios, offset by an increase in the consumer provision. The increase in the consumer provision was driven by higher net charge-offs and a higher addition to the allowance for loan losses partially offset by lower net charge-offs. The decrease in the consumer allowance forcredit card portfolio, and the impact of the sale of the student loan losses was predominantly the result of continued improvement in home prices and delinquencies in the residential real estate portfolio.
The wholesale provision reflected a continued favorable credit environment.
Total firmwidetotal allowance for credit losses was $14.8$14.7 billion resulting inat December 31, 2017, and the Firm had a loan loss coverage ratio, of 1.55%, excluding the purchase credit-impaired (“PCI”)PCI portfolio, of 1.27%, compared with 1.80%1.34% in the prior year. The Firm’s allowance for loan losses to nonperforming loans retained, excludingassets totaled $6.4 billion, a decrease from the PCI
portfolio and credit card, was 106% compared with 100% in 2013.prior-year level of $7.5 billion.
Firmwide net charge-offs were $4.8 billion for the year, down $1.0 billion, or 18% from 2013. Nonperforming assets at year-end were $8.0 billion, down $1.7 billion, or 18%average core loans increased 8%.
Selected capital-related metrics
The Firm’s results reflected solid underlying performance across its four major reportable business segments, with continued strong lendingBasel III Fully Phased-In CET1 capital was $183 billion, and deposit growth. Consumer & Community Bankingthe Standardized and Advanced CET1 ratios were 12.1% and 12.7%, respectively.
The Firm’s Fully Phased-In supplementary leverage ratio (“SLR”) was #1 in deposit growth for the third consecutive year and Consumer & Business Banking within Consumer & Community Banking was #1 in customer satisfaction among the largest U.S. banks for the third consecutive year as measured by The American Customer Satisfaction Index (“ACSI”)6.5%. Credit card sales volume (excluding Commercial Card) was up 11% for the year. The Corporate & Investment Bank maintained its #1 ranking in Global Investment Banking Fees and moved up to a #1 ranking in Europe, Middle East and Africa (“EMEA”), according to Dealogic. Commercial Banking loans increased to $149 billion, an 8% increase compared with the prior year. Commercial Banking also had record gross investment banking revenue of $2.0 billion, up 18% compared with the prior year. Asset Management achieved twenty-three consecutive quarters of positive net long-term client flows and increased average loan balances by 16% in 2014.
The Firm maintained its fortress balance sheet,continued to grow tangible book value per share (“TBVPS”), ending the year with an estimated Basel III Advanced Fully Phased-in CET1 capital ratio of 10.2%, compared with 9.5% in the prior year. Total deposits increased to $1.4 trillion,2017 at $53.56, up 6% from the prior year. Total stockholders’ equity was $232 billion at December 31, 2014. (The Basel III Advanced Fully Phased-in CET1 capital ratio is a4%.
ROTCE and TBVPS are non-GAAP financial measure, whichmeasures. Core loans and each of the Firm uses along with the otherFully Phased-In capital and leverage measures to assess and monitor its capital position.are considered key performance measures. For a further discussion of each of these measures, see Explanation and Reconciliation of the Firm’s capital ratios, see Regulatory capitalUse of Non-GAAP Financial Measures and Key Performance Measures on pages 146–153.)
During 2014, the Firm continued to serve customers, corporate clients52–54, and the communities in which it does business. The Firm provided credit to and raised capital of $2.1 trillion for its clients during 2014; this included $19 billion lent to U.S. small businesses and $75 billion to nonprofit and government entities, including states, municipalities, hospitals and universities.
The discussion that follows highlights the performance of each business segment compared with the prior year and presents resultsCapital Risk Management on a managed basis. For more information about managed basis, as well as other non-GAAP financial measures used by management to evaluate the performance of each line of business, see pages 77–78.
Consumer & Community Banking82–91 net income was $9.2 billion, a decrease of 17% compared with the prior year, due to higher provision for credit losses and lower net revenue, partially offset by lower noninterest expense. Net interest income decreased, driven by spread compression and lower mortgage warehouse balances, largely offset by higher deposit balances in Consumer & Business Banking.
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JPMorgan Chase & Co./20142017 Annual Report | | 6541 |
Management’s discussion and analysis
and higher loan balances in Credit Card. Noninterest revenue decreased, driven by lower mortgage fees and related income. The provisionLines of business highlights
Selected business metrics for credit losses was $3.5 billion, compared with $335 million ineach of the prior year. The current-year provision reflected a $1.3 billion reduction inFirm’s four lines of business are presented below for the allowance for loan losses and total net charge-offsfull year of $4.8 billion. Noninterest expense decreased from the prior year, driven by lower Mortgage Banking expense.2017.
|
| | |
CCB ROE 17% | | • Average core loans up 9%; average deposits of $640 billion, up 9%• Client investment assets of $273 billion, up 17%• Credit card sales volume up 14% and merchant processing volume up 12% |
CIB ROE 14% | | • Maintained #1 ranking for Global Investment Banking fees with 8.1% wallet share• Investment Banking revenue up 12%; Treasury Services revenue up 15%; and Securities Services revenue up 9% |
CB ROE 17% | | • Record revenue of $8.6 billion, up 15%; record net income of $3.5 billion, up 33%• Average loan balances of $198 billion, up 10% |
AWM ROE 25% | | • Record revenue of $12.9 billion, up 7%; record net income of $2.3 billion, up 4%• Average loan balances of $123 billion, up 9%• Record assets under management (“AUM”) of $2.0 trillion, up 15% |
Corporate & Investment BankFor a detailed discussion of results by line of business, refer to the Business Segment Results on net income was $6.9 billion, a decrease of 22% compared with the prior year, primarily reflecting lower revenue as well as higher noninterest expense. Banking revenues decreased from the prior year primarily due to lower Lending revenues, driven by mark to market losses on securities received from restructured loans, compared to gains in the prior year, partially offset by higher investment banking fees. Markets & Investor Services revenues increased slightly from the prior year as 2013 included losses from FVA/DVA, primarily driven by FVA implementation, while the current year reflected lower Fixed Income Markets revenue. Credit Adjustments & Other revenue was a loss of $272 million. Noninterest expense increased compared with the prior year driven by higher noncompensation expense, predominantly due to higher legal expense and investment in controls. This was partially offset by lower performance-based compensation expense.pages 55–56.
Commercial Banking net income was $2.6 billion, flat compared with the prior year, reflecting lower net revenueCredit provided and higher noninterest expense, predominantly offset by a lower provision for credit losses. Net interest income decreased from the prior year, reflecting yield compression, the absence of proceeds received in the prior year from a lending-related workout, and lower purchase discounts recognized on loan repayments, partially offset by higher loan balances. Noninterest revenue increased, reflecting higher investment banking revenue, largely offset by business simplification and lower lending fees. Noninterest expense increased from the prior year, largely reflecting higher investments in controls.capital raised
Asset Management net income was $2.2 billion, an increase of 3% from the prior year, reflecting higher net revenue and lower provision for credit losses, predominantly offset by higher noninterest expense. Noninterest revenue increased from the prior year, due to net client inflows and the effect of higher market levels, partially offset by lower valuations of seed capital investments. Noninterest expense increased from the prior year, as the businessJPMorgan Chase continues to invest in both infrastructuresupport consumers, businesses and controls.communities around the globe. The Firm provided credit and raised capital of $2.3 trillion for wholesale and consumer clients during 2017:
Corporate net income was $864 million, an increase compared with a loss in the prior year. The current year included $821 million of legal expense, compared with $10.2$258 billion of legal expense, which included reservescredit for litigationconsumers
$22 billion of credit for U.S. small businesses
$817 billion of credit for corporations
$1.1 trillion of capital raised for corporate clients and regulatory proceedings, in the prior year.
non-U.S. government entities
$92 billion of credit and capital raised for U.S. government and nonprofit entities, including states, municipalities, hospitals and universities.
BusinessRecent events
On February 21, 2018, the Firm announced its intent to pursue building a new 2.5 million square foot headquarters at its 270 Park Avenue location in New York City. The project will be subject to various approvals, and the Firm will work closely with the New York City Council and State officials to complete the project in a manner that benefits all constituencies. Once the project’s approvals are granted, redevelopment and construction are expected to begin in 2019 and take approximately five years to complete. The project is not expected to have a material impact on the company’s financial results.
On January 30, 2018, Amazon, Berkshire Hathaway, and JPMorgan Chase announced that they are partnering on ways to address healthcare for their U.S. employees, with the aim of improving employee satisfaction and reducing costs. Through a new independent company, the initial focus will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.
On January 29, 2018, JPMorgan Chase announced that Daniel Pinto, Chief Executive Officer (“CEO”) of CIB, and Gordon Smith, CEO of CCB, have been appointed Co-Presidents and Co-Chief Operating Officers (“COO”) of the Firm, effective January 30, 2018, and will continue to report to Jamie Dimon, Chairman and CEO. In addition to their current roles, Mr. Pinto and Mr. Smith will work closely with Mr. Dimon to help drive critical Firmwide opportunities. Responsibilities for the rest of the Firm’s Operating Committee will remain unchanged, with its members continuing to report to Mr. Dimon.
On January 23, 2018, the Firm announced a $20 billion, five-year comprehensive investment to help its employees and support job and economic growth in the U.S. Through these new investments, the Firm plans to develop hundreds of new branches in several new U.S. markets, increase wages and benefits for hourly U.S. employees, make increased small business and mortgage lending commitments, add approximately 4,000 jobs throughout the country, and increase philanthropic investments.
On December 22, 2017, the TCJA was signed into law. The Firm’s results included a $2.4 billion decrease to net income as a result of the enactment of the TCJA. For additional information related to the impact of the TCJA, see Note 24.
During the second half of 2017, natural disasters caused significant disruptions to individuals and businesses, and damage to homes and communities in several regions where the Firm conducts business. The Firm continues to provide assistance to customers, clients, communities and employees who have been affected by these disasters. These events did not have a material impact on the Firm’s 2017 financial results.
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| 42 | | JPMorgan Chase & Co./2017 Annual Report |
2018 outlook
The followingThese current expectations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. See Forward-Looking Statements on page 169145 and the Risk Factors section on pages 8–17.
Over26. There is no assurance that actual results for the past few years,full year of 2018 will be in line with the outlook set forth below, and the Firm has been adaptingdoes not undertake to the regulatory environment while continuing to serve its clients and customers, invest in its businesses, and deliver strong returns to its shareholders. The Firm’s initiatives include building a fortress control environment, de-risking and simplification of the organization, a disciplined approach to managing expense, evolving its capital assessment framework as well as rigorous optimization of the Firm’s balance sheet and funding.
The Firm has been devoting substantial resources to execute on its control agenda. The Oversight and Control function, established in 2012, has been working closely and extensively with the Firm’s other control disciplines, including Compliance, Risk Management, Legal, Internal Audit, and other functions, to address the Firm's control-related projects that are cross-line of business and that have significant regulatory impact or respond to regulatory actions. The Firm’s investment in the control agenda and investment in technology, are considered by management to be essential to the Firm’s future.
The Firm has substantially completed executing its business simplification agenda. In 2013, the Firm ceased originating student loans, exited certain high risk customers and became more selective about on-boarding certain customers. Following on these initiatives, in 2014, the Firm exited several non-core credit card co-branded relationships, sold the Retirement Plan Services business within AM, exited certain prepaid card businesses, reduced its offering of mortgage banking products, completed the sale of the CIB’s Global Special Opportunity Group investment portfolio, and the sale and liquidation of a significant part of CIB’s physical commodities business. In January 2015, the Firm completed the “spin out” of the One Equity Partners (“OEP”) private equity business (together with a sale of a portion of the OEP portfolio to a group of private equity firms). These actions will allow the Firm to focus on core activities for its core clients and reduce risk to the Firm. While it is anticipated that these exits will reduce revenues and expenses, they are not expected to have a meaningful impact on the Firm’s profitability.
The Firm’s simplification agenda, however, is more extensive than exiting businesses, products or clients that were non-core, not at scale or not returning the appropriate level of return. The Firm is also focused on operational and structural simplicity, and streamlining and centralizing certain operational functions and processes in order to attain more consistencies and efficiencies across the Firm. To that end, the Firm is working on simplifying its legal entity structure, simplifying its Global Technology function,
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66 | | JPMorgan Chase & Co./2014 Annual Report |
rationalizing its use of vendors, and optimizing its real estate location strategy.
As the Firm continues to experience an unprecedented increase in regulation and supervision, it continues to evolve its financial architecture to respond to this changing landscape. In 2014, the Firm exceeded the minimum capital levels required by the current rules and intends to continue to build capital in response to the higher Global Systemically Important Bank (“G-SIB”) capital surcharge proposed by U.S. banking regulators. In addition, the Firm is adapting its capital assessment framework to review businesses and client relationships against G-SIB and applicable capital requirements, and imposing internal limits on business activities to align or optimize the Firm's balance sheet and RWA with regulatory requirements in order to ensure that business activities generate appropriate levels of shareholder value.
The Firm intends to balance return of capital to shareholders with achieving higher capital ratios over time. The Firm expects the capital ratio calculated under the Basel III Standardized Approach to become its binding constraint by the end of 2015, or slightly thereafter. The Firm anticipates reaching Basel III Fully Phased-In Advanced and Standardized CET1 ratios of approximately 11% by the end of 2015 and is targeting a Basel III CET1 ratio of approximately 12% by the end of 2018, assuming a 4.5% G-SIB capital surcharge. If the Firm's G-SIB capital surcharge is lower than 4.5%, the Firm will adjust its Basel III CET1 target accordingly.
Likewise, the Firm will be evolving its funding framework to ensure it meets the current and proposed more stringent regulatory liquidity rules, including those relating to the availability of adequate Total Loss Absorbing Capacity (“TLAC”) at G-SIB organizations. The Firm estimated that it had, as of December 31, 2014, approximately 15% minimum TLAC as a percentage of Basel III Advanced Fully Phased-in RWA, excluding capital buffers currently in effect, based on its understanding of how the Financial Stability Board's proposal may be implemented in the U.S. While the precise composition and calibration of TLAC, as well as the conformance period, are yet to be defined by U.S. banking regulators, the Firm expects the requirement will lead to incremental debt issuance by the Firm and higher funding costs over the next few years.
The Firm expects it will continue to make appropriate adjustments to its businesses and operations in the year ahead in response to ongoing developments in the legal and regulatory, as well as business and economic, environment in which it operates. The Firm intends to take a disciplined approach to growing revenues and controlling expenses in light of its capital and liquidity constraints. The Firm’s deep client relationships and its investments in its businesses, including branch optimization, new card relationships, expansion into new markets, and hiring additional sales staff and client advisors, are expected to generate significant revenue growth over the next several years. At the same time, the Firm intends to leverage its scale and improve its operating efficiencies so that it can fund these growth initiatives, as well as maintain its control and
technology programs, without increasing its expenses. As a result, the Firm anticipates achieving a managed overhead ratio ofupdate any forward-looking statements.approximately 55% over the next several years, including the impact of revenue growth.
2015 Business Outlook
JPMorgan Chase’s outlook for the full-year 20152018 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client and customer activity levels, and regulatory and legislative developments in the U.S. and other countries where the Firm does business. Each of these inter-relatedinterrelated factors will affect the performance of the Firm and its lines of business. The Firm expects that it will continue to make appropriate adjustments to its businesses and operations in response to ongoing developments in the legal, regulatory, business and economic environments in which it operates.
Firmwide
As a result of the change in tax rate due to the TCJA, management expects a reduction in tax-equivalent adjustments, decreasing both revenue and income tax expense, on a managed basis, by approximately $1.2 billion on an annual run-rate basis.
Management expects the new revenue recognition accounting standard to increase both noninterest revenue and expense for full-year 2018 by approximately $1.2 billion, with most of the impact in the AWM business. For additional information on the new accounting standard, see Accounting and Reporting Developments on page 141.
Management expects first-quarter 2018 net interest income, on a managed basis, to be down modestly compared with the fourth quarter of 2017, driven by the impact of the TCJA and a lower day count. For full-year 2018, management expects net interest income, on a managed basis, to be in the $54 to $55 billion range, market dependent, and assuming expected core loan growth. Management expects Firmwide average core loan growth to be in the 6% to 7% range in 2018, excluding CIB loans.
Excluding the impact of the new revenue recognition accounting standard, management expects Firmwide noninterest revenue for full-year 2018, on a managed basis, to be up approximately 10% in 2015. 7%, depending on market conditions.
The Firm continues to experience charge-offs at levels lowertake a disciplined approach to managing its expenses, while investing for growth and innovation. As a result, management expects Firmwide adjusted expense for full-year 2018 to be less than its through-the-cycle expectations; if favorable credit trends continue,$62 billion, excluding the impact of the new revenue recognition accounting standard.
Management estimates the full-year 2018 effective income tax rate to be in the 19% to 20% range, depending upon several factors, including the geographic mix of taxable income and refinements to estimates of the impacts of the TCJA.
Management expects net charge-off rates to remain relatively flat across the wholesale and consumer portfolios, with the exception of Card.
CCB
Management expects the full-year 2018 Card Services net revenue rate to be approximately 11.25%.
In Card, management expects the Firm’s total net charge offs could remain low, at an amount modestly over $4 billioncharge-off rate to increase to approximately 3.25% in 2015, and expects a reduction2018.
CIB
Markets revenue in the consumer allowance for loan losses over the next two years.
Firmwide adjusted expense in 2015first-quarter 2018 is expected to be approximately $57 billion, excluding Firmwide legal expenses and foreclosure-related matters.
In Consumer & Business Banking within CCB, management expects continued spread compression inup by mid to high single digit percentage points when compared with the deposit margin and a modest decline in net interest income in the first quarter of 2015. In Mortgage Banking within CCB, management expects quarterly servicing expense to decline to below $500 million by the second quarter of 2015 as default volume continues to decline. In Card Services within CCB, management expects the revenue rate in 2015 to remain at the low end of the target range of 12% to 12.5%.
In CIB,prior-year quarter; actual Markets revenue in the first quarter of 2015results will be impacted by the Firm’s business simplification initiatives completed in 2014, resulting in a decline of approximately $500 million, or 10%, in Markets revenue and a decline of approximately $300 million in expense, compared to the prior year first quarter. Based on strong performance to date, particularly in January, management currently expects 2015 first quarter Markets revenuecontinue to be higher than the prior year first quarter, even with the negative impact of business simplification; however, Markets revenue actual results will depend on performance through the remainder of the quarter,affected by market conditions, which can be volatile.
Overall, the Firm expects the impact from its business simplification initiatives will be a reduction of approximately $1.6 billion in revenue and a corresponding reduction of approximately $1.6 billion in expense resulting in no meaningful impact on the Firm’s 2015 anticipated net income.
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Management’s discussion and analysis
|
| | | | |
| CONSOLIDATED RESULTS OF OPERATIONS |
The followingThis section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis for the three-year period ended December 31, 2014.2017, unless otherwise specified. Factors that relate primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 161–165.138–140.
| | | Revenue | | | | | | | | | | |
| Year ended December 31, | | | | | | |
| (in millions) | 2014 |
| | 2013 |
| | 2012 |
| |
Year ended December 31, (in millions) | | | | | | |
| 2017 |
| | 2016 |
| | 2015 |
|
| Investment banking fees | $ | 6,542 |
| | $ | 6,354 |
| | $ | 5,808 |
| $ | 7,248 |
| | $ | 6,448 |
| | $ | 6,751 |
|
Principal transactions(a) | 10,531 |
| | 10,141 |
| | 5,536 |
| 11,347 |
| | 11,566 |
| | 10,408 |
|
| Lending- and deposit-related fees | 5,801 |
| | 5,945 |
| | 6,196 |
| 5,933 |
| | 5,774 |
| | 5,694 |
|
| Asset management, administration and commissions | 15,931 |
| | 15,106 |
| | 13,868 |
| 15,377 |
| | 14,591 |
| | 15,509 |
|
| Securities gains | 77 |
| | 667 |
| | 2,110 |
| |
| Securities gains/(losses) | | (66 | ) | | 141 |
| | 202 |
|
| Mortgage fees and related income | 3,563 |
| | 5,205 |
| | 8,687 |
| 1,616 |
| | 2,491 |
| | 2,513 |
|
| Card income | 6,020 |
| | 6,022 |
| | 5,658 |
| 4,433 |
| | 4,779 |
| | 5,924 |
|
Other income(b)(a) | 2,106 |
| | 3,847 |
| | 4,258 |
| 3,639 |
| | 3,795 |
| | 3,032 |
|
| Noninterest revenue | 50,571 |
| | 53,287 |
| | 52,121 |
| 49,527 |
| | 49,585 |
| | 50,033 |
|
| Net interest income | 43,634 |
| | 43,319 |
| | 44,910 |
| 50,097 |
| | 46,083 |
| | 43,510 |
|
| Total net revenue | $ | 94,205 |
| | $ | 96,606 |
| | $ | 97,031 |
| $ | 99,624 |
| | $ | 95,668 |
| | $ | 93,543 |
|
| |
| (a) | Included funding valuation adjustments ((“FVA”) effective 2013))operating lease income of $3.6 billion, $2.7 billion and debit valuation adjustments (“DVA”) on over-the-counter (“OTC”) derivatives and structured notes, measured at fair value. FVA and DVA gains/(losses) were $468 million and $(1.9)$2.1 billion for the years ended December 31, 20142017, 2016 and 2013,2015, respectively. DVA losses were ($930) million for the year ended December 31, 2012. |
| |
(b) | Included operating lease income of $1.7 billion, $1.5 billion and $1.3 billion for the years ended December 31, 2014, 2013 and 2012, respectively.
|
20142017 compared with 20132016
Total net revenue for 2014 was down by $2.4 billion, or 2%, compared with the prior year, predominantly due to lower mortgage fees and related income, and lower other income. The decrease was partially offset by higher asset management, administration and commissions revenue.
Investment banking fees increased compared with the prior year, due toreflecting higher advisorydebt and equity underwriting fees largely offset by lower debt underwriting fees.in CIB. The increase in advisorydebt underwriting fees was driven by the combined impact of a greaterhigher share of fees for completed transactions, and growthan overall increase in industry-wide fee levels. Thefees; and the increase in equity underwriting fees was driven by highergrowth in industry-wide issuance. The decrease in debt underwriting fees was primarily related to lower bond underwriting compared withissuance, including a stronger prior year, and lower loan syndication fees on lower industry-wide fee levels. Investment banking fee share and industry-wide data are sourced from Dealogic, an external vendor.strong initial public offering (“IPO”) market. For additional information, on investment
banking fees, see CIB segment results on pages 92–96, CB segment results on pages 97–99,62–66 and Note 7.6.
Principal transactions revenue which consists of revenue primarily from the Firm’s client-driven market-making and private equity investing activities, increased decreased compared with thea strong prior year as the prior year included a $1.5 billion loss related to the implementation of the FVA framework for OTC derivatives and structured notes. The increase was also due to higher private equity gains as a result of higher net gains on sales. The increase was partially offset by lower fixed income markets revenue in CIB, primarily reflecting:
lower Fixed Income-related revenue driven by credit-relatedsustained low volatility and rates products, as well as the impacttighter credit spreads
partially offset by
higher Equity-related revenue primarily in Prime Services, and
higher Lending-related revenue reflecting lower fair value losses on hedges of business simplification initiatives. accrual loans.
For additional information, on principal transactions revenue, see CIB and Corporate segment results on pages 92–9662–66 and pages 103–104,73–74, respectively, and Note 7.6.
Lending-Asset management, administration and deposit-relatedcommissions revenue increased as a result of higher asset management fees decreased compared with the prior year, reflecting the impact of business simplification initiativesin AWM and lower trade finance revenueCCB, and higher asset-based fees in CIB.CIB, both driven by higher market levels. For additional information, see AWM, CCB and CIB segment results on pages 70–72, pages 57-61 and pages 62–66, respectively, and Note 6.
For information on lending- and deposit-related fees, see the segment results for CCB on pages 81–91,57-61, CIB on pages 92–9662–66, and CB on pages 97–99.
Asset management, administration and commissions revenue increased compared with the prior year, reflecting higher asset management fees driven by net client inflows and the effect of higher market levels in AM and CCB. The increase was offset partially by lower commissions and other fee revenue in CCB as a result of the exit of a non-core product in the second half of 2013. For additional information on these fees and commissions, see the segment discussions of CCB on pages 81–91, AM on pages 100–102,67–69 and Note 7.
Securities6; on securities gains, decreased compared with the prior year, reflecting lower repositioning activity related to the Firm’s investment securities portfolio. For additional information, see the Corporate segment discussion on pages 103–104 and Note 12.73–74.
Mortgage fees and related income decreased compared with the prior year. The decrease was predominantly due todriven by lower MSR risk management results, lower net production revenue driven byon lower margins and volumes, due to higher levels of mortgage interest rates, and tighter margins. The decline in net productionlower servicing revenue was partially offset by aon lower loss on the risk management of mortgage servicing rights (“MSRs”).average third-party loans serviced. For additionalfurther information, see the segment discussion of CCB on pages 85–87 and Note 17.
Card income remained relatively flat but included higher net interchange income on credit and debit cards due to growth in sales volume, offset by higher amortization of new account origination costs. For additional information on credit card income, see CCB segment results on pages 81–91.57-61, Note 6 and 15.
Card income decreased predominantly driven by higher credit card new account origination costs, largely offset
by higher card-related fees, primarily annual fees. For further information, see CCB segment results on pages 57-61 .
Other income decreased primarily due to:
lower other income in CIB largely driven by a $520 million impact related to the enactment of the TCJA, which reduced the value of certain of CIB’s tax-oriented investments, and
the absence in the current year of gains from
| |
| – | the sale of Visa Europe interests in CCB, |
| |
| – | the redemption of guaranteed capital debt securities (“trust preferred securities”), and |
| |
| – | the disposal of an asset in AWM |
partially offset by
higher operating lease income reflecting growth in auto operating lease volume in CCB, and
a legal benefit of $645 million recorded in the second quarter of 2017 in Corporate related to a settlement with the FDIC receivership for Washington Mutual and with Deutsche Bank as trustee of certain Washington Mutual trusts.
For further information, see Note 6.
Net interest income increased primarily driven by the net impact of higher rates and loan growth across the businesses, partially offset by declines in Markets net interest income in CIB. The Firm’s average interest-earning assets were $2.2 trillion, up $79 billion from the prior year, and the net interest yield on these assets, on a fully taxable equivalent (“FTE”) basis, was 2.36%, an increase of 11 basis points from the prior year.
|
| | |
6844 | | JPMorgan Chase & Co./20142017 Annual Report |
Other income2016 compared with 2015
Investment banking fees decreased predominantly due to lower equity underwriting fees driven by declines in industry-wide fee levels.
Principal transactions revenue increased reflecting broad-based strength across products in CIB’s Fixed Income Markets business. Rates performance was strong, with increased client activity driven by high issuance-based flows, global political developments, and central bank actions. Credit revenue improved driven by higher market- making revenue from the prior year, predominantlysecondary market as clients’ appetite for risk recovered.
Asset management, administration and commissions revenue decreased reflecting lower asset management fees in AWM driven by a result of the absence of two significant items recordedreduction in Corporate in 2013, namely: a $1.3 billion gain on the sale of Visa shares and a $493 million gain from the sale of One Chase Manhattan Plaza. Lower valuations of seed capital investments in AM and lossesrevenue related to the exitdisposal of non-core portfoliosassets at the beginning of 2016, the impact of lower average equity market levels and lower performance fees, as well as due to lower brokerage commissions and other fees in CIB and AWM.
Mortgage fees and related income were relatively flat, as lower mortgage servicing revenue related to lower average third-party loans serviced was predominantly offset by higher MSR risk management results.
Card also contributed toincome decreased predominantly driven by higher new account origination costs and the decrease. These items wereimpact of renegotiated co-brand partnership agreements, partially offset by higher auto lease income as a result of growth in auto leasecard sales volume and a benefit from a tax settlement.other card-related fees.
Other income increased primarily reflecting:
| |
| ▪ | higher operating lease income from growth in auto operating lease assets in CCB |
| |
| ▪ | a gain on the sale of Visa Europe interests in CCB |
| |
| ▪ | a gain related to the redemption of guaranteed capital debt securities |
| |
| ▪ | the absence of losses recognized in 2015 related to the accelerated amortization of cash flow hedges associated with the exit of certain non-operating deposits |
| |
| ▪ | a gain on disposal of an asset in AWM |
partially offset by
| |
| ▪ | a $514 million benefit recorded in the prior year from a legal settlement in Corporate. |
Net interest income increased slightly fromprimarily driven by loan growth across the prior year, predominantly reflecting higher yields on investment securities,businesses and the net impact of lower interest expense, and higher average loan balances. The increase wasrates, partially offset by lower yieldsinvestment securities balances and higher interest expense on loans due to the run-off of higher-yielding loans and new originations of lower-yielding loans, and lower average interest-earning trading asset balances.long-term debt. The Firm’s average interest-earning assets were $2.0$2.1 trillion in 2016, up $13 billion from the prior year, and the net interest yield on these assets, on a fully taxable-equivalent (“FTE”)FTE basis, was 2.18%2.25%, a decreasean increase of 511 basis points from the prior year.
2013
|
| | | | | | | | | | | |
| Provision for credit losses | | | | |
| Year ended December 31, | | | | | |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Consumer, excluding credit card | $ | 620 |
| | $ | 467 |
| | $ | (81 | ) |
| Credit card | 4,973 |
| | 4,042 |
| | 3,122 |
|
| Total consumer | 5,593 |
| | 4,509 |
| | 3,041 |
|
| Wholesale | (303 | ) | | 852 |
| | 786 |
|
| Total provision for credit losses | $ | 5,290 |
| | $ | 5,361 |
| | $ | 3,827 |
|
2017 compared with 20122016
TotalThe provision for credit lossesdecreased as a result of:
a net revenue$422 million reduction in the wholesale allowance for 2013 was down by $425 million, or less than 1%. The 2013 results were driven by lower mortgage feescredit losses, reflecting credit quality improvements in the Oil & Gas, Natural Gas Pipelines, and related income, net interest income, and securities gains, predominantly offset by higher principal transactions revenue, and asset management, administration and commissions revenue.
Investment banking fees increasedMetals & Mining portfolios, compared with an addition of $511 million in the prior year reflecting higher equity and debt underwriting fees, partially offset by lower advisory fees. Equity and debt underwriting fees increased, driven by strong market issuancedowngrades in the same portfolios
predominantly offset by
a higher consumer provision driven by
| |
| – | $450 million of higher net charge-offs, primarily in the credit card portfolio due to growth in newer vintages which, as anticipated, have higher loss rates than the more seasoned portion of the portfolio, partially offset by a decrease in net charge-offs in the residential real estate portfolio reflecting continued improvement in home prices and delinquencies, |
| |
| – | a $416 million higher addition to the allowance for credit losses related to the credit card portfolio driven by higher loss rates and loan growth, and a lower reduction in the allowance for the residential real estate portfolio predominantly driven by continued improvement in home prices and delinquencies, and |
| |
| – | a $218 million impact in connection with the sale of the student loan portfolio. |
For a more detailed discussion of the credit portfolio, the student loan sale and greater sharethe allowance for credit losses, see the segment discussions of fees in equity capital marketsCCB on pages 57-61, CIB on pages 62–66, CB on pages 67–69, the Allowance for Credit Losses on pages 117–119 and loans. Advisory fees decreased, as industry-wide M&A fee levels declined. Investment banking fee share and industry-wide data are sourced from Dealogic, an external vendor.Note 13.
Principal transactions revenue increased2016 compared with the prior year, reflecting CIB’s strong equity markets revenue, partially offset by a $1.5 billion loss from implementing a FVA framework2015
The provision for OTC derivatives and structured notescredit losses reflected an increase in the fourth quarter of 2013,consumer provision and, to a $452 million loss from DVA on structured notes and derivative liabilities (compared with a $930 million loss from DVAlesser extent, the wholesale provision. The increase in the prior year). The prior year also included a $5.8 billion loss on the synthetic credit portfolio incurred by CIO in the six months ended June 30, 2012; a $449 million loss on the index credit derivative positions retained by CIO in the three months ended September 30, 2012; and additional modest losses incurred by CIB from the synthetic credit portfolio in the last six months of 2012. These losses were partially offset by a $665 million gain recognized in 2012 in Corporate, representing the recovery on a Bear Stearns-related subordinated loan.
Lending- and deposit-related fees decreased compared with the prior year, largely due to lower deposit-related fees in CCB, resulting from reductions in certain product and transaction fees.
Asset management, administration and commissions revenue increased from 2012, driven by higher investment management fees in AM due to net client inflows, the effect of higher market levels, and higher performance fees, and to higher investment sales revenue in CCB.
Securities gains decreased compared with the prior-year period, reflecting the results of repositioning the CIO available-for-sale (“AFS”) portfolio.
Mortgage fees and related income decreased in 2013 compared with 2012, reflecting lower Mortgage Banking net production and servicing revenue. The decrease in net production revenue was due to lower margins and volumes. The decrease in net servicing revenueconsumer provision was predominantly due to lower MSR risk management results.driven by:
| |
| ▪ | a $920 million increase related to the credit card portfolio, due to a $600 million addition in the allowance for loan losses, as well as $320 million of higher net charge-offs, driven by loan growth (including growth in newer vintages which, as anticipated, have higher loss rates compared to the overall portfolio), and |
Card income increased compared with the prior year period, driven by higher net interchange income on credit and debit cards and higher merchant servicing revenue due to growth in sales volume.
Other income decreased in 2013 compared with the prior year, predominantly reflecting lower revenues from significant items recorded in Corporate. In 2013, the Firm recognized a $1.3 billion gain on the sale of Visa shares, a $493 million gain from the sale of One Chase Manhattan Plaza, and a modest loss related to the redemption of TruPS. In 2012, the Firm recognized a $1.1 billion benefit from the Washington Mutual bankruptcy settlement and an $888 million extinguishment gain related to the redemption of TruPS. The net decrease was partially offset by higher revenue in CIB, largely from client-driven activity.
Net interest income decreased in 2013 compared with the prior year, primarily reflecting the impact of the runoff of higher yielding loans and originations of lower yielding loans, and lower trading-related net interest income. The decrease in net interest income was partially offset by lower long-term debt and other funding costs. The Firm’s average interest-earning assets were $2.0 trillion in 2013, and the net interest yield on those assets, on a FTE basis, was 2.23%, a decrease of 25 basis points from the prior year.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 6945 |
Management’s discussion and analysis
| |
| ▪ | a $470 million lower benefit related to the residential real estate portfolio, as the reduction in the allowance for loan losses in 2016 was lower than the prior year. The reduction in both periods reflected continued improvements in home prices and lower delinquencies. |
|
| | | | | | | | | | | |
| Provision for credit losses | | | | |
| Year ended December 31, | | | | | |
| (in millions) | 2014 |
| | 2013 |
| | 2012 |
|
| Consumer, excluding credit card | $ | 419 |
| | $ | (1,871 | ) | | $ | 302 |
|
| Credit card | 3,079 |
| | 2,179 |
| | 3,444 |
|
| Total consumer | 3,498 |
| | 308 |
| | 3,746 |
|
| Wholesale | (359 | ) | | (83 | ) | | (361 | ) |
| Total provision for credit losses | $ | 3,139 |
| | $ | 225 |
| | $ | 3,385 |
|
2014 compared with 2013
The provision for credit losses increased by $2.9 billion from the prior year as result of a lower benefit from reductionsincrease in the consumer allowance for loan losses, partially offsetwholesale provision was largely driven by lower net charge-offs. The consumer allowance release in 2014 was primarily related to the consumer, excluding credit card portfolio, and reflected the continued improvement in home prices and delinquenciesimpact of downgrades in the residential real estate portfolio. The wholesale provision reflected a continued favorable credit environment. For a more detailed discussion of the credit portfolioOil & Gas and the allowance for credit losses, see the segment discussions of CCB on pages 81–91, CIB on pages 92–96 and CB on pages 97–99, and the Allowance for credit losses section on pages 128–130.
Natural Gas Pipelines portfolios.2013 compared with 2012
The provision for credit losses decreased by $3.2 billion compared with the prior year, due to a higher benefit from reductions in the allowance for loan losses, as well as lower net charge-offs partially due to incremental charge-offs recorded in 2012 in accordance with regulatory guidance on certain loans discharged under Chapter 7 bankruptcy. The consumer allowance release in 2013 reflected the improvement in home prices in the residential real estate portfolio and improvement in delinquencies in the residential real estate and credit card portfolios. The 2013 wholesale provision reflected a favorable credit environment and stable credit quality trends.
| | | Noninterest expense | Noninterest expense | | | | | Noninterest expense | | | | |
| Year ended December 31, | | |
| (in millions) | 2014 |
| | 2013 |
| | 2012 |
| 2017 |
| | 2016 |
| | 2015 |
|
| Compensation expense | $ | 30,160 |
| | $ | 30,810 |
| | $ | 30,585 |
| $ | 31,009 |
| | $ | 29,979 |
| | $ | 29,750 |
|
| Noncompensation expense: | | | | | | | | | | |
| Occupancy | 3,909 |
| | 3,693 |
| | 3,925 |
| 3,723 |
| | 3,638 |
| | 3,768 |
|
| Technology, communications and equipment | 5,804 |
| | 5,425 |
| | 5,224 |
| 7,706 |
| | 6,846 |
| | 6,193 |
|
| Professional and outside services | 7,705 |
| | 7,641 |
| | 7,429 |
| 6,840 |
| | 6,655 |
| | 7,002 |
|
| Marketing | 2,550 |
| | 2,500 |
| | 2,577 |
| 2,900 |
| | 2,897 |
| | 2,708 |
|
Other(a)(b) | 11,146 |
| | 20,398 |
| | 14,989 |
| 6,256 |
| | 5,756 |
| | 9,593 |
|
| Total noncompensation expense | 31,114 |
| | 39,657 |
| | 34,144 |
| 27,425 |
| | 25,792 |
| | 29,264 |
|
| Total noninterest expense | $ | 61,274 |
| | $ | 70,467 |
| | $ | 64,729 |
| $ | 58,434 |
| | $ | 55,771 |
| | $ | 59,014 |
|
| |
| (a) | Included firmwideFirmwide legal expenseexpense/(benefit) of $2.9 billion$(35) million, $11.1 billion(317) million and $5.0$3.0 billion for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. |
| |
| (b) | Included FDIC-related expense of $1.0$1.5 billion, $1.5$1.3 billion and $1.7$1.2 billion for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. |
20142017 compared with 20132016
Total noninterestCompensation expense decreased increased predominantly driven by $9.2 billion, or 13%,investments in headcount in most businesses, including bankers and business-related support staff, and higher performance-based compensation expense, predominantly in AWM.
Noncompensation expense increased as a result of:
higher depreciation expense from growth in auto operating lease volume in CCB
contributions to the Firm’s Foundation
a lower legal net benefit compared to the prior year driven by lower other
higher FDIC-related expense, (in particular, legal expense) and lower compensation expense.
Compensation expense decreased compared withan impairment in CB on certain leased equipment, the prior year, predominantly driven by lower headcount in CCB’s Mortgage Banking business, lower performance-based compensation expense in CIB, and lower postretirement benefit costs. The decreasemajority of which was sold subsequent to year-end
partially offset by investments
the absence in the businesses, including headcount, for controls.
Noncompensation expense decreased compared with the priorcurrent year due to lower other expense, predominantly reflecting lower legal expense. Lower expense for foreclosure-related matters and lower production and servicing-related expenseof two items totaling $175 million in CCB’s Mortgage Banking business, lower FDIC-related assessments, and lower amortization expense due to the completion of the amortization of certain intangibles, also contributed to the decline. The decrease was offset partially by investments in the businesses, including for controls, and costsCCB related to business simplification initiatives across the Firm. liabilities from a merchant in bankruptcy and mortgage servicing reserves.
For a further discussion of legal expense, see Note 31. For a discussion of amortization of intangibles, refer to Note 17.29.
2013
2016 compared with 20122015
Total noninterest expense was up by $5.7 billion, or 9%, compared with the prior year, predominantly due to higher legal expense.
Compensation expense increasedwas relatively flat predominantly driven by higher performance-based compensation expense and investments in 2013 compared with the prior year, due toseveral businesses, offset by the impact of investments acrosscontinued expense reduction initiatives, including lower headcount in certain businesses.
Noncompensation expense decreased as a result of lower legal expense (including lower legal professional services expense), the businesses, including front office salesimpact of efficiencies, and support staff, and costs related to the Firm’s control agenda; thesereduced non-U.S. tax surcharges. These factors were partially offset by lower compensationhigher depreciation expense from growth in CIBauto operating lease assets and higher investments in CCB’s Mortgage Banking business, reflecting the effect of lower servicing headcount.
|
| | | | | | | | | | | |
| Income tax expense | | | | | |
Year ended December 31, (in millions, except rate) | | | | | |
| 2017 | | 2016 | | 2015 |
| Income before income tax expense | $ | 35,900 |
| | $ | 34,536 |
| | $ | 30,702 |
|
| Income tax expense | 11,459 |
| | 9,803 |
| | 6,260 |
|
| Effective tax rate | 31.9 | % | | 28.4 | % | | 20.4 | % |
|
| | |
70 | | JPMorgan Chase & Co./2014 Annual Report |
2017 compared with 2016
Noncompensation expenseThe effective tax rate increased in 2013 from2017 driven by:
a $1.9 billion increase to income tax expense representing the prior year.impact of the enactment of the TCJA. The increase was duedriven by the deemed repatriation of the Firm’s unremitted non-U.S. earnings and adjustments to higher otherthe value of certain tax-oriented investments, partially offset by a benefit from the revaluation of the Firm’s net deferred tax liability. The incremental expense reflecting $11.1 billionresulted in a 5.4 percentage point increase to the Firm’s effective tax rate
partially offset by
benefits resulting from the vesting of firmwide legal expense, predominantly in Corporate, representing additional reserves for several litigation and regulatory proceedings, compared with $5.0 billion of expense in the prior year. Investments in the businesses, higher legal-related professional services expense, and costsemployee share-based awards related to the appreciation of the Firm’s control agenda also contributed tostock price upon vesting above their original grant price, and the increase. The increase was offset partially by lower mortgage servicing expense in CCB and lower occupancy expense for the Firm, which predominantly reflected the absencerelease of charges recognized in 2012 related to vacating excess space.a valuation allowance.
|
| | | | | | | | | | | |
| Income tax expense | | | | | |
Year ended December 31, (in millions, except rate) | | | | | |
| 2014 | | 2013 | | 2012 |
| Income before income tax expense | $ | 29,792 |
| | $ | 25,914 |
| | $ | 28,917 |
|
| Income tax expense | 8,030 |
| | 7,991 |
| | 7,633 |
|
| Effective tax rate | 27.0 | % | | 30.8 | % | | 26.4 | % |
20142016 compared with 20132015
The decrease in the effective tax rate from the prior year in 2016 was largely attributable to the effect of the lower level of nondeductible legal-related penalties, partially offsetaffected by higher 2014 pretax income, in combination with changes in the mix of income and expense subject to U.S. federal and state and local taxes, tax benefits related to the utilization of certain deferred tax assets, as well as the adoption of new accounting guidance related to employee share-based incentive payments. These tax benefits were partially offset by higher income tax expense from tax audits. The lower effective tax rate in 2015 was predominantly driven by $2.9 billion of tax benefits, which reduced the Firm’s effective tax rate by 9.4 percentage points. The recognition of tax benefits in 2015 resulted from the resolution of various tax audits, as well as the release of U.S. deferred taxes associated with the restructuring of certain non-U.S. entities.
|
| | |
| 46 | | JPMorgan Chase & Co./2017 Annual Report |
|
| | | | |
| CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS |
Consolidated Balance Sheets Analysis
The following is a discussion of the significant changes between December 31, 2017 and 2016.
|
| | | | | | | | | |
| Selected Consolidated balance sheets data | |
| December 31, (in millions) | 2017 | | 2016 | Change |
| Assets | | | | |
| Cash and due from banks | $ | 25,827 |
| | $ | 23,873 |
| 8 | % |
| Deposits with banks | 404,294 |
| | 365,762 |
| 11 |
|
| Federal funds sold and securities purchased under resale agreements | 198,422 |
| | 229,967 |
| (14 | ) |
| Securities borrowed | 105,112 |
| | 96,409 |
| 9 |
|
| Trading assets: | | | | |
| Debt and equity instruments | 325,321 |
| | 308,052 |
| 6 |
|
| Derivative receivables | 56,523 |
| | 64,078 |
| (12 | ) |
| Securities | 249,958 |
| | 289,059 |
| (14 | ) |
| Loans | 930,697 |
| | 894,765 |
| 4 |
|
| Allowance for loan losses | (13,604 | ) | | (13,776 | ) | (1 | ) |
| Loans, net of allowance for loan losses | 917,093 |
| | 880,989 |
| 4 |
|
| Accrued interest and accounts receivable | 67,729 |
| | 52,330 |
| 29 |
|
| Premises and equipment | 14,159 |
| | 14,131 |
| — |
|
Goodwill, MSRs and other intangible assets
| 54,392 |
| | 54,246 |
| — |
|
| Other assets | 114,770 |
| | 112,076 |
| 2 |
|
| Total assets | $ | 2,533,600 |
| | $ | 2,490,972 |
| 2 | % |
Cash and due from banks and deposits with banks increased primarily driven by deposit growth and a shift in the deployment of excess cash from securities purchased under resale agreements and investment securities into deposits with banks. The Firm’s excess cash is placed with various central banks, predominantly Federal Reserve Banks.
Federal funds sold and securities purchased under resale agreements decreased primarily due to the shift in the deployment of excess cash to deposits with banks and lower tax benefits associated with tax adjustments and the settlement of tax audits.client activity in CIB. For additional information on income taxes,the Firm’s Liquidity Risk Management, see Critical Accounting Estimates Usedpages 92–97.
Securities borrowed increased driven by the Firmhigher demand for securities to cover short positions related to client-driven market-making activities in CIB.
Trading assets–debt and equity instruments increased predominantly as a result of client-driven market-making activities in CIB, primarily in Fixed Income Markets and Prime Services, partially offset by lower equity instruments in Equity Markets. For additional information, refer to
Note 2.
Trading assets and trading liabilities–derivative receivables and payables decreased predominantly as a result of client-driven market-making activities in CIB Markets, which reduced foreign exchange and interest rate derivative receivables and payables, and increased equity derivative receivables, driven by market movements. For additional information, refer to Derivative contracts on pages 161–165114–115, and Note 26.Notes 2 and 5.
2013 compared with 2012
The increaseSecurities decreased primarily reflecting net sales, maturities and paydowns of U.S. Treasuries, non-U.S. government securities and collateralized loan obligations. For additional information, see Notes 2 and 10.
Loans increased reflecting:
higher wholesale loans driven by new originations in the effective tax rate compared with the prior year was predominantly dueCB and higher loans to the effectPrivate Banking clients in AWM
higher consumer loans driven by higher retention of originated high-quality prime mortgages in CCB and AWM, and higher nondeductible legal-related penalties in 2013. This wascredit card loans, largely offset by the impactsale of the student loan portfolio, lower pretax income, in combination with changeshome equity loans and the run-off of PCI loans.
The allowance for loan losses decreased driven by:
a net reduction in the mix of incomewholesale allowance, reflecting credit quality improvements in the Oil & Gas, Natural Gas Pipelines and expense subjectMetals & Mining portfolios (compared with additions to U.S. federal, state and local taxes, business tax credits, tax benefits associated withthe allowance in the prior year tax adjustmentsdriven by downgrades in the same portfolios)
largely offset by
a net increase in the consumer allowance, reflecting additions to the allowance for the credit card and audit resolutions.business banking portfolios, driven by loan growth in both of these portfolios and higher loss rates in the credit card portfolio, largely offset by a reduction in the allowance for the residential real estate portfolio, predominantly driven by continued improvement in home prices and delinquencies, and the utilization of the allowance in connection with the sale of the student loan portfolio.
For a more detailed discussion of loans and the allowance for loan losses, refer to Credit and Investment Risk Management on pages 99–120, and Notes 2, 3, 12 and 13.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 7147 |
Management’s discussion and analysis
|
| | | | |
CONSOLIDATED BALANCE SHEETS ANALYSIS |
|
| | | | | | | | | |
| Selected Consolidated balance sheets data | |
| December 31, (in millions) | 2014 | | 2013 | Change |
| Assets | | | | |
| Cash and due from banks | $ | 27,831 |
| | $ | 39,771 |
| (30 | )% |
| Deposits with banks | 484,477 |
| | 316,051 |
| 53 |
|
| Federal funds sold and securities purchased under resale agreements | 215,803 |
| | 248,116 |
| (13 | ) |
| Securities borrowed | 110,435 |
| | 111,465 |
| (1 | ) |
| Trading assets: | | | | |
| Debt and equity instruments | 320,013 |
| | 308,905 |
| 4 |
|
| Derivative receivables | 78,975 |
| | 65,759 |
| 20 |
|
| Securities | 348,004 |
| | 354,003 |
| (2 | ) |
| Loans | 757,336 |
| | 738,418 |
| 3 |
|
| Allowance for loan losses | (14,185 | ) | | (16,264 | ) | (13 | ) |
| Loans, net of allowance for loan losses | 743,151 |
| | 722,154 |
| 3 |
|
| Accrued interest and accounts receivable | 70,079 |
| | 65,160 |
| 8 |
|
| Premises and equipment | 15,133 |
| | 14,891 |
| 2 |
|
| Goodwill | 47,647 |
| | 48,081 |
| (1 | ) |
| Mortgage servicing rights | 7,436 |
| | 9,614 |
| (23 | ) |
| Other intangible assets | 1,192 |
| | 1,618 |
| (26 | ) |
| Other assets | 102,950 |
| | 110,101 |
| (6 | ) |
| Total assets | $ | 2,573,126 |
| | $ | 2,415,689 |
| 7 |
|
| Liabilities | | | | |
| Deposits | $ | 1,363,427 |
| | $ | 1,287,765 |
| 6 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | 192,101 |
| | 181,163 |
| 6 |
|
| Commercial paper | 66,344 |
| | 57,848 |
| 15 |
|
| Other borrowed funds | 30,222 |
| | 27,994 |
| 8 |
|
| Trading liabilities: | | | | |
| Debt and equity instruments | 81,699 |
| | 80,430 |
| 2 |
|
| Derivative payables | 71,116 |
| | 57,314 |
| 24 |
|
| Accounts payable and other liabilities | 206,954 |
| | 194,491 |
| 6 |
|
| Beneficial interests issued by consolidated VIEs | 52,362 |
| | 49,617 |
| 6 |
|
| Long-term debt | 276,836 |
| | 267,889 |
| 3 |
|
| Total liabilities | 2,341,061 |
| | 2,204,511 |
| 6 |
|
| Stockholders’ equity | 232,065 |
| | 211,178 |
| 10 |
|
| Total liabilities and stockholders’ equity | $ | 2,573,126 |
| | $ | 2,415,689 |
| 7 | % |
Consolidated balance sheets overview
JPMorgan Chase’s total assets and total liabilities increased by $157.4 billion and $136.6 billion, respectively, from December 31, 2013.
The following is a discussion of the significant changes in the Consolidated balance sheets from December 31, 2013.
Cash and due from banks and deposits with banks
The net increase was attributable to higher levels of excess funds primarily as a result of growth in deposits. The Firm’s excess funds were placed with various central banks, predominantly Federal Reserve Banks.
Federal funds sold and securities purchased under resale agreements
The decrease in federal funds sold and securities purchased under resale agreements was predominantly attributable to a shift in the deployment of the Firm’s excess cash by Treasury to deposits with banks and to client activity, including a decline in public deposits that require collateral.
Trading assets and liabilities–debt and equity instruments
The increase in trading assets and liabilities predominantly related to client-driven market-making activities in CIB was primarily driven by higher levels of debt securities and trading loans. For additional information, refer to Note 3.
Trading assets and liabilities–derivative receivables and payables
The increase in both receivables and payables was predominantly due to client-driven market-making activities in CIB, specifically in interest rate derivatives as a result of market movements; commodity derivatives predominantly driven by the significant decline in oil prices; and foreign exchange derivatives reflecting the appreciation of the U.S. dollar against certain currencies. The increases were partially offset by a decline in equity derivatives. For additional information, refer to Derivative contracts on pages 125–127, and Notes 3 and 5.
Securities
The decrease was predominantly due to lower levels of non-U.S. residential mortgage-backed securities and U.S. Treasuries, partially offset by higher levels of obligations of U.S. states and municipalities and U.S. residential mortgage-backed securities. For additional information related to securities, refer to the discussion in the Corporate segment on pages 103–104, and Notes 3 and 12.
Loans and allowance for loan losses
The increase in loans was attributable to higher consumer and wholesale loans. The increase in consumer loans was due to prime mortgage originations in CCB and AM, as well as credit card, business banking and auto loan originations in CCB, partially offset by paydowns and charge-offs or liquidation of delinquent loans. The increase in wholesale loans was due to a favorable credit environment throughout 2014, which drove an increase in client activity.
|
| | |
72 | | JPMorgan Chase & Co./2014 Annual Report |
The decrease in the allowance for loan losses was driven by a reduction in the consumer allowance, predominantly as a result of continued improvement in home prices and delinquencies in the residential real estate portfolio. For a more detailed discussion of the loan portfolio and the allowance for loan losses, refer to Credit Risk Management on pages 110–111, and Notes 3, 4, 14 and 15.
Accrued interest and accounts receivable
The increase was due toincreased primarily reflecting higher receivables from security sales that did not settle, and higher client receivablesheld-for-investment margin loans related to client-driven market-makingfinancing activities in CIB.Prime Services.
Mortgage servicing rights
Other assets increased slightly as a result of higher auto operating lease assets from growth in business volume in CCB.
For additional information on Goodwill and MSRs, see Note 17.15.
The decrease was |
| | | | | | | | | |
| Selected Consolidated balance sheets data | |
| December 31, (in millions) | 2017 | | 2016 | Change |
| Liabilities | | | | |
| Deposits | $ | 1,443,982 |
| | $ | 1,375,179 |
| 5 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | 158,916 |
| | 165,666 |
| (4 | ) |
| Short-term borrowings | 51,802 |
| | 34,443 |
| 50 |
|
| Trading liabilities: | | | | |
| Debt and equity instruments | 85,886 |
| | 87,428 |
| (2 | ) |
| Derivative payables | 37,777 |
| | 49,231 |
| (23 | ) |
| Accounts payable and other liabilities | 189,383 |
| | 190,543 |
| (1 | ) |
| Beneficial interests issued by consolidated variable interest entities (“VIEs”) | 26,081 |
| | 39,047 |
| (33 | ) |
| Long-term debt | 284,080 |
| | 295,245 |
| (4 | ) |
| Total liabilities | 2,277,907 |
| | 2,236,782 |
| 2 |
|
| Stockholders’ equity | 255,693 |
| | 254,190 |
| 1 |
|
| Total liabilities and stockholders’ equity | $ | 2,533,600 |
| | $ | 2,490,972 |
| 2 | % |
Deposits increased due to:
higher consumer deposits reflecting the continuation of strong growth from new and existing customers, and low attrition rates
higher wholesale deposits largely driven by several factors, including lower deferred tax assets; lower private equity investments due to sales,growth in client cash management activity in CIB’s Securities Services business, partially offset by unrealized gains; and lower real estate owned.balances in AWM reflecting balance migration predominantly into the Firm’s investment-related products.
Deposits
The increase was attributable to higher consumer and wholesale deposits. The increase in consumer deposits reflected a continuing positive growth trend, resulting from strong customer retention, maturing of recent branch builds, and net new business. The increase in wholesale deposits was driven by client activity and business growth. For more information, on consumer deposits, refer to the CCB segment discussion on pages 81–91; the Liquidity Risk Management discussion on pages 156–160;92–97; and Notes 3 2
and 19. For more information on wholesale client deposits, refer17.
Short-term borrowings increased primarily due to higher issuance of commercial paper reflecting in part a change in the AM, CB and CIB segment discussions on pages 100–102, pages 97–99 and pages 92–96, respectively, and the Liquidity Risk Management discussion on pages 156–160.
Federal funds purchased andmix of funding from securities loaned or sold under repurchase agreements
The increase in federal funds purchased and securities loaned or sold under repurchase agreements was predominantly attributable to higher financing of the Firm’s trading assets-debt and equity instruments. The increase was partially offset by client activity in CIB. for CIB Markets activities. For additional information, on the Firm’s Liquidity Risk Management, see pages 156–160.
Commercial paper
The increase was due to commercial paper issuances in the wholesale markets consistent with Treasury’s liquidity and short-term funding plans and, to a lesser extent, a higher volume of liability balances related to CIB’s liquidity management product whereby clients choose to sweep their deposits into commercial paper. For additional information on the Firm’s other borrowed funds, see Liquidity Risk Management on pages 156–160.92–97.
Accounts payable and other liabilities
The increase was attributable to higher client payables related to client short positions, and higher payables from security purchases that did not settle, both in CIB. The increase was partially offset by lower legal reserves, largely reflecting the settlement of legal and regulatory matters.
Beneficial interests issued by consolidated VIEs
The increase was predominantlydecreased due to net new consolidatedmaturities of credit card and municipal bond vehicles, partially offset by a reduction in conduit commercial paper issued to third partiessecuritizations and the deconsolidation of certain mortgagethe student loan securitization trusts.entities in connection with the portfolio’s sale. For further information on Firm-sponsored VIEs and loan securitization trusts, see Off-Balance Sheet Arrangements on pages 74–7550–51 and Note 16.14 and 27; and for the sale of the student loan portfolio, see CCB segment results on pages 57-61.
Long-term debt
The increase was due to decreased reflecting lower Federal Home Loan Bank (“FHLB”) advances, partially offset by the net issuances, consistent with Treasury’s long-term funding plans.issuance of senior debt and the net issuance of structured notes in CIB driven by client demand. For additional information on the Firm’s long-term debt activities, see Liquidity Risk Management on pages 156–160.92–97 and Note 19.
Stockholders’ equity
The increase was due to net income and preferred stock issuances, partially offset by the declaration of cash dividends on common and preferred stock, and repurchases of common stock. For additional information on accumulated other comprehensive income/(loss) (“AOCI”),changes in stockholders’ equity, see Note 25; forpage 151, and on the Firm’s capital actions, see Capital actions on page 154.pages 89-90.
|
| | |
| 48 | | JPMorgan Chase & Co./2017 Annual Report |
Consolidated Cash Flows Analysis
|
| | | | | | | | | | | | |
| (in millions) | | Year ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Net cash provided by/(used in) | | | | | | |
| Operating activities | | $ | (2,501 | ) | | $ | 20,196 |
| | $ | 73,466 |
|
| Investing activities | | (10,283 | ) | | (114,949 | ) | | 106,980 |
|
| Financing activities | | 14,642 |
| | 98,271 |
| | (187,511 | ) |
| Effect of exchange rate changes on cash | | 96 |
| | (135 | ) | | (276 | ) |
| Net increase/(decrease) in cash and due from banks | | $ | 1,954 |
| | $ | 3,383 |
| | $ | (7,341 | ) |
Operating activities
JPMorgan Chase’s operating assets and liabilities support the Firm’s lending and capital markets activities. These assets and liabilities can vary significantly in the normal course of business due to the amount and timing of cash flows, which are affected by client-driven and risk management activities and market conditions. The Firm believes cash flows from operations, available cash and other liquidity sources, and its capacity to generate cash through secured and unsecured sources are sufficient to meet operating liquidity needs.
In 2017, cash used reflected an increase in held-for-investment margin loans in accrued interest and accounts receivable and a decrease in trading liabilities.
In 2016, cash provided reflected increases in accounts payable and trading liabilities, partially offset by cash used reflecting an increase in trading assets, an increase in accounts receivable from merchants and higher client receivables.
In 2015, cash provided reflected decreases in trading assets and in accounts receivable, partially offset by cash used due to a decrease in accounts payable and other liabilities.
Investing activities
The Firm’s investing activities predominantly include originating held-for-investment loans and investing in the securities portfolio and other short-term interest-earning assets.
In 2017, cash used primarily reflected net originations of loans and a net increase in short-term interest-earning assets, partially offset by net proceeds from paydowns, maturities, sales and purchases of investment securities.
In 2016, cash used reflected net originations of loans, an increase in short-term interest-earning assets, an increase in securities purchased under resale agreements, and the deployment of excess cash.
In 2015, cash provided predominantly reflected lower short-term interest-earning assets, and net proceeds from lower investment securities, partially offset by cash used for net originations of loans.
Financing activities
The Firm’s financing activities include acquiring customer deposits and issuing long-term debt, as well as preferred and common stock.
In 2017, cash provided reflected higher deposits and short-term borrowings, partially offset by a decrease in long-term borrowings.
In 2016, cash provided reflected higher deposits, and an increase in securities loaned or sold under repurchase agreements, and net proceeds from long term borrowings.
In 2015, cash used reflected lower deposits and short-term borrowings, partially offset by net proceeds from long-term borrowings. Additionally, in 2015 cash outflows reflected a decrease in securities loaned or sold under repurchase agreements.
For all periods, cash was used for repurchases of common stock and cash dividends on common and preferred stock.
* * *
For a further discussion of the activities affecting the Firm’s cash flows, see Consolidated Balance Sheets Analysis on pages 47-48 , Capital Risk Management on pages 82–91, and Liquidity Risk Management on pages 92–97.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 7349 |
Management’s discussion and analysis
|
| | | | |
| OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS |
In the normal course of business, the Firm enters into various contractual obligations that may require future cash payments. Certain obligations are recognized on-balance sheet, while others are off-balance sheet under accounting principles generally accepted in the U.S. GAAP. (“U.S. GAAP”).
The Firm is involved with several types of off–balance sheet arrangements, including through nonconsolidated special-purpose entities (“SPEs”),SPEs, which are a type of VIE, and through lending-related financial instruments (e.g., commitments and guarantees).
Special-purpose entities
The most common type of VIE is an SPE. SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are an important part of the financial markets, including the mortgage- and asset-backed securities and commercial paper markets, as they provide market liquidity by facilitating investors’ access to specific portfolios of assets and risks. SPEs may be organized as trusts, partnerships or corporations and are typically established for a single, discrete purpose. SPEs are not typically operating entities and usually have a limited life and no employees. The basic SPE structure involves a company selling assets to the SPE; the SPE funds the purchase of those assets by issuing securities to investors.
JPMorgan Chase uses SPEs as a source of liquidity for itself and its clients by securitizing financial assets, and by creating investment products for clients. The Firm is involved with SPEs through multi-seller conduits, investor intermediation activities, and loan securitizations. See Note 16 for further information on these types of SPEs.
The Firm holds capital, as deemed appropriate, against all SPE-related transactions and related exposures, such as
derivative transactions and lending-related commitments and guarantees.
The Firm has no commitments to issue its own stock to support any SPE transaction, and its policies require that transactions with SPEs be conducted at arm’s length and reflect market pricing. Consistent with this policy, no JPMorgan Chase employee is permitted to invest in SPEs with which the Firm is involved where such investment would violate the Firm’s Code of Conduct. These rules prohibit employees from self-dealing and acting on behalf of the Firm in transactions with which they or their family have any significant financial interest.
Implications of a credit rating downgrade to JPMorgan Chase Bank, N.A.
For certain liquidity commitments to SPEs, JPMorgan Chase Bank, N.A. could be required to provide funding if its short-term credit rating were downgraded below specific levels, primarily “P-1”, “A-1” and “F1” for Moody’s, Standard &
Poor’s and Fitch, respectively. These liquidity commitments support the issuance of asset-backed commercial paper by Firm-administered consolidated SPEs. In the event of a short-term credit rating downgrade, JPMorgan Chase Bank, N.A., absent other solutions, would be required to provide funding to the SPE, if the commercial paper could not be reissued as it matured. The aggregate amounts of commercial paper outstanding held by third parties as of December 31, 2014 and 2013, was $12.1 billion and $15.5 billion, respectively. The aggregate amounts of commercial paper outstanding could increase in future periods should clients of the Firm-administered consolidated SPEs draw down on certain unfunded lending-related commitments. These unfunded lending-related commitments were $9.9 billion and $9.2 billion at December 31, 2014 and 2013, respectively. The Firm could facilitate the refinancing of some of the clients’ assets in order to reduce the funding obligation. For further information, see the discussion of Firm-administered multi-seller conduits in Note 16.
The Firm also acts as liquidity provider for certain municipal bond vehicles. The Firm’s obligation to perform as liquidity provider is conditional and is limited by certain termination events, which include bankruptcy or failure to pay by the municipal bond issuer or credit enhancement provider,table below provides an eventindex of taxability on the municipal bonds or the immediate downgrade of the municipal bond to below investment grade. See Note 16 for additional information.
Off–balance sheet lending-related financial instruments, guarantees, and other commitments
JPMorgan Chase provides lending-related financial instruments (e.g., commitments and guarantees) to meet the financing needs of its customers. The contractual amount of these financial instruments represents the maximum possible credit risk to the Firm should the counterparty draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and should the counterparty subsequently fail to perform according to the terms of the contract. Most of these commitments and guarantees expire without being drawn or a default occurring. As a result, the total contractual amount of these instruments is not,where in the Firm’s view, representative of its actual future credit exposure or funding requirements. For further discussion of lending-related financial instruments, guarantees and other commitments, and the Firm’s accounting for them, see Lending-related commitments on page 125 and Note 29. Forthis Annual Report a discussion of liabilities associated with loan sales-and securitization-related indemnifications,the Firm’s various off-balance sheet arrangements can be found. In addition, see Note 29.1 for information about the Firm’s consolidation policies.
|
| | |
| Type of off-balance sheet arrangement | Location of disclosure | Page references |
| Special-purpose entities: variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated VIEs | See Note 14 | 236–243
|
| Off-balance sheet lending-related financial instruments, guarantees, and other commitments | See Note 27 | 261–266 |
|
| | |
7450 | | JPMorgan Chase & Co./20142017 Annual Report |
Contractual cash obligations
The accompanying table summarizes, by remaining maturity, JPMorgan Chase’s significant contractual cash obligations at December 31, 20142017. The contractual cash obligations included in the table below reflect the minimum contractual obligation under legally enforceable contracts with terms that are both fixed and determinable. Excluded from the below table are certain liabilities with variable cash flows and/or no obligation to return a stated amount of principal at the maturity.
The carrying amount of on-balance sheet obligations on the Consolidated balance sheets may differ from the minimum contractual amount of the obligations reported below. For a discussion of mortgage repurchase liabilities and other obligations, see Note 29.27.
| | | Contractual cash obligations | Contractual cash obligations | | Contractual cash obligations | |
By remaining maturity at December 31, (in millions) | 2014 | 2013 | 2017 | 2016 |
| 2015 | 2016-2017 | 2018-2019 | After 2019 | Total | Total | 2018 | 2019-2020 | 2021-2022 | After 2022 | Total | Total |
| On-balance sheet obligations | | |
Deposits(a) | $ | 1,345,919 |
| $ | 8,200 |
| $ | 3,318 |
| $ | 4,160 |
| $ | 1,361,597 |
| $ | 1,286,587 |
| $ | 1,421,174 |
| $ | 5,276 |
| $ | 4,810 |
| $ | 6,204 |
| $ | 1,437,464 |
| $ | 1,368,866 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | 189,002 |
| 2,655 |
| 30 |
| 441 |
| 192,128 |
| 181,163 |
| 133,779 |
| 4,198 |
| 4,958 |
| 15,981 |
| 158,916 |
| 165,666 |
|
| Commercial paper | 66,344 |
| — |
| — |
| — |
| 66,344 |
| 57,848 |
| |
Other borrowed funds(a) | 15,734 |
| — |
| — |
| — |
| 15,734 |
| 15,655 |
| |
Beneficial interests issued by consolidated VIEs(a) | 27,833 |
| 12,860 |
| 6,125 |
| 3,382 |
| 50,200 |
| 47,621 |
| |
Short-term borrowings(a) | | 42,664 |
| — |
| — |
| — |
| 42,664 |
| 26,497 |
|
| Beneficial interests issued by consolidated VIEs | | 13,636 |
| 9,542 |
| 2,544 |
| 314 |
| 26,036 |
| 38,927 |
|
Long-term debt(a) | 33,982 |
| 86,620 |
| 61,468 |
| 80,818 |
| 262,888 |
| 256,739 |
| 37,211 |
| 63,685 |
| 43,180 |
| 116,819 |
| 260,895 |
| 288,315 |
|
Other(b) | 3,494 |
| 1,217 |
| 1,022 |
| 2,622 |
| 8,355 |
| 7,720 |
| 4,726 |
| 2,146 |
| 2,080 |
| 4,573 |
| 13,525 |
| 8,980 |
|
| Total on-balance sheet obligations | 1,682,308 |
| 111,552 |
| 71,963 |
| 91,423 |
| 1,957,246 |
| 1,853,333 |
| 1,653,190 |
| 84,847 |
| 57,572 |
| 143,891 |
| 1,939,500 |
| 1,897,251 |
|
| Off-balance sheet obligations | | |
Unsettled reverse repurchase and securities borrowing agreements(c) | 40,993 |
| — |
| — |
| — |
| 40,993 |
| 38,211 |
| 76,859 |
| — |
| — |
| — |
| 76,859 |
| 50,722 |
|
Contractual interest payments(d) | 6,980 |
| 10,006 |
| 6,596 |
| 24,456 |
| 48,038 |
| 48,021 |
| 9,248 |
| 11,046 |
| 7,471 |
| 26,338 |
| 54,103 |
| 48,862 |
|
Operating leases(e) | 1,722 |
| 3,216 |
| 2,402 |
| 5,101 |
| 12,441 |
| 14,266 |
| 1,526 |
| 2,750 |
| 1,844 |
| 3,757 |
| 9,877 |
| 10,115 |
|
Equity investment commitments(f) | 454 |
| 92 |
| 50 |
| 512 |
| 1,108 |
| 2,119 |
| 174 |
| 46 |
| 19 |
| 515 |
| 754 |
| 1,068 |
|
| Contractual purchases and capital expenditures | 1,216 |
| 970 |
| 366 |
| 280 |
| 2,832 |
| 3,425 |
| 1,923 |
| 937 |
| 439 |
| 204 |
| 3,503 |
| 2,566 |
|
| Obligations under affinity and co-brand programs | 906 |
| 1,262 |
| 96 |
| 39 |
| 2,303 |
| 3,283 |
| |
| Other | — |
| — |
| — |
| — |
| — |
| 11 |
| |
| Obligations under co-brand programs | | 249 |
| 500 |
| 478 |
| 207 |
| 1,434 |
| 868 |
|
| Total off-balance sheet obligations | 52,271 |
| 15,546 |
| 9,510 |
| 30,388 |
| 107,715 |
| 109,336 |
| 89,979 |
| 15,279 |
| 10,251 |
| 31,021 |
| 146,530 |
| 114,201 |
|
| Total contractual cash obligations | $ | 1,734,579 |
| $ | 127,098 |
| $ | 81,473 |
| $ | 121,811 |
| $ | 2,064,961 |
| $ | 1,962,669 |
| $ | 1,743,169 |
| $ | 100,126 |
| $ | 67,823 |
| $ | 174,912 |
| $ | 2,086,030 |
| $ | 2,011,452 |
|
| |
| (a) | Excludes structured notes whereon which the Firm is not obligated to return a stated amount of principal at the maturity of the notes, but is obligated to return an amount based on the performance of the structured notes. |
| |
| (b) | Primarily includes dividends declared on preferred and common stock, deferred annuity contracts, pension and other postretirement employee benefit obligations, insurance liabilities and insurance liabilities. Prior periods were revised to conformincome taxes payable associated with the current presentation.deemed repatriation under the TCJA. |
| |
| (c) | For further information, refer to unsettled reverse repurchase and securities borrowing agreements in Note 29.27. |
| |
| (d) | Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes wherefor which the Firm’s payment obligation is based on the performance of certain benchmarks. |
| |
| (e) | Includes noncancelable operating leases for premises and equipment used primarily for banking purposes and for energy-related tolling service agreements.purposes. Excludes the benefit of noncancelable sublease rentals of $2.21.0 billion and $2.61.4 billion at December 31, 20142017 and 20132016, respectively. See Note 28 for more information on lease commitments. |
| |
| (f) | At December 31, 20142017 and 2013,2016, included unfunded commitments of $147$40 million and $215$48 million, respectively, to third-party private equity funds;funds, and $961$714 million and $1.9$1.0 billion of unfunded commitments, respectively, to other equity investments. |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 7551 |
Management’s discussion and analysis
|
| | | | |
CONSOLIDATED CASH FLOWS ANALYSIS |
|
| | | | | | | | | | | | |
| (in millions) | | Year ended December 31, |
| | 2014 | | 2013 | | 2012 |
| Net cash provided by/(used in) | | | | | | |
| Operating activities | | $ | 36,593 |
| | $ | 107,953 |
| | $ | 25,079 |
|
| Investing activities | | (165,636 | ) | | (150,501 | ) | | (119,825 | ) |
| Financing activities | | 118,228 |
| | 28,324 |
| | 87,707 |
|
| Effect of exchange rate changes on cash | | (1,125 | ) | | 272 |
| | 1,160 |
|
| Net decrease in cash and due from banks | | $ | (11,940 | ) | | $ | (13,952 | ) | | $ | (5,879 | ) |
Operating activities
JPMorgan Chase’s operating assets and liabilities support the Firm’s capital markets and lending activities, including the origination or purchase of loans initially designated as held-for-sale. Operating assets and liabilities can vary significantly in the normal course of business due to the amount and timing of cash flows, which are affected by client-driven and risk management activities and market conditions. The Firm believes cash flows from operations, available cash balances and the Firm’s ability to generate cash through short- and long-term borrowings are sufficient to fund the Firm’s operating liquidity needs.
Cash provided by operating activities in 2014 predominantly resulted from net income after noncash operating adjustments and reflected higher net proceeds from loan securitizations and sales activities when compared with 2013. In 2013 cash provided reflected a decrease in trading assets from client-driven market-making activities in CIB, resulting in lower levels of debt securities. Cash used in 2013 for loans originated and purchased with an initial intent to sell was slightly higher than the cash proceeds received from sales and paydowns of loans and reflected significantly higher levels of activities over the prior-year period. Cash provided during 2012 resulted from a decrease in securities borrowed reflecting a shift in the deployment of excess cash to resale agreements as well as lower client activity in CIB; partially offset by a decrease in accounts payable and other liabilities predominantly due to lower CIB client balances.
Investing activities
The Firm’s investing activities predominantly include loans originated to be held for investment, the investment securities portfolio and other short-term interest-earning assets. Cash used in investing activities during 2014, 2013, and 2012 resulted from increases in deposits with banks, attributable to higher levels of excess funds; in 2014, cash was used for growth in wholesale and consumer loans, while in 2013 and 2012 cash used reflected growth in wholesale loans. Partially offsetting these cash outflows in 2014 and 2013 was a net decline in securities purchased under resale agreements due to a shift in the deployment of the Firm’s excess cash by Treasury, and a net decline in consumer loans in 2013 and 2012 from paydowns and portfolio runoff or liquidation of delinquent loans. In 2012, additional cash was used for securities purchased under resale agreements. All years reflected cash proceeds from net maturities and sales of investment securities.
Financing activities
The Firm’s financing activities includes cash from customer deposits, and cash proceeds from issuing long-term debt, and preferred and common stock. Cash provided by financing activities in 2014 predominantly resulted from higher consumer and wholesale deposits. The increase in consumer deposits reflected a continuing positive growth trend resulting from strong customer retention, maturing of recent branch builds, and net new business. The increase in wholesale deposits was driven by client activity and deposit growth. Cash provided in 2013 was driven by growth in both wholesale and consumer deposits, net proceeds from long-term borrowings, and net issuance of preferred stock; partially offset by a decrease in securities loaned or sold under repurchase agreements, predominantly due to changes in the mix of the Firm’s funding sources. Cash provided in 2012 was due to growth in both consumer and wholesale deposits and an increase in federal funds purchased and securities loaned or sold under repurchase agreements due to higher secured financings of the Firm’s assets. In all periods, cash proceeds were offset by repurchases of common stock and cash dividends on common and preferred stock.
* * *
For a further discussion of the activities affecting the Firm’s cash flows, see Balance Sheet Analysis on pages 72–73.
|
| | |
76 | | JPMorgan Chase & Co./2014 Annual Report |
|
|
| EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE MEASURES |
Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements using U.S. GAAP; these financial statements appear on pages 172–176.148–152. That presentation, which is referred to as “reported” basis, provides the reader with an understanding of the Firm’s results that can be tracked consistently from year to yearyear-to-year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.
In addition to analyzing the Firm’s results on a reported basis, management reviews Firmwide results, including the Firm’soverhead ratio, on a “managed” basis; these Firmwide managed basis results andare non-GAAP financial measures. The Firm also reviews the results of the lines of business on a “managed” basis, which is a non-GAAP financial measure.managed basis. The Firm’s definition of managed basis starts, in each case, with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue for the Firm (and each of the reportable business segments) on a FTE basis. Accordingly, revenue from investments that receive tax credits and tax-exempt securities is presented in the managed results on a basis
comparable to taxable investments and securities. This non-GAAPThese financial measure allowsmeasures allow management to assess the comparability of revenue from year-to-year arising from both taxable and tax-exempt sources. The corresponding
income tax impact related to tax-exempt items is recorded within income tax expense. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business.
Management also uses certain non-GAAP financial measures at the Firm and business-segment level, because it believes these other non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Firm or of the particular business segment, as the case may be, and, therefore, facilitate a comparison of the Firm or the business segment with the performance of its relevant competitors. Non- GAAPFor additional information on these non-GAAP measures, see Business Segment Results on pages 55–74.
Additionally, certain credit metrics and ratios disclosed by the Firm exclude PCI loans, and are therefore non-GAAP measures. For additional information on these non-GAAP measures, see Credit and Investment Risk Management on pages 99–120.
Non-GAAP financial measures used by the Firm may not be comparable to similarly named non-GAAP financial measures used by other companies.
The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
| | | | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 |
Year ended December 31, (in millions, except ratios) | Reported Results | | Fully taxable-equivalent adjustments(a) | | Managed basis | | Reported Results | | Fully taxable-equivalent adjustments(a) | | Managed basis | | Reported Results | | Fully taxable-equivalent adjustments(a) | | Managed basis | Reported Results | | Fully taxable-equivalent adjustments(a) | | Managed basis | | Reported Results | | Fully taxable-equivalent adjustments(a) | | Managed basis | | Reported Results | | Fully taxable-equivalent adjustments(a) | | Managed basis |
| Other income | $ | 2,106 |
| | $ | 2,733 |
| | $ | 4,839 |
| | $ | 3,847 |
| | $ | 2,495 |
| | $ | 6,342 |
| | $ | 4,258 |
| | $ | 2,116 |
| | $ | 6,374 |
| $ | 3,639 |
| | $ | 2,704 |
| (b) | $ | 6,343 |
| | $ | 3,795 |
| | $ | 2,265 |
| | $ | 6,060 |
| | $ | 3,032 |
| | $ | 1,980 |
| | $ | 5,012 |
|
| Total noninterest revenue | 50,571 |
| | 2,733 |
| | 53,304 |
| | 53,287 |
| | 2,495 |
| | 55,782 |
| | 52,121 |
| | 2,116 |
| | 54,237 |
| 49,527 |
| | 2,704 |
| | 52,231 |
| | 49,585 |
| | 2,265 |
| | 51,850 |
| | 50,033 |
| | 1,980 |
| | 52,013 |
|
| Net interest income | 43,634 |
| | 985 |
| | 44,619 |
| | 43,319 |
| | 697 |
| | 44,016 |
| | 44,910 |
| | 743 |
| | 45,653 |
| 50,097 |
| | 1,313 |
| | 51,410 |
| | 46,083 |
| | 1,209 |
| | 47,292 |
| | 43,510 |
| | 1,110 |
| | 44,620 |
|
| Total net revenue | 94,205 |
| | 3,718 |
| | 97,923 |
| | 96,606 |
| | 3,192 |
| | 99,798 |
| | 97,031 |
| | 2,859 |
| | 99,890 |
| 99,624 |
| | 4,017 |
| | 103,641 |
| | 95,668 |
| | 3,474 |
| | 99,142 |
| | 93,543 |
| | 3,090 |
| | 96,633 |
|
| Pre-provision profit | 32,931 |
| | 3,718 |
| | 36,649 |
| | 26,139 |
| | 3,192 |
| | 29,331 |
| | 32,302 |
| | 2,859 |
| | 35,161 |
| 41,190 |
| | 4,017 |
| | 45,207 |
| | 39,897 |
| | 3,474 |
| | 43,371 |
| | 34,529 |
| | 3,090 |
| | 37,619 |
|
| Income before income tax expense | 29,792 |
| | 3,718 |
| | 33,510 |
| | 25,914 |
| | 3,192 |
| | 29,106 |
| | 28,917 |
| | 2,859 |
| | 31,776 |
| 35,900 |
| | 4,017 |
| | 39,917 |
| | 34,536 |
| | 3,474 |
| | 38,010 |
| | 30,702 |
| | 3,090 |
| | 33,792 |
|
| Income tax expense | 8,030 |
| | 3,718 |
| | 11,748 |
| | 7,991 |
| | 3,192 |
| | 11,183 |
| | 7,633 |
| | 2,859 |
| | 10,492 |
| 11,459 |
| | 4,017 |
| (b) | 15,476 |
| | 9,803 |
| | 3,474 |
| | 13,277 |
| | 6,260 |
| | 3,090 |
| | 9,350 |
|
| Overhead ratio | 65 | % | | NM |
| | 63 | % | | 73 | % | | NM |
| | 71 | % | | 67 | % | | NM |
| | 65 | % | 59 | % | | NM |
| | 56 | % | | 58 | % | | NM |
| | 56 | % | | 63 | % | | NM |
| | 61 | % |
(a) Predominantly recognized in CIB and CB business segments and Corporate.
(b) Included $375 million related to tax-oriented investments as a result of the enactment of the TCJA.
|
| | |
| 52 | | JPMorgan Chase & Co./2017 Annual Report |
Net interest income excluding CIB’s Markets businesses
In addition to reviewing net interest income on a managed basis, management also reviews net interest income excluding net interest income arising from CIB’s Markets businesses to assess the performance of the Firm’s lending, investing (including asset-liability management) and deposit-raising activities. This net interest income is referred to as non-markets related net interest income. CIB’s Markets businesses are Fixed Income Markets and Equity Markets. Management believes that disclosure of non-markets related net interest income provides investors and analysts with another measure by which to analyze the non-markets-related business trends of the Firm and provides a comparable measure to other financial institutions that are primarily focused on lending, investing and deposit-raising activities.
The data presented below are non-GAAP financial measures
due to the exclusion of markets related net interest income
arising from CIB.
|
| | | | | | | | | |
Year ended December 31, (in millions, except rates) | 2017 | 2016 | 2015 |
Net interest income – managed basis(a)(b) | $ | 51,410 |
| $ | 47,292 |
| $ | 44,620 |
|
Less: CIB Markets net interest income(c) | 4,630 |
| 6,334 |
| 5,298 |
|
Net interest income excluding CIB Markets(a) | $ | 46,780 |
| $ | 40,958 |
| $ | 39,322 |
|
| Average interest-earning assets | $ | 2,180,592 |
| $ | 2,101,604 |
| $ | 2,088,242 |
|
Less: Average CIB Markets interest-earning assets(c) | 540,835 |
| 520,307 |
| 510,292 |
|
| Average interest-earning assets excluding CIB Markets | $ | 1,639,757 |
| $ | 1,581,297 |
| $ | 1,577,950 |
|
| Net interest yield on average interest-earning assets – managed basis | 2.36 | % | 2.25 | % | 2.14 | % |
Net interest yield on average CIB Markets interest-earning assets(c) | 0.86 |
| 1.22 |
| 1.04 |
|
| Net interest yield on average interest-earning assets excluding CIB Markets | 2.85 | % | 2.59 | % | 2.49 | % |
| |
| (a) | Predominantly recognizedInterest includes the effect of related hedges. Taxable-equivalent amounts are used where applicable.
|
| |
| (b) | For a reconciliation of net interest income on a reported and managed basis, see reconciliation from the Firm’s reported U.S. GAAP results to managed basis on page 52. |
| |
| (c) | The amounts in CIB and CB business segments and Corporate.this table differ from the prior-period presentation to align with CIB’s Markets businesses. For further information on CIB’s Markets businesses, see page 65. |
|
| | | | |
| Calculation of certain U.S. GAAP and non-GAAP financial measures |
| Certain U.S. GAAP and non-GAAP financial measures are calculated as follows: |
Book value per share (“BVPS”) Common stockholders’ equity at period-end / Common shares at period-end |
Overhead ratio Total noninterest expense / Total net revenue |
Return on assets (“ROA”) Reported net income / Total average assets |
Return on common equity (“ROE”) Net income* / Average common stockholders’ equity |
Return on tangible common equity (“ROTCE”) Net income* / Average tangible common equity |
Tangible book value per share (“TBVPS”) Tangible common equity at period-end / Common shares at period-end |
| * Represents net income applicable to common equity |
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 53 |
Management’s discussion and analysis
Tangible common equity, ROTCE and TBVPS
Tangible common equity (“TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm’s common stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less goodwill and identifiable intangible assets (other than MSRs), net of related deferred tax liabilities. ROTCE measures the Firm’s earningsnet income applicable to common equity as a percentage of average TCE. TBVPS represents the Firm’s TCE at period-end divided by common shares at period-end. TCE, ROTCE and TBVPS are meaningful toutilized by the Firm, as well as investors and analysts, in assessing the Firm’s use of equity.
Additionally, certain credit and capital metrics and ratios disclosed byThe following summary table provides a reconciliation from the Firm are non-GAAP measures. For additional information on these non-GAAP measures, see Credit Risk Management on pages 110–111, and Regulatory capital on pages 146–153.Firm’s common stockholders’ equity to TCE.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 77 |
Management’s discussion and analysis
| | | Tangible common equity | | | | |
| | Period-end | | Average | Period-end | | Average |
| | Dec 31,
2014 | Dec 31,
2013 | | Year ended December 31, | Dec 31,
2017 | Dec 31,
2016 | | Year ended December 31, |
| (in millions, except per share and ratio data) | | 2014 | 2013 | 2012 | | 2017 | 2016 | 2015 |
| Common stockholders’ equity | $ | 212,002 |
| $ | 200,020 |
| | $ | 207,400 |
| $ | 196,409 |
| $ | 184,352 |
| $ | 229,625 |
| $ | 228,122 |
| | $ | 230,350 |
| $ | 224,631 |
| $ | 215,690 |
|
| Less: Goodwill | 47,647 |
| 48,081 |
| | 48,029 |
| 48,102 |
| 48,176 |
| 47,507 |
| 47,288 |
| | 47,317 |
| 47,310 |
| 47,445 |
|
| Less: Certain identifiable intangible assets | 1,192 |
| 1,618 |
| | 1,378 |
| 1,950 |
| 2,833 |
| |
Add: Deferred tax liabilities(a) | 2,853 |
| 2,953 |
| | 2,950 |
| 2,885 |
| 2,754 |
| |
| Less: Other intangible assets | | 855 |
| 862 |
| | 832 |
| 922 |
| 1,092 |
|
Add: Certain Deferred tax liabilities(a)(b) | | 2,204 |
| 3,230 |
| | 3,116 |
| 3,212 |
| 2,964 |
|
| Tangible common equity | $ | 166,016 |
| $ | 153,274 |
| | $ | 160,943 |
| $ | 149,242 |
| $ | 136,097 |
| $ | 183,467 |
| $ | 183,202 |
| | $ | 185,317 |
| $ | 179,611 |
| $ | 170,117 |
|
| | | | | | | |
| Return on tangible common equity | NA |
| NA |
| | 13 | % | 11 | % | 15 | % | NA |
| NA |
| | 12 | % | 13 | % | 13 | % |
| Tangible book value per share | $ | 44.69 |
| $ | 40.81 |
| | NA | NA | $ | 53.56 |
| $ | 51.44 |
| | NA | NA |
| |
| (a) | Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted against goodwill and other intangibles when calculating TCE. |
Core net interest income
In addition to reviewing net interest income on a managed basis, management also reviews core net interest income to assess the performance of its core lending, investing (including asset-liability management) and deposit-raising activities. These activities exclude the impact of CIB’s market-based activities. The core data presented below are non-GAAP financial measures due to the exclusion of CIB’s market-based net interest income and related assets. Management believes this exclusion provides investors and analysts another measure by which to analyze the non-market-related business trends of the Firm and provides a comparable measure to other financial institutions that are primarily focused on core lending, investing and deposit-raising activities.
|
| | | | | | | | | |
| Core net interest income data | | |
Year ended December 31, (in millions, except rates) | 2014 |
| 2013 |
| 2012 |
|
Net interest income - managed basis(a)(b) | $ | 44,619 |
| $ | 44,016 |
| $ | 45,653 |
|
Less: Market-based net interest income(c) | 5,552 |
| 5,492 |
| 6,223 |
|
Core net interest income(a)(c) | $ | 39,067 |
| $ | 38,524 |
| $ | 39,430 |
|
| | | | |
| Average interest-earning assets | $ | 2,049,093 |
| $ | 1,970,231 |
| $ | 1,842,417 |
|
| Less: Average market-based earning assets | 510,261 |
| 504,218 |
| 499,339 |
|
| Core average interest-earning assets | $ | 1,538,832 |
| $ | 1,466,013 |
| $ | 1,343,078 |
|
| | | | |
| Net interest yield on interest-earning assets - managed basis | 2.18 | % | 2.23 | % | 2.48 | % |
Net interest yield on market-based activities(c) | 1.09 |
| 1.09 |
| 1.25 |
|
Core net interest yield on core average interest-earning assets(c) | 2.54 | % | 2.63 | % | 2.94 | % |
| |
(a) | Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. |
| |
| (b) | For a reconciliation of net interest income on a reported and managed basis, see reconciliationIncludes the effect from the revaluation of the Firm’s reported U.S. GAAP results to managed basis on page 77.net deferred tax liability as a result of the enactment of the TCJA. |
| |
(c) | Effective with the fourth quarter of 2014, the Firm changed the methodology it uses to allocate preferred stock dividends to the lines of business. Prior period amounts were revised to conform with the current allocation methodology. The Firm’s Consolidated balance sheets and consolidated results of operations were not affected by this reporting change. For further discussion please see Preferred stock dividend allocation reporting change on pages 79–80. |
Key performance measures
The Firm considers the following to be key regulatory capital measures:
Capital, risk-weighted assets (“RWA”), and capital and leverage ratios presented under Basel III Standardized and Advanced Fully Phased-In rules, and
SLR calculated under Basel III Advanced Fully Phased-In rules.
The Firm, as well as banking regulators, investors and analysts, use these measures to assess the Firm’s regulatory capital position and to compare the Firm’s regulatory capital to that of other financial services companies.
For additional information on these measures, see Capital Risk Management on pages 82–91.
2014 compared with 2013
Core net interest income increased by $543 million in 2014 to $39.1 billion, and core average interest-earning assets increased by $72.8 billion to $1.5 trillion. The increase in net interest income in 2014 predominantly reflected higher yields on investment securities, the impact of lower interest expense, and higher average loan balances. The increase was partially offset by lower yields on loans dueare also considered a key performance measure. Core loans represent loans considered central to the run-off of higher-yieldingFirm’s ongoing businesses; and exclude loans classified as trading assets, runoff portfolios, discontinued portfolios and new originations of lower-yielding loans. The increaseportfolios the Firm has an intent to exit. Core loans is a measure utilized by the Firm and its investors and analysts in average interest-earning assets largely reflected the impact of higher average balance of deposits with banks. These changes in net interest income and interest-earning assets resultedassessing actual growth in the core net interest yield decreasing by 9 basis points to 2.54% for 2014.loan portfolio.
2013 compared with 2012
Core net interest income decreased by $906 million in 2013 to $38.5 billion, and core average interest-earning assets increased by $122.9 billion to $1.5 trillion. The decline in net interest income in 2013 primarily reflected the impact of the runoff of higher-yielding loans and originations of lower-yielding loans. The decrease in net interest income was partially offset by lower long-term debt and other funding costs. The increase in average interest-earning assets reflected the impact of higher deposits with banks. The core net interest yield decreased by 31 basis points to 2.63% in 2013, primarily reflecting the impact of a significant increase in deposits with banks and lower loan yields, partially offset by the impact of lower long-term debt yields and deposit rates.
|
| | |
7854 | | JPMorgan Chase & Co./20142017 Annual Report |
The Firm is managed on a line of business basis. There are four major reportable business segments – Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking and Asset & Wealth Management. In addition, there is a Corporate segment.
The business segments are determined based on the products and services provided, or the type of customer served, and they reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis. For a definition of managed basis, see Explanation and Reconciliation of the Firm’s use of non-GAAP financial measures,Non-GAAP Financial Measures, on pages 77–78.52–54.
|
| | | | | | | | | | | | | |
| JPMorgan Chase |
| |
| Consumer Businesses | | Wholesale Businesses |
| |
| Consumer & Community Banking | | Corporate & Investment Bank | | Commercial Banking | | Asset & Wealth Management |
| | | | | | | | | | | | | |
| Consumer & Business Banking | | Home Lending(a) | | Card, Merchant Services & Auto(b) | | Banking | | Markets & Investor Services | | • Middle Market Banking | | • Asset Management |
| • Consumer Banking/Chase Wealth Management • Business Banking | • Home Lending Production • Home Lending Servicing • Real Estate Portfolios
| • Card Services – Credit Card – Merchant Services • Auto
| • Investment Banking • Treasury Services • Lending | • Fixed Income Markets | • Corporate Client Banking | • Wealth Management
|
| • Equity Markets • Securities Services • Credit Adjustments & Other | • Commercial Term Lending |
| • Real Estate Banking
|
|
| |
| (a) | Formerly Mortgage Banking |
| |
| (b) | Formerly Card, Commerce Solutions & Auto |
Description of business segment reporting methodology
Results of the business segments are intended to reflect each segment as if it were essentially a stand-alone business. The management reporting process that derives business segment results allocatesincludes the allocation of certain income and expense using market-based methodologies.items described in more detail below. The Firm continues to assessalso assesses the level of capital required for each line of business on at least an annual basis.
The Firm periodically assesses the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.
Revenue sharing
When business segments join efforts to sell products and services to the Firm’s clients, the participating business segments agree to share revenue from those transactions. The segment results reflect these revenue-sharing agreements.
Funds transfer pricing
Funds transfer pricing is used to allocateassign interest income and expense to each business segment and to transfer the primary interest rate risk and liquidity risk exposures to the Treasury groupand CIO within Corporate. The allocationfunds transfer pricing process is unique to each business segment and considers the interest rate risk, liquidity risk and regulatory requirements of thata business segment as if it were operating independently, and as compared with its stand-alone peers.independently. This process is overseen by senior management and reviewed by the Firm’s Asset-Liability Committee (“ALCO”).
Preferred stock dividend allocation reporting change
As part of its funds transfer pricing process, the Firm allocates substantially all of the cost of its outstanding preferred stock to its reportable business segments, while retaining the balance of the cost in Corporate. Prior to the fourth quarter of 2014, this cost was allocated to the Firm’s reportable business segments as interest expense, with an offset recorded as interest income in Corporate. Effective with the fourth quarter of 2014, this cost is no longer included in interest income and interest expense in the segments, but rather is now included in net income applicable to common equity to be consistent with the presentation of firmwide results. As a result of this reporting change, net interest income and net income in the reportable business segments increases; however, there was no impact to the segments’ return on common equity (“ROE”). The Firm’s net interest income, net income, Consolidated balance sheets and consolidated results of operations were not impacted by this reporting change, as preferred stock dividends have been and continue to be distributed from retained earnings and, accordingly, were never reported as a component of the Firm’s consolidated net interest income or net income. Prior period segment and core net interest income amounts throughout this Annual Report have been revised to conform with the current period presentation.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 7955 |
Management’s discussion and analysis
The following chart depicts howDebt expense and preferred stock dividend allocation
As part of the funds transfer pricing process, almost all of the cost of the credit spread component of outstanding unsecured long-term debt and preferred stock dividends wereis allocated to the reportable business segments, while the balance of the cost is retained in Corporate. The methodology to allocate the cost of unsecured long-term debt and preferred stock dividends to the business segments beforeis aligned with the Firm’s process to allocate capital. The allocated cost of unsecured long-term debt is included in a business segment’s net interest income, and after the aforementioned methodology change.net income is reduced by preferred stock dividends to arrive at a business segment’s net income applicable to common equity.
Business segment capital allocation changes
Each business segment is allocated capital by taking into consideration stand-alone peer comparisons, regulatory capital requirements (as estimated under Basel III Advanced Fully Phased-In) and economic risk measures. The amount of capital assigned to each business is referred to as equity. On at least an annual basis, the Firm assesses the level of capital required for each line of business as well as the assumptions and methodologies used to allocate
capital. For additional information on business segment capital to its lines of business and updates the equity allocations to its lines of business as refinements are implemented. For further information about these capital changes,allocation, see Line of business equity on page 153.89.
Expense allocation
Where business segments use services provided by corporate support units, within the Firm, or another business segment, the costs of those services are allocated to the respective business segments. The expense is generally allocated based on the actual cost and upon usageuse of the services provided. In contrast, certain other expensecosts related to certain corporate functions,support units, or to certain technology and operations, are not allocated to the business segments and are retained in Corporate. Retained expense includes:Expense retained in Corporate generally includes parent company costs that would not be incurred if the segments were stand-alone businesses; adjustments to align certain corporate staff, technology and operations allocations with market prices;support units; and other items not aligned with a particular business segment.
Segment Results – Managed Basis(a)
The following table summarizestables summarize the business segment results for the periods indicated.
| | | Year ended December 31, | Total net revenue | | Total noninterest expense | | Pre-provision profit/(loss) | Total net revenue | | Total noninterest expense | | Pre-provision profit/(loss) |
| (in millions) | 2014 |
| 2013 |
| 2012 |
| | 2014 |
| 2013 |
| 2012 |
| | 2014 |
| 2013 |
| 2012 |
| 2017 |
| 2016 |
| 2015 |
| | 2017 |
| 2016 |
| 2015 |
| | 2017 |
| 2016 |
| 2015 |
|
| Consumer & Community Banking | $ | 44,368 |
| $ | 46,537 |
| $ | 50,278 |
| | $ | 25,609 |
| $ | 27,842 |
| $ | 28,827 |
| | $ | 18,759 |
| $ | 18,695 |
| $ | 21,451 |
| $ | 46,485 |
| $ | 44,915 |
| $ | 43,820 |
| | $ | 26,062 |
| $ | 24,905 |
| $ | 24,909 |
| | $ | 20,423 |
| $ | 20,010 |
| $ | 18,911 |
|
| Corporate & Investment Bank | 34,633 |
| 34,786 |
| 34,762 |
| | 23,273 |
| 21,744 |
| 21,850 |
| | 11,360 |
| 13,042 |
| 12,912 |
| 34,493 |
| 35,216 |
| 33,542 |
| | 19,243 |
| 18,992 |
| 21,361 |
| | 15,250 |
| 16,224 |
| 12,181 |
|
| Commercial Banking | 6,882 |
| 7,092 |
| 6,912 |
| | 2,695 |
| 2,610 |
| 2,389 |
| | 4,187 |
| 4,482 |
| 4,523 |
| 8,605 |
| 7,453 |
| 6,885 |
| | 3,327 |
| 2,934 |
| 2,881 |
| | 5,278 |
| 4,519 |
| 4,004 |
|
| Asset Management | 12,028 |
| 11,405 |
| 10,010 |
| | 8,538 |
| 8,016 |
| 7,104 |
| | 3,490 |
| 3,389 |
| 2,906 |
| |
| Asset & Wealth Management | | 12,918 |
| 12,045 |
| 12,119 |
| | 9,301 |
| 8,478 |
| 8,886 |
| | 3,617 |
| 3,567 |
| 3,233 |
|
| Corporate | 12 |
| (22 | ) | (2,072 | ) | | 1,159 |
| 10,255 |
| 4,559 |
| | (1,147 | ) | (10,277 | ) | (6,631 | ) | 1,140 |
| (487 | ) | 267 |
| | 501 |
| 462 |
| 977 |
| | 639 |
| (949 | ) | (710 | ) |
| Total | $ | 97,923 |
| $ | 99,798 |
| $ | 99,890 |
| | $ | 61,274 |
| $ | 70,467 |
| $ | 64,729 |
| | $ | 36,649 |
| $ | 29,331 |
| $ | 35,161 |
| $ | 103,641 |
| $ | 99,142 |
| $ | 96,633 |
| | $ | 58,434 |
| $ | 55,771 |
| $ | 59,014 |
| | $ | 45,207 |
| $ | 43,371 |
| $ | 37,619 |
|
| | | Year ended December 31, | Provision for credit losses | | Net income/(loss) | | Return on equity | Provision for credit losses | | Net income/(loss) | | Return on equity |
| (in millions, except ratios) | 2014 |
| 2013 |
| 2012 |
| | 2014 |
| 2013 |
| 2012 |
| | 2014 |
| 2013 |
| 2012 |
| 2017 |
| 2016 |
| 2015 |
| | 2017 |
| 2016 |
| 2015 |
| | 2017 |
| 2016 |
| 2015 |
|
| Consumer & Community Banking | $ | 3,520 |
| $ | 335 |
| $ | 3,774 |
| | $ | 9,185 |
| $ | 11,061 |
| $ | 10,791 |
| | 18 | % | 23 | % | 25 | % | $ | 5,572 |
| $ | 4,494 |
| $ | 3,059 |
| | $ | 9,395 |
| $ | 9,714 |
| $ | 9,789 |
| | 17 | % | 18 | % | 18 | % |
| Corporate & Investment Bank | (161 | ) | (232 | ) | (479 | ) | | 6,925 |
| 8,887 |
| 8,672 |
| | 10 |
| 15 |
| 18 |
| (45 | ) | 563 |
| 332 |
| | 10,813 |
| 10,815 |
| 8,090 |
| | 14 |
| 16 |
| 12 |
|
| Commercial Banking | (189 | ) | 85 |
| 41 |
| | 2,635 |
| 2,648 |
| 2,699 |
| | 18 |
| 19 |
| 28 |
| (276 | ) | 282 |
| 442 |
| | 3,539 |
| 2,657 |
| 2,191 |
| | 17 |
| 16 |
| 15 |
|
| Asset Management | 4 |
| 65 |
| 86 |
| | 2,153 |
| 2,083 |
| 1,742 |
| | 23 |
| 23 |
| 24 |
| |
| Asset & Wealth Management | | 39 |
| 26 |
| 4 |
| | 2,337 |
| 2,251 |
| 1,935 |
| | 25 |
| 24 |
| 21 |
|
| Corporate | (35 | ) | (28 | ) | (37 | ) | | 864 |
| (6,756 | ) | (2,620 | ) | | NM |
| NM |
| NM |
| — |
| (4 | ) | (10 | ) | | (1,643 | ) | (704 | ) | 2,437 |
| | NM | NM |
| Total | $ | 3,139 |
| $ | 225 |
| $ | 3,385 |
| | $ | 21,762 |
| $ | 17,923 |
| $ | 21,284 |
| | 10 | % | 9 | % | 11 | % | $ | 5,290 |
| $ | 5,361 |
| $ | 3,827 |
| | $ | 24,441 |
| $ | 24,733 |
| $ | 24,442 |
| | 10 | % | 10 | % | 11 | % |
| |
(a) | Effective with the fourth quarter of 2014, the Firm changed the methodology it uses to allocate preferred stock dividends to the lines of business. Prior period amounts for net revenue, pre-provision profit/(loss) and net income/(loss) for each of the business segments were revised to conform with the current allocation methodology. The Firm’s Consolidated balance sheets and consolidated results of operations were not affected by this reporting change. For further discussion please see Preferred stock dividend allocation reporting change in Business Segment Results on pages 79–80. |
The following sections provide a comparative discussion of business segment results as of or for the years ended December 31, 2017, 2016 and 2015.
|
| | |
8056 | | JPMorgan Chase & Co./20142017 Annual Report |
|
| | | | |
| CONSUMER & COMMUNITY BANKING |
|
|
Consumer & Community Banking servesoffers services to consumers and businesses through personal service at bank branches, and through ATMs, online, mobile and telephone banking. CCB is organized into Consumer & Business Banking Mortgage Banking (including MortgageConsumer Banking/Chase Wealth Management and Business Banking), Home Lending (including Home Lending Production, MortgageHome Lending Servicing and Real Estate Portfolios) and Card, Merchant Services & Auto (“Card”).Auto. Consumer & Business Banking offers deposit and investment products and services to consumers, and lending, deposit, and cash management and payment solutions to small businesses. Mortgage BankingHome Lending includes mortgage origination and servicing activities, as well as portfolios comprisedconsisting of residential mortgages and home equity loans, including the PCI portfolio acquired in the Washington Mutual transaction.loans. Card, Merchant Services & Auto issues credit cards to consumers and small businesses, provides payment services to corporate and public sector clients through its commercial card products, offers payment processing services to merchants, and providesoriginates and services auto loans and student loan services.leases. |
|
| | | | | | | | | | | |
| Selected income statement data | | | | |
| Year ended December 31, | |
| (in millions, except ratios) | 2014 | | 2013 | | 2012 |
| Revenue | | | | | |
| Lending- and deposit-related fees | $ | 3,039 |
| | $ | 2,983 |
| | $ | 3,121 |
|
| Asset management, administration and commissions | 2,096 |
| | 2,116 |
| | 2,093 |
|
| Mortgage fees and related income | 3,560 |
| | 5,195 |
| | 8,680 |
|
| Card income | 5,779 |
| | 5,785 |
| | 5,446 |
|
| All other income | 1,463 |
| | 1,473 |
| | 1,473 |
|
| Noninterest revenue | 15,937 |
| | 17,552 |
| | 20,813 |
|
| Net interest income | 28,431 |
| | 28,985 |
| | 29,465 |
|
| Total net revenue | 44,368 |
|
| 46,537 |
| | 50,278 |
|
| | | | | | |
| Provision for credit losses | 3,520 |
| | 335 |
| | 3,774 |
|
| | | | | | |
| Noninterest expense | | | | | |
| Compensation expense | 10,538 |
| | 11,686 |
| | 11,632 |
|
| Noncompensation expense | 15,071 |
| | 16,156 |
| | 17,195 |
|
| Total noninterest expense | 25,609 |
| | 27,842 |
| | 28,827 |
|
| Income before income tax expense | 15,239 |
| | 18,360 |
| | 17,677 |
|
| Income tax expense | 6,054 |
| | 7,299 |
| | 6,886 |
|
| Net income | $ | 9,185 |
| | $ | 11,061 |
| | $ | 10,791 |
|
| | | | | | |
| Financial ratios | | | | | |
| Return on common equity | 18 | % | | 23 | % | | 25 | % |
| Overhead ratio | 58 |
| | 60 |
| | 57 |
|
Note: As discussed on pages 79–80, effective with the fourth quarter of 2014 the Firm changed its methodology for allocating the cost of preferred stock to its reportable business segments. Prior periods have been revised to conform with the current period presentation.
|
| | | | | | | | | | | |
| Selected income statement data | | | | |
| Year ended December 31, | |
| (in millions, except ratios) | 2017 | | 2016 | | 2015 |
| Revenue | | | | | |
| Lending- and deposit-related fees | $ | 3,431 |
| | $ | 3,231 |
| | $ | 3,137 |
|
| Asset management, administration and commissions | 2,212 |
| | 2,093 |
| | 2,172 |
|
| Mortgage fees and related income | 1,613 |
| | 2,490 |
| | 2,511 |
|
| Card income | 4,024 |
| | 4,364 |
| | 5,491 |
|
| All other income | 3,430 |
| | 3,077 |
| | 2,281 |
|
| Noninterest revenue | 14,710 |
| | 15,255 |
| | 15,592 |
|
| Net interest income | 31,775 |
| | 29,660 |
| | 28,228 |
|
| Total net revenue | 46,485 |
| | 44,915 |
| | 43,820 |
|
| | | | | | |
| Provision for credit losses | 5,572 |
| | 4,494 |
| | 3,059 |
|
| | | | | | |
| Noninterest expense | | | | | |
| Compensation expense | 10,159 |
| | 9,723 |
| | 9,770 |
|
Noncompensation expense(a) | 15,903 |
| | 15,182 |
| | 15,139 |
|
| Total noninterest expense | 26,062 |
| | 24,905 |
| | 24,909 |
|
| Income before income tax expense | 14,851 |
| | 15,516 |
| | 15,852 |
|
| Income tax expense | 5,456 |
| | 5,802 |
| | 6,063 |
|
| Net income | $ | 9,395 |
| | $ | 9,714 |
| | $ | 9,789 |
|
| | | | | | |
| Revenue by line of business | | | | | |
| Consumer & Business Banking | $ | 21,104 |
| | $ | 18,659 |
| | $ | 17,983 |
|
| Home Lending | 5,955 |
| | 7,361 |
| | 6,817 |
|
| Card, Merchant Services & Auto | 19,426 |
| | 18,895 |
| | 19,020 |
|
| | | | | | |
| Mortgage fees and related income details: | | | | | |
| Net production revenue | 636 |
| | 853 |
| | 769 |
|
Net mortgage servicing revenue(b) | 977 |
| | 1,637 |
| | 1,742 |
|
| Mortgage fees and related income | $ | 1,613 |
| | $ | 2,490 |
| | $ | 2,511 |
|
| | | | | | |
| Financial ratios | | | | | |
| Return on equity | 17 | % | | 18 | % | | 18 | % |
| Overhead ratio | 56 |
| | 55 |
| | 57 |
|
Note: In the discussion and the tables which follow, CCB presents certain financial measures which exclude the impact of PCI loans; these are non-GAAP financial measures. For additional information, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures.
| |
| (a) | Included operating lease depreciation expense of $2.7 billion, $1.9 billion and $1.4 billion for the years ended December 31, 2017, 2016 and 2015, respectively. |
| |
| (b) | Included MSR risk management results of $(242) million, $217 million and $(117) million for the years ended December 31, 2017, 2016 and 2015, respectively. |
2014 compared with 2013
Consumer & Community Banking net income was $9.2 billion, a decrease of $1.9 billion, or 17%, compared with the prior year, due to higher provision for credit losses and lower net revenue, partially offset by lower noninterest expense.
Net revenue was $44.4 billion, a decrease of $2.2 billion, or 5%, compared with the prior year. Net interest income was $28.4 billion, down $554 million, or 2%, driven by spread compression and lower mortgage warehouse balances, largely offset by higher deposit balances in Consumer & Business Banking and higher loan balances in Credit Card. Noninterest revenue was $16.0 billion, a decrease of $1.6 billion, or 9%, driven by lower mortgage fees and related income.
The provision for credit losses was $3.5 billion, compared with $335 million in the prior year. The current-year provision reflected a $1.3 billion reduction in the allowance for loan losses and total net charge-offs of $4.8 billion. The prior-year provision reflected a $5.5 billion reduction in the allowance for loan losses and total net charge-offs of $5.8 billion. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio.
Noninterest expense was $25.6 billion, a decrease of $2.2 billion, or 8%, from the prior year, driven by lower Mortgage Banking expense.
2013 compared with 2012
Consumer & Community Banking net income was $11.1 billion, an increase of $270 million, or 3%, compared with the prior year, due to lower provision for credit losses and lower noninterest expense, predominantly offset by lower net revenue.
Net revenue was $46.5 billion, a decrease of $3.7 billion, or 7%, compared with the prior year. Net interest income was $29.0 billion, down $480 million, or 2%, driven by lower deposit margins, lower loan balances due to net portfolio runoff and spread compression in Credit Card, largely offset by higher deposit balances. Noninterest revenue was $17.6 billion, a decrease of $3.3 billion, or 16%, driven by lower mortgage fees and related income, partially offset by higher card income.
The provision for credit losses was $335 million, compared with $3.8 billion in the prior year. The current-year provision reflected a $5.5 billion reduction in the allowance for loan losses and total net charge-offs of $5.8 billion. The prior-year provision reflected a $5.5 billion reduction in the allowance for loan losses and total net charge-offs of $9.3 billion, including $800 million of incremental charge-offs related to regulatory guidance. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio on pages 113–119.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 8157 |
Management’s discussion and analysis
Noninterest expense2017 compared with 2016
Net income was $27.8$9.4 billion, a decrease of $985 million, or 3%, from the prior year, driven by higher noninterest expense and provision for credit losses, largely offset by higher net revenue.
Net revenue was $46.5 billion, an increase of 3%.
Net interest income was $31.8 billion, up 7%, driven by higher deposit balances, deposit margin expansion, and higher loan balances in Card, partially offset by loan spread compression from higher rates, including the impact of higher funding costs in Home Lending and Auto and the impact of the sale of the student loan portfolio.
Noninterest revenue was $14.7 billion, down 4%, driven by:
higher new account origination costs in Card,
lower MSR risk management results,
the absence in the current year of a gain on the sale of Visa Europe interests,
lower net production revenue reflecting lower mortgage production margins and volumes, and
lower mortgage servicing expense, partiallyrevenue as a result of a lower level of third-party loans serviced
largely offset by investments
higher auto lease volume and
higher card- and deposit-related fees.
See Note 15 for further information regarding changes in Chase Private Client expansion, higher non-MBSvalue of the MSR asset and related legalhedges, and mortgage fees and related income.
Noninterest expense in Mortgage Production, was $26.1 billion, an increase of 5%, driven by:
higher auto lease depreciation, and costs
continued business growth
partially offset by
two items totaling $175 million included in the prior year related to liabilities from a merchant bankruptcy and mortgage servicing reserves.
The provision for credit losses was $5.6 billion, an increase of 24%, reflecting:
$445 million of higher net charge-offs, primarily in the credit card portfolio due to growth in newer vintages which, as anticipated, have higher loss rates than the more seasoned portion of the portfolio, partially offset by a decrease in net charge-offs in the residential real estate portfolio reflecting continued improvement in home prices and delinquencies,
a $415 million higher addition to the allowance for credit losses related to the control agenda.credit card portfolio driven by higher loss rates and loan growth, and a lower reduction in the allowance for the residential real estate portfolio predominantly driven by continued improvement in home prices and delinquencies, and
a $218 million impact in connection with the sale of the student loan portfolio.
The sale of the student loan portfolio during 2017 did not have a material impact on the Firm’s Consolidated Financial Statements.
2016 compared with 2015
Net income was $9.7 billion, a decrease of 1%, driven by higher provision for credit losses, predominantly offset by higher net revenue.
Net revenue was $44.9 billion, an increase of 2%.
Net interest income was $29.7 billion, up 5%, driven by higher deposit balances and higher loan balances, partially offset by deposit spread compression and an increase in the reserve for uncollectible interest and fees in Card.
Noninterest revenue was $15.3 billion, down 2%, driven by higher new account origination costs and the impact of renegotiated co-brand partnership agreements in Card and lower mortgage servicing revenue predominantly as a result of a lower level of third-party loans serviced; these factors were predominantly offset by higher auto lease and card sales volume, higher card- and deposit-related fees, higher MSR risk management results and a gain on the sale of Visa Europe interests. See Note 15 for further information regarding changes in value of the MSR asset and related hedges, and mortgage fees and related income.
Noninterest expense of $24.9 billion was flat, driven by:
lower legal expense and branch efficiencies
offset by
higher auto lease depreciation, and
higher investment in marketing.
The provision for credit losses was $4.5 billion, an increase of 47%, reflecting:
a $920 million increase related to the credit card portfolio, due to a $600 million addition in the allowance for loan losses, as well as $320 million of higher net charge-offs, driven by loan growth, including growth in newer vintages which, as anticipated, have higher loss rates compared to the overall portfolio,
a $450 million lower benefit related to the residential real estate portfolio, as the current year reduction in the allowance for loan losses was lower than the prior year. The reduction in both periods reflected continued improvements in home prices and lower delinquencies, and
a $150 million increase related to the auto and business banking portfolio, due to additions to the allowance for loan losses and higher net charge-offs, reflecting loan growth in the portfolios.
|
| | | | | | | | | | | |
| Selected metrics | | | | |
| As of or for the year ended December 31, | | | | | |
| (in millions, except headcount) | 2014 | | 2013 | | 2012 |
| Selected balance sheet data (period-end) | | | | | |
| Total assets | $ | 455,634 |
| | $ | 452,929 |
| | $ | 467,282 |
|
Trading assets - loans(a) | 8,423 |
| | 6,832 |
| | 18,801 |
|
| Loans: | | | | | |
| Loans retained | 396,288 |
| | 393,351 |
| | 402,963 |
|
| Loans held-for-sale | 3,416 |
| | 940 |
| | — |
|
| Total loans | 399,704 |
| | 394,291 |
| | 402,963 |
|
| Deposits | 502,520 |
| | 464,412 |
| | 438,517 |
|
Equity(b) | 51,000 |
| | 46,000 |
| | 43,000 |
|
| Selected balance sheet data (average) | | | | | |
| Total assets | $ | 447,750 |
| | $ | 456,468 |
| | $ | 467,641 |
|
Trading assets - loans(a) | 8,040 |
| | 15,603 |
| | 17,573 |
|
| Loans: | | | | | |
| Loans retained | 389,967 |
| | 392,797 |
| | 408,559 |
|
| Loans held-for-sale | 917 |
| | 209 |
| | 433 |
|
| Total loans | $ | 390,884 |
| | $ | 393,006 |
| | $ | 408,992 |
|
| Deposits | 486,919 |
| | 453,304 |
| | 413,948 |
|
Equity(b) | 51,000 |
| | 46,000 |
| | 43,000 |
|
| | | | | | |
| Headcount | 137,186 |
| | 151,333 |
| | 164,391 |
|
|
| | |
| 58 | | JPMorgan Chase & Co./2017 Annual Report |
|
| | | | | | | | | | | |
| Selected metrics | | | | |
As of or for the year ended
December 31, | | | | | |
| (in millions, except headcount) | 2017 | | 2016 | | 2015 |
| Selected balance sheet data (period-end) | | | | | |
| Total assets | $ | 552,601 |
| | $ | 535,310 |
| | $ | 502,652 |
|
| Loans: | | | | | |
| Consumer & Business Banking | 25,789 |
| | 24,307 |
| | 22,730 |
|
| Home equity | 42,751 |
| | 50,296 |
| | 58,734 |
|
| Residential mortgage | 197,339 |
| | 181,196 |
| | 164,500 |
|
| Home Lending | 240,090 |
| | 231,492 |
| | 223,234 |
|
| Card | 149,511 |
| | 141,816 |
| | 131,463 |
|
| Auto | 66,242 |
| | 65,814 |
| | 60,255 |
|
| Student | — |
| | 7,057 |
| | 8,176 |
|
| Total loans | 481,632 |
| | 470,486 |
| | 445,858 |
|
| Core loans | 415,167 |
| | 382,608 |
| | 341,881 |
|
| Deposits | 659,885 |
| | 618,337 |
| | 557,645 |
|
| Equity | 51,000 |
| | 51,000 |
| | 51,000 |
|
| Selected balance sheet data (average) | | | | | |
| Total assets | $ | 532,756 |
| | $ | 516,354 |
| | $ | 472,972 |
|
| Loans: | | | | | |
| Consumer & Business Banking | 24,875 |
| | 23,431 |
| | 21,894 |
|
| Home equity | 46,398 |
| | 54,545 |
| | 63,261 |
|
| Residential mortgage | 190,242 |
| | 177,010 |
| | 140,294 |
|
| Home Lending | 236,640 |
| | 231,555 |
| | 203,555 |
|
| Card | 140,024 |
| | 131,165 |
| | 125,881 |
|
| Auto | 65,395 |
| | 63,573 |
| | 56,487 |
|
| Student | 2,880 |
| | 7,623 |
| | 8,763 |
|
| Total loans | 469,814 |
| | 457,347 |
| | 416,580 |
|
| Core loans | 393,598 |
| | 361,316 |
| | 301,700 |
|
| Deposits | 640,219 |
| | 586,637 |
| | 530,938 |
|
| Equity | 51,000 |
| | 51,000 |
| | 51,000 |
|
| | | | | | |
| Headcount | 134,117 |
| | 132,802 |
| | 127,094 |
|
|
| | | | | | | | | |
| Selected metrics | | |
As of or for the year ended
December 31, | | | |
| (in millions, except ratio data) | 2017 | 2016 | 2015 |
| Credit data and quality statistics | | | |
Nonaccrual loans(a)(b) | $ | 4,084 |
| $ | 4,708 |
| $ | 5,313 |
|
Net charge-offs/(recoveries)(c) | | | |
| Consumer & Business Banking | 257 |
| 257 |
| 253 |
|
| Home equity | 63 |
| 184 |
| 283 |
|
| Residential mortgage | (16 | ) | 14 |
| 2 |
|
| Home Lending | 47 |
| 198 |
| 285 |
|
| Card | 4,123 |
| 3,442 |
| 3,122 |
|
| Auto | 331 |
| 285 |
| 214 |
|
| Student | 498 |
| 162 |
| 210 |
|
| Total net charge-offs/(recoveries) | $ | 5,256 |
| $ | 4,344 |
| $ | 4,084 |
|
| | | | |
Net charge-off/(recovery) rate(c) | | | |
| Consumer & Business Banking | 1.03 | % | 1.10 | % | 1.16 | % |
Home equity(d) | 0.18 |
| 0.45 |
| 0.60 |
|
Residential mortgage(d) | (0.01 | ) | 0.01 |
| — |
|
Home Lending(d) | 0.02 |
| 0.10 |
| 0.18 |
|
| Card | 2.95 |
| 2.63 |
| 2.51 |
|
| Auto | 0.51 |
| 0.45 |
| 0.38 |
|
| Student | NM |
| 2.13 |
| 2.40 |
|
Total net charge-offs/(recovery) rate(d) | 1.21 |
| 1.04 |
| 1.10 |
|
| 30+ day delinquency rate | | | |
Home Lending(e)(f) | 1.19 | % | 1.23 | % | 1.57 | % |
| Card | 1.80 |
| 1.61 |
| 1.43 |
|
| Auto | 0.89 |
| 1.19 |
| 1.35 |
|
Student(g) | — |
| 1.60 |
| 1.81 |
|
| | | | |
| 90+ day delinquency rate - Card | 0.92 |
| 0.81 |
| 0.72 |
|
| | | | |
| Allowance for loan losses | | | |
| Consumer & Business Banking | $ | 796 |
| $ | 753 |
| $ | 703 |
|
| Home Lending, excluding PCI loans | 1,003 |
| 1,328 |
| 1,588 |
|
Home Lending — PCI loans(c) | 2,225 |
| 2,311 |
| 2,742 |
|
| Card | 4,884 |
| 4,034 |
| 3,434 |
|
| Auto | 464 |
| 474 |
| 399 |
|
| Student | — |
| 249 |
| 299 |
|
Total allowance for loan losses(c) | $ | 9,372 |
| $ | 9,149 |
| $ | 9,165 |
|
| |
| (a) | Predominantly consistsExcludes PCI loans. The Firm is recognizing interest income on each pool of prime mortgages originated withPCI loans as each of the intent to sell that are accounted for at fair value.pools is performing. |
| |
| (b) | 2014 includes $3.0At December 31, 2017, 2016 and 2015, nonaccrual loans excluded loans 90 or more days past due as follows: (1) mortgage loans insured by U.S. government agencies of $4.3 billion, $5.0 billion and $6.3 billion, respectively; and (2) student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) of capital held atzero, $263 million and $290 million, respectively. These amounts have been excluded based upon the CCB level related to legacy mortgage servicing matters.government guarantee. |
|
| | | | | | | | | |
| Selected metrics | | |
| As of or for the year ended December 31, | | | |
| (in millions, except ratios and where otherwise noted) | 2014 | 2013 | 2012 |
| Credit data and quality statistics | | |
Net charge-offs(a)(b) | $ | 4,773 |
| $ | 5,826 |
| $ | 9,280 |
|
Nonaccrual loans(c)(d) | 6,401 |
| 7,455 |
| 9,114 |
|
Nonperforming assets(c)(d)(e) | 6,872 |
| 8,109 |
| 9,791 |
|
Allowance for loan losses(a) | 10,404 |
| 12,201 |
| 17,752 |
|
Net charge-off rate(a)(b) | 1.22 | % | 1.48 | % | 2.27 | % |
Net charge-off rate, excluding PCI loans(b) | 1.40 |
| 1.73 |
| 2.68 |
|
| Allowance for loan losses to period-end loans retained | 2.63 |
| 3.10 |
| 4.41 |
|
Allowance for loan losses to period-end loans retained, excluding PCI loans(f) | 2.02 |
| 2.36 |
| 3.51 |
|
Allowance for loan losses to nonaccrual loans retained, excluding credit card(c)(f) | 58 |
| 57 |
| 72 |
|
Nonaccrual loans to total period-end loans, excluding credit card(e) | 2.38 |
| 2.80 |
| 3.31 |
|
Nonaccrual loans to total period-end loans, excluding credit card and PCI loans(c)(e) | 2.88 |
| 3.49 |
| 4.23 |
|
| Business metrics | | | |
| Number of: | | | |
| Branches | 5,602 |
| 5,630 |
| 5,614 |
|
ATMs(g) | 18,056 |
| 20,290 |
| 19,062 |
|
| Active online customers (in thousands) | 36,396 |
| 33,742 |
| 31,114 |
|
| Active mobile customers (in thousands) | 19,084 |
| 15,629 |
| 12,359 |
|
| |
(a)(c) | Net charge-offs and the net charge-off rates excluded $533 million and $53 million of write-offs in the PCI portfolio for the years ended December 31, 20142017, 2016 and 2013, respectively.2015, excluded $86 million, $156 million and $208 million, respectively, of write-offs in the PCI portfolio. These write-offs decreased the allowance for loan losses for PCI loans. For further information on PCI write-offs, see Allowance for Credit Lossessummary of changes in the allowance on pages 128–130. |
| |
(b) | Net charge-offs and net charge-off rates for the year ended December 31, 2012, included $800 million of charge-offs, recorded in accordance with regulatory guidance on certain loans discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower (“Chapter 7 loans”) to be charged off to the net realizable value of the collateral and to be considered nonaccrual, regardless of their delinquency status. Excluding these charges-offs, net charge-offs for the year ended December 31, 2012, would have been $8.5 billion and excluding these charge-offs and PCI loans, the net charge-off rate for the year ended December 31, 2012, would have been 2.45%. |
| |
(c) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.page 118. |
| |
| (d) | AtExcludes the impact of PCI loans. For the years ended December 31, 2014, 20132017, 2016 and 2012, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies2015, the net charge-off rates including the impact of $7.8 billion, $8.4 billion and $10.6 billion, respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) of $367 million, $428 million and $525 million respectively, that are 90 or more days past due; (3) real estate owned (“REO”) insured by U.S. government agencies of $462 million, $2.0 billion and $1.6 billion, respectively. These amounts have been excluded based upon the government guarantee. |
| |
(e) | Prior periods were revised to conform with the current presentation. |
| |
(f) | The allowance for loan losses for PCI loans were as follows: (1) home equity of $3.3 billion, $4.2 billion0.14%, 0.34% and $5.7 billion at December 31, 2014, December 31, 2013,0.45%, respectively; (2) residential mortgage of (0.01)%, 0.01% and December 31, 2012,–%, respectively; these amounts were also excluded from the applicable ratios. |
| |
(g) | Includes eATMs, formerly Express Banking Kiosks (“EBK”). Prior periods were revised to conform with the current presentation.(3) Home Lending of 0.02%, 0.09% and 0.14%, respectively; and (4) total CCB of 1.12%, 0.95% and 0.99%, respectively. |
|
| | |
82 | | JPMorgan Chase & Co./2014 Annual Report |
Consumer & Business Banking
|
| | | | | | | | | | | |
| Selected income statement data | | | | |
| As of or for the year ended December 31, | |
| (in millions, except ratios) | 2014 | | 2013 | | 2012 |
| Revenue | | | | | |
| Lending- and deposit-related fees | $ | 3,010 |
| | $ | 2,942 |
| | $ | 3,068 |
|
| Asset management, administration and commissions | 2,025 |
| | 1,815 |
| | 1,638 |
|
| Card income | 1,605 |
| | 1,495 |
| | 1,353 |
|
| All other income | 534 |
| | 492 |
| | 498 |
|
| Noninterest revenue | 7,174 |
| | 6,744 |
| | 6,557 |
|
| Net interest income | 11,052 |
| | 10,668 |
| | 10,629 |
|
| Total net revenue | 18,226 |
| | 17,412 |
| | 17,186 |
|
| | | | | | |
| Provision for credit losses | 305 |
| | 347 |
| | 311 |
|
| | | | | | |
| Noninterest expense | 12,149 |
| | 12,162 |
| | 11,490 |
|
| Income before income tax expense | 5,772 |
| | 4,903 |
| | 5,385 |
|
| Net income | $ | 3,443 |
| | $ | 2,943 |
| | $ | 3,224 |
|
| Return on common equity | 31 | % | | 26 | % | | 36 | % |
| Overhead ratio | 67 |
| | 70 |
| | 67 |
|
| Equity (period-end and average) | $ | 11,000 |
| | $ | 11,000 |
| | $ | 9,000 |
|
2014 compared with 2013
Consumer & Business Banking net income was $3.4 billion, an increase of $500 million, or 17%, compared with the prior year, due to higher net revenue.
Net revenue was $18.2 billion, up 5% compared with the prior year. Net interest income was $11.1 billion, up $384 million, or 4% compared with the prior year, driven by higher deposit balances, largely offset by deposit spread compression. Noninterest revenue was $7.2 billion, up $430 million, or 6%, driven by higher investment revenue, reflecting record client investment assets, higher debit card revenue, reflecting an increase in transaction volume, and higher deposit-related fees as a result of an increase in customer accounts.
Noninterest expense was $12.1 billion, flat from the prior year, reflecting lower costs driven by efficiencies implemented in the business, offset by the increased cost of controls.
2013 compared with 2012
Consumer & Business Banking net income was $2.9 billion, a decrease of $281 million, or 9%, compared with the prior year, due to higher noninterest expense, partially offset by higher noninterest revenue.
Net revenue was $17.4 billion, up 1% compared with the prior year. Net interest income was $10.7 billion, flat compared with the prior year, driven by higher deposit balances, offset by lower deposit margin. Noninterest revenue was $6.7 billion, an increase of 3%, driven by higher investment sales revenue and debit card revenue, partially offset by lower deposit-related fees.
Noninterest expense was $12.2 billion, up 6% from the prior year, reflecting continued investments in the business, and costs related to the control agenda.
|
| | | | | | | | | | | |
| Selected metrics | | | | |
| As of or for the year ended December 31, | | | | | |
| (in millions, except ratios) | 2014 | | 2013 | | 2012 |
| Business metrics | | | | | |
| Business banking origination volume | $ | 6,599 |
| | $ | 5,148 |
| | $ | 6,542 |
|
| Period-end loans | 21,200 |
| | 19,416 |
| | 18,883 |
|
| Period-end deposits: | | | | | |
| Checking | 213,049 |
| | 187,182 |
| | 170,354 |
|
| Savings | 255,148 |
| | 238,223 |
| | 216,422 |
|
| Time and other | 21,349 |
| | 26,022 |
| | 31,753 |
|
| Total period-end deposits | 489,546 |
| | 451,427 |
| | 418,529 |
|
| Average loans | 20,152 |
| | 18,844 |
| | 18,104 |
|
| Average deposits: | | | | | |
| Checking | 198,996 |
| | 176,005 |
| | 153,422 |
|
| Savings | 249,281 |
| | 229,341 |
| | 204,449 |
|
| Time and other | 24,057 |
| | 29,227 |
| | 34,224 |
|
| Total average deposits | 472,334 |
| | 434,573 |
| | 392,095 |
|
| Deposit margin | 2.21 | % | | 2.32 | % | | 2.57 | % |
| Average assets | $ | 38,298 |
| | $ | 37,174 |
| | $ | 34,431 |
|
|
| | | | | | | | | | | |
| Selected metrics | | | | |
| As of or for the year ended December 31, | |
| (in millions, except ratios and where otherwise noted) | 2014 | | 2013 | | 2012 |
| Credit data and quality statistics | | | | |
| Net charge-offs | $ | 305 |
| | $ | 337 |
| | $ | 411 |
|
| Net charge-off rate | 1.51 | % | | 1.79 | % | | 2.27 | % |
| Allowance for loan losses | $ | 703 |
| | $ | 707 |
| | $ | 698 |
|
| Nonperforming assets | 286 |
| | 391 |
| | 488 |
|
| Retail branch business metrics | | | | |
| Net new investment assets | $ | 16,088 |
| | $ | 16,006 |
| | $ | 11,128 |
|
| Client investment assets | 213,459 |
| | 188,840 |
| | 158,502 |
|
| % managed accounts | 39 | % | | 36 | % | | 29 | % |
| Number of: | | | | | |
| Chase Private Client locations | 2,514 |
| | 2,149 |
| | 1,218 |
|
| Personal bankers | 21,039 |
| | 23,588 |
| | 23,674 |
|
| Sales specialists | 3,994 |
| | 5,740 |
| | 6,076 |
|
| Client advisors | 3,090 |
| | 3,044 |
| | 2,963 |
|
| Chase Private Clients | 325,653 |
| | 215,888 |
| | 105,700 |
|
Accounts (in thousands)(a) | 30,481 |
| | 29,437 |
| | 28,073 |
|
| Households (in millions) | 25.7 |
| | 25.0 |
| | 24.1 |
|
(a) Includes checking accounts and Chase Liquid® cards.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 8359 |
Management’s discussion and analysis
Mortgage Banking
|
| | | | | | | | | | | |
| Selected Financial statement data |
| As of or for the year ended December 31, | | | | | |
| (in millions, except ratios) | 2014 | | 2013 | | 2012 |
| Revenue | | | | | |
| Mortgage fees and related income | $ | 3,560 |
| | $ | 5,195 |
| | $ | 8,680 |
|
| All other income | 37 |
| | 283 |
| | 475 |
|
| Noninterest revenue | 3,597 |
| | 5,478 |
| | 9,155 |
|
| Net interest income | 4,229 |
| | 4,758 |
| | 5,016 |
|
| Total net revenue | 7,826 |
| | 10,236 |
| | 14,171 |
|
| | | | | | |
| Provision for credit losses | (217 | ) | | (2,681 | ) | | (490 | ) |
| | | | | | |
| Noninterest expense | 5,284 |
| | 7,602 |
| | 9,121 |
|
| Income before income tax expense | 2,759 |
| | 5,315 |
| | 5,540 |
|
| Net income | $ | 1,668 |
| | $ | 3,211 |
| | $ | 3,468 |
|
| | | | | | |
| Return on common equity | 9 | % | | 16 | % | | 19 | % |
| Overhead ratio | 68 |
| | 74 |
| | 64 |
|
| Equity (period-end and average) | $ | 18,000 |
| | $ | 19,500 |
| | $ | 17,500 |
|
2014 compared with 2013
Mortgage Banking net income was $1.7 billion, a decrease of $1.5 billion, or 48%, from the prior year, driven by a lower benefit from the provision for credit losses and lower net revenue, partially offset by lower noninterest expense.
Net revenue was $7.8 billion, a decrease of $2.4 billion, or 24%, compared with the prior year. Net interest income was $4.2 billion, a decrease of $529 million, or 11%, driven by spread compression and lower loan balances due to portfolio runoff and lower warehouse balances. Noninterest revenue was $3.6 billion, a decrease of $1.9 billion, or 34%, driven by lower mortgage fees and related income.
The provision for credit losses was a benefit of $217 million, compared with a benefit of $2.7 billion in the prior year. The current year reflected a $700 million reduction in the allowance for loan losses, reflecting continued improvement in home prices and delinquencies. The prior year included a $3.8 billion reduction in the allowance for loan losses. Net charge-offs were $483 million, compared with $1.1 billion in the prior year.
Noninterest expense was $5.3 billion, a decrease of $2.3 billion, or 30%, from the prior year, due to lower expense in production and servicing reflecting lower headcount-related expense, the absence of non-MBS related legal expense and lower expense on foreclosure-related matters.
2013 compared with 2012
Mortgage Banking net income was $3.2 billion, a decrease of $257 million, or 7%, compared with the prior year, driven by lower net revenue, predominantly offset by a higher benefit from the provision for credit losses and lower noninterest expense.
Net revenue was $10.2 billion, a decrease of $3.9 billion, or 28%, compared with the prior year. Net interest income was $4.8 billion, a decrease of $258 million, or 5%, driven by lower loan balances due to net portfolio runoff. Noninterest revenue was $5.5 billion, a decrease of $3.7 billion, driven by lower mortgage fees and related income.
The provision for credit losses was a benefit of $2.7 billion, compared with a benefit of $490 million in the prior year. The current year reflected a $3.8 billion reduction in the allowance for loan losses due to continued improvement in home prices and delinquencies. The prior year included a $3.9 billion reduction in the allowance for loan losses.
Noninterest expense was $7.6 billion, a decrease of $1.5 billion, or 17%, from the prior year, due to lower servicing expense, partially offset by higher non-MBS related legal expense in Mortgage Production.
|
| | |
84 | | JPMorgan Chase & Co./2014 Annual Report |
|
| | | | | | | | | | | |
| Functional results |
| Year ended December 31, | | | | | |
| (in millions, except ratios) | 2014 | | 2013 | | 2012 |
| Mortgage Production | | | | | |
Production revenue and other Income(a) | $ | 1,060 |
| | $ | 2,973 |
| | $ | 5,877 |
|
Production-related net interest income(a) | 422 |
| | 635 |
| | 705 |
|
| Production-related revenue, excluding repurchase (losses)/benefits | 1,482 |
| | 3,608 |
| | 6,582 |
|
Production expense(b) | 1,646 |
| | 3,088 |
| | 2,747 |
|
| Income, excluding repurchase (losses)/benefits | (164 | ) | | 520 |
| | 3,835 |
|
| Repurchase (losses)/benefits | 458 |
| | 331 |
| | (272 | ) |
| Income before income tax expense | 294 |
| | 851 |
| | 3,563 |
|
| | | | | | |
| Mortgage Servicing | | | | | |
Loan servicing revenue and other income(a) | 3,294 |
| | 3,744 |
| | 4,110 |
|
Servicing-related net interest income(a) | 314 |
| | 253 |
| | 93 |
|
| Servicing-related revenue | 3,608 |
| | 3,997 |
| | 4,203 |
|
| Changes in MSR asset fair value due to collection/realization of expected cash flows | (905 | ) | | (1,094 | ) | | (1,222 | ) |
| Net servicing-related revenue | 2,703 |
| | 2,903 |
| | 2,981 |
|
| Default servicing expense | 1,406 |
| | 2,069 |
| | 3,707 |
|
Core servicing expense(b) | 865 |
| | 904 |
| | 1,033 |
|
| Servicing Expense | 2,271 |
| | 2,973 |
| | 4,740 |
|
| Income/(loss), excluding MSR risk management | 432 |
| | (70 | ) | | (1,759 | ) |
| MSR risk management, including related net interest income/(expense) | (28 | ) | | (268 | ) | | 616 |
|
| Income/(loss) before income tax expense/(benefit) | 404 |
| | (338 | ) | | (1,143 | ) |
| | | | | | |
| Real Estate Portfolios | | | | | |
| Noninterest revenue | (282 | ) | | (209 | ) | | 43 |
|
| Net interest income | 3,493 |
| | 3,871 |
| | 4,221 |
|
| Total net revenue | 3,211 |
| | 3,662 |
| | 4,264 |
|
| | | | | | |
| Provision for credit losses | (223 | ) | | (2,693 | ) | | (509 | ) |
| | | | | | |
| Noninterest expense | 1,373 |
| | 1,553 |
| | 1,653 |
|
| Income before income tax expense | 2,061 |
| | 4,802 |
| | 3,120 |
|
| Mortgage Banking income before income tax expense | $ | 2,759 |
| | $ | 5,315 |
| | $ | 5,540 |
|
| Mortgage Banking net income | $ | 1,668 |
| | $ | 3,211 |
| | $ | 3,468 |
|
| | | | | | |
| Overhead ratios | | | | | |
| Mortgage Production | 85 | % | | 78 | % | | 43 | % |
| Mortgage Servicing | 85 |
| | 113 | | 132 |
|
| Real Estate Portfolios | 43 |
| | 42 |
| | 39 |
|
| |
(a) | Prior periods were revised to conform with the current presentation. |
| |
(b) | Includes provision for credit losses. |
2014 compared with 2013
Mortgage Production pretax income was $294 million, a decrease of $557 million, or 65%, from the prior year, reflecting lower revenue, largely offset by lower expense and higher benefit from repurchase losses. Mortgage production-related revenue, excluding repurchase losses, was $1.5 billion, a decrease of $2.1 billion, from the prior year, driven by lower volumes due to higher levels of mortgage interest rates and tighter margins. Production expense was $1.6 billion, a decrease of $1.4 billion, or 47%, from the prior year, driven by lower headcount-related expense and the absence of non-MBS related legal expense.
Mortgage Servicing pretax income was $404 million, compared with a loss of $338 million in the prior year, reflecting lower expenses and lower MSR risk management loss, partially offset by lower net revenue. Mortgage net servicing-related revenue was $2.7 billion, a decrease of $200 million, or 7%, from the prior year, driven by lower average third-party loans serviced and lower revenue from an exited non-core product, partially offset by lower MSR asset amortization expense as a result of lower MSR asset value. MSR risk management was a loss of $28 million, compared with a loss of $268 million in the prior year. See Note 17 for further information regarding changes in value of the MSR asset and related hedges. Servicing expense was $2.3 billion, a decrease of $702 million, or 24%, from the prior year, reflecting lower headcount-related expense and lower expense for foreclosure related matters.
Real Estate Portfolios pretax income was $2.1 billion, down $2.7 billion, or 57%, from the prior year, due to a lower benefit from the provision for credit losses and lower net revenue, partially offset by lower noninterest expense. Net revenue was $3.2 billion, a decrease of $451 million, or 12%, from the prior year, driven by lower net interest income as a result of spread compression and lower loan balances due to portfolio runoff. The provision for credit losses was a benefit of $223 million, compared with a benefit of $2.7 billion in the prior year. The current-year provision reflected a $700 million reduction in the allowance for loan losses, $400 million from the non credit-impaired allowance and $300 million from the purchased credit-impaired allowance, due to continued improvement in home prices and delinquencies. The prior-year provision reflected a $3.8 billion reduction in the allowance for loan losses, $2.3 billion from the non credit-impaired allowance and $1.5 billion from the purchased credit-impaired allowance. Net charge-offs were $477 million, compared with $1.1 billion in the prior year. See Consumer Credit Portfolio on pages 113–119 for the net charge-off amounts and rates. Noninterest expense was $1.4 billion, a decrease of $180 million, or 12%, compared with the prior year, driven by lower FDIC-related expense and lower foreclosed asset expense due to lower foreclosure inventory.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 85 |
Management’s discussion and analysis
2013 compared with 2012
Mortgage Production pretax income was $851 million, a decrease of $2.7 billion from the prior year, reflecting lower margins, lower volumes and higher legal expense, partially offset by a benefit in repurchase losses. Production-related revenue, excluding repurchase losses, was $3.6 billion, a decrease of $3.0 billion, or 45%, from the prior year, largely reflecting lower margins and lower volumes from rising rates. Production expense was $3.1 billion, an increase of $341 million, or 12%, from the prior year, due to higher non-MBS related legal expense and higher compensation-related expense. Repurchase losses for the current year reflected a benefit of $331 million, compared with repurchase losses of $272 million in the prior year. The current year reflected a reduction in the repurchase liability largely as a result of the settlement with the GSEs.
Mortgage Servicing pretax loss was $338 million, compared with a pretax loss of $1.1 billion in the prior year, driven by lower expense, partially offset by a MSR risk management loss. Mortgage net servicing-related revenue was $2.9 billion, a decrease of $78 million. MSR risk management was a loss of $268 million, compared with income of $616 million in the prior year, driven by the net impact of various changes in model inputs and assumptions. See Note 17 for further information regarding changes in value of the MSR asset and related hedges. Servicing expense was $3.0 billion, a decrease of $1.8 billion, or 37%, from the prior year, reflecting lower costs associated with the Independent Foreclosure Review and lower servicing headcount.
Real Estate Portfolios pretax income was $4.8 billion, up $1.7 billion from the prior year, or 54%, due to a higher benefit from the provision for credit losses, partially offset by lower net revenue. Net revenue was $3.7 billion, a decrease of $602 million, or 14%, from the prior year. This decrease was due to lower net interest income, resulting from lower loan balances due to net portfolio runoff, and lower noninterest revenue due to higher loan retention. The provision for credit losses was a benefit of $2.7 billion, compared with a benefit of $509 million in the prior year. The current-year provision reflected a $3.8 billion reduction in the allowance for loan losses, $2.3 billion from the non credit-impaired allowance and $1.5 billion from the purchased credit-impaired allowance, reflecting continued improvement in home prices and delinquencies. The prior-year provision included a $3.9 billion reduction in the allowance for loan losses from the non credit-impaired allowance. Net charge-offs were $1.1 billion, compared with $3.3 billion in the prior year. Prior-year total net charge-offs included $744 million of incremental charge-offs reported in accordance with regulatory guidance on certain loans discharged under Chapter 7 bankruptcy. Noninterest expense was $1.6 billion, a decrease of $100 million, or 6%, compared with the prior year, driven by lower foreclosed asset expense due to lower foreclosure inventory, largely offset by higher FDIC-related expense.
|
| | | | | | | | | | | |
| Mortgage Production and Mortgage Servicing | | |
| Selected metrics | |
| As of or for the year ended December 31, | | | | | |
| (in millions, except ratios) | 2014 | | 2013 | | 2012 |
| Selected balance sheet data (Period-end) | | | | | |
Trading assets - loans(a) | $ | 8,423 |
| | $ | 6,832 |
| | $ | 18,801 |
|
| Loans: | | | | | |
Prime mortgage, including option ARMs(b) | $ | 13,557 |
| | $ | 15,136 |
| | $ | 17,290 |
|
| Loans held-for-sale | 314 |
| | 614 |
| | — |
|
| Selected balance sheet data (average) | | | | | |
Trading assets - loans(a) | 8,040 |
| | 15,603 |
| | 17,573 |
|
| Loans: | | | | | |
Prime mortgage, including option ARMs(b) | 14,993 |
| | 16,495 |
| | 17,335 |
|
| Loans held-for-sale | 394 |
| | 114 |
| | — |
|
| Average assets | 42,456 |
| | 57,131 |
| | 59,837 |
|
| Repurchase liability (period-end) | 249 |
| | 651 |
| | 2,530 |
|
| Credit data and quality statistics | | | | | |
| Net charge-offs: | | | | | |
| Prime mortgage, including option ARMs | 6 |
| | 12 |
| | 19 |
|
| Net charge-off rate: | | | | | |
| Prime mortgage, including option ARMs | 0.04 | % | | 0.07 | % | | 0.11 | % |
30+ day delinquency rate(c) | 2.06 |
| | 2.75 |
| | 3.05 |
|
Nonperforming assets(d)(e) | $ | 389 |
| | $ | 519 |
| | $ | 599 |
|
| |
(a) | Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value. |
| |
(b) | Predominantly represents prime mortgage loans repurchased from Government National Mortgage Association (“Ginnie Mae”) pools, which are insured by U.S. government agencies. |
| |
(c)(e) | At December 31, 2014, 20132017, 2016 and 2012,2015, excluded mortgage loans insured by U.S. government agencies of $9.7$6.2 billion, $9.6$7.0 billion and $11.8$8.4 billion, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee. For further discussion, see Note 14 which summarizes loan delinquency information. |
| |
(d)(f) | AtExcludes PCI loans. The 30+ day delinquency rate for PCI loans was 10.13%, 9.82% and 11.21% at December 31, 2014, 20132017, 2016 and 2012, nonperforming assets excluded: (1) mortgage2015, respectively. |
| |
| (g) | Excluded student loans insured by U.S. government agencies under FFELP of $7.8 billion, $8.4 billion$468 million and $10.6 billion$526 million at December 31, 2016 and 2015, respectively, that are 9030 or more days past due; and (2) REO insured by U.S. government agencies of $462 million, $2.0 billion and $1.6 billion, respectively.due. These amounts have been excluded based upon the government guarantee. |
| |
(e) | Prior periods were revised to conform with the current presentation. |
|
| | |
86 | | JPMorgan Chase & Co./2014 Annual Report |
|
| | | | | | | | | | | |
| Selected metrics | | | | | |
As of or for the year ended December 31, | | | | | |
| (in billions, except ratios) | 2014 | | 2013 | | 2012 |
| Business metrics | | | | | |
| Mortgage origination volume by channel | | | | | |
| Retail | $ | 29.5 |
| | $ | 77.0 |
| | $ | 101.4 |
|
Correspondent(a) | 48.5 |
| | 88.5 |
| | 79.4 |
|
Total mortgage origination volume(b) | $ | 78.0 |
| | $ | 165.5 |
| | $ | 180.8 |
|
| Mortgage application volume by channel | | | | | |
| Retail | $ | 55.6 |
| | $ | 108.0 |
| | $ | 164.5 |
|
Correspondent(a) | 63.2 |
| | 89.2 |
| | 101.2 |
|
| Total mortgage application volume | $ | 118.8 |
| | $ | 197.2 |
| | $ | 265.7 |
|
| Third-party mortgage loans serviced (period-end) | $ | 751.5 |
| | $ | 815.5 |
| | $ | 859.4 |
|
| Third-party mortgage loans serviced (average) | 784.6 |
| | 837.3 |
| | 847.0 |
|
| MSR carrying value (period-end) | 7.4 |
| | 9.6 |
| | 7.6 |
|
| Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) | 0.98 | % | | 1.18 | % | | 0.88 | % |
| Ratio of loan servicing-related revenue to third-party mortgage loans serviced (average) | 0.36 |
| | 0.40 |
| | 0.46 |
|
MSR revenue multiple(c) | 2.72 | x | | 2.95 | x | | 1.91x |
|
|
| | | | | | | | | | | |
| Selected metrics | | | | |
| As of or for the year ended December 31, | | | | | |
| (in billions, except ratios and where otherwise noted) | 2017 | | 2016 | | 2015 |
| Business Metrics | | | | | |
CCB households (in millions)(a) | 61.0 |
| | 60.4 |
| | 58.1 |
|
| Number of branches | 5,130 |
| | 5,258 |
| | 5,413 |
|
Active digital customers (in thousands)(b) | 46,694 |
| | 43,836 |
| | 39,242 |
|
Active mobile customers (in thousands)(c) | 30,056 |
| | 26,536 |
| | 22,810 |
|
Debit and credit card sales volume(a) | $ | 916.9 |
| | $ | 821.6 |
| | $ | 754.1 |
|
| | | | | | |
| Consumer & Business Banking | | | | | |
| Average deposits | $ | 625.6 |
| | $ | 570.8 |
| | $ | 515.2 |
|
| Deposit margin | 1.98 | % | | 1.81 | % | | 1.90 | % |
| Business banking origination volume | $ | 7.3 |
| | $ | 7.3 |
| | $ | 6.8 |
|
| Client investment assets | 273.3 |
| | 234.5 |
| | 218.6 |
|
| | | | | | |
| Home Lending | | | | | |
| Mortgage origination volume by channel | | | | | |
| Retail | $ | 40.3 |
| | $ | 44.3 |
| | $ | 36.1 |
|
| Correspondent | 57.3 |
| | 59.3 |
| | 70.3 |
|
Total mortgage origination volume(d) | $ | 97.6 |
| | $ | 103.6 |
| | $ | 106.4 |
|
Total loans serviced (period-end) | $ | 816.1 |
| | $ | 846.6 |
| | $ | 910.1 |
|
| Third-party mortgage loans serviced (period-end) | 553.5 |
| | 591.5 |
| | 674.0 |
|
MSR carrying value (period-end) | 6.0 |
| | 6.1 |
| | 6.6 |
|
| Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) | 1.08 | % | | 1.03 | % | | 0.98 | % |
| | | | | | |
MSR revenue multiple(e) | 3.09 | x | | 2.94 | x | | 2.80 | x |
| | | | | | |
| Card, excluding Commercial Card | | | | | |
| Credit card sales volume | $ | 622.2 |
| | $ | 545.4 |
| | $ | 495.9 |
|
New accounts opened (in millions) | 8.4 |
| | 10.4 |
| | 8.7 |
|
| | | | | | |
| Card Services | | | | | |
| Net revenue rate | 10.57 | % | | 11.29 | % | | 12.33 | % |
| | | | | | |
| Merchant Services | | | | | |
| Merchant processing volume | $ | 1,191.7 |
| | $ | 1,063.4 |
| | $ | 949.3 |
|
| | | | | | |
| Auto | | | | | |
| Loan and lease origination volume | $ | 33.3 |
| | $ | 35.4 |
| | $ | 32.4 |
|
| Average Auto operating lease assets | 15.2 |
| | 11.0 |
| | 7.8 |
|
| |
| (a) | Includes rural housing loans sourced through correspondents, andThe prior period amounts have been revised to November 2013, through both brokers and correspondents, which are underwritten and closedconform with pre-funding loan approval from the U.S. Department of Agriculture Rural Development, which acts as the guarantor in the transaction.current period presentation. |
| |
| (b) | Users of all web and/or mobile platforms who have logged in within the past 90 days. |
| |
| (c) | Users of all mobile platforms who have logged in within the past 90 days. |
| |
| (d) | Firmwide mortgage origination volume was $83.3$107.6 billion, $176.4$117.4 billion and $189.9$115.2 billion for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. |
| |
(c)(e) | Represents the ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) divided by the ratio of loan servicing-related revenue to third-party mortgage loans serviced (average). |
|
| | | | | | | | | | | |
| Real Estate Portfolios | | |
| Selected metrics | | | | | |
| As of or for the year ended December 31, | | | | | |
| (in millions) | 2014 | | 2013 | | 2012 |
| Loans, excluding PCI | | | | | |
| Period-end loans owned: | | | | | |
| Home equity | $ | 50,899 |
| | $ | 57,863 |
| | $ | 67,385 |
|
| Prime mortgage, including option ARMs | 66,543 |
| | 49,463 |
| | 41,316 |
|
| Subprime mortgage | 5,083 |
| | 7,104 |
| | 8,255 |
|
| Other | 477 |
| | 551 |
| | 633 |
|
| Total period-end loans owned | $ | 123,002 |
| | $ | 114,981 |
| | $ | 117,589 |
|
| Average loans owned: | | | | | |
| Home equity | $ | 54,410 |
| | $ | 62,369 |
| | $ | 72,674 |
|
| Prime mortgage, including option ARMs | 56,104 |
| | 44,988 |
| | 42,311 |
|
| Subprime mortgage | 6,257 |
| | 7,687 |
| | 8,947 |
|
| Other | 511 |
| | 588 |
| | 675 |
|
| Total average loans owned | $ | 117,282 |
| | $ | 115,632 |
| | $ | 124,607 |
|
| PCI loans | | | | | |
| Period-end loans owned: | | | | | |
| Home equity | $ | 17,095 |
| | $ | 18,927 |
| | $ | 20,971 |
|
| Prime mortgage | 10,220 |
| | 12,038 |
| | 13,674 |
|
| Subprime mortgage | 3,673 |
| | 4,175 |
| | 4,626 |
|
| Option ARMs | 15,708 |
| | 17,915 |
| | 20,466 |
|
| Total period-end loans owned | $ | 46,696 |
| | $ | 53,055 |
| | $ | 59,737 |
|
| Average loans owned: | | | | | |
| Home equity | $ | 18,030 |
| | $ | 19,950 |
| | $ | 21,840 |
|
| Prime mortgage | 11,257 |
| | 12,909 |
| | 14,400 |
|
| Subprime mortgage | 3,921 |
| | 4,416 |
| | 4,777 |
|
| Option ARMs | 16,794 |
| | 19,236 |
| | 21,545 |
|
| Total average loans owned | $ | 50,002 |
| | $ | 56,511 |
| | $ | 62,562 |
|
| Total Real Estate Portfolios | | | | | |
| Period-end loans owned: | | | | | |
| Home equity | $ | 67,994 |
| | $ | 76,790 |
| | $ | 88,356 |
|
| Prime mortgage, including option ARMs | 92,471 |
| | 79,416 |
| | 75,456 |
|
| Subprime mortgage | 8,756 |
| | 11,279 |
| | 12,881 |
|
| Other | 477 |
| | 551 |
| | 633 |
|
| Total period-end loans owned | $ | 169,698 |
| | $ | 168,036 |
| | $ | 177,326 |
|
| Average loans owned: | | | | | |
| Home equity | $ | 72,440 |
| | $ | 82,319 |
| | $ | 94,514 |
|
| Prime mortgage, including option ARMs | 84,155 |
| | 77,133 |
| | 78,256 |
|
| Subprime mortgage | 10,178 |
| | 12,103 |
| | 13,724 |
|
| Other | 511 |
| | 588 |
| | 675 |
|
| Total average loans owned | $ | 167,284 |
| | $ | 172,143 |
| | $ | 187,169 |
|
| Average assets | $ | 164,387 |
| | $ | 163,898 |
| | $ | 175,712 |
|
| Home equity origination volume | 3,102 |
| | 2,124 |
| | 1,420 |
|
|
| | |
| 60 | | JPMorgan Chase & Co./20142017 Annual Report | | 87 |
Management’s discussion and analysis
|
| | | | | | | | | | | |
| Credit data and quality statistics |
As of or for the year ended December 31, (in millions, except ratios) | 2014 | | 2013 | | 2012 |
Net charge-offs/(recoveries), excluding PCI loans:(a)(b) | | | | | |
| Home equity | $ | 473 |
| | $ | 966 |
| | $ | 2,385 |
|
| Prime mortgage, including option ARMs | 22 |
| | 41 |
| | 454 |
|
| Subprime mortgage | (27 | ) | | 90 |
| | 486 |
|
| Other | 9 |
| | 10 |
| | 16 |
|
| Total net charge-offs/(recoveries), excluding PCI loans | $ | 477 |
| | $ | 1,107 |
| | $ | 3,341 |
|
Net charge-off/(recovery) rate, excluding PCI loans:(b) | | | | | |
| Home equity | 0.87 | % | | 1.55 | % | | 3.28 | % |
| Prime mortgage, including option ARMs | 0.04 |
| | 0.09 |
| | 1.07 |
|
| Subprime mortgage | (0.43 | ) | | 1.17 |
| | 5.43 |
|
| Other | 1.76 |
| | 1.70 |
| | 2.37 |
|
| Total net charge-off/(recovery) rate, excluding PCI loans | 0.41 |
| | 0.96 |
| | 2.68 |
|
Net charge-off/(recovery) rate – reported:(a)(b) | | | | | |
| Home equity | 0.65 | % | | 1.17 | % | | 2.52 | % |
| Prime mortgage, including option ARMs | 0.03 |
| | 0.05 |
| | 0.58 |
|
| Subprime mortgage | (0.27 | ) | | 0.74 |
| | 3.54 |
|
| Other | 1.76 |
| | 1.70 |
| | 2.37 |
|
| Total net charge-off/(recovery) rate – reported | 0.29 |
| | 0.64 |
| | 1.79 |
|
30+ day delinquency rate, excluding PCI loans(c) | 2.67 | % | | 3.66 | % | | 5.03 | % |
| Allowance for loan losses, excluding PCI loans | $ | 2,168 |
| | $ | 2,568 |
| | $ | 4,868 |
|
Allowance for PCI loans(a) | 3,325 |
| | 4,158 |
| | 5,711 |
|
| Allowance for loan losses | $ | 5,493 |
| | $ | 6,726 |
| | $ | 10,579 |
|
Nonperforming assets(d) | 5,786 |
| | 6,919 |
| | 8,439 |
|
| Allowance for loan losses to period-end loans retained | 3.24 | % | | 4.00 | % | | 5.97 | % |
| Allowance for loan losses to period-end loans retained, excluding PCI loans | 1.76 |
| | 2.23 |
| | 4.14 |
|
| |
(a) | Net charge-offs and the net charge-off rates excluded $533 million and $53 million of write-offs in the PCI portfolio for the years ended December 31, 2014 and 2013, respectively. These write-offs decreased the allowance for loan losses for PCI loans. For further information on PCI write-offs, see Allowance for Credit Losses on pages 128–130. |
| |
(b) | Net charge-offs and net charge-off rates for the year ended December 31, 2012, included $744 million of charge-offs related to regulatory guidance. Excluding these charges-offs, net charge-offs for the year ended December 31, 2012, would have been $1.8 billion, $410 million and $416 million for the home equity, prime mortgage, including option ARMs, and subprime mortgage portfolios, respectively. Net charge-off rates for the same period, excluding these charge-offs and PCI loans, would have been 2.41%, 0.97% and 4.65% for the home equity, prime mortgage, including option ARMs, and subprime mortgage portfolios, respectively. |
| |
(c) | The 30+ day delinquency rate for PCI loans was 13.33% 15.31% and 20.14% at December 31, 2014, 2013 and 2012, respectively. |
| |
(d) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing. |
Mortgage servicing-related matters
The financial crisis resulted in unprecedented levels of delinquencies and defaults of 1-4 family residential real estate loans. Such loans required varying degrees of loss mitigation activities. Foreclosure is usually a last resort, and accordingly, the Firm has made,resolved the majority of the consent orders and continues to make, significant efforts to help borrowers remain in their homes.
The Firm hassettlements into which it entered into various Consent Orders and settlements with federal and state governmental agencies and private parties related to mortgage servicing, origination, and residential mortgage-backed securities activities. The requirementsOn January 12, 2018, the Board of these Consent Orders and settlements vary, but in the aggregate, include cash compensatory payments (in addition to fines) and/or “borrower relief,” which may include principal reduction, refinancing, short sale assistance, and other specified types of borrower relief. Other obligations required under certain Consent Orders and settlements, as well as under new regulatory requirements, include enhanced mortgage servicing and foreclosure standards and processes. The Firm has satisfied or is committed to satisfying these obligations within the mandated timeframes.
The mortgage servicing Consent Orders and settlements are subject to ongoing oversight by the Mortgage Compliance CommitteeGovernors of the Firm’s Board of Directors. In addition, certainFederal Reserve System terminated its mortgage servicing-related Consent Order with the Firm, which had been outstanding since April 2011.
Some of the Consent Orders and settlementsremaining obligations are the subject of ongoing reporting to various regulators andoverseen by an independent overseers.
Thereviewer, who publishes periodic reports detailing the Firm’s compliance with the Global Settlement and the RMBS Settlement are detailed in periodic reports published by the independent overseers.obligations.
|
| | |
88 | | JPMorgan Chase & Co./2014 Annual Report |
Card, Merchant Services & Auto
|
| | | | | | | | | | | |
| Selected income statement data |
As of or for the year ended December 31, (in millions, except ratios) | 2014 | | 2013 | | 2012 |
| Revenue | | | | | |
| Card income | $ | 4,173 |
| | $ | 4,289 |
| | $ | 4,092 |
|
| All other income | 993 |
| | 1,041 |
| | 1,009 |
|
| Noninterest revenue | 5,166 |
| | 5,330 |
| | 5,101 |
|
| Net interest income | 13,150 |
| | 13,559 |
| | 13,820 |
|
| Total net revenue | 18,316 |
|
| 18,889 |
|
| 18,921 |
|
| | | | | | |
| Provision for credit losses | 3,432 |
| | 2,669 |
| | 3,953 |
|
| | | | | | |
Noninterest expense(a) | 8,176 |
| | 8,078 |
| | 8,216 |
|
| Income before income tax expense | 6,708 |
| | 8,142 |
| | 6,752 |
|
| Net income | $ | 4,074 |
|
| $ | 4,907 |
|
| $ | 4,099 |
|
| | | | | | |
| Return on common equity | 21 | % | | 31 | % | | 24 | % |
| Overhead ratio | 45 |
| | 43 |
| | 43 |
|
| Equity (period-end and average) | $ | 19,000 |
| | $ | 15,500 |
| | $ | 16,500 |
|
| |
(a) | Included operating lease depreciation expense of $1.2 billion, $972 million and $817 million for the years ended December 31, 2014, 2013 and 2012, respectively. |
2014 compared with 2013
Card net income was $4.1 billion, a decrease of $833 million, or 17%, compared with the prior year, predominantly driven by higher provision for credit losses and lower net revenue.
Net revenue was $18.3 billion, down $573 million or 3% compared with the prior year. Net interest income was $13.2 billion, a decrease of $409 million, or 3%, from the prior year primarily driven by spread compression in Credit Card and Auto, partially offset by higher average loan balances. Noninterest revenue was $5.2 billion, down $164 million, or 3%, from the prior year. The decrease was primarily driven by higher amortization of new account origination costs and the impact of non-core portfolio exits, largely offset by higher auto lease income and net interchange income from higher sales volume.
The provision for credit losses was $3.4 billion, compared with $2.7 billion in the prior year. The current-year provision reflected lower net charge-offs and a $554 million reduction in the allowance for loan losses. The reduction in the allowance for loan losses was primarily related to a decrease in the asset-specific allowance resulting from increased granularity of the impairment estimates and lower balances related to credit card loans modified in TDRs, runoff in the student loan portfolio, and lower estimated losses in auto loans. The prior-year provision included a $1.7 billion reduction in the allowance for loan losses.
Noninterest expense was $8.2 billion, up $98 million, or 1% from the prior year primarily driven by higher auto lease depreciation expense and higher investment in controls, predominantly offset by lower intangible amortization and lower remediation costs.
2013 compared with 2012
Card net income was $4.9 billion, an increase of $808 million, or 20%, compared with the prior year, driven by lower provision for credit losses.
Net revenue was $18.9 billion, flat compared with the prior year. Net interest income was $13.6 billion, down $261 million, or 2%, from the prior year. The decrease was primarily driven by spread compression in Credit Card and Auto and lower average credit card loan balances, largely offset by the impact of lower revenue reversals associated with lower net charge-offs in Credit Card. Noninterest revenue was $5.3 billion, an increase of $229 million, or 4%, compared with the prior year primarily driven by higher net interchange income, auto lease income and merchant servicing revenue, largely offset by lower revenue from an exited non-core product and a gain on an investment security recognized in the prior year.
The provision for credit losses was $2.7 billion, compared with $4.0 billion in the prior year. The current-year provision reflected lower net charge-offs and a $1.7 billion reduction in the allowance for loan losses due to lower estimated losses reflecting improved delinquency trends and restructured loan performance. The prior-year provision included a $1.6 billion reduction in the allowance for loan losses. The Credit Card net charge-off rate was 3.14%, down from 3.95% in the prior year; and the 30+ day delinquency rate was 1.67%, down from 2.10% in the prior year. The Auto net charge-off rate was 0.31%, down from 0.39% in the prior year.
Noninterest expense was $8.1 billion, a decrease of $138 million, or 2%, from the prior year. This decrease was due to one-time expense items recognized in the prior year related to the exit of a non-core product and the write-off of intangible assets associated with a non-strategic relationship. The reduction in expenses was partially offset by increased auto lease depreciation and payments to customers required by a regulatory Consent Order during 2013.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 8961 |
Management’s discussion and analysis
|
| | | | | | | | | | | |
| Selected metrics |
As of or for the year ended December 31, (in millions, except ratios and where otherwise noted) | 2014 | | 2013 | | 2012 |
| Selected balance sheet data (period-end) | | | | | |
| Loans: | | | | | |
| Credit Card | $ | 131,048 |
| | $ | 127,791 |
| | $ | 127,993 |
|
| Auto | 54,536 |
| | 52,757 |
| | 49,913 |
|
| Student | 9,351 |
| | 10,541 |
| | 11,558 |
|
| Total loans | $ | 194,935 |
| | $ | 191,089 |
| | $ | 189,464 |
|
| Selected balance sheet data (average) | | | | | |
| Total assets | $ | 202,609 |
| | $ | 198,265 |
| | $ | 197,661 |
|
| Loans: | | | | | |
| Credit Card | 125,113 |
| | 123,613 |
| | 125,464 |
|
| Auto | 52,961 |
| | 50,748 |
| | 48,413 |
|
| Student | 9,987 |
| | 11,049 |
| | 12,507 |
|
| Total loans | $ | 188,061 |
| | $ | 185,410 |
| | $ | 186,384 |
|
| Business metrics | | | | | |
| Credit Card, excluding Commercial Card | | | | | |
| Sales volume (in billions) | $ | 465.6 |
| | $ | 419.5 |
| | $ | 381.1 |
|
| New accounts opened | 8.8 |
| | 7.3 |
| | 6.7 |
|
| Open accounts | 64.6 |
| | 65.3 |
| | 64.5 |
|
| Accounts with sales activity | 34.0 |
| | 32.3 |
| | 30.6 |
|
| % of accounts acquired online | 56 | % | | 55 | % | | 51 | % |
| Merchant Services (Chase Paymentech Solutions) | | | | | |
| Merchant processing volume (in billions) | $ | 847.9 |
| | $ | 750.1 |
| | $ | 655.2 |
|
Total transactions (in billions) | 38.1 |
| | 35.6 |
| | 29.5 |
|
| Auto | | | | | |
Origination volume (in billions) | 27.5 |
| | 26.1 |
| | 23.4 |
|
|
|
The following are brief descriptions of selected business metrics within Card, Merchant Services & Auto. |
Card Services includes the Credit Card and Merchant Services businesses.
|
Merchant Services processes transactions for merchants.
|
Total transactions – Number of transactions and authorizations processed for merchants.
|
Commercial Card provides a wide range of payment services to corporate and public sector clients worldwide through the commercial card products. Services include procurement, corporate travel and entertainment, expense management services, and business-to-business payment solutions.
|
Sales volume – Dollar amount of cardmember purchases, net of returns.
|
Open accounts – Cardmember accounts with charging privileges.
|
Auto origination volume – Dollar amount of auto loans and leases originated.
|
|
| | | | | | | | | | | | |
| Selected metrics |
As of or for the year ended December 31,
(in millions, except ratios) | | 2014 | | 2013 | | 2012 |
| Credit data and quality statistics | | | | | | |
| Net charge-offs: | | | | | | |
| Credit Card | | $ | 3,429 |
| | $ | 3,879 |
| | $ | 4,944 |
|
Auto(a) | | 181 |
| | 158 |
| | 188 |
|
| Student | | 375 |
| | 333 |
| | 377 |
|
| Total net charge-offs | | $ | 3,985 |
| | $ | 4,370 |
| | $ | 5,509 |
|
| Net charge-off rate: | | | | | | |
Credit Card(b) | | 2.75 | % | | 3.14 | % | | 3.95 | % |
Auto(a) | | 0.34 |
| | 0.31 |
| | 0.39 |
|
| Student | | 3.75 |
| | 3.01 |
| | 3.01 |
|
| Total net charge-off rate | | 2.12 |
| | 2.36 |
| | 2.96 |
|
| Delinquency rates | | | | | | |
| 30+ day delinquency rate: | | | | | | |
Credit Card(c) | | 1.44 |
| | 1.67 |
| | 2.10 |
|
| Auto | | 1.23 |
| | 1.15 |
| | 1.25 |
|
Student(d) | | 2.35 |
| | 2.56 |
| | 2.13 |
|
| Total 30+ day delinquency rate | | 1.42 |
| | 1.58 |
| | 1.87 |
|
90+ day delinquency rate – Credit Card(c) | | 0.70 |
| | 0.80 |
| | 1.02 |
|
Nonperforming assets(e) | | $ | 411 |
| | $ | 280 |
| | $ | 265 |
|
| Allowance for loan losses: | | | | | | |
| Credit Card | | $ | 3,439 |
| | $ | 3,795 |
| | $ | 5,501 |
|
| Auto & Student | | 749 |
| | 953 |
| | 954 |
|
| Total allowance for loan losses | | $ | 4,188 |
| | $ | 4,748 |
| | $ | 6,455 |
|
| Allowance for loan losses to period-end loans: | | | | | | |
Credit Card(c) | | 2.69 | % | | 2.98 | % | | 4.30 | % |
| Auto & Student | | 1.17 |
| | 1.51 |
| | 1.55 |
|
| Total allowance for loan losses to period-end loans | | 2.18 |
| | 2.49 |
| | 3.41 |
|
| |
(a) | Net charge-offs and net charge-off rates for the year ended December 31, 2012, included $53 million of charge-offs of Chapter 7 loans. Excluding these incremental charge-offs, net charge-offs for the year ended December 31, 2012 would have been $135 million, and the net charge-off rate would have been 0.28%. |
| |
(b) | Average credit card loans included loans held-for-sale of $509 million, $95 million and $433 million for the years ended December 31, 2014, 2013 and 2012, respectively. These amounts are excluded when calculating the net charge-off rate. |
| |
(c) | Period-end credit card loans included loans held-for-sale of $3.0 billion and $326 million at December 31, 2014 and 2013, respectively. There were no loans held-for-sale at December 31, 2012. These amounts are excluded when calculating delinquency rates and the allowance for loan losses to period-end loans. |
| |
(d) | Excluded student loans insured by U.S. government agencies under the FFELP of $654 million, $737 million and $894 million at December 31, 2014, 2013 and 2012, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee. |
| |
(e) | Nonperforming assets excluded student loans insured by U.S. government agencies under the FFELP of $367 million, $428 million and $525 million at December 31, 2014, 2013 and 2012, respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee. |
|
| | |
90 | | JPMorgan Chase & Co./2014 Annual Report |
|
| | | | | | | | | | | |
| Card Services supplemental information |
Year ended December 31, (in millions, except ratios) | 2014 | | 2013 | | 2012 |
| Revenue | | | | | |
| Noninterest revenue | $ | 3,593 |
| | $ | 3,977 |
| | $ | 3,887 |
|
| Net interest income | 11,462 |
| | 11,638 |
| | 11,745 |
|
| Total net revenue | 15,055 |
| | 15,615 |
| | 15,632 |
|
| | | | | | |
| Provision for credit losses | 3,079 |
| | 2,179 |
| | 3,444 |
|
| | | | | | |
| Noninterest expense | 6,152 |
| | 6,245 |
| | 6,566 |
|
| Income before income tax expense | 5,824 |
| | 7,191 |
| | 5,622 |
|
| Net income | $ | 3,547 |
| | $ | 4,340 |
| | $ | 3,426 |
|
| | | | | | |
| Percentage of average loans: | | | | | |
| Noninterest revenue | 2.87 | % | | 3.22 | % | | 3.10 | % |
| Net interest income | 9.16 |
| | 9.41 |
| | 9.36 |
|
| Total net revenue | 12.03 |
| | 12.63 |
| | 12.46 |
|
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 91 |
Management’s discussion and analysis
|
| | | | |
| CORPORATE & INVESTMENT BANK |
|
|
The Corporate & Investment Bank, comprisedwhich consists of Banking and Markets & Investor Services, offers a broad suite of investment banking, market-making, prime brokerage, and treasury and securities products and services to a global client base of corporations, investors, financial institutions, government and municipal entities. Within Banking the CIB offers a full range of investment banking products and services in all major capital markets, including advising on corporate strategy and structure, capital-raising in equity and debt markets, as well as loan origination and syndication. Also included in Banking isalso includes Treasury Services, which includesprovides transaction services, comprised primarilyconsisting of cash management and liquidity solutions, and trade finance products. Thesolutions. Markets & Investor Services segment of the CIB is a global market-maker in cash securities and derivative instruments, and also offers sophisticated risk management solutions, prime brokerage, and research. Markets & Investor Services also includes the Securities Services, business, a leading global custodian which includesprovides custody, fund accounting and administration, and securities lending products sold principally tofor asset managers, insurance companies and public and private investment funds. |
|
| | | | | | | | | | | |
| Selected income statement data | | |
| Year ended December 31, | |
| (in millions) | 2014 | | 2013 | | 2012 |
| Revenue | | | | | |
| Investment banking fees | $ | 6,570 |
| | $ | 6,331 |
| | $ | 5,769 |
|
Principal transactions(a) | 8,947 |
| | 9,289 |
| | 9,510 |
|
| Lending- and deposit-related fees | 1,742 |
| | 1,884 |
| | 1,948 |
|
| Asset management, administration and commissions | 4,687 |
| | 4,713 |
| | 4,693 |
|
| All other income | 1,512 |
| | 1,593 |
| | 1,184 |
|
| Noninterest revenue | 23,458 |
| | 23,810 |
| | 23,104 |
|
| Net interest income | 11,175 |
| | 10,976 |
| | 11,658 |
|
Total net revenue(b) | 34,633 |
| | 34,786 |
| | 34,762 |
|
| | | | | | |
| Provision for credit losses | (161 | ) | | (232 | ) | | (479 | ) |
| | | | | | |
| Noninterest expense | | | | | |
| Compensation expense | 10,449 |
| | 10,835 |
| | 11,313 |
|
| Noncompensation expense | 12,824 |
| | 10,909 |
| | 10,537 |
|
| Total noninterest expense | 23,273 |
| | 21,744 |
| | 21,850 |
|
| Income before income tax expense | 11,521 |
| | 13,274 |
| | 13,391 |
|
| Income tax expense | 4,596 |
| | 4,387 |
| | 4,719 |
|
| Net income | $ | 6,925 |
| | $ | 8,887 |
| | $ | 8,672 |
|
Note: As discussed on pages 79–80, effective with the fourth quarter of 2014 the Firm changed its methodology for allocating the cost of preferred stock to its reportable business segments. Prior periods have been revised to conform with the current period presentation.
|
| | | | | | | | | | | |
| Selected income statement data | | |
| Year ended December 31, | |
| (in millions) | 2017 | | 2016 | | 2015 |
| Revenue | | | | | |
| Investment banking fees | $ | 7,192 |
| | $ | 6,424 |
| | $ | 6,736 |
|
| Principal transactions | 10,873 |
| | 11,089 |
| | 9,905 |
|
| Lending- and deposit-related fees | 1,531 |
| | 1,581 |
| | 1,573 |
|
| Asset management, administration and commissions | 4,207 |
| | 4,062 |
| | 4,467 |
|
| All other income | 572 |
| | 1,169 |
| | 1,012 |
|
| Noninterest revenue | 24,375 |
| | 24,325 |
| | 23,693 |
|
| Net interest income | 10,118 |
| | 10,891 |
| | 9,849 |
|
Total net revenue(a)(b) | 34,493 |
| | 35,216 |
| | 33,542 |
|
| | | | | | |
| Provision for credit losses | (45 | ) | | 563 |
| | 332 |
|
| | | | | | |
| Noninterest expense | | | | | |
| Compensation expense | 9,535 |
| | 9,546 |
| | 9,973 |
|
| Noncompensation expense | 9,708 |
| | 9,446 |
| | 11,388 |
|
| Total noninterest expense | 19,243 |
| | 18,992 |
| | 21,361 |
|
| Income before income tax expense | 15,295 |
| | 15,661 |
| | 11,849 |
|
| Income tax expense | 4,482 |
| | 4,846 |
| | 3,759 |
|
Net income(a) | $ | 10,813 |
| | $ | 10,815 |
| | $ | 8,090 |
|
| |
| (a) | Included FVA (effective 2013) and DVA on OTC derivatives and structured notes, measured at fair value. FVA and DVA gains/(losses) were $468The full year 2017 results reflect the impact of the enactment of the TCJA including a decrease to net revenue of $259 million and $(1.9) billion fora benefit to net income of $141 million. For additional information related to the years ended December 31, 2014 and 2013, respectively. DVA losses were ($930) million forimpact of the year ended December 31, 2012.TCJA, see Note 24. |
| |
| (b) | Included tax-equivalent adjustments, predominantly due to income tax credits related to alternative energy investments; income tax credits and amortization of the cost of investments in affordable housing projects; and alternative energy investments, as well as tax-exempt income from municipal bond investments,bonds of $2.5$2.4 billion, $2.3$2.0 billion and $2.0$1.7 billion for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. |
|
| | | | | | | | | | | |
| Selected income statement data | | |
| Year ended December 31, | |
| (in millions, except ratios) | 2017 | | 2016 | | 2015 |
| Financial ratios | | | | | |
| Return on equity | 14 | % | | 16 | % | | 12 | % |
| Overhead ratio | 56 |
| | 54 |
| | 64 |
|
Compensation expense as percentage of total net revenue | 28 |
| | 27 |
| | 30 |
|
| Revenue by business | | | | | |
| Investment Banking | $ | 6,688 |
| | $ | 5,950 |
| | $ | 6,376 |
|
| Treasury Services | 4,172 |
| | 3,643 |
| | 3,631 |
|
| Lending | 1,429 |
| | 1,208 |
| | 1,461 |
|
| Total Banking | 12,289 |
| | 10,801 |
| | 11,468 |
|
| Fixed Income Markets | 12,812 |
| | 15,259 |
| | 12,592 |
|
| Equity Markets | 5,703 |
| | 5,740 |
| | 5,694 |
|
| Securities Services | 3,917 |
| | 3,591 |
| | 3,777 |
|
Credit Adjustments & Other(a) | (228 | ) | | (175 | ) | | 11 |
|
Total Markets & Investor Services | 22,204 |
| | 24,415 |
| | 22,074 |
|
| Total net revenue | $ | 34,493 |
| | $ | 35,216 |
| | $ | 33,542 |
|
|
| | | | | | | | | | | |
| Selected income statement data | | |
| Year ended December 31, | |
| (in millions, except ratios) | 2014 | | 2013 | | 2012 |
| Financial ratios | | | | | |
Return on common equity(a) | 10 | % | | 15 | % | | 18 | % |
Overhead ratio(b) | 67 |
| | 63 |
| | 63 |
|
Compensation expense as percentage of total net revenue(c) | 30 |
| | 31 |
| | 33 |
|
| Revenue by business | | | | | |
| Advisory | $ | 1,627 |
| | $ | 1,315 |
| | $ | 1,491 |
|
| Equity underwriting | 1,571 |
| | 1,499 |
| | 1,026 |
|
| Debt underwriting | 3,372 |
| | 3,517 |
| | 3,252 |
|
| Total investment banking fees | 6,570 |
| | 6,331 |
| | 5,769 |
|
| Treasury Services | 4,145 |
| | 4,171 |
| | 4,249 |
|
| Lending | 1,130 |
| | 1,669 |
| | 1,389 |
|
| Total Banking | 11,845 |
| | 12,171 |
| | 11,407 |
|
Fixed Income Markets(d) | 13,848 |
| | 15,832 |
| | 15,701 |
|
| Equity Markets | 4,861 |
| | 4,803 |
| | 4,448 |
|
| Securities Services | 4,351 |
| | 4,100 |
| | 4,000 |
|
Credit Adjustments & Other(e) | (272 | ) | | (2,120 | ) | | (794 | ) |
| Total Markets & Investor Services | 22,788 |
| | 22,615 |
| | 23,355 |
|
| Total net revenue | $ | 34,633 |
| | $ | 34,786 |
| | $ | 34,762 |
|
| |
| (a) | Return on equity excluding FVA (effective 2013) and DVA, a non-GAAP financial measure, was 17% and 19% for the years ended December 31, 2013 and 2012, respectively. |
| |
(b) | Overhead ratio excluding FVA (effective 2013) and DVA, a non-GAAP financial measure, was 59% and 61% for the years ended December 31, 2013 and 2012, respectively. |
| |
(c) | Compensation expense as a percentage of total net revenue excluding FVA (effective 2013) and DVA, a non-GAAP financial measure, was 30% and 32% for the years ended December 31, 2013 and 2012, respectively. |
| |
(d) | Includes results of the synthetic credit portfolio that was transferred from the CIO effective July 2, 2012. |
| |
(e) | Consists primarily of credit valuation adjustments (“CVA”) managed by the credit portfolio group,centrally within CIB, funding valuation adjustments (“FVA”) and FVA (effective 2013) and DVAdebit valuation adjustments (“DVA”) on OTC derivatives and structured notes.derivatives. Results are primarily reported in principal transactions revenue. Results are presented net of associated hedging activities and net of CVA and FVA amounts allocated to Fixed Income Markets and Equity Markets.For additional information, see Accounting and Reporting Developments on pages 141–144 and Notes 2, 3 and 23. |
2017 compared with 2016
PriorNet income was $10.8 billion, flat compared with the prior year, reflecting lower net revenue and higher noninterest expense, offset by a lower provision for credit losses, and a tax benefit resulting from the vesting of employee share-based awards. The current year included a $141 million benefit to January 1, 2014, CIB provided several non-GAAP financial measures excludingnet income as a result of the enactment of the TCJA.
Net revenue was $34.5 billion, down 2%.
Banking revenue was $12.3 billion, up 14% compared with the prior year. Investment banking revenue was $6.7 billion, up 12% from the prior year, driven by higher debt and equity underwriting fees. The Firm maintained its #1 ranking for Global Investment Banking fees, according to Dealogic. Debt underwriting fees were $3.6 billion, up 16% driven by a higher share of fees and an overall increase in industry-wide fees; the Firm maintained its #1 ranking globally in fees across high-grade, high-yield, and loan products. Equity underwriting fees were $1.4 billion, up 20% driven by growth in industry-wide issuance including a strong IPO market; the Firm ranked #2 in equity underwriting fees globally. Advisory fees were $2.2 billion, up 2%; the Firm maintained its #2 ranking for M&A. Treasury Services revenue was $4.2 billion, up 15%, driven by the impact of implementing the FVA framework (effective 2013)higher interest rates and DVA on: netgrowth in operating deposits. Lending revenue net income, compensation ratio, overhead ratio, and return on equity. Beginning in the first quarter 2014, the Firm did not exclude FVA and DVA from its assessment of business performance; however, the Firm continues to present these non-GAAP measures for the periods prior to January 1, 2014, as they reflected how management assessed the underlying business performance of the CIB in those prior periods. In addition, the ratio for the allowance for loan losses to end-of-period loans, also a non-GAAP financial measure, iswas $1.4 billion, up
|
| | |
9262 | | JPMorgan Chase & Co./20142017 Annual Report |
calculated excluding the impact of consolidated Firm-administered multi-seller conduits and trade finance, to provide a more meaningful assessment of CIB’s allowance coverage ratio. These measures are used by management to assess the underlying performance of the business and for comparability with peers.
2014 compared with 2013
Net income was $6.9 billion, down 22% compared with $8.9 billion in the prior year. These results primarily reflected lower revenue as well as higher noninterest expense. Net revenue was $34.6 billion, flat compared with the prior year.
Banking revenue was $11.8 billion, down 3%18% from the prior year. Investment banking fees were $6.6 billion, up 4% from the prior year. The increase was driven by higher advisory and equity underwriting fees, partially offset byyear, reflecting lower debt underwriting fees. Advisory fees were $1.6 billion up 24%fair value losses on stronger sharehedges of fees for completed transactions as well as growth in the industry-wide fee levels, according to Dealogic. Equity underwriting fees were $1.6 billion up 5%, driven by higher industry wide issuance. Debt underwriting fees were $3.4 billion, down 4%, primarily related to lower loan syndication fees on lower industry-wide fee levels and lower bond underwriting fees. The Firm also ranked #1 globally in fees and volumes share across high grade, high yield and loan products. The Firm maintained its #2 ranking for M&A, and improved share of fees both globally and in the U.S. compared to the prior year. Treasury Services revenue was $4.1 billion, down 1% compared with the prior year, primarily driven by lower trade finance revenue as well as the impact of business simplification initiatives, largely offset by higher net interest income from increased deposits. Lending revenue was $1.1 billion, down from $1.7 billion in the prior year, driven by losses, compared with gains in the prior periods, on securities received from restructured loans, as well as lower net interest income.accrual loans.
Markets & Investor Services revenue was $22.8$22.2 billion, up 1%down 9% from the prior year. Fixed Income Markets revenue was $13.8$12.8 billion, down 13%16%, as lower revenue across products was driven by sustained low volatility, tighter credit spreads, and the impact from the TCJA on tax-oriented investments of $259 million, against a strong prior year. Equity Markets revenue was $5.7 billion, down 1% from the prior year, and included a fair value loss of $143 million on a margin loan to a single client. Excluding the fair value loss, Equity Markets revenue was higher driven by higher revenue in Prime Services and Cash Equities, partially offset by lower revenue in derivatives. Securities Services revenue was $3.9 billion, up 9%, driven by the impact of higher interest rates and deposit growth, as well as higher asset-based fees driven by higher market levels. Credit Adjustments & Other was a loss of $228 million, driven by valuation adjustments.
The provision for credit losses was a benefit of $45 million, which included a net reduction in the allowance for credit losses driven by the Oil & Gas and Metals & Mining portfolios partially offset by a net increase in the allowance for credit losses for a single client. The prior year was an expense of $563 million, which included an addition to the allowance for credit losses driven by the Oil & Gas and Metals & Mining portfolios.
Noninterest expense was $19.2 billion, up 1% compared with the prior year.
2016 compared with 2015
Net income was $10.8 billion, up 34% compared with the prior year, driven by lower revenues in Fixed Income primarily from credit-relatednoninterest expense and rates products as well as the impact of business simplification. Equity Marketshigher net revenue, was $4.9 billion up 1% as higher prime services revenue was partially offset by lower equity derivatives revenue. Securities Servicesa higher provision for credit losses.
Banking revenue was $4.4$10.8 billion, updown 6% from the prior year, primarily driven by higher net interest income on increased deposits and higher fees and commissions. Credit Adjustments & Other revenue was a loss of $272 million driven by net CVA losses partially offset by gains, net of hedges, related to FVA/DVA. The prior year was a loss of $2.1 billion (including the FVA implementation loss of $1.5 billion and DVA losses of $452 million).
Noninterest expense was $23.3 billion, up 7% compared to the prior year as a result of higher legal expense and investment in controls. This was partially offset by lower performance-based compensation expense as well as the impact of business simplification, including the sale or liquidation of a significant part of the physical commodities
business. The compensation expense to net revenue ratio was 30%.
Return on equity was 10% on $61.0 billion of average allocated capital.
2013 compared with 2012
Net income was $8.9 billion, up 2% compared with the prior year.
Net revenue was $34.8 billion, flat compared with the prior year. Net revenue in 2013 included a $1.5 billion loss as a result of implementing a FVA framework for OTC derivatives and structured notes. The FVA framework incorporates the impact of funding into the Firm’s valuation estimates for OTC derivatives and structured notes and reflects an industry migration towards incorporating the market cost of unsecured funding in the valuation of such instruments. The loss recorded in 2013 was a one-time adjustment arising on implementation of the new FVA framework.
Net revenue in 2013 also included a $452 million loss from DVA on structured notes and derivative liabilities, compared with a loss of $930 million in the prior year. Excluding the impact of FVA and DVA, netInvestment banking revenue was $36.7$6.0 billion, and net income was $10.1 billion, compared with $35.7 billion and $9.2 billion, respectively in the prior year.
Banking revenue was $12.2 billion, compared with $11.4 billion in the prior year. Investment banking fees were $6.3 billion, up 10%down 7% from the prior year, largely driven by higherlower equity underwriting fees. The Firm maintained its #1 ranking for Global Investment Banking fees, according to
Dealogic. Equity underwriting fees were $1.2 billion, down 19% driven by lower industry-wide fee levels; however, the Firm improved its market share and maintained its #1 ranking in equity underwriting fees of $1.5 billion (up 46%)globally as well as in both North America and record debt underwriting fees of $3.5 billion (up 8%), partially offsetEurope and its #1 ranking by lower advisory fees of $1.3 billion (down 12%). Equity underwriting results were driven by higher industry-wide issuance and an increase in share of fees compared with the prior year,volumes across all products, according to Dealogic. Industry-wide loan syndication volumes andAdvisory fees increased aswere $2.1 billion, down 1%; the low-rate environment continuedFirm maintained its #2 ranking for M&A, according to fuel refinancing activity. TheDealogic. Debt underwriting fees were $3.2 billion; the Firm also rankedmaintained its #1 ranking globally in industry-wide fee sharesfees across high grade, high yield, and loan products. Advisory fees were lower compared with the prior year as industry-wide completed M&A industry-wide fee levels declined 13%. The Firm maintained its #2 ranking and improved share for both announced and completed volumes during the year.
products, according to Dealogic. Treasury Services revenue was $4.2 billion, down 2% compared with the prior year, primarily reflecting lower trade finance spreads, partially offset by higher net interest income on higher deposit balances.$3.6 billion. Lending revenue was $1.7$1.2 billion, updown 17% from $1.4 billion, in the prior year, reflecting net interest incomefair value losses on retained loans, fees on lending-related commitments, and gains on securities received from restructuredhedges of accrual loans.
Markets and& Investor Services revenue was $22.6 billion compared to $23.4 billion in the prior year. Combined Fixed Income and Equity Markets revenue was $20.6$24.4 billion, up 11% from $20.1 billion the prior year. Fixed Income Markets revenue was $15.8$15.3 billion, slightly higher reflecting consistently strong client revenue and lower lossesup 21% from the synthetic credit portfolio, whichprior year, driven by broad strength across products. Rates performance was partially offsetstrong, with increased client activity driven by high issuance-based flows, global political developments, and central bank actions. Credit and Securitized Products revenue improved driven by higher market-making revenue from the secondary market as clients’ risk appetite recovered, and due to increased financing activity. Equity Markets revenue was $5.7 billion, up 1%, compared to a strong prior-year. Securities Services revenue was $3.6 billion, down 5% from the prior year, largely driven by lower rates-related revenue givenfees and commissions. Credit Adjustments and Other was a loss of $175 million driven by valuation adjustments, compared with an uncertain rate outlook$11 million gain in the prior-year, which included funding spread gains on fair value option elected liabilities.
The provision for credit losses was $563 million, compared to $332 million in the prior year, reflecting a higher allowance for credit losses, including the impact of select downgrades within the Oil & Gas portfolio.
Noninterest expense was $19.0 billion, down 11% compared with the prior year, driven by lower legal and low spread environment. Equities Markets revenue wascompensation expenses.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 9363 |
Management’s discussion and analysis
$4.8 billion up 8% compared with the prior year driven by higher revenue in derivatives and cash equities products and Prime Services primarily on higher balances. Securities Services revenue was $4.1 billion compared with $4.0 billion in the prior year on higher custody and fund services revenue primarily driven by higher assets under custody of $20.5 trillion. Credit Adjustments & Other was a loss of $2.1 billion predominantly driven by FVA (effective 2013) and DVA.
The provision for credit losses was a benefit of $232 million, compared with a benefit of $479 million in the prior year. The 2013 benefit reflected lower recoveries as compared with 2012 as the prior year benefited from the restructuring of certain nonperforming loans. Net recoveries were $78 million, compared with $284 million in the prior year reflecting a continued favorable credit environment with stable credit quality trends. Nonperforming loans were down 57% from the prior year.
Noninterest expense was $21.7 billion slightly down compared with the prior year, driven by lower compensation expense, offset by higher noncompensation expense related to higher litigation expense as compared with the prior year. The compensation ratio, excluding the impact of DVA and FVA (effective 2013), was 30% and 32% for 2013 and 2012, respectively.
Return on equity was 15% on $56.5 billion of average allocated capital and 17% excluding FVA (effective 2013) and DVA.
|
| | | | | | | | | | | |
| Selected metrics | | | | |
As of or for the year ended December 31, (in millions, except headcount) | |
| 2014 | | 2013 | | 2012 |
| Selected balance sheet data (period-end) | | | | | |
| Assets | $ | 861,819 |
| | $ | 843,577 |
| | $ | 876,107 |
|
| Loans: | | | | | |
Loans retained(a) | 96,409 |
| | 95,627 |
| | 109,501 |
|
| Loans held-for-sale and loans at fair value | 5,567 |
| | 11,913 |
| | 5,749 |
|
| Total loans | 101,976 |
| | 107,540 |
| | 115,250 |
|
| Equity | 61,000 |
| | 56,500 |
| | 47,500 |
|
| Selected balance sheet data (average) | | | | | |
| Assets | $ | 854,712 |
| | $ | 859,071 |
| | $ | 854,670 |
|
| Trading assets-debt and equity instruments | 317,535 |
| | 321,585 |
| | 312,944 |
|
| Trading assets-derivative receivables | 64,833 |
| | 70,353 |
| | 74,874 |
|
| Loans: | | | | | |
Loans retained(a) | 95,764 |
| | 104,864 |
| | 110,100 |
|
| Loans held-for-sale and loans at fair value | 7,599 |
| | 5,158 |
| | 3,502 |
|
| Total loans | 103,363 |
| | 110,022 |
| | 113,602 |
|
| Equity | 61,000 |
| | 56,500 |
| | 47,500 |
|
| | | | | | |
| Headcount | 51,129 |
| | 52,250 |
| | 52,022 |
|
| |
(a) | Loans retained includes credit portfolio loans, trade finance loans, other held-for-investment loans and overdrafts. |
|
| | | | | | | | | | | |
| Selected metrics | | | | | |
As of or for the year ended December 31, (in millions, except ratios and where otherwise noted) | |
| 2014 | | 2013 | | 2012 |
| Credit data and quality statistics | | | | | |
| Net charge-offs/(recoveries) | $ | (12 | ) | | $ | (78 | ) | | $ | (284 | ) |
| Nonperforming assets: | | | | | |
| Nonaccrual loans: | | | | | |
Nonaccrual loans retained(a)(b) | 110 |
| | 163 |
| | 535 |
|
Nonaccrual loans held-for-sale and loans at fair value | 11 |
| | 180 |
| | 254 |
|
| Total nonaccrual loans | 121 |
| | 343 |
| | 789 |
|
| Derivative receivables | 275 |
| | 415 |
| | 239 |
|
| Assets acquired in loan satisfactions | 67 |
| | 80 |
| | 64 |
|
| Total nonperforming assets | 463 |
| | 838 |
| | 1,092 |
|
| Allowance for credit losses: | | | | | |
| Allowance for loan losses | 1,034 |
| | 1,096 |
| | 1,300 |
|
| Allowance for lending-related commitments | 439 |
| | 525 |
| | 473 |
|
| Total allowance for credit losses | 1,473 |
| | 1,621 |
| | 1,773 |
|
Net charge-off/(recovery) rate(a) | (0.01 | )% | | (0.07 | )% | | (0.26 | )% |
Allowance for loan losses to period-end loans retained(a) | 1.07 |
| | 1.15 |
| | 1.19 |
|
| Allowance for loan losses to period-end loans retained, excluding trade finance and conduits | 1.82 |
| | 2.02 |
| | 2.52 |
|
Allowance for loan losses to nonaccrual loans retained(a)(b) | 940 |
| | 672 |
| | 243 |
|
| Nonaccrual loans to total period-end loans | 0.12 |
| | 0.32 |
| | 0.68 |
|
|
| | | | | | | | | | | |
| Selected metrics | | | | |
As of or for the year ended December 31, (in millions, except headcount) | |
| 2017 | | 2016 | | 2015 |
| Selected balance sheet data (period-end) | | | | | |
| Assets | $ | 826,384 |
| | $ | 803,511 |
| | $ | 748,691 |
|
| Loans: | | | | | |
Loans retained(a) | 108,765 |
| | 111,872 |
| | 106,908 |
|
| Loans held-for-sale and loans at fair value | 4,321 |
| | 3,781 |
| | 3,698 |
|
| Total loans | 113,086 |
| | 115,653 |
| | 110,606 |
|
| Core loans | 112,754 |
| | 115,243 |
| | 110,084 |
|
| Equity | 70,000 |
| | 64,000 |
| | 62,000 |
|
| Selected balance sheet data (average) | | | | | |
| Assets | $ | 857,060 |
| | $ | 815,321 |
| | $ | 824,208 |
|
| Trading assets-debt and equity instruments | 342,124 |
| | 300,606 |
| | 302,514 |
|
| Trading assets-derivative receivables | 56,466 |
| | 63,387 |
| | 67,263 |
|
| Loans: | | | | | |
Loans retained(a) | 108,368 |
| | 111,082 |
| | 98,331 |
|
| Loans held-for-sale and loans at fair value | 4,995 |
| | 3,812 |
| | 4,572 |
|
| Total loans | 113,363 |
| | 114,894 |
| | 102,903 |
|
| Core loans | 113,006 |
| | 114,455 |
| | 102,142 |
|
| Equity | 70,000 |
| | 64,000 |
| | 62,000 |
|
| | | | | | |
| Headcount | 51,181 |
| | 48,748 |
| | 49,067 |
|
| |
| (a) | Loans retained includes credit portfolio loans, loans held by consolidated Firm-administered multi-seller conduits, trade finance loans, other held-for-investment loans and overdrafts. |
|
| | | | | | | | | | | |
| Selected metrics | | | | | |
As of or for the year ended December 31, (in millions, except ratios) | |
| 2017 | | 2016 | | 2015 |
| Credit data and quality statistics | | | | | |
| Net charge-offs/(recoveries) | $ | 71 |
| | $ | 168 |
| | $ | (19 | ) |
| Nonperforming assets: | | | | | |
| Nonaccrual loans: | | | | | |
Nonaccrual loans retained(a) | 812 |
| | 467 |
| | 428 |
|
Nonaccrual loans held-for-sale and loans at fair value | — |
| | 109 |
| | 10 |
|
| Total nonaccrual loans | 812 |
| | 576 |
| | 438 |
|
| Derivative receivables | 130 |
| | 223 |
| | 204 |
|
| Assets acquired in loan satisfactions | 85 |
| | 79 |
| | 62 |
|
| Total nonperforming assets | 1,027 |
| | 878 |
| | 704 |
|
| Allowance for credit losses: | | | | | |
| Allowance for loan losses | 1,379 |
| | 1,420 |
| | 1,258 |
|
| Allowance for lending-related commitments | 727 |
| | 801 |
| | 569 |
|
| Total allowance for credit losses | 2,106 |
| | 2,221 |
| | 1,827 |
|
Net charge-off/(recovery) rate(b) | 0.07 | % | | 0.15 | % | | (0.02 | )% |
Allowance for loan losses to period-end loans retained | 1.27 |
| | 1.27 |
| | 1.18 |
|
Allowance for loan losses to period-end loans retained, excluding trade finance and conduits(c) | 1.92 |
| | 1.86 |
| | 1.88 |
|
Allowance for loan losses to nonaccrual loans retained(a) | 170 |
| | 304 |
| | 294 |
|
| Nonaccrual loans to total period-end loans | 0.72 |
| | 0.50 |
| | 0.40 |
|
| |
(b)(a) | Allowance for loan losses of $18$316 million, $51$113 million and $153$177 million were held against these nonaccrual loans at December 31, 2014, 20132017, 2016 and 2012,2015, respectively. |
| |
| (b) | Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate. |
| |
| (c) | Management uses allowance for loan losses to period-end loans retained, excluding trade finance and conduits, a non-GAAP financial measure, to provide a more meaningful assessment of CIB’s allowance coverage ratio. |
|
| | | | | | | | | | | |
| Investment banking fees | | | | | |
| | Year ended December 31, |
| (in millions) | 2017 | | 2016 | | 2015 |
| Advisory | $ | 2,150 |
| | $ | 2,110 |
| | $ | 2,133 |
|
| Equity underwriting | 1,396 |
| | 1,159 |
| | 1,434 |
|
Debt underwriting(a) | 3,646 |
| | 3,155 |
| | 3,169 |
|
| Total investment banking fees | $ | 7,192 |
| | $ | 6,424 |
| | $ | 6,736 |
|
| |
| (a) | Includes loans syndication. |
|
| | |
9464 | | JPMorgan Chase & Co./20142017 Annual Report |
|
| | | | | | | | | | | |
| Business metrics | | | | |
As of or for the year ended December 31, (in millions, except ratios and where otherwise noted) | | | | | |
| 2014 | | 2013 | | 2012 |
Market risk-related revenue – trading loss days(a) | 9 |
| | 0 |
| | 7 |
|
| Assets under custody (“AUC”) by asset class (period-end) in billions: | | | | | |
| Fixed Income | $ | 12,328 |
| | $ | 11,903 |
| | $ | 11,745 |
|
| Equity | 6,524 |
| | 6,913 |
| | 5,637 |
|
Other(b) | 1,697 |
| | 1,669 |
| | 1,453 |
|
| Total AUC | $ | 20,549 |
| | $ | 20,485 |
| | $ | 18,835 |
|
Client deposits and other third party liabilities (average)(c) | $ | 417,369 |
| | $ | 383,667 |
| | $ | 355,766 |
|
| Trade finance loans (period-end) | 25,713 |
| | 30,752 |
| | 35,783 |
|
|
| | | | | | | | | | | | | |
| League table results – wallet share |
| | 2017 | | 2016 | | 2015 |
Year ended
December 31, | Rank | Share | | Rank | Share | | Rank | Share |
Based on fees(a) | | | | | | | | |
| Debt, equity and equity-related | | | | | | | | |
| Global | #1 | 7.4 | % | | #1 |
| 7.0 | % | | #1 |
| 7.6 | % |
| U.S. | 1 | 11.2 |
| | 1 |
| 11.9 |
| | 1 |
| 11.5 |
|
Long-term debt(b) | | | | | | | | |
| Global | 1 | 7.6 |
| | 1 |
| 6.7 |
| | 1 |
| 8.1 |
|
| U.S. | 2 | 10.9 |
| | 2 |
| 11.1 |
| | 1 |
| 11.7 |
|
| Equity and equity-related | | | | | | | | |
Global(c) | 2 | 7.1 |
| | 1 |
| 7.4 |
| | 2 |
| 6.9 |
|
| U.S. | 1 | 11.7 |
| | 1 |
| 13.3 |
| | 1 |
| 11.3 |
|
M&A(d) | | | | | | | | |
| Global | 2 | 8.6 |
| | 2 |
| 8.3 |
| | 2 |
| 8.4 |
|
| U.S. | 2 | 9.2 |
| | 2 |
| 9.8 |
| | 2 |
| 9.9 |
|
| Loan syndications | | | | | | | | |
| Global | 1 | 9.5 |
| | 1 |
| 9.3 |
| | 1 |
| 7.5 |
|
| U.S. | 1 | 11.3 |
| | 2 |
| 11.9 |
| | 2 |
| 10.8 |
|
Global investment banking fees (e) | #1 | 8.1 | % | | #1 |
| 7.9 | % | | #1 |
| 7.8 | % |
| |
| (a) | Market risk-relatedSource: Dealogic as of January 1, 2018. Reflects the ranking of revenue is defined aswallet and market share. |
| |
| (b) | Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and mortgage-backed securities (“MBS”); and exclude money market, short-term debt, and U.S. municipal securities. |
| |
| (c) | Global equity and equity-related ranking includes rights offerings and Chinese A-Shares. |
| |
| (d) | Global M&A reflect the changeremoval of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in value of: principal transactions revenue; trading-relatedthe U.S. |
| |
| (e) | Global investment banking fees exclude money market, short-term debt and shelf deals. |
Markets revenue
The following table summarizes select income statement data for the Markets businesses. Markets includes both Fixed Income Markets and Equity Markets. Markets revenue consists of principal transactions, fees, commissions and other income, as well as net interest income. The Firm assesses its Markets business performance on a total revenue basis, as offsets may occur across revenue line items. For example, securities that generate net interest income may be risk-managed by derivatives that are recorded in principal transactions. For a description of the composition of these income statement line items, see Notes 6 and 7.
Principal transactions reflects revenue on financial instruments and commodities transactions that arise from client-driven market making activity. Principal transactions revenue includes amounts recognized upon executing new transactions with market participants, as well as “inventory-related revenue”, which is revenue recognized from gains and losses on derivatives and other instruments that the
Firm has been holding in anticipation of, or in response to, client demand, and changes in the fair value of instruments used by the Firm to actively manage the risk exposure arising from such inventory. Principal transactions revenue recognized upon executing new transactions with market participants is driven by many factors including the level of client activity, the bid-offer spread (which is the difference between the price at which a market participant is willing to sell an instrument to the Firm and the price at which another market participant is willing to buy it from the Firm, and vice versa), market liquidity and volatility. These factors are interrelated and sensitive to the same factors that drive inventory-related revenue, which include general market conditions, such as interest rates, foreign exchange rates, credit spreads, and equity and commodity prices, as well as other macroeconomic conditions.
For the periods presented below, the predominant source of principal transactions revenue was the amount recognized upon executing new transactions.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
Year ended December 31, (in millions, except where otherwise noted) | Fixed Income Markets | Equity Markets | Total Markets | | Fixed Income Markets | Equity Markets | Total Markets | | Fixed Income Markets | Equity Markets | Total Markets |
| Principal transactions | $ | 7,393 |
| $ | 3,855 |
| $ | 11,248 |
| | $ | 8,347 |
| $ | 3,130 |
| $ | 11,477 |
| | $ | 6,899 |
| $ | 3,038 |
| $ | 9,937 |
|
| Lending- and deposit-related fees | 191 |
| 6 |
| 197 |
| | 220 |
| 2 |
| 222 |
| | 194 |
| — |
| 194 |
|
| Asset management, administration and commissions | 390 |
| 1,635 |
| 2,025 |
| | 388 |
| 1,551 |
| 1,939 |
| | 383 |
| 1,704 |
| 2,087 |
|
| All other income | 436 |
| (21 | ) | 415 |
| | 1,014 |
| 13 |
| 1,027 |
| | 854 |
| (84 | ) | 770 |
|
| Noninterest revenue | 8,410 |
| 5,475 |
| 13,885 |
| | 9,969 |
| 4,696 |
| 14,665 |
| | 8,330 |
| 4,658 |
| 12,988 |
|
Net interest income(a) | 4,402 |
| 228 |
| 4,630 |
| | 5,290 |
| 1,044 |
| 6,334 |
| | 4,262 |
| 1,036 |
| 5,298 |
|
| Total net revenue | $ | 12,812 |
| $ | 5,703 |
| $ | 18,515 |
| | $ | 15,259 |
| $ | 5,740 |
| $ | 20,999 |
| | $ | 12,592 |
| $ | 5,694 |
| $ | 18,286 |
|
Loss days(b) | 4 | | | 0 | | | 2 | |
| |
| (a) | Declines in Markets net interest income; brokerage commissions, underwriting fees or other revenue; and revenue from syndicated lending facilities that the Firm intends to distribute; gains and losses from DVA and FVA are excluded. Market risk-related revenue – trading lossincome in 2017 were driven by higher funding costs. |
| |
| (b) | Loss days represent the number of days for which the CIBMarkets posted losses under this measure.losses. The loss days determined under this measure differ from the loss days that are determined based on the disclosure of daily market risk-related gains and losses for the Firm in the VaRvalue-at-risk (“VaR”) back-testing discussion on pages 134–135.123–125. |
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 65 |
Management’s discussion and analysis
|
| | | | | | | | | | | |
| Selected metrics | | | | | |
As of or for the year ended December 31, (in millions, except where otherwise noted) | 2017 | | 2016 | | 2015 |
| Assets under custody (“AUC”) by asset class (period-end) (in billions): | | | | | |
| Fixed Income | $ | 13,043 |
| | $ | 12,166 |
| | $ | 12,042 |
|
| Equity | 7,863 |
| | 6,428 |
| | 6,194 |
|
Other(a) | 2,563 |
| | 1,926 |
| | 1,707 |
|
| Total AUC | $ | 23,469 |
| | $ | 20,520 |
| | $ | 19,943 |
|
Client deposits and other third party liabilities (average)(b) | $ | 408,911 |
| | $ | 376,287 |
| | $ | 395,297 |
|
| Trade finance loans (period-end) | 17,947 |
| | 15,923 |
| | 19,255 |
|
| |
(b)(a) | Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts. |
| |
(c)(b) | Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses, and include deposits, as well as deposits that are swept to on-balance sheet liabilities (e.g., commercial paper, federal funds purchased and securities loaned or sold under repurchase agreements) as part of their client cash management program.businesses. |
|
| | | | | | | | | | | | | | | | | | | | |
| | League table results – IB Fee Share(a) | | League table results – volumes(e) | | | | | |
| | | 2014 | | 2013 | | 2012 | | | 2014 | | 2013 | | 2012 | |
| | Year ended
December 31, | Fee Share | Rankings | | Fee Share | Rankings | | Fee Share | Rankings | | Year ended December 31, | Market Share | Rankings | | Market Share | Rankings | | Market Share | Rankings | |
| | Debt, equity and equity-related | | | | | | | | | | Debt, equity and equity-related | | | | | | | | | |
| | Global | 7.6% | #1 | | 8.3% | #1 | | 7.8% | #1 | | Global | 6.8% | #1 | | 7.3% | #1 | | 7.2% | #1 | |
| | U.S. | 10.7 | 1 | | 11.5 | 1 | | 11.1 | 1 | | U.S. | 11.8 | 1 | | 12.0 | 1 | | 11.5 | 1 | |
| | Long-term debt(b) | | | | | | | | | | Long-term debt(b) | | | | | | | | | |
| | Global | 8.0 | 1 | | 8.2 | 1 | | 8.3 | 1 | | Global | 6.7 | 1 | | 7.2 | 1 | | 7.1 | 1 | |
| | U.S. | 11.6 | 1 | | 11.6 | 1 | | 11.7 | 1 | | U.S. | 11.3 | 1 | | 11.7 | 1 | | 11.6 | 1 | |
| | Equity and equity-related | | | | | | | | | | Equity and equity-related | | | | | | | | | |
| | Global(c) | 7.1 | 3 | | 8.4 | 2 | | 7.1 | 1 | | Global(c) | 7.6 | 3 | | 8.2 | 2 | | 7.8 | 4 | |
| | U.S. | 9.6 | 2 | | 11.3 | 2 | | 10.1 | 2 | | U.S. | 11.0 | 2 | | 12.1 | 2 | | 10.4 | 5 | |
| | M&A(d) | | | | | | | | | | M&A announced(d) | | | | | | | | | |
| | Global | 8.2 | 2 | | 7.6 | 2 | | 6.5 | 2 | | Global | 21.6 | 2 | | 23.5 | 2 | | 20.0 | 2 | |
| | U.S. | 10.0 | 2 | | 8.8 | 2 | | 7.7 | 2 | | U.S. | 27.8 | 2 | | 36.4 | 2 | | 24.3 | 2 | |
| | Loan syndications | | | | | | | | | | Loan syndications | | | | | | | | | |
| | Global | 9.5 | 1 | | 9.9 | 1 | | 8.2 | 2 | | Global | 12.4 | 1 | | 11.6 | 1 | | 11.6 | 1 | |
| | U.S. | 13.3 | 1 | | 13.8 | 1 | | 11.2 | 2 | | U.S. | 19.4 | 1 | | 17.8 | 1 | | 18.2 | 1 | |
| | Global Investment Banking fees | 8.1% | #1 | | 8.5% | #1 | | 7.5% | #1 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | (a) Source: Dealogic. Reflects the ranking and share of Global Investment Banking fees (b) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and mortgage-backed securities; and exclude money market, short-term debt, and U.S. municipal securities. (c) Global equity and equity-related rankings include rights offerings and Chinese A-Shares. (d) M&A and Announced M&A rankings reflect the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S. U.S. announced M&A volumes represents any U.S. involvement ranking. (e) Source: Dealogic. Reflects transaction volume and market share. Global announced M&A is based on transaction value at announcement; because of joint M&A assignments, M&A market share of all participants will add up to more than 100%. All other transaction volume-based rankings are based on proceeds, with full credit to each book manager/equal if joint. | |
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 95 |
Management’s discussion and analysis
| | | International metrics | International metrics | | | | | International metrics | | | | |
| Year ended December 31, | | |
| (in millions) | 2014 | | 2013 | | 2012 | |
| (in millions, except where otherwise noted) | | 2017 | | 2016 | | 2015 |
Total net revenue(a) | | | | | | | | | | |
| Europe/Middle East/Africa | $ | 11,598 |
| | $ | 10,689 |
| | $ | 10,787 |
| $ | 11,328 |
| | $ | 10,786 |
| | $ | 10,894 |
|
| Asia/Pacific | 4,698 |
| | 4,736 |
| | 4,128 |
| 4,525 |
| | 4,915 |
| | 4,901 |
|
| Latin America/Caribbean | 1,179 |
| | 1,340 |
| | 1,533 |
| 1,125 |
| | 1,225 |
| | 1,096 |
|
| Total international net revenue | 17,475 |
| | 16,765 |
| | 16,448 |
| 16,978 |
| | 16,926 |
| | 16,891 |
|
| North America | 17,158 |
| | 18,021 |
| | 18,314 |
| 17,515 |
| | 18,290 |
| | 16,651 |
|
| Total net revenue | $ | 34,633 |
| | $ | 34,786 |
| | $ | 34,762 |
| $ | 34,493 |
| | $ | 35,216 |
| | $ | 33,542 |
|
| | | | | | | | | | | |
Loans (period-end)(a) | | | | | | |
Loans retained (period-end)(a) | | | | | | |
| Europe/Middle East/Africa | $ | 27,155 |
| | $ | 29,392 |
| | $ | 30,266 |
| $ | 25,931 |
| | $ | 26,696 |
| | $ | 24,622 |
|
| Asia/Pacific | 19,992 |
| | 22,151 |
| | 27,193 |
| 15,248 |
| | 14,508 |
| | 17,108 |
|
| Latin America/Caribbean | 8,950 |
| | 8,362 |
| | 10,220 |
| 6,546 |
| | 7,607 |
| | 8,609 |
|
| Total international loans | 56,097 |
| | 59,905 |
| | 67,679 |
| 47,725 |
| | 48,811 |
| | 50,339 |
|
| North America | 40,312 |
| | 35,722 |
| | 41,822 |
| 61,040 |
| | 63,061 |
| | 56,569 |
|
| Total loans | $ | 96,409 |
| | $ | 95,627 |
| | $ | 109,501 |
| |
| Total loans retained | | $ | 108,765 |
| | $ | 111,872 |
| | $ | 106,908 |
|
| | | | | | | | | | | |
Client deposits and other third-party liabilities (average)(a)(b) | | | | | | | | | | |
| Europe/Middle East/Africa | $ | 152,712 |
| | $ | 143,807 |
| | $ | 127,326 |
| $ | 154,582 |
| | $ | 135,979 |
| | $ | 141,062 |
|
| Asia/Pacific | 66,933 |
| | 54,428 |
| | 51,180 |
| 76,744 |
| | 68,110 |
| | 67,111 |
|
| Latin America/Caribbean | 22,360 |
| | 15,301 |
| | 11,052 |
| 25,419 |
| | 22,914 |
| | 23,070 |
|
| Total international | $ | 242,005 |
| | $ | 213,536 |
| | $ | 189,558 |
| $ | 256,745 |
| | $ | 227,003 |
| | $ | 231,243 |
|
| North America | 175,364 |
| | 170,131 |
| | 166,208 |
| 152,166 |
| | 149,284 |
| | 164,054 |
|
| Total client deposits and other third-party liabilities | $ | 417,369 |
| | $ | 383,667 |
| | $ | 355,766 |
| $ | 408,911 |
| | $ | 376,287 |
| | $ | 395,297 |
|
| | | | | | | | | | | |
AUC (period-end) (in billions)(a) | | | | | | | | | | |
| North America | $ | 11,987 |
| | $ | 11,299 |
| | $ | 10,504 |
| $ | 13,971 |
| | $ | 12,290 |
| | $ | 12,034 |
|
| All other regions | 8,562 |
| | 9,186 |
| | 8,331 |
| 9,498 |
| | 8,230 |
| | 7,909 |
|
| Total AUC | $ | 20,549 |
| | $ | 20,485 |
| | $ | 18,835 |
| $ | 23,469 |
| | $ | 20,520 |
| | $ | 19,943 |
|
| |
| (a) | Total net revenue is based predominantly on the domicile of the client or location of the trading desk, as applicable. Loans outstanding (excluding loans held-for-sale and loans at fair value), client deposits and other third-party liabilities, and AUC are based predominantly on the domicile of the client. |
| |
| (b) | Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses. |
|
| | |
9666 | | JPMorgan Chase & Co./20142017 Annual Report |
|
|
Commercial Banking delivers extensive industry knowledge, local expertise and dedicated service to U.S. and U.S. multinational clients, including corporations, municipalities, financial institutions and nonprofit entities with annual revenue generally ranging from $20 million to $2 billion. In addition, CB provides financing to real estate investors and owners. Partnering with the Firm’s other businesses, CB provides comprehensive financial solutions, including lending, treasury services, investment banking and asset management to meet its clients’ domestic and international financial needs. |
|
| | | | | | | | | | | |
| Selected income statement data | | | | |
Year ended December 31, (in millions, except ratios) | 2014 | | 2013 | | 2012 |
| Revenue | | | | | |
| Lending- and deposit-related fees | $ | 978 |
| | $ | 1,033 |
| | $ | 1,072 |
|
| Asset management, administration and commissions | 92 |
| | 116 |
| | 130 |
|
All other income(a) | 1,279 |
| | 1,149 |
| | 1,081 |
|
| Noninterest revenue | 2,349 |
| | 2,298 |
| | 2,283 |
|
| Net interest income | 4,533 |
| | 4,794 |
| | 4,629 |
|
Total net revenue(b) | 6,882 |
| | 7,092 |
| | 6,912 |
|
| Provision for credit losses | (189 | ) | | 85 |
| | 41 |
|
| Noninterest expense | | | | | |
| Compensation expense | 1,203 |
| | 1,115 |
| | 1,014 |
|
| Noncompensation expense | 1,492 |
| | 1,495 |
| | 1,375 |
|
| Total noninterest expense | 2,695 |
| | 2,610 |
| | 2,389 |
|
| Income before income tax expense | 4,376 |
| | 4,397 |
| | 4,482 |
|
| Income tax expense | 1,741 |
| | 1,749 |
| | 1,783 |
|
| Net income | $ | 2,635 |
| | $ | 2,648 |
| | $ | 2,699 |
|
| | | | | | |
| Revenue by product | | | | | |
| Lending | $ | 3,576 |
| | $ | 3,945 |
| | $ | 3,762 |
|
| Treasury services | 2,448 |
| | 2,429 |
| | 2,428 |
|
| Investment banking | 684 |
| | 575 |
| | 545 |
|
| Other | 174 |
| | 143 |
| | 177 |
|
| Total Commercial Banking net revenue | $ | 6,882 |
| | $ | 7,092 |
| | $ | 6,912 |
|
| | | | | | |
| Investment banking revenue, gross | $ | 1,986 |
| | $ | 1,676 |
| | $ | 1,597 |
|
| | | | | | |
| Revenue by client segment | | | | | |
| Middle Market Banking | $ | 2,838 |
| | $ | 3,075 |
| | $ | 3,010 |
|
| Corporate Client Banking | 1,935 |
| | 1,851 |
| | 1,843 |
|
| Commercial Term Lending | 1,252 |
| | 1,239 |
| | 1,206 |
|
| Real Estate Banking | 495 |
| | 561 |
| | 450 |
|
| Other | 362 |
| | 366 |
| | 403 |
|
| Total Commercial Banking net revenue | $ | 6,882 |
| | $ | 7,092 |
| | $ | 6,912 |
|
| | | | | | |
| Financial ratios | | | | | |
| Return on common equity | 18 | % | | 19 | % | | 28 | % |
| Overhead ratio | 39 |
| | 37 |
| | 35 |
|
Note: As discussed on pages 79–80, effective with the fourth quarter of 2014 the Firm changed its methodology for allocating the cost of preferred stock to its reportable business segments. Prior periods have been revised to conform with the current period presentation.
|
| | | | | | | | | | | |
| Selected income statement data | | | | |
Year ended December 31, (in millions) | 2017 | | 2016 | | 2015 |
| Revenue | | | | | |
| Lending- and deposit-related fees | $ | 919 |
| | $ | 917 |
| | $ | 944 |
|
| Asset management, administration and commissions | 68 |
| | 69 |
| | 88 |
|
All other income(a) | 1,535 |
| | 1,334 |
| | 1,333 |
|
| Noninterest revenue | 2,522 |
| | 2,320 |
| | 2,365 |
|
| Net interest income | 6,083 |
| | 5,133 |
| | 4,520 |
|
Total net revenue(b) | 8,605 |
| | 7,453 |
| | 6,885 |
|
| | | | | | |
| Provision for credit losses | (276 | ) | | 282 |
| | 442 |
|
| | | | | | |
| Noninterest expense | | | | | |
| Compensation expense | 1,470 |
| | 1,332 |
| | 1,238 |
|
| Noncompensation expense | 1,857 |
| | 1,602 |
| | 1,643 |
|
| Total noninterest expense | 3,327 |
| | 2,934 |
| | 2,881 |
|
| | | | | | |
| Income before income tax expense | 5,554 |
| | 4,237 |
| | 3,562 |
|
| Income tax expense | 2,015 |
| | 1,580 |
| | 1,371 |
|
| Net income | $ | 3,539 |
| | $ | 2,657 |
| | $ | 2,191 |
|
| |
| (a) | Includes revenue from investment banking products and commercial card transactions. |
| |
| (b) | Total net revenue included tax-equivalent adjustments from income tax credits related to equity investments in designated community development entities that provide loans to qualified businesses in low-income communities, as well as tax-exempt income fromrelated to municipal bond activityfinancing activities of $462$699 million, $407$505 million and $381$493 million for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. The 2017 results reflect the impact of the enactment of the TCJA including a benefit to all other income of $115 million on certain investments in the Community Development Banking business. For additional information related to the impact of the TCJA, see Note 24. |
2014
2017 compared with 20132016
Net income was $2.6$3.5 billion, flatan increase of 33% compared with the prior year, reflecting lowerdriven by higher net revenue and higher noninterest expense, predominantly offset by a lower provision for credit losses.losses, partially offset by higher noninterest expense.
Net revenue was $6.9$8.6 billion, a decreasean increase of $210 million, or 3%,15% compared with the prior year. Net interest income was $4.5$6.1 billion, a decreasean increase of $261 million, or 5%, reflecting yield compression, the absence of proceeds received in19% compared with the prior year, from a lending-related workout, and lower purchase discounts recognized on loan repayments, partially offsetdriven by higher deposit spreads and loan balances.growth. Noninterest revenue was $2.3$2.5 billion, up $51an increase of 9% compared with the prior year, predominantly driven by higher Community Development Banking revenue, including a $115 million or 2%, reflectingbenefit for the impact of the TCJA on certain investments, and higher investment banking revenue largely offset by business simplification and lower lending fees.revenue.
Noninterest expense was $3.3 billion, an increase of 13% driven by hiring of bankers and business-related support staff, investments in technology, and an impairment of approximately $130 million on certain leased equipment, the majority of which was sold subsequent to year-end.
The provision for credit losses was a benefit of $276 million, driven by net reductions in the allowance for credit
losses, including in the Oil & Gas, Natural Gas Pipelines and Metals & Mining portfolios. The prior year provision for credit losses was $282 million driven by downgrades in the Oil & Gas portfolio and select client downgrades in other industries.
2016 compared with 2015
Net income was $2.7 billion, an increase of $85 million, or 3%, from the prior year, largely reflecting higher investments in controls.
201321% compared with 2012
Net income was $2.6 billion, a decrease of $51 million, or 2%, from the prior year, driven by an increase in noninterest expensehigher net revenue and thea lower provision for credit losses, partially offset by an increase in net revenue.higher noninterest expense.
Net revenue was a record $7.1$7.5 billion, an increase of $180 million, or 3%, from8% compared with the prior year. Net interest income was $4.8$5.1 billion, up by $165 million, or 4%,an increase of 14% compared with the prior year, driven by higher loan balances and proceeds from a lending-related workout, partially offset by lower purchase discounts recognized on loan repayments.deposit spreads. Noninterest revenue was $2.3 billion, flata decrease of 2% compared with the prior year.year, largely driven by lower lending-and-deposit-related fees and other revenue, partially offset by higher investment banking revenue.
Noninterest expense was $2.6$2.9 billion, an increase of $221 million, or 9%, from2% compared with the prior year, reflecting higher product-increased hiring of bankers and headcount-related expense.business-related support staff and investments in technology.
The provision for credit losses was $282 million and $442 million for 2016 and 2015, respectively, with both periods driven by downgrades in the Oil & Gas portfolio and select client downgrades in other industries.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 9767 |
Management’s discussion and analysis
|
| | | | |
CB product revenue comprisesconsists of the following: |
Lending includes a variety of financing alternatives, which are predominantlyprimarily provided on a secured bybasis; collateral includes receivables, inventory, equipment, real estate or other assets. Products include term loans, revolving lines of credit, bridge financing, asset-based structures, leases, commercial card products and standby letters of credit. |
Treasury services includes revenue from a broad range of products and services that enable CB clients to manage payments and receipts, as well as invest and manage funds. |
Investment banking includes revenue from a range of products that provideproviding CB clients with sophisticated capital-raising alternatives, as well as balance sheet and risk management tools through advisory, equity underwriting, and loan syndications. Revenue from Fixed incomeIncome and Equity marketMarkets products used by CB clients is also included. Investment banking revenue, gross, represents total revenue related to investment banking products sold to CB clients.
|
Other product revenue primarily includes tax-equivalent adjustments generated from Community Development Banking activities and certain income derived from principal transactions. |
|
| | | | |
| CB is divided into four primary client segments: Middle Market Banking, Corporate Client Banking, Commercial Term Lending, and Real Estate Banking. |
Middle Market Banking covers corporate, municipal and nonprofit clients, with annual revenue generally ranging between $20 million and $500 million. |
Corporate Client Banking covers clients with annual revenue generally ranging between $500 million and $2 billion and focuses on clients that have broader investment banking needs. |
Commercial Term Lending primarily provides term financing to real estate investors/owners for multifamily properties as well as office, retail and industrial properties. |
Real Estate Banking provides full-service banking to investors and developers of institutional-grade real estate investment properties. |
Other primarily includes lending and investmentinvestment-related activities within the Community Development Banking and Chase Capital businesses.business. |
|
| | | | | | | | | | | |
| Selected metrics | | | | | |
| As of or for the year ended December 31, (in millions, except headcount) | 2014 | | 2013 | | 2012 |
| Selected balance sheet data (period-end) | | | | | |
| Total assets | $ | 195,267 |
| | $ | 190,782 |
| | $ | 181,502 |
|
| Loans: | | | | | |
| Loans retained | 147,661 |
| | 135,750 |
| | 126,996 |
|
| Loans held-for-sale and loans at fair value | 845 |
| | 1,388 |
| | 1,212 |
|
| Total loans | $ | 148,506 |
| | $ | 137,138 |
| | $ | 128,208 |
|
| Equity | 14,000 |
| | 13,500 |
| | 9,500 |
|
| | | | | | |
| Period-end loans by client segment | | | | | |
| Middle Market Banking | $ | 53,635 |
| | $ | 52,289 |
| | $ | 50,552 |
|
| Corporate Client Banking | 22,695 |
| | 20,925 |
| | 21,707 |
|
| Commercial Term Lending | 54,038 |
| | 48,925 |
| | 43,512 |
|
| Real Estate Banking | 13,298 |
| | 11,024 |
| | 8,552 |
|
| Other | 4,840 |
| | 3,975 |
| | 3,885 |
|
| Total Commercial Banking loans | $ | 148,506 |
| | $ | 137,138 |
| | $ | 128,208 |
|
| | | | | | |
| Selected balance sheet data (average) | | | | | |
| Total assets | $ | 191,857 |
| | $ | 185,776 |
| | $ | 165,111 |
|
| Loans: | | | | | |
| Loans retained | 140,982 |
| | 131,100 |
| | 119,218 |
|
| Loans held-for-sale and loans at fair value | 782 |
| | 930 |
| | 882 |
|
| Total loans | $ | 141,764 |
| | $ | 132,030 |
| | $ | 120,100 |
|
| Client deposits and other third-party liabilities | 204,017 |
| | 198,356 |
| | 195,912 |
|
| Equity | 14,000 |
| | 13,500 |
| | 9,500 |
|
| | | | | | |
| Average loans by client segment | | | | | |
| Middle Market Banking | $ | 52,444 |
| | $ | 51,830 |
| | $ | 47,009 |
|
| Corporate Client Banking | 21,608 |
| | 20,918 |
| | 19,572 |
|
| Commercial Term Lending | 51,120 |
| | 45,989 |
| | 40,872 |
|
| Real Estate Banking | 12,080 |
| | 9,582 |
| | 8,562 |
|
| Other | 4,512 |
| | 3,711 |
| | 4,085 |
|
| Total Commercial Banking loans | $ | 141,764 |
| | $ | 132,030 |
| | $ | 120,100 |
|
| | | | | | |
| Headcount | 7,262 |
| | 6,848 |
| | 6,117 |
|
|
| | | | | | | | | | | |
| Selected income statement data (continued) | | |
Year ended December 31, (in millions, except ratios) | 2017 | | 2016 | | 2015 |
| Revenue by product | | | | | |
| Lending | $ | 4,094 |
| | $ | 3,795 |
| | $ | 3,429 |
|
| Treasury services | 3,444 |
| | 2,797 |
| | 2,581 |
|
Investment banking(a) | 805 |
| | 785 |
| | 730 |
|
Other(b) | 262 |
| | 76 |
| | 145 |
|
| Total Commercial Banking net revenue | $ | 8,605 |
| | $ | 7,453 |
| | $ | 6,885 |
|
| | | | | | |
Investment banking revenue, gross(c) | $ | 2,327 |
| | $ | 2,286 |
| | $ | 2,179 |
|
| | | | | | |
| Revenue by client segment | | | | | |
Middle Market Banking(d) | $ | 3,341 |
| | $ | 2,848 |
| | $ | 2,685 |
|
Corporate Client Banking(d) | 2,727 |
| | 2,429 |
| | 2,205 |
|
| Commercial Term Lending | 1,454 |
| | 1,408 |
| | 1,275 |
|
| Real Estate Banking | 604 |
| | 456 |
| | 358 |
|
Other(b) | 479 |
| | 312 |
| | 362 |
|
| Total Commercial Banking net revenue | $ | 8,605 |
| | $ | 7,453 |
| | $ | 6,885 |
|
| | | | | | |
| Financial ratios | | | | | |
| Return on equity | 17 | % | | 16 | % | | 15 | % |
| Overhead ratio | 39 |
| | 39 |
| | 42 |
|
| |
| (a) | Includes total Firm revenue from investment banking products sold to CB clients, net of revenue sharing with the CIB. |
| |
| (b) | The 2017 results reflect the impact of the enactment of the TCJA including a benefit of $115 million on certain investments in the Community Development Banking business. For additional information related to the impact of the TCJA, see Note 24. |
| |
| (c) | Represents total Firm revenue from investment banking products sold to CB clients. |
| |
| (d) | Certain clients were transferred from Middle Market Banking to Corporate Client Banking in the second quarter of 2017. The prior period amounts have been revised to conform with the current period presentation. |
|
| | |
9868 | | JPMorgan Chase & Co./20142017 Annual Report |
|
| | | | | | | | | | | |
| Selected metrics (continued) | | | | |
| As of or for the year ended December 31, (in millions, except ratios) | 2014 | | 2013 | | 2012 |
| Credit data and quality statistics | | | | | |
| Net charge-offs/(recoveries) | $ | (7 | ) | | $ | 43 |
| | $ | 35 |
|
| Nonperforming assets | | | | | |
| Nonaccrual loans: | | | | | |
Nonaccrual loans retained(a) | 317 |
| | 471 |
| | 644 |
|
| Nonaccrual loans held-for-sale and loans at fair value | 14 |
| | 43 |
| | 29 |
|
| Total nonaccrual loans | 331 |
| | 514 |
| | 673 |
|
| Assets acquired in loan satisfactions | 10 |
| | 15 |
| | 14 |
|
| Total nonperforming assets | 341 |
| | 529 |
| | 687 |
|
| Allowance for credit losses: | | | | | |
| Allowance for loan losses | 2,466 |
| | 2,669 |
| | 2,610 |
|
| Allowance for lending-related commitments | 165 |
| | 142 |
| | 183 |
|
| Total allowance for credit losses | 2,631 |
| | 2,811 |
| | 2,793 |
|
Net charge-off/(recovery) rate(b) | — |
| | 0.03 | % | | 0.03 | % |
Allowance for loan losses to period-end loans retained | 1.67 |
| | 1.97 |
| | 2.06 |
|
Allowance for loan losses to nonaccrual loans retained(a) | 778 |
| | 567 |
| | 405 |
|
| Nonaccrual loans to total period-end loans | 0.22 |
| | 0.37 |
| | 0.52 |
|
|
| | | | | | | | | | | |
| Selected metrics |
| As of or for the year ended December 31, (in millions, except headcount) | 2017 | | 2016 | | 2015 |
| Selected balance sheet data (period-end) | | | | | |
| Total assets | $ | 221,228 |
| | $ | 214,341 |
| | $ | 200,700 |
|
| Loans: | | | | | |
| Loans retained | 202,400 |
| | 188,261 |
| | 167,374 |
|
| Loans held-for-sale and loans at fair value | 1,286 |
| | 734 |
| | 267 |
|
| Total loans | $ | 203,686 |
| | $ | 188,995 |
| | $ | 167,641 |
|
| Core loans | 203,469 |
| | 188,673 |
| | 166,939 |
|
| Equity | 20,000 |
| | 16,000 |
| | 14,000 |
|
| | | | | | |
| Period-end loans by client segment | | | | | |
Middle Market Banking(a) | $ | 56,965 |
| | $ | 53,929 |
| | $ | 50,501 |
|
Corporate Client Banking(a) | 46,963 |
| | 43,027 |
| | 37,709 |
|
| Commercial Term Lending | 74,901 |
| | 71,249 |
| | 62,860 |
|
| Real Estate Banking | 17,796 |
| | 14,722 |
| | 11,234 |
|
| Other | 7,061 |
| | 6,068 |
| | 5,337 |
|
| Total Commercial Banking loans | $ | 203,686 |
| | $ | 188,995 |
| | $ | 167,641 |
|
| | | | | | |
| Selected balance sheet data (average) | | | | | |
| Total assets | $ | 217,047 |
| | $ | 207,532 |
| | $ | 198,076 |
|
| Loans: | | | | | |
| Loans retained | 197,203 |
| | 178,670 |
| | 157,389 |
|
| Loans held-for-sale and loans at fair value | 909 |
| | 723 |
| | 492 |
|
| Total loans | $ | 198,112 |
| | $ | 179,393 |
| | $ | 157,881 |
|
| Core loans | 197,846 |
| | 178,875 |
| | 156,975 |
|
| Client deposits and other third-party liabilities | 177,018 |
| | 174,396 |
| | 191,529 |
|
| Equity | 20,000 |
| | 16,000 |
| | 14,000 |
|
| | | | | | |
| Average loans by client segment | | | | | |
Middle Market Banking(a) | $ | 55,474 |
| | $ | 52,242 |
| | $ | 50,334 |
|
Corporate Client Banking(a) | 46,037 |
| | 41,756 |
| | 34,497 |
|
| Commercial Term Lending | 73,428 |
| | 66,700 |
| | 58,138 |
|
| Real Estate Banking | 16,525 |
| | 13,063 |
| | 9,917 |
|
| Other | 6,648 |
| | 5,632 |
| | 4,995 |
|
| Total Commercial Banking loans | $ | 198,112 |
| | $ | 179,393 |
| | $ | 157,881 |
|
| | | | | | |
| Headcount | 9,005 |
| | 8,365 |
| | 7,845 |
|
| |
| (a) | An allowanceCertain clients were transferred from Middle Market Banking to Corporate Client Banking in the second quarter of 2017. The prior period amounts have been revised to conform with the current period presentation. |
|
| | | | | | | | | | | |
| Selected metrics | | | | |
| As of or for the year ended December 31, (in millions, except ratios) | 2017 | | 2016 | | 2015 |
| Credit data and quality statistics | | | | | |
| Net charge-offs/(recoveries) | $ | 39 |
| | $ | 163 |
| | $ | 21 |
|
| Nonperforming assets | | | | | |
| Nonaccrual loans: | | | | | |
Nonaccrual loans retained(a) | 617 |
| | 1,149 |
| | 375 |
|
| Nonaccrual loans held-for-sale and loans at fair value | — |
| | — |
| | 18 |
|
| Total nonaccrual loans | 617 |
| | 1,149 |
| | 393 |
|
| | | | | | |
| Assets acquired in loan satisfactions | 3 |
| | 1 |
| | 8 |
|
| Total nonperforming assets | 620 |
| | 1,150 |
| | 401 |
|
| Allowance for credit losses: | | | | | |
| Allowance for loan losses | 2,558 |
| | 2,925 |
| | 2,855 |
|
| Allowance for lending-related commitments | 300 |
| | 248 |
| | 198 |
|
| Total allowance for credit losses | 2,858 |
| | 3,173 |
| | 3,053 |
|
| | | | | | |
Net charge-off/(recovery) rate(b) | 0.02 | % | | 0.09 | % | | 0.01 | % |
Allowance for loan losses to period-end loans retained | 1.26 |
| | 1.55 |
| | 1.71 |
|
Allowance for loan losses to nonaccrual loans retained(a) | 415 |
| | 255 |
| | 761 |
|
| Nonaccrual loans to period-end total loans | 0.30 |
| | 0.61 |
| | 0.23 |
|
| |
| (a) | Allowance for loan losses of $45$92 million, $81$155 million and $107$64 million was held against nonaccrual loans retained at December 31, 2014, 20132017, 2016 and 2012,2015, respectively. |
| |
| (b) | Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate. |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 9969 |
Management’s discussion and analysis
|
| | | | |
| ASSET & WEALTH MANAGEMENT |
|
|
Asset & Wealth Management, with client assets of $2.4$2.8 trillion, is a global leader in investment and wealth management. AMAWM clients include institutions, high-net-worth individuals and retail investors in everymany major marketmarkets throughout the world. AMAWM offers investment management across allmost major asset classes including equities, fixed income, alternatives and money market funds. AMAWM also offers multi-asset investment management, providing solutions for a broad range of clients’ investment needs. For Global Wealth Management clients, AMAWM also provides retirement products and services, brokerage and banking services including trusts and estates, loans, mortgages and deposits. The majority of AM’sAWM’s client assets are in actively managed portfolios. |
|
| | | | | | | | | |
| Selected income statement data | | |
Year ended December 31, (in millions, except ratios and headcount) | 2017 | 2016 | 2015 |
| Revenue | | | |
| Asset management, administration and commissions | $ | 8,946 |
| $ | 8,414 |
| $ | 9,175 |
|
| All other income | 593 |
| 598 |
| 388 |
|
| Noninterest revenue | 9,539 |
| 9,012 |
| 9,563 |
|
| Net interest income | 3,379 |
| 3,033 |
| 2,556 |
|
| Total net revenue | 12,918 |
| 12,045 |
| 12,119 |
|
| | | | |
| Provision for credit losses | 39 |
| 26 |
| 4 |
|
| | | | |
| Noninterest expense | | | |
| Compensation expense | 5,318 |
| 5,065 |
| 5,113 |
|
| Noncompensation expense | 3,983 |
| 3,413 |
| 3,773 |
|
| Total noninterest expense | 9,301 |
| 8,478 |
| 8,886 |
|
| | | | |
| Income before income tax expense | 3,578 |
| 3,541 |
| 3,229 |
|
| Income tax expense | 1,241 |
| 1,290 |
| 1,294 |
|
| Net income | $ | 2,337 |
| $ | 2,251 |
| $ | 1,935 |
|
| | | | |
| Revenue by line of business | | | |
| Asset Management | $ | 6,340 |
| $ | 5,970 |
| $ | 6,301 |
|
| Wealth Management | 6,578 |
| 6,075 |
| 5,818 |
|
| Total net revenue | $ | 12,918 |
| $ | 12,045 |
| $ | 12,119 |
|
| | | | |
| Financial ratios | | | |
| Return on common equity | 25 | % | 24 | % | 21 | % |
| Overhead ratio | 72 |
| 70 |
| 73 |
|
| Pre-tax margin ratio: | | | |
| Asset Management | 25 |
| 31 |
| 31 |
|
| Wealth Management | 30 |
| 28 |
| 22 |
|
| Asset & Wealth Management | 28 |
| 29 |
| 27 |
|
| | | | |
| Headcount | 22,975 |
| 21,082 |
| 20,975 |
|
| | | | |
| Number of Wealth Management client advisors | 2,605 |
| 2,504 |
| 2,778 |
|
|
| | | | | | | | | |
| Selected income statement data | | |
Year ended December 31, (in millions, except ratios and headcount) | 2014 | 2013 | 2012 |
| Revenue | | | |
| Asset management, administration and commissions | $ | 9,024 |
| $ | 8,232 |
| $ | 7,041 |
|
| All other income | 564 |
| 797 |
| 806 |
|
| Noninterest revenue | 9,588 |
| 9,029 |
| 7,847 |
|
| Net interest income | 2,440 |
| 2,376 |
| 2,163 |
|
| Total net revenue | 12,028 |
| 11,405 |
| 10,010 |
|
| | | | |
| Provision for credit losses | 4 |
| 65 |
| 86 |
|
| | | | |
| Noninterest expense | | | |
| Compensation expense | 5,082 |
| 4,875 |
| 4,405 |
|
| Noncompensation expense | 3,456 |
| 3,141 |
| 2,699 |
|
| Total noninterest expense | 8,538 |
| 8,016 |
| 7,104 |
|
| | | | |
| Income before income tax expense | 3,486 |
| 3,324 |
| 2,820 |
|
| Income tax expense | 1,333 |
| 1,241 |
| 1,078 |
|
| Net income | $ | 2,153 |
| $ | 2,083 |
| $ | 1,742 |
|
| | | | |
| Revenue by line of business | | | |
| Global Investment Management | $ | 6,327 |
| $ | 5,951 |
| $ | 5,141 |
|
| Global Wealth Management | 5,701 |
| 5,454 |
| 4,869 |
|
| Total net revenue | $ | 12,028 |
| $ | 11,405 |
| $ | 10,010 |
|
| | | | |
| Financial ratios | | | |
| Return on common equity | 23 | % | 23 | % | 24 | % |
| Overhead ratio | 71 |
| 70 |
| 71 |
|
| Pretax margin ratio: | | | |
| Global Investment Management | 31 |
| 32 |
| 30 |
|
| Global Wealth Management | 27 |
| 26 |
| 26 |
|
| Asset Management | 29 |
| 29 |
| 28 |
|
| | | | |
| Headcount | 19,735 |
| 20,048 |
| 18,645 |
|
| | | | |
| Number of client advisors | 2,836 |
| 2,962 | 2,821 |
|
Note: As discussed on pages 79–80, effective with the fourth quarter of 2014 the Firm changed its methodology for allocating the cost of preferred stock to its reportable business segments. Prior periods have been revised to conform with the current period presentation.
20142017 compared with 20132016
Net income was $2.2$2.3 billion, an increase of $70 million, or 3%, from4% compared with the prior year, reflecting higher net revenue and lower provision for credit losses, predominantlya tax benefit resulting from the vesting of employee share-based awards, offset by higher noninterest expense.
Net revenue was $12.0$12.9 billion, an increase of $623 million, or 5%7%. Net interest income was $3.4 billion, up 11%, from the prior year.driven by higher deposit spreads. Noninterest revenue was $9.6$9.5 billion, up $559 million, or 6%, from the prior year, due to net client inflows and the effect ofdriven by higher market levels, partially offset by lower valuationsthe absence of seed capital investments. Net interest income was $2.4 billion, up $64 million, or 3%, froma gain in the prior year due to higher loan and deposit balances, largely offset by spread compression.on the disposal of an asset.
Revenue from Global InvestmentAsset Management was $6.3 billion, up 6% due to net client inflows andfrom the effect ofprior year, driven by higher market levels, partially offset by lower valuationsthe absence of seed capital investments.a gain in prior year on the disposal of an asset. Revenue from Global Wealth Management was $5.7$6.6 billion, up 5% from the prior year due to higher net interest income from loan and deposit balances and net client inflows, partially offset by spread compression and lower brokerage revenue.
Noninterest expense was $8.5 billion, an increase of $522 million, or 7%, from the prior year, as the business continues to invest in both infrastructure and controls.
2013 compared with 2012
Net income was $2.1 billion, an increase of $341 million, or 20%,8% from the prior year, reflecting higher net revenue, largely offset byinterest income from higher noninterest expense.deposit spreads.
Net revenueNoninterest expense was $11.4$9.3 billion, an increase of $1.410%, predominantly driven by higher legal expense and compensation expense on higher revenue and headcount.
2016 compared with 2015
Net income was $2.3 billion, or 14%, froma decrease of 16% compared with the prior year.year, reflecting lower noninterest expense, predominantly offset by lower net revenue.
Net revenue was $12.0 billion, a decrease of 1%. Net interest income was $3.0 billion, up 19%, driven by higher loan balances and spreads. Noninterest revenue was $9.0 billion, up $1.2a decrease of6%, reflecting the impact of lower average equity market levels, a reduction in revenue related to the disposal of assets at the beginning of 2016, and lower performance fees and placement fees.
Revenue from Asset Management was $6.0 billion, or 15%,down 5% from the prior year, duedriven by a reduction in revenue related to net client inflows, the effectdisposal of higherassets at the beginning of 2016, the impact of lower average equity market levels and higherlower performance fees. Net interest incomeRevenue from Wealth Management was $2.4$6.1 billion, up $213 million, or 10%,4% from the prior year, due to higher loan and deposit balances, partially offset by narrower loan and deposit spreads.
Revenue from Global Investment Management was $6.0 billion, up 16% due to net client inflows, the effect of higher market levels and higher performance fees. Revenue from Global Wealth Management was $5.5 billion, up 12% from the prior year due toreflecting higher net interest income from higher deposit and loan spreads and deposit balancescontinued loan growth, partially offset by the impact of lower average equity market levels and higher brokerage revenue.lower placement fees.
Noninterest expense was $8.0$8.5 billion, an increasea decrease of $912 million, or 13%5%, from the prior year, primarilypredominantly due to higher headcount-relateda reduction in expense driven by continued front office expansion efforts, higher performance-based compensation and costs related to the control agenda.disposal of assets at the beginning of 2016 and lower legal expense.
|
| | |
10070 | | JPMorgan Chase & Co./20142017 Annual Report |
|
| | | | |
AM’sAWM’s lines of business compriseconsist of the following: |
Global InvestmentAsset Management provides comprehensive global investment services, including asset management, pension analytics, asset-liability management and active risk-budgeting strategies.
|
Global Wealth Management offers investment advice and wealth management, including investment management, capital markets and risk management, tax and estate planning, banking, lending and specialty-wealth advisory services.
|
|
| | | | |
AM’sAWM’s client segments compriseconsist of the following: |
Private Banking clients include high- and ultra-high-net-worth individuals, families, money managers, business owners and small corporations worldwide. |
Institutional clients include both corporate and public institutions, endowments, foundations, nonprofit organizations and governments worldwide. |
Retail clients include financial intermediaries and individual investors. |
|
| | | | |
J.P. Morgan Asset Management has two high-level measures of its overall fund performance. |
• Percentage of mutual fund assets under management in funds rated 4- or 5-star: Mutual fund rating services rank funds based on their risk-adjusted performance over various periods. A 5-star rating is the best rating and represents the top 10% of industry-wide ranked funds. A 4-star rating represents the next 22.5% of industry-wide ranked funds. A 3-star rating represents the next 35% of industry-wide ranked funds. A 2-star rating represents the next 22.5% of industry-wide ranked funds. A 1-star rating is the worst rating and represents the bottom 10% of industry-wide ranked funds. The “overall Morningstar rating” is derived from a weighted average of the performance figures associated with a fund’s three-, five- and ten-year (if applicable) Morningstar Rating metrics. For U.S. domiciled funds, separate star ratings are given at the individual share class level. The Nomura “star rating” is based on three-year risk-adjusted performance only. Funds with fewer than three years of history are not rated and hence excluded from this analysis. All ratings, the assigned peer categories and the asset values used to derive this analysis are sourced from these fund rating providers as mentioned in footnote (a). The data providers re-denominate the asset values into USD.U.S. dollars. This % of AUM is based on star ratings at the share class level for U.S. domiciled funds, and at a “primary share class” level to represent the star rating of all other funds except for Japan where Nomura provides ratings at the fund level. The “primary share class”, as defined by Morningstar, denotes the share class recommended as being the best proxy for the portfolio and in most cases will be the most retail version (based upon annual management charge, minimum investment, currency and other factors). The performance data could have been different if all funds/accounts would have been included. Past performance is not indicative of future results. |
• Percentage of mutual fund assets under management in funds ranked in the 1st or 2nd quartile (one, three and five years): All quartile rankings, the assigned peer categories and the asset values used to derive this analysis are sourced from the fund ranking providers mentioned in footnote (b)(c). Quartile rankings are done on the net-of-fee absolute return of each fund. The data providers re-denominate the asset values into USD.U.S. dollars. This % of AUM is based on fund performance and associated peer rankings at the share class level for U.S. domiciled funds, at a “primary share class” level to represent the quartile ranking of the U.K., Luxembourg U.K. and Hong Kong funds and at the fund level for all other funds. The “primary share class”, as defined by Morningstar, denotes the share class recommended as being the best proxy for the portfolio and in most cases will be the most retail version (based upon annual management charge, minimum investment, currency and other factors). Where peer group rankings given for a fund are in more than one “primary share class” territory both rankings are included to reflect local market competitiveness (applies to “Offshore Territories” and “HK SFC Authorized” funds only). The performance data could have been different if all funds/accounts would have been included. Past performance is not indicative of future results. |
| | | Selected metrics | | |
As of or for the year ended December 31, (in millions, except ranking data and ratios) | 2014 | 2013 | 2012 | 2017 | 2016 | 2015 |
% of JPM mutual fund assets rated as 4- or 5-star(a)(b) | 52 | % | 49 | % | 47 | % | 60 | % | 63 | % | 52 | % |
% of JPM mutual fund assets ranked in 1st or 2nd quartile:(b)(c) | | |
| 1 year | 72 |
| 68 |
| 67 |
| 64 |
| 54 |
| 62 |
|
| 3 years | 72 |
| 68 |
| 74 |
| 75 |
| 72 |
| 78 |
|
5 years | 76 |
| 69 |
| 76 |
| 83 |
| 79 |
| 79 |
|
| | | |
| Selected balance sheet data (period-end) | | |
| Total assets | $ | 128,701 |
| $ | 122,414 |
| $ | 108,999 |
| $ | 151,909 |
| $ | 138,384 |
| $ | 131,451 |
|
Loans(c) | 104,279 |
| 95,445 |
| 80,216 |
| |
| Loans | | 130,640 |
| 118,039 |
| 111,007 |
|
| Core loans | | 130,640 |
| 118,039 |
| 111,007 |
|
| Deposits | 155,247 |
| 146,183 |
| 144,579 |
| 146,407 |
| 161,577 |
| 146,766 |
|
| Equity | 9,000 |
| 9,000 |
| 7,000 |
| 9,000 |
| 9,000 |
| 9,000 |
|
| | | |
| Selected balance sheet data (average) | | |
| Total assets | $ | 126,440 |
| $ | 113,198 |
| $ | 97,447 |
| $ | 144,206 |
| $ | 132,875 |
| $ | 129,743 |
|
| Loans | 99,805 |
| 86,066 |
| 68,719 |
| 123,464 |
| 112,876 |
| 107,418 |
|
| Core loans | | 123,464 |
| 112,876 |
| 107,418 |
|
| Deposits | 150,121 |
| 139,707 | 129,208 |
| 148,982 |
| 153,334 |
| 149,525 |
|
| Equity | 9,000 |
| 9,000 |
| 7,000 |
| 9,000 |
| 9,000 |
| 9,000 |
|
| | | |
| Credit data and quality statistics | | |
| Net charge-offs | $ | 6 |
| $ | 40 |
| $ | 64 |
| $ | 14 |
| $ | 16 |
| $ | 12 |
|
| Nonaccrual loans | 218 |
| 167 |
| 250 |
| 375 |
| 390 |
| 218 |
|
| Allowance for credit losses: | | |
| Allowance for loan losses | 271 |
| 278 |
| 248 |
| 290 |
| 274 |
| 266 |
|
| Allowance for lending-related commitments | 5 |
| 5 |
| 5 |
| 10 |
| 4 |
| 5 |
|
| Total allowance for credit losses | 276 |
| 283 |
| 253 |
| 300 |
| 278 |
| 271 |
|
| Net charge-off rate | 0.01 | % | 0.05 | % | 0.09 | % | 0.01 | % | 0.01 | % | 0.01 | % |
| Allowance for loan losses to period-end loans | 0.26 |
| 0.29 |
| 0.31 |
| 0.22 |
| 0.23 |
| 0.24 |
|
| Allowance for loan losses to nonaccrual loans | 124 |
| 166 |
| 99 |
| 77 |
| 70 |
| 122 |
|
| Nonaccrual loans to period-end loans | 0.21 |
| 0.17 |
| 0.31 |
| 0.29 |
| 0.33 |
| 0.20 |
|
| |
| (a) | Represents the “overall star rating” derived from Morningstar for the U.S., the U.K., Luxembourg, Hong Kong and Taiwan domiciled funds; and Nomura ’star rating’“star rating” for Japan domiciled funds. Includes only Asset Management retail open endedopen-ended mutual funds that have a rating. Excludes money market funds, Undiscovered Managers Fund, and Brazil and India domiciled funds. |
| |
| (b) | The prior period amounts have been revised to conform with the current period presentation. |
| |
| (c) | Quartile ranking sourced from: Lipper for the U.S. and Taiwan domiciled funds; Morningstar for the U.K., Luxembourg and Hong Kong domiciled funds; Nomura for Japan domiciled funds and FundDoctorFund Doctor for South Korea domiciled funds. Includes only Asset Management retail open endedopen-ended mutual funds that are ranked by the aforementioned sources. Excludes money market funds, Undiscovered Managers Fund, and Brazil and India domiciled funds. |
| |
(c) | Included $22.1 billion, $18.9 billion and $10.9 billion of prime mortgage loans reported in the Consumer, excluding credit card, loan portfolio at December 31, 2014, 2013 and 2012, respectively. For the same periods, excluded $2.7 billion, $3.7 billion and $6.7 billion, respectively, of prime mortgage loans reported in the CIO portfolio within the Corporate segment. |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 10171 |
Management’s discussion and analysis
Client assets
20142017 compared with 20132016
Client assets were $2.4$2.8 trillion, an increase of $44 billion, or 2%, compared with the prior year. Excluding the sale of Retirement Plan Services, client assets were up 8%14% compared with the prior year. Assets under management were $1.7$2.0 trillion, an increase of $146 billion, or 9%,15% from the prior year due toreflecting higher market levels, and net inflows tointo long-term products and the effect of higher market levels.liquidity products.
20132016 compared with 20122015
Client assets were $2.3$2.5 trillion, at December 31, 2013, an increase of $248 billion, or 12%,4% compared with the prior year. Assets under management were $1.6$1.8 trillion, an increase of $172 billion, or 12%,3% from the prior year due to netreflecting inflows tointo both liquidity and long-term products and the effect of higher market levels. Custody, brokerage, administration and deposit balances were $745 billion, up $76 billion, or 11%, from the prior year, due to the effect of higher market levels, and custody inflows, partially offset by brokerage outflows.asset sales at the beginning of 2016.
| | | Client assets | Client assets | | Client assets | |
December 31, (in billions) | 2014 |
| 2013 |
| 2012 | 2017 | 2016 | 2015 |
| Assets by asset class | | | |
Liquidity | $ | 461 |
| $ | 451 |
| $ | 458 |
| $ | 459 |
| $ | 436 |
| $ | 430 |
|
Fixed income | 359 |
| 330 |
| 330 |
| 474 |
| 420 |
| 376 |
|
| Equity | 375 |
| 370 |
| 277 |
| 428 |
| 351 |
| 353 |
|
| Multi-asset and alternatives | 549 |
| 447 |
| 361 |
| 673 |
| 564 |
| 564 |
|
| Total assets under management | 1,744 |
| 1,598 |
| 1,426 |
| 2,034 |
| 1,771 |
| 1,723 |
|
| Custody/brokerage/administration/deposits | 643 |
| 745 |
| 669 |
| |
Custody/brokerage/ administration/deposits | | 755 |
| 682 |
| 627 |
|
| Total client assets | $ | 2,387 |
| $ | 2,343 |
| $ | 2,095 |
| $ | 2,789 |
| $ | 2,453 |
| $ | 2,350 |
|
| | | |
| Memo: | | |
Alternatives client assets(a)(b) | 166 |
| 158 |
| 142 |
| $ | 166 |
| $ | 154 |
| $ | 172 |
|
| | | |
| Assets by client segment | | |
| Private Banking | $ | 428 |
| $ | 361 |
| $ | 318 |
| $ | 526 |
| $ | 435 |
| $ | 437 |
|
| Institutional | 827 |
| 777 |
| 741 |
| 968 |
| 869 |
| 816 |
|
| Retail | 489 |
| 460 |
| 367 |
| 540 |
| 467 |
| 470 |
|
| Total assets under management | $ | 1,744 |
| $ | 1,598 |
| $ | 1,426 |
| $ | 2,034 |
| $ | 1,771 |
| $ | 1,723 |
|
| | | |
| Private Banking | $ | 1,057 |
| $ | 977 |
| $ | 877 |
| $ | 1,256 |
| $ | 1,098 |
| $ | 1,050 |
|
| Institutional | 835 |
| 777 |
| 741 |
| 990 |
| 886 |
| 824 |
|
| Retail | 495 |
| 589 |
| 477 |
| 543 |
| 469 |
| 476 |
|
| Total client assets | $ | 2,387 |
| $ | 2,343 |
| $ | 2,095 |
| $ | 2,789 |
| $ | 2,453 |
| $ | 2,350 |
|
| |
| (a) | The prior period amounts have been revised to conform with the current period presentation. |
| |
| (b) | Represents assets under management, as well as client balances in brokerage accounts. |
| | | Client assets (continued) | | |
Year ended December 31, (in billions) | 2014 | 2013 | 2012 | 2017 | 2016 | 2015 |
| Assets under management rollforward | | |
| Beginning balance | $ | 1,598 |
| $ | 1,426 |
| $ | 1,336 |
| $ | 1,771 |
| $ | 1,723 |
| $ | 1,744 |
|
| Net asset flows: | | |
| Liquidity | 18 |
| (4 | ) | (41 | ) | 9 |
| 24 |
| — |
|
| Fixed income | 33 |
| 8 |
| 27 |
| 36 |
| 30 |
| (8 | ) |
| Equity | 5 |
| 34 |
| 8 |
| (11 | ) | (29 | ) | 1 |
|
| Multi-asset and alternatives | 42 |
| 48 |
| 23 |
| 43 |
| 22 |
| 22 |
|
| Market/performance/other impacts | 48 |
| 86 |
| 73 |
| 186 |
| 1 |
| (36 | ) |
| Ending balance, December 31 | $ | 1,744 |
| $ | 1,598 |
| $ | 1,426 |
| $ | 2,034 |
| $ | 1,771 |
| $ | 1,723 |
|
| | | |
| Client assets rollforward | | |
| Beginning balance | $ | 2,343 |
| $ | 2,095 |
| $ | 1,921 |
| $ | 2,453 |
| $ | 2,350 |
| $ | 2,387 |
|
| Net asset flows | 118 |
| 80 |
| 60 |
| 93 |
| 63 |
| 27 |
|
| Market/performance/other impacts | (74 | ) | 168 |
| 114 |
| 243 |
| 40 |
| (64 | ) |
| Ending balance, December 31 | $ | 2,387 |
| $ | 2,343 |
| $ | 2,095 |
| $ | 2,789 |
| $ | 2,453 |
| $ | 2,350 |
|
| | International metrics | Year ended December 31, (in billions, except where otherwise noted) | 2014 | 2013 | 2012 | 2017 | 2016 | 2015 |
Total net revenue (in millions)(a) | | |
| Europe/Middle East/Africa | $ | 2,080 |
| $ | 1,881 |
| $ | 1,641 |
| $ | 2,021 |
| $ | 1,849 |
| $ | 1,946 |
|
| Asia/Pacific | 1,199 |
| 1,133 |
| 958 |
| 1,162 |
| 1,077 |
| 1,130 |
|
| Latin America/Caribbean | 841 |
| 879 |
| 773 |
| 844 |
| 726 |
| 795 |
|
| Total international net revenue | | 4,027 |
| 3,652 |
| 3,871 |
|
| | | |
| North America | 7,908 |
| 7,512 |
| 6,638 |
| 8,891 |
| 8,393 |
| 8,248 |
|
| Total net revenue | $ | 12,028 |
| $ | 11,405 |
| $ | 10,010 |
| $ | 12,918 |
| $ | 12,045 |
| $ | 12,119 |
|
| | | |
| Assets under management | | |
| Europe/Middle East/Africa | $ | 329 |
| $ | 305 |
| $ | 258 |
| $ | 384 |
| $ | 309 |
| $ | 302 |
|
| Asia/Pacific | 126 |
| 132 |
| 114 |
| 160 |
| 123 |
| 123 |
|
| Latin America/Caribbean | 46 |
| 47 |
| 45 |
| 61 |
| 45 |
| 45 |
|
| Total international assets under management | | 605 |
| 477 |
| 470 |
|
| | | |
| North America | 1,243 |
| 1,114 |
| 1,009 |
| 1,429 |
| 1,294 |
| 1,253 |
|
| Total assets under management | $ | 1,744 |
| $ | 1,598 |
| $ | 1,426 |
| $ | 2,034 |
| $ | 1,771 |
| $ | 1,723 |
|
| | | |
| Client assets | | |
| Europe/Middle East/Africa | $ | 391 |
| $ | 367 |
| $ | 317 |
| $ | 441 |
| $ | 359 |
| $ | 351 |
|
| Asia/Pacific | 174 |
| 180 |
| 160 |
| 225 |
| 177 |
| 173 |
|
| Latin America/Caribbean | 115 |
| 117 |
| 110 |
| 154 |
| 114 |
| 110 |
|
| Total international client assets | | 820 |
| 650 |
| 634 |
|
| | | |
| North America | 1,707 |
| 1,679 |
| 1,508 |
| 1,969 |
| 1,803 |
| 1,716 |
|
| Total client assets | $ | 2,387 |
| $ | 2,343 |
| $ | 2,095 |
| $ | 2,789 |
| $ | 2,453 |
| $ | 2,350 |
|
| |
| (a) | Regional revenue is based on the domicile of the client. |
|
| | |
10272 | | JPMorgan Chase & Co./20142017 Annual Report |
|
|
The Corporate segment comprises Private Equity,consists of Treasury and Chief Investment Office (“CIO”) and Other Corporate, which includes corporate staff units and expense that is centrally managed. Treasury and CIO areis predominantly responsible for measuring, monitoring, reporting and managing the Firm’s liquidity, funding and structural interest rate and foreign exchange risks, as well as executing the Firm’s capital plan. The major Other Corporate units include Real Estate, Enterprise Technology, Legal, Compliance, Finance, Human Resources, Internal Audit, Risk Management, Compliance, Oversight & Control,Controls, Corporate Responsibility and various Other Corporate groups. Other centrally managed expense includes the Firm’s occupancy and pension-related expenses that are subject to allocation to the businesses. |
| | | Selected income statement data | Selected income statement data | | | | | Selected income statement data | | | | |
Year ended December 31, (in millions, except headcount) | 2014 |
| | 2013 |
| | 2012 |
| 2017 | | 2016 | | 2015 |
| Revenue | | | | | | | | | | |
| Principal transactions | $ | 1,197 |
| | $ | 563 |
| | $ | (4,268 | ) | $ | 284 |
| | $ | 210 |
| | $ | 41 |
|
| Securities gains | 71 |
| | 666 |
| | 2,024 |
| |
| All other income | 704 |
| | 1,864 |
| | 2,434 |
| |
| Securities gains/(losses) | | (66 | ) | | 140 |
| | 190 |
|
All other income/(loss)(a) | | 867 |
| | 588 |
| | 569 |
|
| Noninterest revenue | 1,972 |
| | 3,093 |
| | 190 |
| 1,085 |
| | 938 |
| | 800 |
|
| Net interest income | (1,960 | ) | | (3,115 | ) | | (2,262 | ) | 55 |
| | (1,425 | ) | | (533 | ) |
Total net revenue(a)(b) | 12 |
| | (22 | ) | | (2,072 | ) | 1,140 |
| | (487 | ) | | 267 |
|
| | | | | | | | | | | |
| Provision for credit losses | (35 | ) | | (28 | ) | | (37 | ) | — |
| | (4 | ) | | (10 | ) |
| | | | | | | | | | | |
Noninterest expense | | | | | | 501 |
| | 462 |
| | 977 |
|
| Compensation expense | 2,888 |
| | 2,299 |
| | 2,221 |
| |
Noncompensation expense(b) | 4,589 |
| | 13,208 |
| | 6,972 |
| |
| Subtotal | 7,477 |
| | 15,507 |
| | 9,193 |
| |
| Net expense allocated to other businesses | (6,318 | ) | | (5,252 | ) | | (4,634 | ) | |
| Total noninterest expense | 1,159 |
| | 10,255 |
| | 4,559 |
| |
| Income/(loss) before income tax expense/(benefit) | (1,112 | ) | | (10,249 | ) | | (6,594 | ) | |
| Income/(loss) before income tax benefit | | 639 |
| | (945 | ) | | (700 | ) |
| Income tax expense/(benefit) | (1,976 | ) | | (3,493 | ) | | (3,974 | ) | 2,282 |
| | (241 | ) | | (3,137 | ) |
| Net income/(loss) | $ | 864 |
| | $ | (6,756 | ) | | $ | (2,620 | ) | $ | (1,643 | ) | | $ | (704 | ) | | $ | 2,437 |
|
| Total net revenue | | | | | | | | | | |
| Private equity | $ | 1,118 |
| | $ | 589 |
| | $ | 645 |
| |
| Treasury and CIO | (1,317 | ) | | (2,068 | ) | | (4,089 | ) | 566 |
| | (787 | ) | | (493 | ) |
| Other Corporate | 211 |
| | 1,457 |
| | 1,372 |
| 574 |
| | 300 |
| | 760 |
|
| Total net revenue | $ | 12 |
| | $ | (22 | ) | | $ | (2,072 | ) | $ | 1,140 |
| | $ | (487 | ) | | $ | 267 |
|
| Net income/(loss) | | | | | | | | | | |
| Private equity | $ | 400 |
| | $ | 285 |
| | $ | 319 |
| |
| Treasury and CIO | (1,165 | ) | | (1,454 | ) | | (2,718 | ) | 60 |
| | (715 | ) | | (235 | ) |
| Other Corporate | 1,629 |
| | (5,587 | ) | | (221 | ) | (1,703 | ) | | 11 |
| | 2,672 |
|
| Total net income/(loss) | $ | 864 |
| | $ | (6,756 | ) | | $ | (2,620 | ) | $ | (1,643 | ) | | $ | (704 | ) | | $ | 2,437 |
|
| | | | | | | |
| Total assets (period-end) | $ | 931,705 |
| | $ | 805,987 |
| | $ | 725,251 |
| $ | 781,478 |
| | $ | 799,426 |
| | $ | 768,204 |
|
| Loans (period-end) | | 1,653 |
| | 1,592 |
| | 2,187 |
|
Core loans(d) | | 1,653 |
| | 1,589 |
| | 2,182 |
|
| Headcount | 26,047 |
| | 20,717 |
| | 17,758 |
| 35,261 |
| | 32,358 |
| | 29,617 |
|
Note: As discussed on pages 79–80, effective with the fourth quarter of 2014 the Firm changed its methodology for allocating the cost of preferred stock to its reportable business segments. Prior periods have been revised to conform with the current period presentation.
| |
| (a) | Included revenue related to a legal settlement of $645 million for the year ended December 31, 2017. |
| |
| (b) | Included tax-equivalent adjustments, predominantly due to tax-exempt income from municipal bond investments of $730$905 million, $480$885 million and $443$839 million for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. |
| |
(b)(c) | Included legal expenseexpense/(benefit) of $821$(593) million, $10.2$(385) million and $832 million for the years ended December 31, 2017, 2016 and 2015, respectively. |
| |
| (d) | Average core loans were $1.6 billion, $1.9 billion and $3.7$2.5 billion for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. |
2014
2017 compared with 20132016
Net incomeloss was $864 million, compared with a net loss of $6.8 billion in the prior year.
Private Equity reported net income of $400 million, compared with net income of $285 million in the prior year, primarily due to higher net gains on sales, largely offset by higher noninterest expense related to goodwill impairment.
Treasury and CIO reported a net loss of $1.2 billion, compared with a net loss of $1.5 billion in the prior year. Net revenue was a loss of $1.3 billion, compared with a loss of $2.1 billion in the prior year. Current year net interest income was a loss of $1.7 billion compared with a loss of $2.7 billion in the prior year, primarily reflecting higher yields on investment securities. Securities gains were $71 million, compared to $659 million in the prior year, reflecting lower repositioning activity of the investment securities portfolio in the current period.
Other Corporate reported net income of $1.6 billion, compared with a net loss of $5.6$704 million in the prior year. The current year net loss included a $2.7 billion increase to income tax expense related to the impact of the TCJA.
Net revenue was $1.1 billion, compared with a loss of $487 million in the prior year. The increase in current year net revenue was driven by a $645 million benefit from a legal settlement with the FDIC receivership for Washington Mutual and with Deutsche Bank as trustee of certain Washington Mutual trusts and by the net impact of higher interest rates.
Net interest income was $55 million, compared with a loss of $1.4 billion in the prior year. CurrentThe gain in the current year noninterest revenue was $353 millionprimarily driven by higher interest income on deposits with banks due to higher interest rates and balances, partially offset by higher interest expense on long-term debt primarily driven by higher interest rates.
2016 compared with $1.8 billion in the prior year. Prior year noninterest revenue included gains of $1.3 billion and $493 million on the sales of Visa shares and One Chase Manhattan Plaza, respectively. The current year included $821 million of legal expense, compared with $10.2 billion, which included reserves for litigation and regulatory proceedings, in the prior year.
2013 compared with 20122015
Net loss was $6.8 billion, compared with a net loss of $2.6 billion in the prior year.
Private Equity reported net income of $285$704 million, compared with net income of $319 million in the prior year. Net revenue was of $589 million, compared with $645 million$2.4 billion in the prior year.
Treasury and CIO reported a net loss of $1.5 billion, compared with a net loss of $2.7 billion in the prior year. Net revenue was a loss of $2.1$487 million, compared with a gain of $267 million in the prior year. The prior year included a $514 million benefit from a legal settlement.
Net interest income was a loss of $1.4 billion, compared with a loss of $4.1 billion in the prior year. Net revenue in 2013 included $659$533 million of net securities gains from sales of available-for-sale investment securities, compared with securities gains of $2.0 billion; and $888 million of pretax extinguishment gains related to the redemption of trust preferred securities in the prior year. The extinguishment gains were related to adjustments applied toloss in the cost basis of the trust preferredcurrent year was primarily driven by higher interest expense on long-term debt and lower investment securities balances during the period they were inyear, partially offset by higher interest income on deposits with banks and securities purchased under resale agreements as a qualified hedge accounting relationship. result of higher interest rates.
Noninterest expense was $462 million, a decrease of $515 million from the prior year driven by lower legal expense, partially offset by higher compensation expense.
The prior year loss also reflected $5.8tax benefits of $2.6 billion of losses incurred by CIOpredominantly from the synthetic credit portfolio for the six months ended June 30, 2012, and $449 millionresolution of losses from the retained index credit derivative positions for the threevarious tax audits.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 10373 |
Management’s discussion and analysis
months ended September 30, 2012. Net interest income in 2013 was a loss of $2.7 billion compared with a loss of $1.7 billion in the prior year, primarily due to low interest rates and limited reinvestment opportunities. Net interest income improved in the fourth quarter of 2013 due to higher interest rates and better reinvestment opportunities.
Other Corporate reported a net loss of $5.6 billion, compared with a net loss of $221 million in the prior year. Noninterest revenue in 2013 was $1.8 billion, down 2% compared with the prior year. In 2013, noninterest revenue included gains of $1.3 billion and $493 million on the sales of Visa shares and One Chase Manhattan Plaza, respectively. Noninterest revenue in the prior year included a $1.1 billion benefit for the Washington Mutual bankruptcy settlement and a $665 million gain from the recovery on a Bear Stearns-related subordinated loan. Noninterest expense of $9.7 billion was up $5.9 billion compared with the prior year. Included in 2013 noninterest expense was $10.2 billion of legal expense, including reserves for litigation and regulatory proceedings, compared with $3.7 billion of expense for additional litigation reserves, largely for mortgage-related matters, in the prior year.
Treasury and CIO overview
Treasury and CIO are is predominantly responsible for measuring, monitoring, reporting and managing the Firm’s liquidity, funding and structural interest rate and foreign exchange risks, as well as executing the Firm’s capital plan. The risks managed by Treasury and CIO arise from the activities undertaken by the Firm’s four major reportable business segments to serve their respective client bases, which generate both on- and off-balance sheet assets and liabilities.
Treasury and CIO seek to achieve the Firm’s asset-liability management objectives generally by investing in high-quality securities that are managed for the longer-term as part of the Firm’s investment securities portfolio. Treasury and CIO also use derivatives to meet the Firm’s asset-liability management objectives. For further information on derivatives, see Note 6.5. The investment securities portfolio primarily consists of agency and nonagency mortgage-backed securities, U.S. and non-U.S. government securities, agency and nonagency mortgage-backed securities, other asset-backed securities, corporate debt securities and obligations of U.S. states and municipalities.municipalities, other ABS and corporate debt securities. At December 31, 2014,2017, the investment securities portfolio was $343.1$248.0 billion, and the average credit rating of the securities comprising the portfolio was AA+ (based upon external ratings where available and where not available, based primarily upon internal ratings that correspond to ratings as defined by S&P and Moody’s). See Note 1210 for further information on the details of the Firm’s investment securities portfolio.
For further information on liquidity and funding risk, see Liquidity Risk Management on pages 156–160.92–97. For informationinformation on interest rate, foreign exchange and other risks, Treasury and CIO Value-at-risk (“VaR”) and the Firm’s structural interest rate-sensitive revenue at risk, seesee Market Risk Management on pages 131–136.121-128.
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| | | | | | | | | | | |
| Selected income statement and balance sheet data |
| As of or for the year ended December 31, (in millions) | 2014 |
| | 2013 |
| | 2012 |
|
| Securities gains | $ | 71 |
| | $ | 659 |
| | $ | 2,028 |
|
| Investment securities portfolio (average) | 349,285 |
| | 353,712 |
| | 358,029 |
|
Investment securities portfolio (period–end)(a) | 343,146 |
| | 347,562 |
| | 365,421 |
|
| Mortgage loans (average) | 3,308 |
| | 5,145 |
| | 10,241 |
|
| Mortgage loans (period-end) | 2,834 |
| | 3,779 |
| | 7,037 |
|
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(a) | Period-end investment securities included held-to-maturity securities of $49.3 billion and $24.0 billion at December 31, 2014, and 2013, respectively. Held-to-maturity securities as of December 31, 2012, were not material. |
Private Equity portfolio
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| | | | | | | | | | | |
| Selected income statement and balance sheet data |
| As of or for the year ended December 31, (in millions) | 2017 | | 2016 | | 2015 |
| Securities gains/(losses) | $ | (78 | ) | | $ | 132 |
| | $ | 190 |
|
| AFS investment securities (average) | 219,345 |
| | 226,892 |
| | 264,758 |
|
| HTM investment securities (average) | 47,927 |
| | 51,358 |
| | 50,044 |
|
| Investment securities portfolio (average) | 267,272 |
| | 278,250 |
| | 314,802 |
|
| AFS investment securities (period-end) | 200,247 |
| | 236,670 |
| | 238,704 |
|
| HTM investment securities (period-end) | 47,733 |
| | 50,168 |
| | 49,073 |
|
| Investment securities portfolio (period–end) | 247,980 |
| | 286,838 |
| | 287,777 |
|
|
| | | | | | | | | | | |
| Selected income statement and balance sheet data |
Year ended December 31, (in millions) | 2014 |
| | 2013 |
| | 2012 |
|
| Private equity gains/(losses) | | | | | |
| Realized gains | $ | 1,164 |
| | $ | (170 | ) | | $ | 17 |
|
Unrealized gains/(losses)(a) | 43 |
| | 734 |
| | 639 |
|
| Total direct investments | 1,207 |
| | 564 |
| | 656 |
|
| Third-party fund investments | 34 |
| | 137 |
| | 134 |
|
Total private equity gains/(losses)(b) | $ | 1,241 |
| | $ | 701 |
| | $ | 790 |
|
| |
(a) | Includes reversals of unrealized gains and losses that were recognized in prior periods and have now been realized. |
| |
(b) | Included in principal transactions revenue in the Consolidated statements of income. |
|
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Private equity portfolio information(a) | | |
| December 31, (in millions) | 2014 |
| | 2013 |
| | 2012 |
|
| Publicly held securities | | | | | |
| Carrying value | $ | 878 |
| | $ | 1,035 |
| | $ | 578 |
|
| Cost | 583 |
| | 672 |
| | 350 |
|
| Quoted public value | 893 |
| | 1,077 |
| | 578 |
|
| Privately held direct securities | | | | | |
| Carrying value | 4,555 |
| | 5,065 |
| | 5,379 |
|
| Cost | 5,275 |
| | 6,022 |
| | 6,584 |
|
Third-party fund investments(b) | | | | | |
| Carrying value | 433 |
| | 1,768 |
| | 2,117 |
|
| Cost | 423 |
| | 1,797 |
| | 1,963 |
|
| Total private equity portfolio | | | | | |
| Carrying value | $ | 5,866 |
| | $ | 7,868 |
| | $ | 8,074 |
|
| Cost | 6,281 |
| | 8,491 |
| | 8,897 |
|
| |
(a) | For more information on the Firm’s methodologies regarding the valuation of the Private Equity portfolio, see Note 3. For information on the sale of a portion of the Private Equity business in January 2015, see Note 2. |
| |
(b) | Unfunded commitments to third-party private equity funds were $147 million, $215 million and $370 million at December 31, 2014, 2013 and 2012, respectively. |
2014 compared with 2013
The carrying value of the private equity portfolio at December 31, 2014 was $5.9 billion, down from $7.9 billion at December 31, 2013. The decrease in the portfolio was predominantly driven by sales of investments, partially offset by unrealized gains.
2013 compared with 2012
The carrying value of the private equity portfolio at December 31, 2013 was $7.9 billion, down from $8.1 billion at December 31, 2012. The decrease in the portfolio was predominantly driven by sales of investments, partially offset by new investments and unrealized gains.
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10474 | | JPMorgan Chase & Co./20142017 Annual Report |
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| ENTERPRISE-WIDE RISK MANAGEMENT |
Risk is an inherent part of JPMorgan Chase’s business activities. When the Firm extends a consumer or wholesaleloan, advises customers on their investment decisions, makes markets in securities, or conducts any number ofoffers other servicesproducts or activities,services, the Firm takes on some degree of risk. The Firm’s overall objective in managing risk is to protectmanage its businesses, and the associated risks, in a manner that balances serving the interests of its clients, customers and investors and protects the safety and soundness of the Firm, avoid excessive risk taking, and manage and balance risk in a manner that serves the interest of our clients, customers and shareholders.Firm.
The Firm’s approach to risk management covers a broad spectrum of risk areas, such as credit, market, liquidity, model, structural interest rate, principal, country, operational, fiduciary and reputation risk.
The Firm believes that effective risk management requires:
Acceptance of responsibility, including identification and escalation of risk issues, by all individuals within the Firm;
Ownership of risk identification, assessment, data and management within each lineof the lines of business and corporate functions; and
Firmwide structures for risk governance.
The Firm strives for continual improvement through efforts to enhance controls, ongoing employee training and development, talent retention, and other measures. The Firm follows a disciplined and balanced compensation framework with strong internal governance and independent Board oversight. The impact of risk and control issues are carefully considered in the Firm’s performance evaluation and incentive compensation processes.
Firmwide Risk Management is overseen and managed on an enterprise-wide basis. The Firm’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), Chief Risk Officer (“CRO”)approach to risk management involves understanding drivers of risks, risk types, and Chief Operating Officer (“COO”) developimpacts of risks.
Drivers of risk include, but are not limited to, the economic environment, regulatory or government policy, competitor or market evolution, business decisions, process or judgment error, deliberate wrongdoing, dysfunctional markets, and setnatural disasters.
The Firm’s risks are generally categorized in the following four risk types:
Strategic risk is the risk management framework and governance structure for the Firm, which is intended to provide comprehensive controls and ongoing management of the major risks inherent inassociated with the Firm’s current and future business activities. The Firm’splans and objectives, including capital risk, management framework is intended to create a culture of transparency, awarenessliquidity risk, and personal responsibility through reporting, collaboration, discussion, escalation and sharing of information. The CEO, CFO, CRO and COO are ultimately responsible and accountablethe impact to the Firm’s Boardreputation.
Credit and investment risk is the risk associated with the default or change in credit profile of Directors.a client, counterparty or customer; or loss of principal or a reduction in expected returns on investments, including consumer credit risk, wholesale credit risk, and investment portfolio risk.
The Firm’sMarket risk culture strivesis the risk associated with the effect of changes in market factors, such as interest and foreign exchange rates, equity and commodity prices, credit spreads or implied volatilities, on the value of assets and liabilities held for continual improvement through ongoing employee trainingboth the short and development,long term.
Operational risk is the risk associated with inadequate or failed internal processes, people and systems, or from external events and includes compliance risk, conduct risk, legal risk, and estimations and model risk.
There may be many consequences of risks manifesting, including quantitative impacts such as wellreduction in earnings and capital, liquidity outflows, and fines or penalties, or qualitative impacts, such as talent retention. The Firm also approaches its incentive compensation arrangements through an integrated risk, compensationreputation damage, loss of clients, and financial management framework to encourage a culture of risk awarenessregulatory and personal accountability.enforcement actions.
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JPMorgan Chase & Co./20142017 Annual Report | | 10575 |
Management’s discussion and analysis
The Firm has established Firmwide risk management functions to manage different risk types. The scope of a particular risk management function may include multiple risk types. For example, the Firm’s Country Risk Management function oversees country risk which may be a driver of risk or an aggregation of exposures that could give rise to multiple risk types such as credit or market risk. The following sections outlinediscuss how the Firm manages the key risks that are inherent in the Firm’sits business activities.
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| Risk Oversight | Definition | Key risk management metrics | Page references |
Strategic risk
| The risk associated with the Firm’s current and future business plans and objectives.
| 81 |
| Capital risk | The risk that the Firm has an insufficient level and composition of capital to support the Firm’s business activities and associated risks during normal economic environments and under stressed conditions. | Risk-based capital ratios, Supplementary Leverage ratio | 146-155 |
Compliance risk | The risk of fines or sanctions or of financial damage or loss due to the failure to comply with laws, rules, and regulations. | Not Applicable | 144 |
Country risk | The risk that a sovereign event or action alters the value or terms of contractual obligations of obligors, counterparties and issuers or adversely affects markets related to a particular country. | Default exposure at 0% recovery, Stress | 137-138 |
Credit risk | The risk of loss arising from the default of a customer, client or counterparty. | Total exposure; industry, geographic and customer concentrations; risk ratings; delinquencies; loss experience; stress | 110-130 |
Fiduciary risk | The risk of a failure to exercise the applicable high standard of care, to act in the best interests of clients or to treat clients fairly, as required under applicable law or regulation. | Not Applicable | 145 |
Legal risk | The risk of loss or imposition of damages, fines, penalties or other liability arising from failure to comply with a contractual obligation or to comply with laws or regulations to which the Firm is subject.
| Not Applicable | 144
82–91 |
| Liquidity risk | The risk that the Firm will be unable to meet its contractual and contingent financial obligations as they arise or that it does not have the appropriate amount, composition and tenor of funding and liquidity into support of its assets and liabilities.
| 92–97 |
| Reputation risk | The potential that an action, inaction, transaction, investment or event will reduce trust in the Firm will be unable to meetFirm’s integrity or competence by its contractualvarious constituents, including clients, counterparties, investors, regulators, employees and contingent obligations through normal economic cyclesthe broader public.
| 98 |
Consumer credit risk
| The risk associated with the default or change in credit profile of a customer.
| 102–107 |
| Wholesale credit risk | The risk associated with the default or change in credit profile of a client or counterparty.
| 108–116 |
| Investment portfolio risk | The risk associated with the loss of principal or a reduction in expected returns on investments arising from the investment securities portfolio held by Treasury and market stress events.CIO in connection with the Firm’s balance sheet or asset-liability management objectives or from principal investments managed in various lines of business in predominantly privately-held financial assets and instruments.
| LCR; Stress | 156-160120 |
| Market risk | The risk associated with the effect of loss arising from potential adverse changes in market factors, such as interest and foreign exchange rates, equity and commodity prices, credit spreads or implied volatilities, on the value of assets and liabilities held for both the short and long term.
| 121–128 |
| Country risk | The framework for monitoring and assessing how financial, economic, political or other significant developments adversely affect the value of the Firm’s assets and liabilities resulting from changes in market variables such as interest rates, foreign exchange rates, equity prices, commodity prices, implied volatilitiesexposures related to a particular country or credit spreads.set of countries.
| VaR, Stress, Sensitivities | 131-136129–130 |
| Operational risk | The risk associated with inadequate or failed internal processes, people and systems, or from external events.
| 131–133 |
Compliance risk
| The risk of failure to comply with applicable laws, rules, and regulations.
| 134 |
| Conduct risk | The risk that any action or inaction by an employee of the Firm could lead to unfair client/customer outcomes, compromise the Firm’s reputation, impact the integrity of the markets in which the Firm operates, or reflect poorly on the Firm’s culture.
| 135 |
| Legal risk | The risk of loss primarily caused by the actual or alleged failure to meet legal obligations that arise from the rule of law in jurisdictions in which the Firm operates, agreements with clients and customers, and products and services offered by the Firm.
| 136 |
| Estimations and Model risk | The risk of the potential for adverse consequences from decisions based on incorrect or misused model outputs and reports. | Model Status, Model Tier | 139 |
Non-USD FX risk | The risk arising from capital investments, forecasted expense and revenue, investment securities portfolio or issuing debt in denominations other than the U.S. dollar. | FX Net Open Position (“NOP”) | 203, 211-213 |
Operational risk | The risk of loss resulting from inadequate or failed processes or systems or due to external events that are neither market nor credit-related. | Firm-specific loss experience; industry loss experience; business environment and internal control factors (“BEICF”)estimation outputs.
| 140-143 |
Principal risk | The risk of an adverse change in the value of privately-held financial assets and instruments, typically representing an ownership or junior capital position. These positions have unique risks due to their illiquidity or for which there is less observable market or valuation data. | Carrying Value, Stress | 140 |
Reputation risk | The risk that an action, transaction, investment or event will reduce the trust that clients, shareholders, employees or the broader public has in the Firm’s integrity or competence. | Not Applicable | 145 |
Structural interest rate risk | The risk resulting from the Firm’s traditional banking activities (both on- and off-balance sheet positions) arising from the extension of loans and credit facilities, taking deposits and issuing debt (collectively referred to as “non-trading activities”), and also the impact from the CIO investment securities portfolio and other related CIO, Treasury activities. | Earnings-at-risk | 136137 |
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| 76 | | JPMorgan Chase & Co./2017 Annual Report |
Governance and oversight
The Firm’s overall appetite for risk is governed by a “Risk Appetite” framework. The framework and the Firm’s risk appetite are set and approved by the Firm’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Risk organizationOfficer (“CRO”). LOB-level risk appetite is set by the respective LOB CEO, CFO and CRO and is approved by the Firm’s CEO, CFO and CRO. Quantitative parameters and qualitative factors are used to monitor and measure the Firm’s capacity to take risk consistent with its stated risk appetite. Quantitative parameters have been established to assess select strategic risks, credit risks and market risks. Qualitative factors have been established for select operational risks, and for reputation risks. Risk Appetite results are reported quarterly to the Board of Directors’ Risk Policy Committee (“DRPC”).
The Firm has an Independent Risk Management (“IRM”) function, which consists of the Risk Management and Compliance organizations. The CEO appoints, subject to DRPC approval, the Firm’s CRO to lead the IRM organization and manage the risk governance framework of the Firm. The framework is subject to approval by the DRPC in the form of the primary risk management policies. The Chief Compliance Officer (“CCO”), who reports to the CRO, is also responsible for reporting to the Audit Committee for the Global Compliance Program. The Firm’s Global Compliance Program focuses on overseeing compliance with laws, rules and regulations applicable to the Firm’s products and services to clients and counterparties.
The Firm places reliance on each of its LOBs and other functional areas giving rise to risk. Each LOB and other functional area giving rise to risk is expected to operate within the parameters identified by the IRM function, and within its own management-identified risk and control standards. The LOBs, inclusive of LOB aligned Operations, Technology and Oversight & Controls, are responsible forthe “first line of defense” in identifying and managing the risks inherentrisk in their respective business activities. activities, including but not limited to applicable laws, rules and regulations.
The Risk organizationIRM function is independent of the businesses and forms “the second line of defense”. The IRM function sets and oversees various standards for the risk governance framework, including risk policy, identification, measurement, assessment, testing, limit setting, monitoring and reporting, and conducts independent challenge of adherence to such standards.
The Internal Audit function operates independently from the revenue-generating businesses, providing a credible challenge to them. The CRO is the headother parts of the Risk organizationFirm and performs independent testing and evaluation of firmwide processes and controls across the entire enterprise as the Firm’s “third line of defense” in managing risk. The Internal Audit Function is responsible forheaded by the overall direction of Risk oversight. The CRO is supported by individuals and organizationsGeneral Auditor, who reports to the Audit Committee.
In addition, there are other functions that aligncontribute to lines of business and corporate functions, as well as others that align to specific risk types.
The Firm’s Risk Management Organization and other Firmwide functions with risk-related responsibilities (i.e., Regulatory Capital Management Office (“RCMO”), Firmwide Oversight and Control Group, Valuation Control Group (“VCG”),the firmwide control environment including Finance, Human Resources, Legal, and Compliance) provide independent oversight of the monitoring, evaluationCorporate Oversight & Control.
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| JPMorgan Chase & Co./2017 Annual Report | | 77 |
Management’s discussion and escalation of risk.analysis
Risk governance
The independent staturestatus of the Risk organizationIRM function is supported by a governance structure that provides for escalation of risk issues up to senior management, the Firmwide Risk Committee, and the Board of Directors.Directors, as appropriate.
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106 | | JPMorgan Chase & Co./2014 Annual Report |
The chart below illustrates the governance structureBoard of Directors and certainkey senior management level committees in the Firm’s risk governance structure. In addition, there are other committees, forums and forumspaths of escalation that are primarily responsible for key risk-related functions. There are additional committees and forumssupport the oversight of risk, not representedshown in the chart that are also responsible forbelow.
The Firm’s Operating Committee, which consists of the Firm’s CEO, CRO, CFO and other senior executives, is the ultimate management escalation point in the Firm and oversightmay refer matters to the Firm’s Board of risk.Directors. The Operating Committee is accountable to the Firm’s Board of Directors.
The Board of Directors provides oversight of risk principally through the Board of Directors’ Risk Policy Committee (“DRPC”),DRPC, the Audit Committee and, with respect to compensation and other management-related matters, the Compensation & Management Development Committee. Each committee of the Board oversees reputation risk and conduct risk issues within its scope of responsibility.
The Directors’ Risk Policy Committee approves and periodically reviews the primary risk-management policies of the Firm’s global operations and Board oversees the operation of the Firm’s global risk management framework.framework and approves the primary risk management policies of the Firm. The committee’sCommittee’s responsibilities include oversight of management’s exercise of its responsibility to assess and manage: (i) credit risk, market risk, liquidity risk, model risk, structural interest rate risk, principal risk and country risk; (ii)manage the governance frameworks or policies for operational, fiduciary, reputationalFirm’s risks, and the New Business Initiative Approval (“NBIA”) process; and (iii)its capital and liquidity planning and analysis. The DRPC
reviews the firmwide value-at-risk and market stress tolerances, as well as any other parameter tolerances established by management in accordance with the Firm’s Risk Appetite Policy. It reviews reports of significant issues identified by risk management officers, including reports describing the Firm’s credit risk profile, and information about concentrations and country risks. The Firm’s CRO, LOB CROs, LOB CEOs, heads of risk for Country Risk, Market Risk, Structural Interest Rate Risk, Liquidity Risk, Principal Risk, Wholesale Credit Risk, Consumer Credit Risk, Model Risk, Risk Management Policy, Reputation Risk Governance, Fiduciary Risk Governance, and Operational Risk Governance (all referred to as Firmwide Risk Executives) meet with and provide updates to the DRPC. Additionally, breachesBreaches in risk appetite, tolerances, liquidity issues that may have a material adverse impact on the Firm and other significant risk-related matters as determined by the CRO or Firmwide functions with risk responsibility are escalated to the DRPC.
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| 78 | | JPMorgan Chase & Co./20142017 Annual Report | | 107 |
Management’s discussion and analysis
The Audit Committee of the Board has primary responsibility for assistingassists the Board in its oversight of management’s responsibilities to assure that there is an effective system of controls reasonably designed to safeguard the assets and income of the Firm, assure the integrity of the Firm’s financial statements and maintain compliance with the Firm’s ethical standards, policies, plans and procedures, and with laws and regulations. In addition, the Audit Committee assists the Board in its oversight of the systemFirm’s independent registered public accounting firm’s qualifications, independence and performance, and of controls designed to reasonably assure the quality and integrityperformance of the Firm’s financial statements and that are relied upon to provide reasonable assurance of the Firm’s management of operational risk. The Audit Committee also assists the Board in its oversight of legal and compliance risk. Internal Audit an independent function within the Firm that provides independent and objective assessments of the control environment, reports directly to the Audit Committee and administratively to the CEO. Internal Audit conducts independent reviews toevaluate the Firm’s internal control structure and compliance with applicable regulatory requirements and is responsible for providing the Audit Committee, senior management and regulators with an independent assessment of the Firm’s ability to manage and control risk.function.
The Compensation & Management Development Committee(“CMDC”) assists the Board in its oversight of the Firm’s compensation programs and reviews and approves the Firm’s overall compensation philosophy, and practices. The Committee reviews the Firm’s compensation practices as they relate to risk and risk management in light of the Firm’s objectives, including its safety and soundness and the avoidance of practices that encourage excessive risk taking. The Committee reviews and approves the terms of compensation award programs, including recovery provisions, vesting periods, and restrictive covenants, taking into account regulatory requirements. The Committee also reviews and approves the Firm’s overall incentive compensation pools, and reviews those of each of the Firm’s lines ofcompensation practices consistent with key business objectives and the Corporate segment.safety and soundness. The Committee reviews the goals relevant to compensation for the Firm’s Operating Committee,CMDC reviews Operating Committee members’ performance against suchtheir goals, and approves their compensation awards. The Committee recommends to the full Board’s independent directors, for ratification, the CEO’s compensation. In addition, the CommitteeCMDC also periodically reviews the Firm’s diversity programs and management development and succession planning, as well asand provides oversight of the Firm’s diversityculture and conduct programs.
Among the Firm’s senior management levelmanagement-level committees that are primarily responsible for key risk-related functions are:
The Firmwide Risk Committee (“FRC”) is the Firm’s highest management-level Risk Committee.risk committee. It provides oversight of the risks inherent in the Firm’s businesses, including credit risk, market risk, liquidity risk, model risk, structural interest rate risk, principal risk and country risk. It also provides oversight of the governance frameworks for operational, fiduciary and reputational risks.businesses. The CommitteeFRC is co-chaired by the Firm’s CEO and CRO. Members of the committee include the Firm’s COO, the Firm’s CFO, LOB CEOs, LOB CROs, General Counsel, and other senior managers from risk and control functions. This committeeThe FRC serves as an escalation point for risk topics and issues raised by its members, the Line of Business Risk Committees, Firmwide Control Committee, Firmwide
Fiduciary Risk Governance Committee, ReputationFirmwide Estimations Risk committeesCommittee, Culture and Conduct Risk Committee and regional Risk Committees.Committees, as appropriate. The committeeFRC escalates significant issues to the Board of Directors,DRPC, as appropriate.
The Firmwide Control Committee (“FCC”) isprovides a forum for senior management to review and discuss firmwide operational risk, metrics and management,risks, including existing and emerging issues and execution against theoperational risk metrics, and to review operational risk management framework.execution in the contextof the Operational Risk Management Framework (“ORMF”). The committeeORMF provides the framework for the governance, risk identification and assessment, measurement, monitoring and reporting of operational risk.The FCC is co-chaired by the Firm’s Chief Control Officer and the head of Firmwide Risk Executive for Operational Risk Governance/Model RiskGovernance. The FCC relies on the prompt escalation of operational risk and Development. It servescontrol issues from businesses and functions as an escalation point for the lineprimary owners of the operational risk. Operational risk and control issues may be escalated by business or function and regional Control Committees and escalates significant issuescontrol committees to the Firmwide Risk Committee,FCC, which in turn, may escalate to the FRC, as appropriate.
The Firmwide Fiduciary Risk Governance Committee (“FFRC”FFRGC”) is a forum for risk matters related to the Firm’s fiduciary activities andactivities. The FFRGC oversees the firmwide fiduciary risk governance framework, which supports the consistent identification and escalation of fiduciary risk mattersissues by the relevant lines of businessbusiness; approves risk or corporate functions responsiblecompliance policy exceptions requiring FFRGC approval; approves the scope and/or expansion of the Firm’s fiduciary framework; and reviews metrics to track fiduciary activity and issue resolution Firmwide. The FFRGC is co-chaired by the Asset Management CEO and the Asset & Wealth Management CRO. The FFRGC escalates significant fiduciary issues to the FRC,the DRPC and the Audit Committee, as appropriate.
The Firmwide Estimations Risk Committee (“FERC”) reviews and oversees governance and execution activities related to models and certain analytical and judgment based estimations, such as those used in risk management, budget forecasting and capital planning and analysis. The FERC is chaired by the Firmwide Risk Executive for managing fiduciary activities.Model Risk Governance and Review. The committeeFERC serves as an escalation channel for relevant topics and issues raised by its members and the Line of Business Estimation Risk Committees. The FERC escalates significant issues to the Firmwide Risk Committee and any other committee consideredFRC, as appropriate.
The Firmwide ReputationCulture and Conduct Risk Governance groupCommittee (“CCRC”) seeksprovides oversight of culture and conduct initiatives to promote consistent managementdevelop a more holistic view of reputational riskconduct risks and to connect key programs across the Firm. Its objectives areFirm to increase visibility of reputation risk governance; promoteidentify opportunities and maintain a globally consistent governance modelemerging areas for reputation risk across lines of business; promote early self-identification of potential reputation risksfocus. The CCRC is co-chaired by the Chief Culture & Conduct Officer and the Conduct Risk Compliance Executive. The CCRC escalates significant issues to the Firm;FRC, as appropriate.
Line of Business and provide thought leadership on cross-line of business reputation risk issues.Regional Risk Committees Eachreview the ways in which the particular line of business hasor the business operating in a separate reputationparticular region could be exposed to adverse outcomes with a focus on identifying, accepting, escalating and/or requiring remediation of matters brought to these committees. These committees may escalate to the FRC, as appropriate. LOB risk governance structure which includes, in most cases, one or more dedicated reputationcommittees are co-chaired by the LOB CEO and the LOB CRO. Each LOB risk committees.committee may create sub-committees with requirements for escalation. The regional committees are established similarly, as appropriate, for the region.
LineIn addition, each line of business corporateand function and regional risk andis required to have a Control Committee. These control committees:
Risk committees oversee the inherent riskscontrol environment of their respective business or function. As part of that mandate, they are responsible for reviewing data which indicates the quality and stability of the processes in the respective line ofa business or function, or region, including the review, assessmentreviewing key operational risk issues and decision making relating to specific risks, risk strategy, policyfocusing on processes with shortcomings and controls.overseeing process remediation. These committees escalate issues to the Firmwide Risk Committee,FCC, as appropriate.
Control committees oversee the operational risks and control environment of the respective line of business, function or region. These committees escalate operational risk issues to their respective line of business, function or regional Risk committee and also escalate significant risk issues (and/or risk issues with potential firmwide impact) to the Firmwide Control Committee.
The Asset-Liability Committee (“ALCO”), chaired by the Corporate Treasurer under the direction of the COO, monitors the Firm’s overall balance sheet, liquidity risk and interest rate risk. ALCO is responsible for reviewing and approving the Firm’s funds transfer pricing policy (through which lines of business “transfer” interest rate and foreign exchange risk to Treasury). ALCO is responsible for reviewing the Firm’s Liquidity Risk Management and
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108 | | JPMorgan Chase & Co./20142017 Annual Report | | 79 |
Management’s discussion and analysis
Oversight PolicyThe Firmwide Asset Liability Committee (“ALCO”), chaired by the Firm’s Treasurer and contingency funding plan.Chief Investment Officer under the direction of the CFO, monitors the Firm’s balance sheet, liquidity risk and structural interest rate risk. ALCO also reviews the Firm’s overall structural interest rate risk position, and the Firm’s funding requirements and strategy,strategy. ALCO is responsible for reviewing and approving the Firm’s Funds Transfer Pricing Policy (through which lines of business “transfer” interest rate risk and liquidity risk to Treasury and CIO), the Firm’s Intercompany Funding and Liquidity Policy and the Firm’s securitization programs (and any required liquidity support by the Firm of such programs).Contingency Funding Plan.
The Firmwide Capital Governance Committee, chaired by the Head of the Regulatory Capital Management Office, (under the direction of the Firm’s CFO) is responsible for reviewing the Firm’s Capital Management Policy and the principles underlying capital issuance and distribution alternatives.alternativesand decisions. The Committee is also responsible for governing overseesthe capital adequacy assessment process, including the overall design, scenario development and macro assumptions, and risk streams and ensuringensures that capital stress test programs are designed to adequately capture the idiosyncratic risks acrossspecific to the Firm’s businesses.
Other corporate functions and forums with risk management-related responsibilities include:
The Firmwide Oversight and Control Group is comprised of dedicated control officers within each of the lines of business and corporate functional areas, as well as a central oversight team. The group is charged with enhancing the Firm’s controls by looking within and across the lines of business and corporate functional areas to identify and control issues. The group enables the Firm to detect control problems more quickly, escalate issues promptly and get the right people involved to understand common themes and interdependencies among the various parts of the Firm. The group works closely with the Firm’s other control-related functions, including Compliance, Legal, Internal Audit and Risk Management, to effectively remediate identified control issues across all affected areas of the Firm. As a result, the group facilitates the effective execution of the Firm’s control framework and helps support operational risk management across the Firm.
The Firmwide Valuation Governance Forum (“VGF”) is composed of senior finance and risk executives and is responsible for overseeing the management of risks arising from valuation activities conducted across the Firm. The VGF is chaired by the firmwideFirmwide head of the Valuation Control function (underGroup (“VCG”) under the direction of the Firm’s CFO),Controller, and also includes sub-forums forcovering the CIB,Corporate & Investment Bank, Consumer & Community Banking, Commercial Banking, Asset & Wealth Management and certain corporate functions, including Treasury and CIO.
In addition, to the committees, forums and groups listed above, the Firm has other management committees and forums at the LOB and regional levels, where risk-related topics are discussed and escalated as necessary. The membership of these committees is composed of senior management of the Firm including representation from the business and various control functions. The committees meet regularly to discuss a broad range of topics.
The JPMorgan Chase Bank, N.A. Board of Directors is responsible for the oversight of management on behalf of JPMorgan Chase Bank N.A.the Bank. The JPMorgan Chase Bank, N.A. Board accomplishes this function acting directly and through the principal standing committees of the Firm’s Board of Directors. Risk and control oversight on behalf of JPMorgan Chase Bank N.A. is primarily the responsibility of the Firm’s DRPC and the Audit Committee of the Firm’s Board of Directors, respectively, and, with respect to compensation-relatedcompensation and other management-related matters, the Compensation & Management Development Committee.Committee of the Firm’s Board of Directors.
Risk appetiteIdentification
The Firm has a Risk Identification process in which the first line of defense identifies material risks inherent to the Firm, catalogs them in a central repository and reviews the most material risks on a regular basis. The second line of defense, at a firmwide level, establishes the risk identification framework, coordinates the process, maintains the central repository and reviews and challenges the first line’s identification of risks.
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| 80 | | JPMorgan Chase & Co./2017 Annual Report |
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| | | | |
| STRATEGIC RISK MANAGEMENT |
Strategic risk is the risk associated with the Firm’s overallcurrent and future business plans and objectives. Strategic risk includes the risk to current or anticipated earnings, capital, liquidity, enterprise value, or the Firm’s reputation arising from adverse business decisions, poor implementation of business decisions, or lack of responsiveness to changes in the industry or external environment.
Overview
The Operating Committee and the senior leadership of each LOB are responsible for managing the Firm’s most significant strategic risks. Strategic risks are overseen by IRM through participation in business reviews, LOB senior management committees, ongoing management of the Firm’s risk appetite is established by management taking into consideration the Firm’s capital and liquidity positions, earnings power,limit framework, and diversified business model.other relevant governance forums. The risk appetite framework is a tool to measure the capacity to take risk and is expressed in loss tolerance parameters at the Firm and/or LOB levels, including net income loss tolerances, liquidity limits and market limits. Performance against these parameters informsBoard of Directors oversees management’s strategic decisions, and is reported to the DRPC.DRPC oversees IRM and the Firm’s risk management framework.
The Firm-level risk appetite parameters are setFirm’s strategic planning process, which includes the development and approvedexecution of strategic priorities and initiatives by the Operating Committee and the management teams of the lines of business, is an important process for managing the Firm’s strategic risk. Guided by the Firm’s CEO, CFO, CROHow We Do Business (“HWDB”) principles, the strategic priorities and COO. LOB-level risk appetite parametersinitiatives are setupdated annually and include evaluating performance against prior year initiatives, assessment of the operating environment, refinement of existing strategies and development of new strategies.
These strategic priorities and initiatives are then incorporated in the Firm’s budget, and are reviewed by the LOB CEO, CFO,Board of Directors.
In the process of developing the strategic initiatives, line of business leadership identify the strategic risks associated with their strategic initiatives and CROthose risks are incorporated into the Firmwide Risk Identification process and are approved by the Firm’s functional headsmonitored and assessed as noted above. Firmwide LOB diversification allows the sumpart of the LOBs’ loss tolerancesFirmwide Risk Appetite framework. For further information on Risk Identification, see Enterprise-Wide Risk Management on page 75. For further information on the Risk Appetite framework see, Enterprise-Wide Risk Management on
page 77.
The Firm’s balance sheet strategy, which focuses on risk-adjusted returns, strong capital and robust liquidity, is key to be greater than the Firmwide loss tolerance.management of strategic risk. For further information on capital risk, see Capital Risk Management on pages 82–91. For further information on liquidity risk see, Liquidity Risk Management on pages 92–97
For further information on reputation risk, see Reputation Risk identification for large exposuresManagement on page 98.
Governance and oversight
The Firm has certain potential low-probability but plausibleFirm’s Operating Committee defines the most significant strategic priorities and material, idiosyncratic risks not well captured by its other existing risk analysis and reporting for credit, market, and other risks. These idiosyncratic risks may arise in a numberinitiatives, including those of forms, e.g. changes in legislation, an unusual combination of market events, or specific counterparty events. These identified risks are grouped under the term Risk Identification for Large Exposures (“RIFLEs”). The identified and monitored RIFLEs allow the Firm, the LOBs and the Corporate functions, for the coming year and evaluates performance against the prior year. As part of the strategic planning process, IRM conducts a qualitative assessment of those significant initiatives to monitor earnings vulnerability thatdetermine the impact on the risk profile of the Firm. The Firm’s priorities, initiatives and IRM’s assessment are provided to the Board for its review.
As part of its ongoing oversight and management of risk across the Firm, IRM is not adequately covered by its other standard risk measurements.regularly engaged in significant discussions and decision-making across the Firm, including decisions to pursue new business opportunities or modify or exit existing businesses.
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JPMorgan Chase & Co./20142017 Annual Report | | 10981 |
Management’s discussion and analysis
Credit risk is the risk of loss arising from the default of a customer, client or counterparty. The Firm provides credit to a variety of customers, ranging from large corporate and institutional clients to individual consumers and small businesses. In its consumer businesses, the Firm is exposed to credit risk primarily through its residential real estate, credit card, auto, business banking and student lending businesses. Originated mortgage loans are retained in the mortgage portfolio, or securitized or sold to U.S. government agencies and U.S. government-sponsored enterprises; other types of consumer loans are typically retained on the balance sheet. In its wholesale businesses, the Firm is exposed to credit risk through its underwriting, lending and derivatives activities with and for clients and counterparties, as well as through its operating services activities, such as cash management and clearing activities. A portion of the loans originated or acquired by the Firm’s wholesale businesses are generally retained on the balance sheet; the Firm’s syndicated loan business distributes a significant percentage of originations into the market and is an important component of portfolio management.
Credit risk organization
Credit risk management is overseen by the Firm’s CRO. The Firm’s credit risk management governance consists of the following activities:
Establishing a comprehensive credit risk policy framework
Monitoring and managing credit risk across all portfolio segments, including transaction and line approval
Assigning and managing credit authorities in connection with the approval of all credit exposure
Managing criticized exposures and delinquent loans
Determining the allowance for credit losses and ensuring appropriate credit risk-based capital management
Risk identification and measurement
The Credit Risk Management function identifies, measures, limits, manages and monitors credit risk across our businesses. To measure credit risk, the Firm employs several methodologies for estimating the likelihood of obligor or counterparty default. Methodologies for measuring credit risk vary depending on several factors, including type of asset (e.g., consumer versus wholesale), risk measurement parameters (e.g., delinquency status and borrower’s credit score versus wholesale risk-rating) and risk management and collection processes (e.g., retail collection center versus centrally managed workout groups). Credit risk measurement is based on the probability of default of an obligor or counterparty, the loss severity given a default event and the exposure at default.
Based on these factors and related market-based inputs, the Firm estimates credit losses for its exposures. Probable credit losses inherent in the consumer and wholesale loan portfolios are reflected in the allowance for loan losses, and
probable credit losses inherent in lending-related commitments are reflected in the allowance for lending-related commitments. These losses are estimated using statistical analyses and other factors as described in Note 15. In addition, potential and unexpected credit losses are reflected in the allocation of credit risk capital and represent the potential volatility of actual losses relative to the established allowances for loan losses and lending-related commitments. The analyses for these losses include stress testing (considering alternative economic scenarios) as described in the Stress testing section below.
The methodologies used to estimate credit losses depend on the characteristics of the credit exposure, as described below.
Scored exposure
The scored portfolio is generally held in CCB and predominantly includes residential real estate loans, credit card loans, certain auto and business banking loans, and student loans. For the scored portfolio, credit loss estimates are based on statistical analysis of credit losses over discrete periods of time and are estimated using portfolio modeling, credit scoring, and decision-support tools, which consider loan-level factors such as delinquency status, credit scores, collateral values, and other risk factors. Credit loss analyses also consider, as appropriate, uncertainties and other factors, including those related to current macroeconomic and political conditions, the quality of underwriting standards, and other internal and external factors. The factors and analysis are updated on a quarterly basis or more frequently as market conditions dictate.
Risk-rated exposure
Risk-rated portfolios are generally held in CIB, CB and AM, but also include certain business banking and auto dealer loans held in CCB that are risk-rated because they have characteristics similar to commercial loans. For the risk-rated portfolio, credit loss estimates are based on estimates of the probability of default (“PD”) and loss severity given a default. The estimation process begins with risk-ratings that are assigned to each loan facility to differentiate risk within the portfolio. These risk ratings are reviewed regularly by Credit Risk management and revised as needed to reflect the borrower’s current financial position, risk profile and related collateral. The probability of default is the likelihood that a loan will default and not be fully repaid by the borrower. The loss given default (“LGD”) is the estimated loss on the loan that would be realized upon the default of the borrower and takes into consideration collateral and structural support for each credit facility. The probability of default is estimated for each borrower, and a loss given default is estimated for each credit facility. The calculations and assumptions are based on historic experience and management judgment and are reviewed regularly.
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110 | | JPMorgan Chase & Co./2014 Annual Report |
Stress testing
Stress testing is important in measuring and managing credit risk in the Firm’s credit portfolio. The process assesses the potential impact of alternative economic and business scenarios on estimated credit losses for the Firm. Economic scenarios, and the parameters underlying those scenarios, are defined centrally, are articulated in terms of macroeconomic factors, and applied across the businesses. The stress test results may indicate credit migration, changes in delinquency trends and potential losses in the credit portfolio. In addition to the periodic stress testing processes, management also considers additional stresses outside these scenarios, as necessary. The Firm uses stress testing to inform decisions on setting risk appetite both at a Firm and LOB level, as well as to assess the impact of stress on industry concentrations.
Risk monitoring and management
The Firm has developed policies and practices that are designed to preserve the independence and integrity of the approval and decision-making process of extending credit to ensure credit risks are assessed accurately, approved properly, monitored regularly and managed actively at both the transaction and portfolio levels. The policy framework establishes credit approval authorities, concentration limits, risk-rating methodologies, portfolio review parameters and guidelines for management of distressed exposures. In addition, certain models, assumptions and inputs used in evaluating and monitoring credit risk are independently validated by groups that are separate from the line of businesses.
For consumer credit risk, delinquency and other trends, including any concentrations at the portfolio level, are monitored, as certain of these trends can be modified through changes in underwriting policies and portfolio guidelines. Consumer Risk Management evaluates delinquency and other trends against business expectations, current and forecasted economic conditions, and industry benchmarks. Historical and forecasted trends are incorporated into the modeling of estimated consumer credit losses and are part of the monitoring of the credit risk profile of the portfolio. Under the Firm’s model risk policy, new significant risk management models, as well as major changes to such models, are required to be reviewed and approved by the Model Review Group prior to implementation into the operating environment. Internal Audit also periodically tests the internal controls around the modeling process including the integrity of the data utilized. For a discussion of the Model Review Group, see page 139. For further discussion of consumer loans, see Note 14.
Wholesale credit risk is monitored regularly at an aggregate portfolio, industry and individual client and counterparty level with established concentration limits that are reviewed and revised as deemed appropriate by management, typically on an annual basis. Industry and counterparty limits, as measured in terms of exposure and economic credit risk capital, are subject to stress-based loss constraints.
Management of the Firm’s wholesale credit risk exposure is accomplished through a number of means, including:
Loan underwriting and credit approval process
Loan syndications and participations
Loan sales and securitizations
Credit derivatives
Master netting agreements
Collateral and other risk-reduction techniques
In addition to Risk Management, Internal Audit performs periodic exams, as well as continuous review, where appropriate, of the Firm’s consumer and wholesale portfolios. For risk-rated portfolios, a credit review group within Internal Audit is responsible for:
Independently assessing and validating the changing risk grades assigned to exposures; and
Evaluating the effectiveness of business units’ risk-ratings, including the accuracy and consistency of risk grades, the timeliness of risk grade changes and the justification of risk grades in credit memoranda
Risk reporting
To enable monitoring of credit risk and effective decision-making, aggregate credit exposure, credit quality forecasts, concentration levels and risk profile changes are reported regularly to senior Credit Risk Management. Detailed portfolio reporting of industry, customer, product and geographic concentrations occurs monthly, and the appropriateness of the allowance for credit losses is reviewed by senior management at least on a quarterly basis. Through the risk reporting and governance structure, credit risk trends and limit exceptions are provided regularly to, and discussed with, senior management and the Board of Directors as appropriate.
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JPMorgan Chase & Co./2014 Annual Report | | 111 |
Management’s discussion and analysis
2014 Credit Risk Overview
In 2014, the consumer credit environment continued to improve and the wholesale credit environment remained favorable. Over the course of the year, the Firm continued to actively manage its underperforming and nonaccrual loans and reduce such exposures through loan restructurings, loan sales and workouts. The Firm saw decreased downgrade, default and charge-off activity and improved consumer delinquency trends. The Firm increased its overall lending activity in both wholesale and consumer businesses. The combination of these factors resulted in an improvement in the credit quality of the portfolio compared with 2013 and contributed to the Firm’s reduction in the allowance for credit losses. For further discussion of the consumer credit environment and consumer loans, see Consumer Credit Portfolio on pages 113–119 and Note 14. For further discussion of wholesale credit environment and wholesale loans, see Wholesale Credit Portfolio on pages 120–127 and Note 14.
In the following tables, reported loans include loans retained (i.e., held-for-investment); loans held-for-sale (which are carried at the lower of cost or fair value, with valuation changes recorded in noninterest revenue); and certain loans accounted for at fair value. In addition, the Firm records certain loans accounted for at fair value in trading assets. For further information regarding these loans, see Note 3 and Note 4. For additional information on the Firm’s loans and derivative receivables, including the Firm’s accounting policies, see Note 14 and Note 6.
For further information regarding the credit risk inherent in the Firm’s investment securities portfolio, see Note 12.
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| | | | | | | | | | | | | |
| Total credit portfolio | | | | |
December 31, (in millions) | Credit exposure | | Nonperforming(b)(c)(d) |
| 2014 | 2013 | | 2014 | 2013 |
| Loans retained | $ | 747,508 |
| $ | 724,177 |
| | $ | 7,017 |
| $ | 8,317 |
|
| Loans held-for-sale | 7,217 |
| 12,230 |
| | 95 |
| 26 |
|
| Loans at fair value | 2,611 |
| 2,011 |
| | 21 |
| 197 |
|
| Total loans – reported | 757,336 |
| 738,418 |
| | 7,133 |
| 8,540 |
|
| Derivative receivables | 78,975 |
| 65,759 |
| | 275 |
| 415 |
|
| Receivables from customers and other | 29,080 |
| 26,883 |
| | — |
| — |
|
| Total credit-related assets | 865,391 |
| 831,060 |
| | 7,408 |
| 8,955 |
|
| Assets acquired in loan satisfactions | | | | | |
| Real estate owned | NA |
| NA |
| | 515 |
| 710 |
|
| Other | NA |
| NA |
| | 44 |
| 41 |
|
Total assets acquired in loan satisfactions | NA |
| NA |
| | 559 |
| 751 |
|
| Total assets | 865,391 |
| 831,060 |
| | 7,967 |
| 9,706 |
|
| Lending-related commitments | 1,056,172 |
| 1,031,672 |
| | 103 |
| 206 |
|
| Total credit portfolio | $ | 1,921,563 |
| $ | 1,862,732 |
| | $ | 8,070 |
| $ | 9,912 |
|
Credit Portfolio Management derivatives notional, net(a) | $ | (26,703 | ) | $ | (27,996 | ) | | $ | — |
| $ | (5 | ) |
| Liquid securities and other cash collateral held against derivatives | (19,604 | ) | (14,435 | ) | | NA |
| NA |
|
|
| | | | | | | |
Year ended December 31, (in millions, except ratios) | | 2014 | 2013 |
| Net charge-offs | | $ | 4,759 |
| $ | 5,802 |
|
| Average retained loans | | | |
| Loans – reported | | 729,876 |
| 720,152 |
|
Loans – reported, excluding residential real estate PCI loans | | 679,869 |
| 663,629 |
|
| Net charge-off rates | | | |
| Loans – reported | | 0.65 | % | 0.81 | % |
| Loans – reported, excluding PCI | | 0.70 |
| 0.87 |
|
| |
(a) | Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on page 127 and Note 6. |
| |
(b) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing. |
| |
(c) | At December 31, 2014 and 2013, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $7.8 billion and $8.4 billion, respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the FFELP of $367 million and $428 million, respectively, that are 90 or more days past due; and (3) real estate owned (“REO”) insured by U.S. government agencies of $462 million and $2.0 billion, respectively. These amounts have been excluded based upon the government guarantee. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance issued by the Federal Financial Institutions Examination Council (“FFIEC”). |
| |
(d) | At December 31, 2014 and 2013, total nonaccrual loans represented 0.94% and 1.16%, respectively, of total loans. |
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112 | | JPMorgan Chase & Co./2014 Annual Report |
|
| | | | |
CONSUMER CREDIT PORTFOLIO |
The Firm’s consumer portfolio consists primarily of residential real estate loans, credit card loans, auto loans, business banking loans, and student loans. The Firm’s focus is on serving the prime segment of the consumer credit market. For further information on consumer loans, see
Note 14.
The credit performance of the consumer portfolio continues to benefit from the improvement in the economy and home prices. Both early-stage delinquencies (30–89 days delinquent) and late-stage delinquencies (150+ days delinquent) for residential real estate, excluding government
guaranteed loans, declined from December 31, 2013. Although late-stage delinquencies declined, they remain elevated due to loss-mitigation activities and to elongated foreclosure processing timelines. Losses related to these loans continue to be recognized in accordance with the Firm’s standard charge-off practices, but some delinquent loans that would otherwise have been foreclosed upon remain in the mortgage and home equity loan portfolios.
The Credit Card 30+ day delinquency rate remains near historic lows.
The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime mortgage and home equity loans held by AM, and prime mortgage loans held by Corporate. For further information about the Firm’s nonaccrual and charge-off accounting policies, see Note 14.
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| Consumer credit portfolio |
As of or for the year ended December 31, (in millions, except ratios) | Credit exposure | | Nonaccrual loans(f)(g) | | Net charge-offs/(recoveries)(h) | | Average annual net charge-off/(recovery) rate(h)(i) |
| 2014 | | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 |
| Consumer, excluding credit card | | | | | | | | | | | | |
| Loans, excluding PCI loans and loans held-for-sale | | | | | | | | | | | | |
| Home equity – senior lien | $ | 16,367 |
| | $ | 17,113 |
| | $ | 938 |
| $ | 932 |
| | $ | 82 |
| $ | 132 |
| | 0.50 | % | 0.72 | % |
| Home equity – junior lien | 36,375 |
| | 40,750 |
| | 1,590 |
| 1,876 |
| | 391 |
| 834 |
| | 1.03 |
| 1.90 |
|
| Prime mortgage, including option ARMs | 104,921 |
| | 87,162 |
| | 2,190 |
| 2,666 |
| | 39 |
| 59 |
| | 0.04 |
| 0.07 |
|
| Subprime mortgage | 5,056 |
| | 7,104 |
| | 1,036 |
| 1,390 |
| | (27 | ) | 90 |
| | (0.43 | ) | 1.17 |
|
Auto(a) | 54,536 |
| | 52,757 |
| | 115 |
| 161 |
| | 181 |
| 158 |
| | 0.34 |
| 0.31 |
|
| Business banking | 20,058 |
| | 18,951 |
| | 279 |
| 385 |
| | 305 |
| 337 |
| | 1.58 |
| 1.81 |
|
| Student and other | 10,970 |
| | 11,557 |
| | 270 |
| 86 |
| | 347 |
| 297 |
| | 3.07 |
| 2.51 |
|
| Total loans, excluding PCI loans and loans held-for-sale | 248,283 |
| | 235,394 |
| | 6,418 |
| 7,496 |
| | 1,318 |
| 1,907 |
| | 0.55 |
| 0.82 |
|
| Loans – PCI | | | | | | | | | | | | |
| Home equity | 17,095 |
| | 18,927 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
| Prime mortgage | 10,220 |
| | 12,038 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
| Subprime mortgage | 3,673 |
| | 4,175 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
| Option ARMs | 15,708 |
| | 17,915 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
| Total loans – PCI | 46,696 |
| | 53,055 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
| Total loans – retained | 294,979 |
| | 288,449 |
| | 6,418 |
| 7,496 |
| | 1,318 |
| 1,907 |
| | 0.46 |
| 0.66 |
|
| Loans held-for-sale | 395 |
| (e) | 614 |
| (e) | 91 |
| — |
| | — |
| — |
| | — |
| — |
|
| Total consumer, excluding credit card loans | 295,374 |
| | 289,063 |
| | 6,509 |
| 7,496 |
| | 1,318 |
| 1,907 |
| | 0.46 |
| 0.66 |
|
Lending-related commitments(b) | 58,153 |
| | 56,057 |
| | | | | | | | | |
Receivables from customers(c) | 108 |
| | 139 |
| | | | | | | | | |
| Total consumer exposure, excluding credit card | 353,635 |
| | 345,259 |
| | | | | | | | | |
| Credit Card | | | | | | | | | | | | |
Loans retained(d) | 128,027 |
| | 127,465 |
| | — |
| — |
| | 3,429 |
| 3,879 |
| | 2.75 |
| 3.14 |
|
| Loans held-for-sale | 3,021 |
| | 326 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
|
| Total credit card loans | 131,048 |
| | 127,791 |
| | — |
| — |
| | 3,429 |
| 3,879 |
| | 2.75 |
| 3.14 |
|
Lending-related commitments(b) | 525,963 |
| | 529,383 |
| | | | | | | | | |
| Total credit card exposure | 657,011 |
| | 657,174 |
| | | | | | | | | |
| Total consumer credit portfolio | $ | 1,010,646 |
| | $ | 1,002,433 |
| | $ | 6,509 |
| $ | 7,496 |
| | $ | 4,747 |
| $ | 5,786 |
| | 1.15 | % | 1.40 | % |
| Memo: Total consumer credit portfolio, excluding PCI | $ | 963,950 |
| | $ | 949,378 |
| | $ | 6,509 |
| $ | 7,496 |
| | $ | 4,747 |
| $ | 5,786 |
| | 1.30 | % | 1.62 | % |
| |
(a) | At December 31, 2014 and 2013, excluded operating lease-related assets of $6.7 billion and $5.5 billion, respectively. |
| |
(b) | Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice. |
| |
(c) | Receivables from customers represent margin loans to retail brokerage customers, and are included in accrued interest and accounts receivable on the Consolidated balance sheets. |
|
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JPMorgan Chase & Co./2014 Annual Report | | 113 |
Management’s discussion and analysis
| |
(d) | Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income. |
| |
(e) | Predominantly represents prime mortgage loans held-for-sale. |
| |
(f) | At December 31, 2014 and 2013, nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $7.8 billion and $8.4 billion, respectively, that are 90 or more days past due; and (2) student loans insured by U.S. government agencies under the FFELP of $367 million and $428 million, respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. |
| |
(g) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing. |
| |
(h) | Net charge-offs and net charge-off rates excluded $533 million and $53 million of write-offs of prime mortgages in the PCI portfolio for the years ended December 31, 2014 and 2013. These write-offs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 128–130 for further details. |
| |
(i) | Average consumer loans held-for-sale were $917 million and $209 million, respectively, for the years ended December 31, 2014 and 2013. These amounts were excluded when calculating net charge-off rates. |
Consumer, excluding credit card
Portfolio analysis
Consumer loan balances increased during the year ended December 31, 2014, due to prime mortgage, business banking and auto loan originations, partially offset by paydowns and the charge-off or liquidation of delinquent loans. Credit performance has improved across most portfolios but delinquent residential real estate loans and home equity charge-offs remain elevated compared with pre-recessionary levels.
In the following discussion of loan and lending-related categories, PCI loans are excluded from individual loan product discussions and are addressed separately below. For further information about the Firm’s consumer portfolio, including information about delinquencies, loan modifications and other credit quality indicators, see
Note 14.
Home equity: The home equity portfolio declined from December 31, 2013 primarily reflecting loan paydowns and charge-offs. Early-stage delinquencies showed improvement from December 31, 2013. Late-stage delinquencies continue to be elevated as improvement in the number of loans becoming severely delinquent was offset by a higher number of loans remaining in late-stage delinquency due to higher average carrying values on these delinquent loans, reflecting improving collateral values. Senior lien nonaccrual loans were flat compared with the prior year while junior lien nonaccrual loans decreased in 2014. Net charge-offs for both senior and junior lien home equity loans declined when compared with the prior year as a result of improvement in home prices and delinquencies.
Approximately 15% of the Firm’s home equity portfolio consists of home equity loans (“HELOANs”) and the remainder consists of home equity lines of credit (“HELOCs”). HELOANs are generally fixed-rate, closed-end, amortizing loans, with terms ranging from 3–30 years. Approximately half of the HELOANs are senior liens and the remainder are junior liens. In general, HELOCs originated by the Firm are revolving loans for a 10-year period, after which time the HELOC recasts into a loan with a 20-year amortization period. At the time of origination, the borrower typically selects one of two minimum payment options that will generally remain in effect during the revolving period: a monthly payment of 1% of the outstanding balance, or interest-only payments based on a variable index (typically Prime). HELOCs originated by Washington Mutual were generally revolving loans for a 10-year period, after which time the HELOC converts to an
interest-only loan with a balloon payment at the end of the loan’s term.
The unpaid principal balance of non-PCI HELOCs outstanding was $47 billion at December 31, 2014. Of the $47 billion, approximately $29 billion have recently recast or are scheduled to recast from interest-only to fully amortizing payments, with $3 billion having recast in 2014; $6 billion, $7 billion, and $6 billion are scheduled to recast in 2015, 2016, and 2017, respectively; and $7 billion is scheduled to recast after 2017. However, of the total $26 billion still remaining to recast, $18 billion are expected to actually recast; and the remaining $8 billion represents loans to borrowers who are expected either to pre-pay or charge-off prior to recast. In the third quarter of 2014, the Firm refined its approach for estimating the number of HELOCs expected to voluntarily pre-pay prior to recast. Based on the refined methodology, the number of loans expected to pre-pay declined, resulting in an increase in the number of loans expected to recast. The Firm has considered this payment recast risk in its allowance for loan losses based upon the estimated amount of payment shock (i.e., the excess of the fully-amortizing payment over the interest-only payment in effect prior to recast) expected to occur at the payment recast date, along with the corresponding estimated probability of default and loss severity assumptions. Certain factors, such as future developments in both unemployment rates and home prices, could have a significant impact on the performance of these loans.
The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are exhibiting a material deterioration in their credit risk profile. The Firm will continue to evaluate both the near-term and longer-term repricing and recast risks inherent in its HELOC portfolio to ensure that changes in the Firm’s estimate of incurred losses are appropriately considered in the allowance for loan losses and that the Firm’s account management practices are appropriate given the portfolio’s risk profile.
High-risk seconds are loans where the borrower has a first mortgage loan that is either delinquent or has been modified. Such loans are considered to pose a higher risk of default than junior lien loans for which the senior lien is neither delinquent nor modified. At December 31, 2014, the Firm estimated that its home equity portfolio contained approximately $1.8 billion of current high-risk seconds, compared with $2.3 billion at December 31, 2013. The Firm estimates the balance of its total exposure to high-risk seconds on a quarterly basis using internal data and loan
|
| | |
114 | | JPMorgan Chase & Co./2014 Annual Report |
level credit bureau data (which typically provides the delinquency status of the senior lien). The estimated balance of these high-risk seconds may vary from quarter to quarter for reasons such as the movement of related senior liens into and out of the 30+ day delinquency bucket.
|
| | | | | | | | | | |
| Current high-risk seconds |
| December 31, (in billions) | 2014 | | 2013 | |
| Junior liens subordinate to: | | | | |
| Modified current senior lien | $ | 0.7 |
| | $ | 0.9 |
| |
| Senior lien 30 – 89 days delinquent | 0.5 |
| | 0.6 |
| |
Senior lien 90 days or more delinquent(a) | 0.6 |
| | 0.8 |
| |
| Total current high-risk seconds | $ | 1.8 |
| | $ | 2.3 |
| |
| |
(a) | Junior liens subordinate to senior liens that are 90 days or more past due are classified as nonaccrual loans. At December 31, 2014 and 2013, excluded approximately $50 million and approximately $100 million, respectively, of junior liens that are performing but not current, which were placed on nonaccrual in accordance with the regulatory guidance. |
Of the estimated $1.8 billion of current high-risk seconds at December 31, 2014, the Firm owns approximately 10% and services approximately 25% of the related senior lien loans to the same borrowers. The performance of the Firm’s junior lien loans is generally consistent regardless of whether the Firm owns, services or does not own or service the senior lien. The increased probability of default associated with these higher-risk junior lien loans was considered in estimating the allowance for loan losses.
Mortgage: Prime mortgages, including option adjustable-rate mortgages (“ARMs”) and loans held-for-sale, increased from December 31, 2013 due to higher retained originations partially offset by paydowns, the run-off of option ARM loans and the charge-off or liquidation of delinquent loans. Excluding loans insured by U.S. government agencies, both early-stage and late-stage delinquencies showed improvement from December 31, 2013. Nonaccrual loans decreased from the prior year but remain elevated primarily due to loss mitigation activities and elongated foreclosure processing timelines. Net charge-offs remain low, reflecting continued improvement in home prices and delinquencies.
At December 31, 2014 and 2013, the Firm’s prime mortgage portfolio included $12.4 billion and $14.3 billion, respectively, of mortgage loans insured and/or guaranteed by U.S. government agencies, of which $9.7 billion and $9.6 billion, respectively, were 30 days or more past due (of these past due loans, $7.8 billion and $8.4 billion, respectively, were 90 days or more past due). The Firm has entered into a settlement regarding loans insured under federal mortgage insurance programs overseen by the FHA, HUD, and VA; the Firm will continue to monitor exposure on future claim payments for government insured loans, but any financial impact related to exposure on future claims is not expected to be significant and was considered in estimating the allowance for loan losses. For further discussion of the settlement, see Note 31.
At December 31, 2014 and 2013, the Firm’s prime mortgage portfolio included $16.3 billion and $15.6 billion, respectively, of interest-only loans, which represented 15% and 18%, respectively, of the prime mortgage portfolio. These loans have an interest-only payment period generally followed by an adjustable-rate or fixed-rate fully amortizing payment period to maturity and are typically originated as higher-balance loans to higher-income borrowers. To date, losses on this portfolio generally have been consistent with the broader prime mortgage portfolio and the Firm’s expectations. The Firm continues to monitor the risks associated with these loans.
Subprime mortgages continued to decrease due to portfolio runoff. Early-stage and late-stage delinquencies have improved from December 31, 2013, but remain at elevated levels. Net charge-offs continued to improve as a result of improvement in home prices and delinquencies.
Auto: Auto loans increased from December 31, 2013 as new originations outpaced paydowns and payoffs. Nonaccrual loans improved compared with December 31, 2013. Net charge-offs for the year ended December 31, 2014 increased compared with the prior year, reflecting higher average loss per default as national used car valuations declined from historically strong levels. The auto loan portfolio reflects a high concentration of prime-quality credits.
Business banking: Business banking loans increased from December 31, 2013 due to an increase in loan originations. Nonaccrual loans improved compared with December 31, 2013. Net charge-offs for the year ended December 31, 2014 decreased from the prior year.
Student and other: Student and other loans decreased from December 31, 2013 due primarily to the run-off of the student loan portfolio. Student nonaccrual loans increased from December 31, 2013 due to a modification program began in May 2014 that extended the deferment period for up to 24 months for certain student loans, which resulted in extending the maturity of these loans at their original contractual interest rates.
Purchased credit-impaired loans: PCI loans acquired in the Washington Mutual transaction decreased as the portfolio continues to run off.
As of December 31, 2014, approximately 16% of the option ARM PCI loans were delinquent and approximately 57% of the portfolio has been modified into fixed-rate, fully amortizing loans. Substantially all of the remaining loans are making amortizing payments, although such payments are not necessarily fully amortizing. This latter group of loans is subject to the risk of payment shock due to future payment recast. Default rates generally increase on option ARM loans when payment recast results in a payment increase. The expected increase in default rates is considered in the Firm’s quarterly impairment assessment.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 115 |
Management’s discussion and analysis
The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or the allowance for loan losses. |
| | | | | | | | | | | | | | | |
| Summary of lifetime principal loss estimates |
December 31, (in billions) | Lifetime loss estimates(a) | | LTD liquidation losses(b) |
| | 2014 | | 2013 | | 2014 | | 2013 |
| Home equity | $ | 14.6 |
| | $ | 14.7 |
| | $ | 12.4 |
| | $ | 12.1 |
|
| Prime mortgage | 3.8 |
| | 3.8 |
| | 3.5 |
| | 3.3 |
|
| Subprime mortgage | 3.3 |
| | 3.3 |
| | 2.8 |
| | 2.6 |
|
| Option ARMs | 9.9 |
| | 10.2 |
| | 9.3 |
| | 8.8 |
|
| Total | $ | 31.6 |
| | $ | 32.0 |
| | $ | 28.0 |
| | $ | 26.8 |
|
| |
(a) | Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses recognized subsequent to acquisition through the provision and |
allowance for loan losses. The remaining nonaccretable difference for principal losses was $2.3 billion and $3.8 billion at December 31, 2014 and 2013, respectively.
| |
(b) | Life-to-date (“LTD”) liquidation losses represent both realization of loss upon loan resolution and any principal forgiven upon modification. |
Lifetime principalloss estimates declined from December 31, 2013, to December 31, 2014, reflecting improvement in home prices and delinquencies. The decline in lifetime principal loss estimates during the year ended December 31, 2014, resulted in a $300 million reduction of the PCI allowance for loan losses related to option ARM loans. In addition, for the year ended December 31, 2014, PCI write-offs of $533 million were recorded against the prime mortgage allowance for loan losses. For further information on the Firm’s PCI loans, including write-offs, see Note 14.
Geographic composition of residential real estate loans
At December 31, 2014, $94.3 billion, or 63% of total retained residential real estate loan portfolio, excluding mortgage loans insured by U.S. government agencies and PCI loans, were concentrated in California, New York, Illinois, Florida and Texas, compared with $85.9 billion, or 62%, at December 31, 2013. California had the greatest concentration of these loans with 26% at December 31, 2014, compared with 25% at December 31, 2013. The unpaid principal balance of PCI loans concentrated in these five states represented 74% of total PCI loans at both December 31, 2014 and December 31, 2013. For further information on the geographic composition of the Firm’s residential real estate loans, see Note 14.
Current estimated LTVs of residential real estate loans
The current estimated average loan-to-value (“LTV”) ratio for residential real estate loans retained, excluding mortgage loans insured by U.S. government agencies and PCI loans, was 71% at December 31, 2014, compared with 75% at December 31, 2013.
Although home prices continue to recover, the decline in
home prices since 2007 has had a significant impact on the collateral values underlying the Firm’s residential real estate loan portfolio. In general, the delinquency rate for loans with high LTV ratios is greater than the delinquency rate for loans in which the borrower has greater equity in the collateral. While a large portion of the loans with current estimated LTV ratios greater than 100% continue to pay and are current, the continued willingness and ability of these borrowers to pay remains a risk.
|
| | |
116 | | JPMorgan Chase & Co./2014 Annual Report |
The following table presents the current estimated LTV ratios for PCI loans, as well as the ratios of the carrying value of the underlying loans to the current estimated collateral value. Because such loans were initially measured at fair value, the ratios of the carrying value to the current estimated collateral value will be lower than the current estimated LTV ratios, which are based on the unpaid principal balances. The estimated collateral values used to calculate these ratios do not represent actual appraised loan-level collateral values; as such, the resulting ratios are necessarily imprecise and should therefore be viewed as estimates.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| LTV ratios and ratios of carrying values to current estimated collateral values – PCI loans | | | | |
| | | 2014 | | 2013 |
December 31, (in millions, except ratios) | | Unpaid principal balance | Current estimated LTV ratio(a) | Net carrying value(c) | Ratio of net carrying value to current estimated collateral value(c) | | Unpaid principal balance | Current estimated LTV ratio(a) | Net carrying value(c) | Ratio of net carrying value to current estimated collateral value(c) |
| Home equity | | $ | 17,740 |
| 83 | % | (b) | $ | 15,337 |
| 72 | % | | $ | 19,830 |
| 90 | % | (b) | $ | 17,169 |
| 78 | % |
| Prime mortgage | | 10,249 |
| 76 |
| | 9,027 |
| 67 |
| | 11,876 |
| 83 |
| | 10,312 |
| 72 |
|
| Subprime mortgage | | 4,652 |
| 82 |
| | 3,493 |
| 62 |
| | 5,471 |
| 91 |
| | 3,995 |
| 66 |
|
| Option ARMs | | 16,496 |
| 74 |
| | 15,514 |
| 70 |
| | 19,223 |
| 82 |
| | 17,421 |
| 74 |
|
| |
(a) | Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated at least quarterly based on home valuation models that utilize nationally recognized home price index valuation estimates; such models incorporate actual data to the extent available and forecasted data where actual data is not available. |
| |
(b) | Represents current estimated combined LTV for junior home equity liens, which considers all available lien positions, as well as unused lines, related to the property. All other products are presented without consideration of subordinate liens on the property. |
| |
(c) | Net carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition and is also net of the allowance for loan losses at December 31, 2014 and 2013 of $1.2 billion and $1.7 billion for prime mortgage, $194 million and $494 million for option ARMs, respectively, and $1.8 billionfor home equity and$180 million for subprime mortgage for both periods.
|
The current estimated average LTV ratios were 77% and 88% for California and Florida PCI loans, respectively, at December 31, 2014, compared with 85% and 103%, respectively, at December 31, 2013. Average LTV ratios have declined consistent with recent improvements in home prices. Although home prices have improved, home prices in most areas of California and Florida are still lower than at the peak of the housing market; this continues to negatively contribute to current estimated average LTV ratios and the ratio of net carrying value to current estimated collateral value for loans in the PCI portfolio. Of the total PCI portfolio, 15% had a current estimated LTV ratio greater than 100%, and 3% had a current LTV ratio of greater than 125% at December 31, 2014, compared with 26% and 7%, respectively, at December 31, 2013.
While the current estimated collateral value is greater than the net carrying value of PCI loans, the ultimate performance of this portfolio is highly dependent on borrowers’ behavior and ongoing ability and willingness to continue to make payments on homes with negative equity, as well as on the cost of alternative housing.
For further information on current estimated LTVs of residential real estate loans, see Note 14.
Loan modification activities – residential real estate loans
The performance of modified loans generally differs by product type due to differences in both the credit quality and the types of modifications provided. Performance metrics for the residential real estate portfolio, excluding PCI loans, that have been modified and seasoned more than six months show weighted-average redefault rates of 20% for senior lien home equity, 22% for junior lien home equity, 16% for prime mortgages including option ARMs, and 29% for subprime mortgages. The cumulative performance metrics for the PCI residential real estate
portfolio modified and seasoned more than six months show weighted average redefault rates of 20% for home equity, 17% for prime mortgages, 15% for option ARMs and 32% for subprime mortgages. The favorable performance of the PCI option ARM modifications is the result of a targeted proactive program which fixed the borrower’s payment to the amount at the point of modification. The cumulative redefault rates reflect the performance of modifications completed under both the Home Affordable Modification Program (“HAMP”) and the Firm’s proprietary modification programs (primarily the Firm’s modification program that was modeled after HAMP) from October 1, 2009, through December 31, 2014.
Certain loans that were modified under HAMP and the Firm’s proprietary modification programs have interest rate reset provisions (“step-rate modifications”). Interest rates on these loans will generally increase beginning in 2014 by 1% per year until the rate reaches a specified cap, typically at a prevailing market interest rate for a fixed-rate loan as of the modification date. The carrying value of non-PCI loans modified in step-rate modifications was $5 billion at December 31, 2014, with $1 billion scheduled to experience the initial interest rate increase in each of 2015 and 2016. The unpaid principal balance of PCI loans modified in step-rate modifications was $10 billion at December 31, 2014, with $2 billion and $3 billion scheduled to experience the initial interest rate increase in 2015 and 2016, respectively. The impact of these potential interest rate increases is considered in the Firm’s allowance for loan losses. The Firm will continue to monitor this risk exposure to ensure that it is appropriately considered in the Firm’s allowance for loan losses.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 117 |
Management’s discussion and analysis
The following table presents information as of December 31, 2014 and 2013, relating to modified retained residential real estate loans for which concessions have been granted to borrowers experiencing financial difficulty. Modifications of PCI loans continue to be accounted for and reported as PCI loans, and the impact of the modification is incorporated into the Firm’s quarterly assessment of estimated future cash flows. Modifications of consumer loans other than PCI loans are generally accounted for and reported as troubled debt restructurings (“TDRs”). For further information on modifications for the years ended December 31, 2014 and 2013, see Note 14.
|
| | | | | | | | | | | | | |
| Modified residential real estate loans |
| | 2014 | | 2013 |
December 31, (in millions) | On–balance sheet loans | Nonaccrual on–balance sheet loans(d) | | On–balance sheet loans | Nonaccrual on–balance sheet loans(d) |
Modified residential real estate loans, excluding PCI loans(a)(b) | | | | | |
| Home equity – senior lien | $ | 1,101 |
| $ | 628 |
| | $ | 1,146 |
| $ | 641 |
|
Home equity – junior lien | 1,304 |
| 632 |
| | 1,319 |
| 666 |
|
| Prime mortgage, including option ARMs | 6,145 |
| 1,559 |
| | 7,004 |
| 1,737 |
|
| Subprime mortgage | 2,878 |
| 931 |
| | 3,698 |
| 1,127 |
|
| Total modified residential real estate loans, excluding PCI loans | $ | 11,428 |
| $ | 3,750 |
| | $ | 13,167 |
| $ | 4,171 |
|
Modified PCI loans(c) | | | | | |
| Home equity | $ | 2,580 |
| NA |
| | $ | 2,619 |
| NA |
|
| Prime mortgage | 6,309 |
| NA |
| | 6,977 |
| NA |
|
| Subprime mortgage | 3,647 |
| NA |
| | 4,168 |
| NA |
|
| Option ARMs | 11,711 |
| NA |
| | 13,131 |
| NA |
|
| Total modified PCI loans | $ | 24,247 |
| NA |
| | $ | 26,895 |
| NA |
|
| |
(a) | Amounts represent the carrying value of modified residential real estate loans. |
| |
(b) | At December 31, 2014 and 2013, $4.9 billion and $7.6 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure. For additional information about sales of loans in securitization transactions with Ginnie Mae, see Note 16. |
| |
(c) | Amounts represent the unpaid principal balance of modified PCI loans. |
| |
(d) | As of December 31, 2014 and 2013, nonaccrual loans included $2.9 billion and $3.0 billion, respectively, of TDRs for which the borrowers were less than 90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status, see Note 14. |
Nonperforming assets
The following table presents information as of December 31, 2014 and 2013, about consumer, excluding credit card, nonperforming assets.
|
| | | | | | | |
Nonperforming assets(a) | | | |
| December 31, (in millions) | 2014 | | 2013 |
Nonaccrual loans(b) | | | |
| Residential real estate | $ | 5,845 |
| | $ | 6,864 |
|
| Other consumer | 664 |
| | 632 |
|
| Total nonaccrual loans | 6,509 |
| | 7,496 |
|
| Assets acquired in loan satisfactions | | | |
| Real estate owned | 437 |
| | 614 |
|
| Other | 36 |
| | 41 |
|
| Total assets acquired in loan satisfactions | 473 |
| | 655 |
|
| Total nonperforming assets | $ | 6,982 |
| | $ | 8,151 |
|
| |
(a) | At December 31, 2014 and 2013, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $7.8 billion and $8.4 billion, respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the FFELP of $367 million and $428 million, respectively, that are 90 or more days past due; and (3) real estate owned insured by U.S. government agencies of $462 million and $2.0 billion, respectively. These amounts have been excluded based upon the government guarantee. |
| |
(b) | Excludes PCI loans that were acquired as part of the Washington Mutual transaction, which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of individual loans within the pools, is not meaningful. Because the Firm is recognizing interest income on each pool of loans, they are all considered to be performing. |
Nonaccrual loans in the residential real estate portfolio totaled $5.8 billion and $6.9 billion at December 31, 2014 and December 31, 2013, respectively, of which 32% and 34%, respectively, were greater than 150 days past due. In the aggregate, the unpaid principal balance of residential real estate loans greater than 150 days past due was charged down by approximately 50% to the estimated net realizable value of the collateral at both December 31, 2014 and 2013. The elongated foreclosure processing timelines are expected to continue to result in elevated levels of nonaccrual loans in the residential real estate portfolios.
Active and suspended foreclosure: For information on loans that were in the process of active or suspended foreclosure, see Note 14.
Nonaccrual loans: The following table presents changes in the consumer, excluding credit card, nonaccrual loans for the years ended December 31, 2014 and 2013. |
| | | | | | | |
| Nonaccrual loans | | |
| Year ended December 31, | | | |
| (in millions) | | 2014 | 2013 |
| Beginning balance | | $ | 7,496 |
| $ | 9,174 |
|
| Additions | | 4,905 |
| 6,618 |
|
| Reductions: | | | |
Principal payments and other(a) | | 1,859 |
| 1,559 |
|
| Charge-offs | | 1,306 |
| 1,869 |
|
| Returned to performing status | | 2,083 |
| 3,793 |
|
| Foreclosures and other liquidations | | 644 |
| 1,075 |
|
| Total reductions | | 5,892 |
| 8,296 |
|
| Net additions/(reductions) | | (987 | ) | (1,678 | ) |
| Ending balance | | $ | 6,509 |
| $ | 7,496 |
|
| |
(a) | Other reductions includes loan sales. |
|
| | |
118 | | JPMorgan Chase & Co./2014 Annual Report |
Credit Card
Total credit card loans increased from December 31, 2013 due to higher new account originations and increased credit card sales volume. The 30+ day delinquency rate decreased to 1.44% at December 31, 2014, from 1.67% at December 31, 2013. For the years ended December 31, 2014 and 2013, the net charge-off rates were 2.75% and 3.14%, respectively. Charge-offs have improved compared with a year ago as a result of improvement in delinquent loans. The credit card portfolio continues to reflect a well-seasoned, largely rewards-based portfolio that has good U.S. geographic diversification.
Loans outstanding in the top five states of California, Texas, New York, Illinois and Florida consisted of $54.9 billion in receivables, or 43% of the retained loan portfolio, at December 31, 2014, compared with $52.7 billion, or 41%, at December 31, 2013. The greatest geographic concentration of credit card retained loans is in California, which represented 14% and 13% of total retained loans at December 31, 2014 and 2013, respectively. For further information on the geographic composition of the Firm’s credit card loans, see Note 14.
Modifications of credit card loans
At December 31, 2014 and 2013, the Firm had $2.0 billion and $3.1 billion, respectively, of credit card loans outstanding that have been modified in TDRs. These balances included both credit card loans with modified payment terms and credit card loans that reverted back to their pre-modification payment terms because the cardholder did not comply with the modified payment terms. The decrease in modified credit card loans outstanding from December 31, 2013, was attributable to a reduction in new modifications as well as ongoing payments and charge-offs on previously modified credit card loans.
Consistent with the Firm’s policy, all credit card loans typically remain on accrual status until charged-off. However, the Firm establishes an allowance, which is offset against loans and charged to interest income, for the estimated uncollectible portion of accrued interest and fee income.
For additional information about loan modification programs to borrowers, see Note 14.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 119 |
Management’s discussion and analysis
|
| | | | |
WHOLESALE CREDIT PORTFOLIO |
The Firm’s wholesale businesses are exposed to credit risk through underwriting, lending and trading activities with and for clients and counterparties, as well as through various operating services such as cash management and clearing activities. A portion of the loans originated or acquired by the Firm’s wholesale businesses is generally retained on the balance sheet. The Firm distributes a significant percentage of the loans it originates into the market as part of its syndicated loan business and to manage portfolio concentrations and credit risk.
The wholesale credit environment remained favorable throughout 2014 driving an increase in client activity. Growth in loans retained was driven primarily by activity in Commercial Banking, while growth in lending-related commitments reflected increased activity in both the Corporate & Investment Bank and Commercial Banking.
Discipline in underwriting across all areas of lending continues to remain a key point of focus, consistent with evolving market conditions and the Firm’s risk management activities. The wholesale portfolio is actively managed, in part by conducting ongoing, in-depth reviews of client credit quality and transaction structure, inclusive of collateral where applicable; and of industry, product and client concentrations. During the year, wholesale criticized assets decreased from 2013, including a reduction in nonaccrual loans by 40%.
|
| | | | | | | | | | | | | |
| Wholesale credit portfolio |
| December 31, | Credit exposure | | Nonperforming(d) |
| (in millions) | 2014 | 2013 | | 2014 | 2013 |
| Loans retained | $ | 324,502 |
| $ | 308,263 |
| | $ | 599 |
| $ | 821 |
|
| Loans held-for-sale | 3,801 |
| 11,290 |
| | 4 |
| 26 |
|
| Loans at fair value | 2,611 |
| 2,011 |
| | 21 |
| 197 |
|
| Loans – reported | 330,914 |
| 321,564 |
| | 624 |
| 1,044 |
|
| Derivative receivables | 78,975 |
| 65,759 |
| | 275 |
| 415 |
|
Receivables from customers and other(a) | 28,972 |
| 26,744 |
| | — |
| — |
|
| Total wholesale credit-related assets | 438,861 |
| 414,067 |
| | 899 |
| 1,459 |
|
Lending-related commitments(b) | 472,056 |
| 446,232 |
| | 103 |
| 206 |
|
| Total wholesale credit exposure | $ | 910,917 |
| $ | 860,299 |
| | $ | 1,002 |
| $ | 1,665 |
|
Credit Portfolio Management derivatives notional, net(c) | $ | (26,703 | ) | $ | (27,996 | ) | | $ | — |
| $ | (5 | ) |
| Liquid securities and other cash collateral held against derivatives | (19,604 | ) | (14,435 | ) | | NA |
| NA |
|
| |
(a) | Receivables from customers and other include $28.8 billion and $26.5 billion of margin loans at December 31, 2014 and 2013, respectively, to prime and retail brokerage customers; these are classified in accrued interest and accounts receivable on the Consolidated balance sheets. |
| |
(b) | Includes unused advised lines of credit of $105.2 billion and $102.0 billion as of December 31, 2014 and 2013, respectively. An advised line of credit is a revolving credit line which specifies the maximum amount the Firm may make available to an obligor, on a nonbinding basis. The borrower receives written or oral advice of this facility. The Firm may cancel this facility at any time by providing the borrower notice or, in some cases, without notice as permitted by law. |
| |
(c) | Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on page 127, and Note 6. |
| |
(d) | Excludes assets acquired in loan satisfactions. |
|
| | |
120 | | JPMorgan Chase & Co./2014 Annual Report |
The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2014 and 2013. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to the ratings as defined by S&P and Moody’s.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Wholesale credit exposure – maturity and ratings profile | | | | | | | |
| | Maturity profile(e) | | Ratings profile |
| December 31, 2014 | Due in 1 year or less | Due after 1 year through 5 years | Due after 5 years | Total | | Investment-grade | | Noninvestment-grade | | Total | Total % of IG |
| (in millions, except ratios) | | AAA/Aaa to BBB-/Baa3 | | BB+/Ba1 & below | |
| Loans retained | $ | 112,411 |
| $ | 134,277 |
| $ | 77,814 |
| $ | 324,502 |
| | $ | 241,666 |
| | $ | 82,836 |
| | $ | 324,502 |
| 74 | % |
| Derivative receivables | | | | 78,975 |
| | | | | | 78,975 |
| |
| Less: Liquid securities and other cash collateral held against derivatives | | | | (19,604 | ) | | | | | | (19,604 | ) | |
| Total derivative receivables, net of all collateral | 20,032 |
| 16,130 |
| 23,209 |
| 59,371 |
| | 52,150 |
| | 7,221 |
| | 59,371 |
| 88 |
|
| Lending-related commitments | 185,451 |
| 276,793 |
| 9,812 |
| 472,056 |
| | 379,214 |
| | 92,842 |
| | 472,056 |
| 80 |
|
| Subtotal | 317,894 |
| 427,200 |
| 110,835 |
| 855,929 |
| | 673,030 |
| | 182,899 |
| | 855,929 |
| 79 |
|
Loans held-for-sale and loans at fair value(a) | | | | 6,412 |
| | | | | | 6,412 |
| |
| Receivables from customers and other | | | | 28,972 |
| | | | | | 28,972 |
| |
| Total exposure – net of liquid securities and other cash collateral held against derivatives | | | | $ | 891,313 |
| | | | | | $ | 891,313 |
| |
Credit Portfolio Management derivatives net notional by reference entity ratings profile(b)(c)(d) | $ | (2,050 | ) | $ | (18,653 | ) | $ | (6,000 | ) | $ | (26,703 | ) | | $ | (23,571 | ) | | $ | (3,132 | ) | | $ | (26,703 | ) | 88 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Maturity profile(e) | | Ratings profile |
| December 31, 2013 | Due in 1 year or less | Due after 1 year through 5 years | Due after 5 years | Total | | Investment-grade | | Noninvestment-grade | | Total | Total % of IG |
| (in millions, except ratios) | | AAA/Aaa to BBB-/Baa3 | | BB+/Ba1 & below | |
| Loans retained | $ | 108,392 |
| $ | 124,111 |
| $ | 75,760 |
| $ | 308,263 |
| | $ | 226,070 |
| | $ | 82,193 |
| | $ | 308,263 |
| 73 | % |
| Derivative receivables | | | | 65,759 |
| | | | | | 65,759 |
| |
| Less: Liquid securities and other cash collateral held against derivatives | | | | (14,435 | ) | | | | | | (14,435 | ) | |
| Total derivative receivables, net of all collateral | 13,550 |
| 15,935 |
| 21,839 |
| 51,324 |
| | 41,104 |
| (f) | 10,220 |
| (f) | 51,324 |
| 80 |
|
| Lending-related commitments | 179,301 |
| 255,426 |
| 11,505 |
| 446,232 |
| | 353,974 |
| | 92,258 |
| | 446,232 |
| 79 |
|
| Subtotal | 301,243 |
| 395,472 |
| 109,104 |
| 805,819 |
| | 621,148 |
| | 184,671 |
| | 805,819 |
| 77 |
|
Loans held-for-sale and loans at fair value(a) | | | | 13,301 |
| | | | | | 13,301 |
| |
| Receivables from customers and other | | | | 26,744 |
| | | | | | 26,744 |
| |
| Total exposure – net of liquid securities and other cash collateral held against derivatives | | | | $ | 845,864 |
| | | | | | $ | 845,864 |
| |
Credit Portfolio Management derivatives net notional by reference entity ratings profile(b)(c)(d) | $ | (1,149 | ) | $ | (19,516 | ) | $ | (7,331 | ) | $ | (27,996 | ) | | $ | (24,649 | ) | | $ | (3,347 | ) | | $ | (27,996 | ) | 88 | % |
| |
(a) | Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value. |
| |
(b) | These derivatives do not quality for hedge accounting under U.S. GAAP. |
| |
(c) | The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference entity on which protection has been purchased. |
| |
(d) | Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection, including Credit Portfolio Management derivatives, are executed with investment grade counterparties. |
| |
(e) | The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivative contracts that are in a receivable position at December 31, 2014, may become a payable prior to maturity based on their cash flow profile or changes in market conditions. |
| |
(f) | The prior period amounts have been revised to conform with the current period presentation. |
Wholesale credit exposure – selected industry exposures
The Firm focuses on the management and diversification of its industry exposures, paying particular attention to industries with actual or potential credit concerns. Exposures deemed criticized align with the U.S. banking regulators’ definition of criticized exposures, which consist of the special mention, substandard and doubtful categories. The total criticized component of the portfolio, excluding loans held-for-sale and loans at fair value, decreased by 16% to $10.2 billion at December 31, 2014, from $12.2 billion at December 31, 2013.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 121 |
Management’s discussion and analysis
Below are summaries of the top 25 industry exposures as of December 31, 2014 and 2013. For additional information on industry concentrations, see Note 5.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Selected metrics |
| | | | | | | 30 days or more past due and accruing
loans | Net charge-offs/ (recoveries) | Credit derivative hedges(e) | Liquid securities and other cash collateral held against derivative
receivables |
| | | | Noninvestment-grade |
| | Credit exposure(d) | Investment- grade | Noncriticized | Criticized performing | Criticized nonperforming |
As of or for the year ended December 31, 2014 (in millions) |
Top 25 industries(a) | | | | | | | | | |
| Real Estate | $ | 107,386 |
| $ | 80,219 |
| $ | 25,558 |
| $ | 1,356 |
| $ | 253 |
| $ | 309 |
| $ | (9 | ) | $ | (36 | ) | $ | (27 | ) |
| Banks & Finance Cos | 68,203 |
| 58,360 |
| 9,266 |
| 508 |
| 69 |
| 46 |
| (4 | ) | (1,232 | ) | (9,369 | ) |
| Healthcare | 57,707 |
| 49,361 |
| 7,816 |
| 488 |
| 42 |
| 193 |
| 17 |
| (94 | ) | (244 | ) |
| Oil & Gas | 48,315 |
| 33,547 |
| 14,685 |
| 82 |
| 1 |
| 15 |
| 2 |
| (144 | ) | (161 | ) |
| Consumer Products | 37,818 |
| 26,070 |
| 11,081 |
| 650 |
| 17 |
| 21 |
| — |
| (20 | ) | (2 | ) |
| Asset Managers | 36,374 |
| 31,880 |
| 4,436 |
| 57 |
| 1 |
| 38 |
| (12 | ) | (9 | ) | (4,545 | ) |
State & Municipal Govt(b) | 31,858 |
| 30,919 |
| 837 |
| 102 |
| — |
| 69 |
| 24 |
| (148 | ) | (130 | ) |
| Retail & Consumer Services | 28,258 |
| 18,233 |
| 9,023 |
| 971 |
| 31 |
| 56 |
| 4 |
| (47 | ) | (1 | ) |
| Utilities | 28,060 |
| 24,058 |
| 3,747 |
| 255 |
| — |
| 198 |
| (3 | ) | (155 | ) | (193 | ) |
| Central Govt | 21,081 |
| 20,868 |
| 155 |
| 58 |
| — |
| — |
| — |
| (11,297 | ) | (1,071 | ) |
| Technology | 20,977 |
| 13,759 |
| 6,557 |
| 641 |
| 20 |
| 24 |
| (3 | ) | (225 | ) | — |
|
| Machinery & Equipment Mfg | 20,573 |
| 12,094 |
| 8,229 |
| 250 |
| — |
| 5 |
| (2 | ) | (157 | ) | (19 | ) |
| Transportation | 16,365 |
| 11,444 |
| 4,835 |
| 86 |
| — |
| 5 |
| (3 | ) | (34 | ) | (107 | ) |
| Business Services | 16,201 |
| 8,450 |
| 7,512 |
| 224 |
| 15 |
| 10 |
| 5 |
| (9 | ) | — |
|
| Metals/Mining | 15,911 |
| 8,845 |
| 6,562 |
| 504 |
| — |
| — |
| 18 |
| (377 | ) | (19 | ) |
| Media | 14,534 |
| 9,131 |
| 5,107 |
| 266 |
| 30 |
| 1 |
| (1 | ) | (69 | ) | (6 | ) |
| Building Materials/Construction | 13,672 |
| 6,721 |
| 6,271 |
| 674 |
| 6 |
| 12 |
| 2 |
| (104 | ) | — |
|
| Insurance | 13,637 |
| 10,790 |
| 2,605 |
| 80 |
| 162 |
| — |
| — |
| (52 | ) | (2,372 | ) |
| Automotive | 13,586 |
| 8,647 |
| 4,778 |
| 161 |
| — |
| 1 |
| (1 | ) | (140 | ) | — |
|
| Chemicals/Plastics | 13,545 |
| 9,800 |
| 3,716 |
| 29 |
| — |
| 1 |
| (2 | ) | (14 | ) | — |
|
| Telecom Services | 13,136 |
| 8,277 |
| 4,303 |
| 546 |
| 10 |
| — |
| (2 | ) | (813 | ) | (6 | ) |
| Securities Firms & Exchanges | 8,936 |
| 6,198 |
| 2,726 |
| 10 |
| 2 |
| 20 |
| 4 |
| (102 | ) | (216 | ) |
| Agriculture/Paper Mfg | 7,242 |
| 4,890 |
| 2,224 |
| 122 |
| 6 |
| 36 |
| (1 | ) | (4 | ) | (4 | ) |
| Aerospace/Defense | 6,070 |
| 5,088 |
| 958 |
| 24 |
| — |
| — |
| — |
| (71 | ) | — |
|
| Leisure | 5,562 |
| 2,937 |
| 2,023 |
| 478 |
| 124 |
| 6 |
| — |
| (5 | ) | (23 | ) |
All other(c) | 210,526 |
| 190,135 |
| 19,581 |
| 622 |
| 188 |
| 1,235 |
| (21 | ) | (11,345 | ) | (1,089 | ) |
| Subtotal | $ | 875,533 |
| $ | 690,721 |
| $ | 174,591 |
| $ | 9,244 |
| $ | 977 |
| $ | 2,301 |
| $ | 12 |
| $ | (26,703 | ) | $ | (19,604 | ) |
| Loans held-for-sale and loans at fair value | 6,412 |
| | | | | | | | |
| Receivables from customers and other | 28,972 |
| | | | | | | | |
| Total | $ | 910,917 |
| | | | | | | | |
|
| | |
122 | | JPMorgan Chase & Co./2014 Annual Report |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Selected metrics |
| | | | | | | | | 30 days or more past due and accruing
loans | Net charge-offs/ (recoveries) | Credit derivative hedges(e) | Liquid securities and other cash collateral held against derivative
receivables |
| | | | | Noninvestment-grade |
| | Credit exposure(d) | Investment- grade | | Noncriticized | | Criticized performing | Criticized nonperforming |
As of or for the year ended December 31, 2013 (in millions) |
Top 25 industries(a) | | | | | | | | | | | |
| Real Estate | $ | 87,102 |
| $ | 62,964 |
| | $ | 21,505 |
| | $ | 2,286 |
| $ | 347 |
| $ | 178 |
| $ | 6 |
| $ | (66 | ) | $ | (125 | ) |
| Banks & Finance Cos | 66,881 |
| 56,675 |
| | 9,707 |
| | 431 |
| 68 |
| 14 |
| (22 | ) | (2,692 | ) | (6,227 | ) |
| Healthcare | 45,910 |
| 37,635 |
| | 7,952 |
| | 317 |
| 6 |
| 49 |
| 3 |
| (198 | ) | (195 | ) |
| Oil & Gas | 46,934 |
| 34,708 |
| | 11,779 |
| | 436 |
| 11 |
| 34 |
| 13 |
| (227 | ) | (67 | ) |
| Consumer Products | 34,145 |
| 21,100 |
| | 12,505 |
| | 537 |
| 3 |
| 4 |
| 11 |
| (149 | ) | (1 | ) |
| Asset Managers | 33,506 |
| 26,991 |
| | 6,477 |
| | 38 |
| — |
| 217 |
| (7 | ) | (5 | ) | (3,191 | ) |
State & Municipal Govt(b) | 35,666 |
| 34,563 |
| | 826 |
| | 157 |
| 120 |
| 40 |
| 1 |
| (161 | ) | (144 | ) |
| Retail & Consumer Services | 25,068 |
| 16,101 |
| | 8,453 |
| | 492 |
| 22 |
| 6 |
| — |
| (91 | ) | — |
|
| Utilities | 28,983 |
| 25,521 |
| | 3,045 |
| | 411 |
| 6 |
| 2 |
| 28 |
| (445 | ) | (306 | ) |
| Central Govt | 21,049 |
| 20,633 |
| | 345 |
| | 71 |
| — |
| — |
| — |
| (10,088 | ) | (1,541 | ) |
| Technology | 21,403 |
| 13,787 |
| | 6,771 |
| | 825 |
| 20 |
| — |
| — |
| (512 | ) | — |
|
| Machinery & Equipment Mfg | 19,078 |
| 11,154 |
| | 7,549 |
| | 368 |
| 7 |
| 20 |
| (18 | ) | (257 | ) | (8 | ) |
| Transportation | 13,975 |
| 9,683 |
| | 4,165 |
| | 100 |
| 27 |
| 10 |
| 8 |
| (68 | ) | — |
|
| Business Services | 14,601 |
| 7,838 |
| | 6,447 |
| | 286 |
| 30 |
| 9 |
| 10 |
| (10 | ) | (2 | ) |
| Metals/Mining | 17,434 |
| 9,266 |
| | 7,508 |
| | 594 |
| 66 |
| 1 |
| 16 |
| (621 | ) | (36 | ) |
| Media | 13,858 |
| 7,783 |
| | 5,658 |
| | 315 |
| 102 |
| 6 |
| 36 |
| (26 | ) | (5 | ) |
| Building Materials/Construction | 12,901 |
| 5,701 |
| | 6,354 |
| | 839 |
| 7 |
| 15 |
| 3 |
| (132 | ) | — |
|
| Insurance | 13,761 |
| 10,681 |
| | 2,757 |
| | 84 |
| 239 |
| — |
| (2 | ) | (98 | ) | (1,935 | ) |
| Automotive | 12,532 |
| 7,881 |
| | 4,490 |
| | 159 |
| 2 |
| 3 |
| (3 | ) | (472 | ) | — |
|
| Chemicals/Plastics | 10,637 |
| 7,189 |
| | 3,211 |
| | 222 |
| 15 |
| — |
| — |
| (13 | ) | (83 | ) |
| Telecom Services | 13,906 |
| 9,130 |
| | 4,284 |
| | 482 |
| 10 |
| — |
| 7 |
| (272 | ) | (8 | ) |
| Securities Firms & Exchanges | 10,035 |
| 4,208 |
| (f) | 5,806 |
| (f) | 14 |
| 7 |
| 1 |
| (68 | ) | (4,169 | ) | (175 | ) |
| Agriculture/Paper Mfg | 7,387 |
| 4,238 |
| | 3,064 |
| | 82 |
| 3 |
| 31 |
| — |
| (4 | ) | (4 | ) |
| Aerospace/Defense | 6,873 |
| 5,447 |
| | 1,426 |
| | — |
| — |
| — |
| — |
| (142 | ) | (1 | ) |
| Leisure | 5,331 |
| 2,950 |
| | 1,797 |
| | 495 |
| 89 |
| 5 |
| — |
| (10 | ) | (14 | ) |
All other(c) | 201,298 |
| 180,460 |
| | 19,911 |
| | 692 |
| 235 |
| 1,249 |
| (6 | ) | (7,068 | ) | (367 | ) |
| Subtotal | $ | 820,254 |
| $ | 634,287 |
| | $ | 173,792 |
| | $ | 10,733 |
| $ | 1,442 |
| $ | 1,894 |
| $ | 16 |
| $ | (27,996 | ) | $ | (14,435 | ) |
| Loans held-for-sale and loans at fair value | 13,301 |
| | | | | | | | | | |
| Receivables from customers and other | 26,744 |
| | | | | | | | | | |
| Total | $ | 860,299 |
| | | | | | | | | | |
| |
(a) | The industry rankings presented in the table as of December 31, 2013, are based on the industry rankings of the corresponding exposures at December 31, 2014, not actual rankings of such exposures at December 31, 2013.
|
| |
(b) | In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2014 and 2013, noted above, the Firm held: $10.6 billion and $7.9 billion, respectively, of trading securities; $30.1 billion and $29.5 billion, respectively, of AFS securities; and $10.2 billion and $920 million, respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 3 and Note 12.
|
| |
(c) | All other includes: individuals, private education and civic organizations; SPEs; and holding companies, representing approximately 68%, 21% and 5%, respectively, at December 31, 2014, and 64%, 22% and 5%, respectively, at December 31, 2013.
|
| |
(d) | Credit exposure is net of risk participations and excludes the benefit of “Credit Portfolio Management derivatives net notional” held against derivative receivables or loans and “Liquid securities and other cash collateral held against derivative receivables”. |
| |
(e) | Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. The all other category includes purchased credit protection on certain credit indices. |
| |
(f) | The prior period amounts have been revised to conform with the current period presentation. |
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 123 |
Management’s discussion and analysis
Presented below is a discussion of several industries to which the Firm has significant exposure and/or present actual or potential credit concerns. The Firm is actively monitoring these exposures. For additional information, refer to the tables on the previous pages.
Real Estate: Exposure to this industry increased by $20.3 billion or 23%, in 2014 to $107.4 billion. The increase was largely driven by growth in multifamily exposure in the CB. The credit quality of this industry improved as the investment-grade portion of the exposures to this industry increased to 75% in 2014 from 72% in 2013. The ratio of nonaccrual retained loans to total retained loans decreased to 0.32% at December 31, 2014 from 0.50% at December 31, 2013. For further information on commercial real estate loans, see Note 14.
Oil & Gas: Exposure to this industry increased by $1.4 billion in 2014 to $48.3 billion, of which $15.6 billion was drawn at year-end. The portfolio largely consisted of exposure in North America, and was concentrated in the Exploration and Production subsector. The Oil & Gas portfolio was comprised of 69% investment-grade exposure, and was approximately 5% of the Firm’s total wholesale credit exposure as of December 31, 2014.
Loans
In the normal course of its wholesale business, the Firm provides loans to a variety of customers, ranging from large corporate and institutional clients to high-net-worth individuals. For further discussion on loans, including information on credit quality indicators, see Note 14.
The Firm actively manages its wholesale credit exposure. One way of managing credit risk is through secondary market sales of loans and lending-related commitments. During the years ended December 31, 2014 and 2013, the Firm sold $22.8 billion and $16.3 billion, respectively, of loans and lending-related commitments.
The following table presents the change in the nonaccrual loan portfolio for the years ended December 31, 2014 and 2013.
|
| | | | | | | |
| Wholesale nonaccrual loan activity | | |
| Year ended December 31, (in millions) | | 2014 | 2013 |
| Beginning balance | | $ | 1,044 |
| $ | 1,717 |
|
| Additions | | 882 |
| 1,293 |
|
| Reductions: | | | |
| Paydowns and other | | 756 |
| 1,075 |
|
| Gross charge-offs | | 148 |
| 241 |
|
| Returned to performing status | | 303 |
| 279 |
|
| Sales | | 95 |
| 371 |
|
| Total reductions | | 1,302 |
| 1,966 |
|
| Net reductions | | (420 | ) | (673 | ) |
| Ending balance | | $ | 624 |
| $ | 1,044 |
|
The following table presents net charge-offs, which are defined as gross charge-offs less recoveries, for the years ended December 31, 2014 and 2013. The amounts in the table below do not include gains or losses from sales of nonaccrual loans.
|
| | | | | | |
| Wholesale net charge-offs |
Year ended December 31, (in millions, except ratios) | 2014 | 2013 |
| Loans – reported | | |
| Average loans retained | $ | 316,060 |
| $ | 307,340 |
|
| Gross charge-offs | 151 |
| 241 |
|
| Gross recoveries | (139 | ) | (225 | ) |
| Net charge-offs | 12 |
| 16 |
|
| Net charge-off rate | — | % | 0.01 | % |
Receivables from customers
Receivables from customers primarily represent margin loans to prime and retail brokerage clients that are collateralized through a pledge of assets maintained in clients’ brokerage accounts that are subject to daily minimum collateral requirements. In the event that the collateral value decreases, a maintenance margin call is made to the client to provide additional collateral into the account. If additional collateral is not provided by the client, the client’s position may be liquidated by the Firm to meet the minimum collateral requirements.
|
| | |
124 | | JPMorgan Chase & Co./2014 Annual Report |
Lending-related commitments
The Firm uses lending-related financial instruments, such as commitments (including revolving credit facilities) and guarantees, to meet the financing needs of its customers. The contractual amounts of these financial instruments represent the maximum possible credit risk should the counterparties draw down on these commitments or the Firm fulfills its obligations under these guarantees, and the counterparties subsequently fail to perform according to the terms of these contracts.
In the Firm’s view, the total contractual amount of these wholesale lending-related commitments is not representative of the Firm’s actual future credit exposure or funding requirements. In determining the amount of credit risk exposure the Firm has to wholesale lending-related commitments, which is used as the basis for allocating credit risk capital to these commitments, the Firm has established a “loan-equivalent” amount for each commitment; this amount represents the portion of the unused commitment or other contingent exposure that is expected, based on average portfolio historical experience, to become drawn upon in an event of a default by an obligor. The loan-equivalent amount of the Firm’s lending-related commitments was $229.6 billion and $218.9 billion as of December 31, 2014 and 2013, respectively.
Clearing services
The Firm provides clearing services for clients entering into securities and derivative transactions. Through the provision of these services the Firm is exposed to the risk of non-performance by its clients and may be required to share in losses incurred by central counterparties (“CCPs”). Where possible, the Firm seeks to mitigate its credit risk to its clients through the collection of adequate margin at inception and throughout the life of the transactions and can also cease provision of clearing services if clients do not adhere to their obligations under the clearing agreement. For further discussion of Clearing services, see Note 29.
Derivative contracts
In the normal course of business, the Firm uses derivative instruments predominantly for market-making activities. Derivatives enable customers to manage exposures to fluctuations in interest rates, currencies and other markets. The Firm also uses derivative instruments to manage its own credit exposure. The nature of the counterparty and the settlement mechanism of the derivative affect the credit risk to which the Firm is exposed. For OTC derivatives the Firm is exposed to the credit risk of the derivative counterparty. For exchange-traded derivatives (“ETD”) such as futures and options, and “cleared” over-the-counter (“OTC-cleared”) derivatives, the Firm is generally exposed to the credit risk of the relevant CCP. Where possible, the Firm seeks to mitigate its credit risk exposures arising from derivative transactions through the use of legally enforceable master netting arrangements and collateral agreements. For further discussion of derivative contracts, counterparties and settlement types, see Note 6.
The following table summarizes the net derivative receivables for the periods presented.
|
| | | | | | |
| Derivative receivables | | |
| December 31, (in millions) | 2014 | 2013 |
| Interest rate | $ | 33,725 |
| $ | 25,782 |
|
| Credit derivatives | 1,838 |
| 1,516 |
|
| Foreign exchange | 21,253 |
| 16,790 |
|
| Equity | 8,177 |
| 12,227 |
|
| Commodity | 13,982 |
| 9,444 |
|
| Total, net of cash collateral | 78,975 |
| 65,759 |
|
| Liquid securities and other cash collateral held against derivative receivables | (19,604 | ) | (14,435 | ) |
| Total, net of all collateral | $ | 59,371 |
| $ | 51,324 |
|
Derivative receivables reported on the Consolidated balance sheets were $79.0 billion and $65.8 billion at December 31, 2014 and 2013, respectively. These amounts represent the fair value of the derivative contracts, after giving effect to legally enforceable master netting agreements and cash collateral held by the Firm. However, in management’s view, the appropriate measure of current credit risk should also take into consideration additional liquid securities (primarily U.S. government and agency securities and other G7 government bonds) and other cash collateral held by the Firm aggregating $19.6 billion and $14.4 billion at December 31, 2014 and 2013, respectively, that may be used as security when the fair value of the client’s exposure is in the Firm’s favor.
In addition to the collateral described in the preceding paragraph, the Firm also holds additional collateral (primarily: cash; G7 government securities; other liquid government-agency and guaranteed securities; and corporate debt and equity securities) delivered by clients at the initiation of transactions, as well as collateral related to contracts that have a non-daily call frequency and collateral that the Firm has agreed to return but has not yet settled as of the reporting date. Although this collateral does not reduce the balances and is not included in the table above, it is available as security against potential exposure that could arise should the fair value of the client’s derivative transactions move in the Firm’s favor. As of December 31, 2014 and 2013, the Firm held $48.6 billion and $50.8 billion, respectively, of this additional collateral. The prior period amount has been revised to conform with the current period presentation. The derivative receivables fair value, net of all collateral, also does not include other credit enhancements, such as letters of credit. For additional information on the Firm’s use of collateral agreements, see Note 6.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 125 |
Management’s discussion and analysis
While useful as a current view of credit exposure, the net fair value of the derivative receivables does not capture the potential future variability of that credit exposure. To capture the potential future variability of credit exposure, the Firm calculates, on a client-by-client basis, three measures of potential derivatives-related credit loss: Peak, Derivative Risk Equivalent (“DRE”), and Average exposure (“AVG”). These measures all incorporate netting and collateral benefits, where applicable.
Peak exposure to a counterparty is an extreme measure of exposure calculated at a 97.5% confidence level. DRE exposure is a measure that expresses the risk of derivative exposure on a basis intended to be equivalent to the risk of loan exposures. The measurement is done by equating the unexpected loss in a derivative counterparty exposure (which takes into consideration both the loss volatility and the credit rating of the counterparty) with the unexpected loss in a loan exposure (which takes into consideration only the credit rating of the counterparty). DRE is a less extreme measure of potential credit loss than Peak and is the primary measure used by the Firm for credit approval of derivative transactions.
Finally, AVG is a measure of the expected fair value of the Firm’s derivative receivables at future time periods, including the benefit of collateral. AVG exposure over the total life of the derivative contract is used as the primary metric for pricing purposes and is used to calculate credit capital and the CVA, as further described below. The three year AVG exposure was $37.5 billion and $35.4 billion at December 31, 2014 and 2013, respectively, compared with derivative receivables, net of all collateral, of $59.4 billion and $51.3 billion at December 31, 2014 and 2013, respectively.
The fair value of the Firm’s derivative receivables incorporates an adjustment, the CVA, to reflect the credit quality of counterparties. The CVA is based on the Firm’s AVG to a counterparty and the counterparty’s credit spread in the credit derivatives market. The primary components of changes in CVA are credit spreads, new deal activity or unwinds, and changes in the underlying market environment. The Firm believes that active risk management is essential to controlling the dynamic credit risk in the derivatives portfolio. In addition, the Firm’s risk management process takes into consideration the potential impact of wrong-way risk, which is broadly defined as the potential for increased correlation between the Firm’s exposure to a counterparty (AVG) and the counterparty’s credit quality. Many factors may influence the nature and magnitude of these correlations over time. To the extent that these correlations are identified, the Firm may adjust the CVA associated with that counterparty’s AVG. The Firm risk manages exposure to changes in CVA by entering into credit derivative transactions, as well as interest rate, foreign exchange, equity and commodity derivative transactions.
The accompanying graph shows exposure profiles to the Firm’s current derivatives portfolio over the next 10 years as calculated by the DRE and AVG metrics. The two measures generally show that exposure will decline after the first year, if no new trades are added to the portfolio.
The following table summarizes the ratings profile by derivative counterparty of the Firm’s derivative receivables, including credit derivatives, net of other liquid securities collateral, for the dates indicated. The ratings scale is based on the Firm’s internal ratings, which generally correspond to the ratings as defined by S&P and Moody’s.
|
| | | | | | | | | | | |
| Ratings profile of derivative receivables | | | | | |
| Rating equivalent | 2014 | | 2013(a) |
December 31, (in millions, except ratios) | Exposure net of all collateral | % of exposure net of all collateral | | Exposure net of all collateral | % of exposure net of all collateral |
| AAA/Aaa to AA-/Aa3 | $ | 19,202 |
| 32 | % | | $ | 12,953 |
| 25 | % |
| A+/A1 to A-/A3 | 13,940 |
| 24 |
| | 12,930 |
| 25 |
|
| BBB+/Baa1 to BBB-/Baa3 | 19,008 |
| 32 |
| | 15,220 |
| 30 |
|
| BB+/Ba1 to B-/B3 | 6,384 |
| 11 |
| | 6,806 |
| 13 |
|
| CCC+/Caa1 and below | 837 |
| 1 |
| | 3,415 |
| 7 |
|
| Total | $ | 59,371 |
| 100 | % | | $ | 51,324 |
| 100 | % |
(a) The prior period amounts have been revised to conform with the current period presentation.
|
| | |
126 | | JPMorgan Chase & Co./2014 Annual Report |
As noted above, the Firm uses collateral agreements to mitigate counterparty credit risk. The percentage of the Firm’s derivatives transactions subject to collateral agreements – excluding foreign exchange spot trades, which are not typically covered by collateral agreements due to their short maturity – was 88% as of December 31, 2014, largely unchanged compared with 86% as of December 31, 2013.
Credit derivatives
The Firm uses credit derivatives for two primary purposes: first, in its capacity as a market-maker; and second, as an end-user, to manage the Firm’s own credit risk associated with various exposures. For a detailed description of credit derivatives, see Credit derivatives in Note 6.
Credit portfolio management activities
Included in the Firm’s end-user activities are credit derivatives used to mitigate the credit risk associated with traditional lending activities (loans and unfunded commitments) and derivatives counterparty exposure in the Firm’s wholesale businesses (collectively, “credit portfolio management” activities). Information on credit portfolio management activities is provided in the table below. For further information on derivatives used in credit portfolio management activities, see Credit derivatives in Note 6.
The Firm also uses credit derivatives as an end-user to manage other exposures, including credit risk arising from certain securities held in the Firm’s market-making businesses. These credit derivatives are not included in credit portfolio management activities; for further information on these credit derivatives as well as credit derivatives used in the Firm’s capacity as a market maker in credit derivatives, see Credit derivatives in Note 6.
|
| | | | | | | |
| Credit derivatives used in credit portfolio management activities |
| | Notional amount of protection purchased and sold (a) |
| December 31, (in millions) | 2014 | | 2013 |
| Credit derivatives used to manage: | | | |
| Loans and lending-related commitments | $ | 2,047 |
| | $ | 2,764 |
|
| Derivative receivables | 24,656 |
| | 25,328 |
|
| Total net protection purchased | 26,703 |
| | 28,092 |
|
| Total net protection sold | — |
| | 96 |
|
| Credit portfolio management derivatives notional, net | $ | 26,703 |
| | $ | 27,996 |
|
| |
(a) | Amounts are presented net, considering the Firm’s net protection purchased or sold with respect to each underlying reference entity or index. |
The credit derivatives used in credit portfolio management activities do not qualify for hedge accounting under U.S. GAAP; these derivatives are reported at fair value, with gains and losses recognized in principal transactions revenue. In contrast, the loans and lending-related commitments being risk-managed are accounted for on an accrual basis. This asymmetry in accounting treatment, between loans and lending-related commitments and the credit derivatives used in credit portfolio management activities, causes earnings volatility that is not representative, in the Firm’s view, of the true changes in value of the Firm’s overall credit exposure.
The effectiveness of the Firm’s credit default swap (“CDS”) protection as a hedge of the Firm’s exposures may vary depending on a number of factors, including the named reference entity (i.e., the Firm may experience losses on specific exposures that are different than the named reference entities in the purchased CDS); the contractual terms of the CDS (which may have a defined credit event that does not align with an actual loss realized by the Firm); and the maturity of the Firm’s CDS protection (which in some cases may be shorter than the Firm’s exposures). However, the Firm generally seeks to purchase credit protection with a maturity date that is the same or similar to the maturity date of the exposure for which the protection was purchased, and remaining differences in maturity are actively monitored and managed by the Firm.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 127 |
Management’s discussion and analysis
|
| | | | |
ALLOWANCE FOR CREDIT LOSSES |
JPMorgan Chase’s allowance for loan losses covers both the consumer (primarily scored) portfolio and wholesale (risk-rated) portfolio. The allowance represents management’s estimate of probable credit losses inherent in the Firm’s loan portfolio. Management also determines an allowance for wholesale and certain consumer lending-related commitments.
The allowance for loan losses includes an asset-specific component, a formula-based component, and a component related to PCI loans. For a further discussion of the components of the allowance for credit losses and related management judgments, see Critical Accounting Estimates Used by the Firm on pages 161–165 and Note 15.
At least quarterly, the allowance for credit losses is reviewed by the Chief Risk Officer, the Chief Financial Officer and the Controller of the Firm, and discussed with the DRPC and Audit Committees of the Board of Directors of the Firm. As of December 31, 2014, JPMorgan Chase deemed the allowance for credit losses to be appropriate and sufficient to absorb probable credit losses inherent in the portfolio.
The allowance for credit losses was $14.8 billion at December 31, 2014, a decrease of $2.2 billion from $17.0 billion at December 31, 2013.
The consumer, excluding credit card, allowance for loan losses reflected a reduction from December 31, 2013, primarily due to the continued improvement in home prices and delinquencies in the residential real estate portfolio and the run-off of the student loan portfolio. For additional information about delinquencies and nonaccrual loans in the consumer, excluding credit card, loan portfolio, see Consumer Credit Portfolio on pages 113–119 and Note 14.
The credit card allowance for loan losses reflected a reduction from December 31, 2013, primarily related to a decrease in the asset-specific allowance resulting from increased granularity of the impairment estimates and lower balances related to credit card loans modified in TDRs. For additional information about delinquencies in the credit card loan portfolio, see Consumer Credit Portfolio on pages 113–119 and Note 14.
The wholesale allowance for credit losses decreased from December 31, 2013, reflecting a continued favorable credit environment as evidenced by low charge-off rates, and declining nonaccrual balances and other portfolio activity.
|
| | |
128 | | JPMorgan Chase & Co./2014 Annual Report |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Summary of changes in the allowance for credit losses | | | | | |
| | 2014 | | 2013 |
| Year ended December 31, | Consumer, excluding credit card | Credit card | Wholesale | Total | | Consumer, excluding credit card | Credit card | Wholesale | Total |
| (in millions, except ratios) |
| Allowance for loan losses | | | | | | | | | |
| Beginning balance at January 1, | $ | 8,456 |
| $ | 3,795 |
| $ | 4,013 |
| $ | 16,264 |
| | $ | 12,292 |
| $ | 5,501 |
| $ | 4,143 |
| $ | 21,936 |
|
| Gross charge-offs | 2,132 |
| 3,831 |
| 151 |
| 6,114 |
| | 2,754 |
| 4,472 |
| 241 |
| 7,467 |
|
| Gross recoveries | (814 | ) | (402 | ) | (139 | ) | (1,355 | ) | | (847 | ) | (593 | ) | (225 | ) | (1,665 | ) |
| Net charge-offs | 1,318 |
| 3,429 |
| 12 |
| 4,759 |
| | 1,907 |
| 3,879 |
| 16 |
| 5,802 |
|
Write-offs of PCI loans(a) | 533 |
| — |
| — |
| 533 |
| | 53 |
| — |
| — |
| 53 |
|
| Provision for loan losses | 414 |
| 3,079 |
| (269 | ) | 3,224 |
| | (1,872 | ) | 2,179 |
| (119 | ) | 188 |
|
| Other | 31 |
| (6 | ) | (36 | ) | (11 | ) | | (4 | ) | (6 | ) | 5 |
| (5 | ) |
| Ending balance at December 31, | $ | 7,050 |
| $ | 3,439 |
| $ | 3,696 |
| $ | 14,185 |
| | $ | 8,456 |
| $ | 3,795 |
| $ | 4,013 |
| $ | 16,264 |
|
| Impairment methodology | | | | | | | | | |
Asset-specific(b) | $ | 539 |
| $ | 500 |
| $ | 87 |
| $ | 1,126 |
| | $ | 601 |
| $ | 971 |
| $ | 181 |
| $ | 1,753 |
|
| Formula-based | 3,186 |
| 2,939 |
| 3,609 |
| 9,734 |
| | 3,697 |
| 2,824 |
| 3,832 |
| 10,353 |
|
| PCI | 3,325 |
| — |
| — |
| 3,325 |
| | 4,158 |
| — |
| — |
| 4,158 |
|
| Total allowance for loan losses | $ | 7,050 |
| $ | 3,439 |
| $ | 3,696 |
| $ | 14,185 |
| | $ | 8,456 |
| $ | 3,795 |
| $ | 4,013 |
| $ | 16,264 |
|
| Allowance for lending-related commitments | | | | | | | | | |
| Beginning balance at January 1, | $ | 8 |
| $ | — |
| $ | 697 |
| $ | 705 |
| | $ | 7 |
| $ | — |
| $ | 661 |
| $ | 668 |
|
| Provision for lending-related commitments | 5 |
| — |
| (90 | ) | (85 | ) | | 1 |
| — |
| 36 |
| 37 |
|
| Other | — |
| — |
| 2 |
| 2 |
| | — |
| — |
| — |
| — |
|
| Ending balance at December 31, | $ | 13 |
| $ | — |
| $ | 609 |
| $ | 622 |
| | $ | 8 |
| $ | — |
| $ | 697 |
| $ | 705 |
|
| Impairment methodology | | | | | | | | | |
| Asset-specific | $ | — |
| $ | — |
| $ | 60 |
| $ | 60 |
| | $ | — |
| $ | — |
| $ | 60 |
| $ | 60 |
|
| Formula-based | 13 |
| — |
| 549 |
| 562 |
| | 8 |
| — |
| 637 |
| 645 |
|
Total allowance for lending-related commitments(c) | $ | 13 |
| $ | — |
| $ | 609 |
| $ | 622 |
| | $ | 8 |
| $ | — |
| $ | 697 |
| $ | 705 |
|
| Total allowance for credit losses | $ | 7,063 |
| $ | 3,439 |
| $ | 4,305 |
| $ | 14,807 |
| | $ | 8,464 |
| $ | 3,795 |
| $ | 4,710 |
| $ | 16,969 |
|
| Memo: | | | | | | | | | |
| Retained loans, end of period | $ | 294,979 |
| $ | 128,027 |
| $ | 324,502 |
| $ | 747,508 |
| | $ | 288,449 |
| $ | 127,465 |
| $ | 308,263 |
| $ | 724,177 |
|
| Retained loans, average | 289,212 |
| 124,604 |
| 316,060 |
| 729,876 |
| | 289,294 |
| 123,518 |
| 307,340 |
| 720,152 |
|
| PCI loans, end of period | 46,696 |
| — |
| 4 |
| 46,700 |
| | 53,055 |
| — |
| 6 |
| 53,061 |
|
| Credit ratios | | | | | | | | | |
| Allowance for loan losses to retained loans | 2.39 | % | 2.69 | % | 1.14 | % | 1.90 | % | | 2.93 | % | 2.98 | % | 1.30 | % | 2.25 | % |
Allowance for loan losses to retained nonaccrual loans(d) | 110 |
| NM | 617 |
| 202 |
| | 113 |
| NM | 489 |
| 196 |
|
| Allowance for loan losses to retained nonaccrual loans excluding credit card | 110 |
| NM | 617 |
| 153 |
| | 113 |
| NM | 489 |
| 150 |
|
| Net charge-off rates | 0.46 |
| 2.75 |
| — |
| 0.65 |
| | 0.66 |
| 3.14 |
| 0.01 |
| 0.81 |
|
| Credit ratios, excluding residential real estate PCI loans | | | | | | | | | |
Allowance for loan losses to
retained loans | 1.50 |
| 2.69 |
| 1.14 |
| 1.55 |
| | 1.83 |
| 2.98 |
| 1.30 |
| 1.80 |
|
Allowance for loan losses to
retained nonaccrual loans(d) | 58 |
| NM | 617 |
| 155 |
| | 57 |
| NM | 489 |
| 146 |
|
Allowance for loan losses to
retained nonaccrual loans excluding credit card | 58 |
| NM | 617 |
| 106 |
| | 57 |
| NM | 489 |
| 100 |
|
| Net charge-off rates | 0.55 | % | 2.75 | % | — | % | 0.70 | % | | 0.82 | % | 3.14 | % | 0.01 | % | 0.87 | % |
| |
Note: | In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures. For additional information, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 77–78. |
| |
(a) | Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation). During the fourth quarter of 2014, the Firm recorded a $291 million adjustment to reduce the PCI allowance and the recorded investment in the Firm’s PCI loan portfolio, primarily reflecting the cumulative effect of interest forgiveness modifications. This adjustment had no impact to the Firm’s Consolidated statements of income. |
| |
(b) | Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. |
| |
(c) | The allowance for lending-related commitments is reported in other liabilities on the Consolidated balance sheets. |
| |
(d) | The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. |
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 129 |
Management’s discussion and analysis
Provision for credit losses
For the year ended December 31, 2014, the provision for credit losses was $3.1 billion, compared with $225 million for the year ended December 31, 2013.
The increase in consumer, excluding credit card, provision for credit losses for the year ended December 31, 2014 reflected a $904 million reduction in the allowance for loan losses, as noted above in the Allowance for Credit Losses discussion, which was lower than the $3.8 billion reduction in the prior year. The lower allowance reduction was partially offset by lower net charge-offs in 2014.
The increase in credit card provision for credit losses for the year ended December 31, 2014 reflected a $350 million
reduction in the allowance for loan losses, as noted above in the Allowance for Credit Losses discussion, which was lower than the $1.7 billion reduction in the prior year. The lower allowance reduction was partially offset by lower net charge-offs in 2014.
The wholesale provision for credit losses for the year ended December 31, 2014 reflected a continued favorable credit environment as evidenced by low charge-off rates, and declining nonaccrual balances and other portfolio activity.
For further information on the provision for credit losses, see the Consolidated Results of Operations on pages 68–71.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Provision for loan losses | | Provision for lending-related commitments | | Total provision for credit losses |
| (in millions) | | 2014 |
| 2013 |
| 2012 | | 2014 |
| 2013 |
| 2012 |
| | 2014 |
| 2013 |
| 2012 |
|
| Consumer, excluding credit card | | $ | 414 |
| $ | (1,872 | ) | $ | 302 |
| | $ | 5 |
| $ | 1 |
| $ | — |
| | $ | 419 |
| $ | (1,871 | ) | $ | 302 |
|
| Credit card | | 3,079 |
| 2,179 |
| 3,444 |
| | — |
| — |
| — |
| | 3,079 |
| 2,179 |
| 3,444 |
|
| Total consumer | | 3,493 |
| 307 |
| 3,746 |
| | 5 |
| 1 |
| — |
| | 3,498 |
| 308 |
| 3,746 |
|
| Wholesale | | (269 | ) | (119 | ) | (359 | ) | | (90 | ) | 36 |
| (2 | ) | | (359 | ) | (83 | ) | (361 | ) |
| Total | | $ | 3,224 |
| $ | 188 |
| $ | 3,387 |
| | $ | (85 | ) | $ | 37 |
| $ | (2 | ) | | $ | 3,139 |
| $ | 225 |
| $ | 3,385 |
|
|
| | |
130 | | JPMorgan Chase & Co./2014 Annual Report |
Market risk is the potential for adverse changes in the value of the Firm’s assets and liabilities resulting from changes in market variables such as interest rates, foreign exchange rates, equity prices, commodity prices, implied volatilities or credit spreads.
Market risk management
Market Risk is an independent risk management function that identifies and monitors market risks throughout the Firm and defines market risk policies and procedures. The Market Risk function reports to the Firm’s CRO.
Market Risk seeks to control risk, facilitate efficient risk/return decisions, reduce volatility in operating performance and provide transparency into the Firm’s market risk profile for senior management, the Board of Directors and regulators. Market Risk is responsible for the following functions:
Establishment of a market risk policy framework
Independent measurement, monitoring and control of line of business and firmwide market risk
Definition, approval and monitoring of limits
Performance of stress testing and qualitative risk assessments
Risk identification and classification
Each line of business is responsible for the management of the market risks within its units. The independent risk management group responsible for overseeing each line of business is charged with ensuring that all material market risks are appropriately identified, measured, monitored and managed in accordance with the risk policy framework set out by Market Risk.
Risk measurement
Tools used to measure risk
Because no single measure can reflect all aspects of market risk, the Firm uses various metrics, both statistical and nonstatistical, including:
VaR
Economic-value stress testing
Nonstatistical risk measures
Loss advisories
Profit and loss drawdowns
Earnings-at-risk
Risk monitoring and control
Market risk is controlled primarily through a series of limits set in the context of the market environment and business strategy. In setting limits, the Firm takes into consideration factors such as market volatility, product liquidity and accommodation of client business and management experience. The Firm maintains different levels of limits. Corporate level limits include VaR and stress limits. Similarly, line of business limits include VaR and stress limits and may be supplemented by loss advisories, nonstatistical measurements and profit and loss drawdowns. Limits may also be set within the lines of business, as well at the portfolio or legal entity level.
Limits are set by Market Risk and are regularly reviewed and updated as appropriate, with any changes approved by lines of business management and Market Risk. Senior management, including the Firm’s CEO and CRO, are responsible for reviewing and approving certain of these risk limits on an ongoing basis. All limits that have not been reviewed within specified time periods by Market Risk are escalated to senior management. The lines of business are responsible for adhering to established limits against which exposures are monitored and reported.
Limit breaches are required to be reported in a timely manner by Risk Management to limit approvers, Market Risk and senior management. In the event of a breach, Market Risk consults with Firm senior management and lines of business senior management to determine the appropriate course of action required to return to compliance, which may include a reduction in risk in order to remedy the breach. Certain Firm or line of business-level limits that have been breached for three business days or longer, or by more than 30%, are escalated to senior management and the Firmwide Risk Committee.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 131 |
Management’s discussion and analysis
The following table summarizes by LOB the predominant business activities that give rise to market risk, and the market risk management tools utilized to manage those risks; CB is not presented in the table below as it does not give rise to significant market risk. |
| | | | |
| Risk identification and classification for business activities |
| | | | |
| LOB | Predominant business activities and related market risks | Positions included in Risk Management VaR | Positions included in other risk measures (Not included in Risk Management VaR)
|
| CIB | • Makes markets and services clients across fixed income, foreign exchange, equities and commodities
• Market risk arising from a potential decline in net income as a result of changes in market prices; e.g. rates and credit spreads
| • Market risk(a) related to:
• Trading assets/liabilities - debt and equity instruments, and derivatives, including hedges of the retained loan portfolio and CVA
• Certain securities purchased under resale agreements and securities borrowed
• Certain securities loaned or sold under repurchase agreements
• Structured notes
• Derivative CVA
| • Principal investing activities
• Retained loan portfolio
• Deposits
• DVA and FVA on derivatives and structured notes
|
|
|
|
| | | | |
| CCB | • Originates and services mortgage loans
• Complex, non-linear interest rate and basis risk
• Non-linear risk arises primarily from prepayment options embedded in mortgages and changes in the probability of newly originated mortgage commitments actually closing
• Basis risk results from differences in the relative movements of the rate indices underlying mortgage exposure and other interest rates
| Mortgage Banking
• Mortgage pipeline loans, classified as derivatives
• Warehouse loans, classified as trading assets - debt instruments
• MSRs
• Hedges of the MSRs and loans, classified as derivatives
• Interest-only securities, classified as trading assets and related hedges classified as derivatives
| • Retained loan portfolio
• Deposits
|
| | | | |
| Corporate | • Manages the Firm’s liquidity, funding, structural interest rate and foreign exchange risks arising from activities undertaken by the Firm’s four major reportable business segments | Treasury and CIO
• Primarily derivative positions measured at fair value through earnings, classified as derivatives
| • Private equity and other related investments
• Investment securities portfolio and related hedges
• Deposits
• Long-term debt and related hedges
|
| | | | |
| AM | • Market risk arising from the Firm’s initial capital investments in products, such as mutual funds, managed by AM | • Initial seed capital investments and related hedges classified as derivatives | • Capital invested alongside third-party investors, typically in privately distributed collective vehicles managed by AM (i.e., co-Investments)
• Retained loan portfolio
• Deposits
|
| |
(a) | Market risk for derivatives is generally measured after consideration of DVA and FVA on those positions; market risk for structured notes is generally measured without consideration to such adjustments. |
|
| | |
132 | | JPMorgan Chase & Co./2014 Annual Report |
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, to estimate the potential loss from adverse market moves in a normal market environment. The Firm has a single overarching VaR model framework used for calculating Risk Management VaR and Regulatory VaR.
The framework is employed across the Firm using historical simulation based on data for the previous 12 months. The framework’s approach assumes that historical changes in market values are representative of the distribution of potential outcomes in the immediate future. The Firm believes the use of Risk Management VaR provides a stable measure of VaR that closely aligns to the day-to-day risk management decisions made by the lines of business and provides necessary/appropriate information to respond to risk events on a daily basis.
Risk Management VaR is calculated assuming a one-day holding period and an expected tail-loss methodology which approximates a 95% confidence level. This means that, assuming current changes in market values are consistent with the historical changes used in the simulation, the Firm would expect to incur VaR “band breaks,” defined as losses greater than that predicted by VaR estimates, not more than five times every 100 trading days. The number of VaR band breaks observed can differ from the statistically expected number of band breaks if the current level of market volatility is materially different from the level of market volatility during the twelve months of historical data used in the VaR calculation.
Underlying the overall VaR model framework are individual VaR models that simulate historical market returns for individual products and/or risk factors. To capture material market risks as part of the Firm’s risk management framework, comprehensive VaR model calculations are performed daily for businesses whose activities give rise to market risk. These VaR models are granular and incorporate numerous risk factors and inputs to simulate daily changes in market values over the historical period; inputs are selected based on the risk profile of each portfolio as sensitivities and historical time series used to generate daily market values may be different across product types or risk management systems. The VaR model results across all portfolios are aggregated at the Firm level.
Data sources used in VaR models may be the same as those used for financial statement valuations. However, in cases where market prices are not observable, or where proxies are used in VaR historical time series, the sources may differ. In addition, the daily market data used in VaR models may be different than the independent third-party data collected for VCG price testing in their monthly valuation process (see Valuation process in Note 3 for further information on the Firm’s valuation process). VaR model calculations require daily data and a consistent source for valuation and therefore it is not practical to use the data collected in the VCG monthly valuation process.
VaR provides a consistent framework to measure risk profiles and levels of diversification across product types and is used for aggregating risks across businesses and monitoring limits. These VaR results are reported to senior management, the Board of Directors and regulators.
Since VaR is based on historical data, it is an imperfect measure of market risk exposure and potential losses, and it is not used to estimate the impact of stressed market conditions or to manage any impact from potential stress events. In addition, based on their reliance on available historical data, limited time horizons, and other factors, VaR measures are inherently limited in their ability to measure certain risks and to predict losses, particularly those associated with market illiquidity and sudden or severe shifts in market conditions. The Firm therefore considers other measures in addition to VaR, such as stress testing, to capture and manage its market risk positions.
In addition, for certain products, specific risk parameters are not captured in VaR due to the lack of inherent liquidity and availability of appropriate historical data. The Firm uses proxies to estimate the VaR for these and other products when daily time series are not available. It is likely that using an actual price-based time series for these products, if available, would affect the VaR results presented.
The Firm uses alternative methods to capture and measure those risk parameters that are not otherwise captured in VaR, including economic-value stress testing and nonstatistical measures as described further below.
The Firm’s VaR model calculations are periodically evaluated and enhanced in response to changes in the composition of the Firm’s portfolios, changes in market conditions, improvements in the Firm’s modeling techniques and other factors. Such changes will also affect historical comparisons of VaR results. Model changes go through a review and approval process by the Model Review Group prior to implementation into the operating environment. For further information, see Model risk on page 139.
Separately, the Firm calculates a daily aggregated VaR in accordance with regulatory rules (“Regulatory VaR”), which is used to derive the Firm’s regulatory VaR-based capital requirements under Basel III. This Regulatory VaR model framework currently assumes a ten business-day holding period and an expected tail loss methodology which approximates a 99% confidence level. Regulatory VaR is applied to “covered” positions as defined by Basel III, which may be different than the positions included in the Firm’s Risk Management VaR. For example, credit derivative hedges of accrual loans are included in the Firm’s Risk Management VaR, while Regulatory VaR excludes these credit derivative hedges. In addition, in contrast to the Firm’s Risk Management VaR, Regulatory VaR currently excludes the diversification benefit for certain VaR models.
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JPMorgan Chase & Co./2014 Annual Report | | 133 |
Management’s discussion and analysis
For additional information on Regulatory VaR and the other components of market risk regulatory capital (e.g. VaR-based measure, stressed VaR-based measure and the respective backtesting) for the Firm, see JPMorgan Chase’s
Basel III Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website (http://investor.shareholder.com/jpmorganchase/basel.cfm).
The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total VaR | | | | | | | | | |
| As of or for the year ended December 31, | 2014 | | 2013 | | At December 31, |
| (in millions) | Avg. | Min | Max | | Avg. | Min | Max | | 2014 | 2013 |
| CIB trading VaR by risk type | | | | | | | | | | | | | | | | | | |
| Fixed income | $ | 34 |
| | $ | 23 |
| | $ | 45 |
| | | $ | 43 |
| | $ | 23 |
| | $ | 62 |
| | | $ | 34 |
| | $ | 36 |
| |
| Foreign exchange | 8 |
| | 4 |
| | 25 |
| | | 7 |
| | 5 |
| | 11 |
| | | 8 |
| | 9 |
| |
| Equities | 15 |
| | 10 |
| | 23 |
| | | 13 |
| | 9 |
| | 21 |
| | | 22 |
| | 14 |
| |
| Commodities and other | 8 |
| | 5 |
| | 14 |
| | | 14 |
| | 11 |
| | 18 |
| | | 6 |
| | 13 |
| |
| Diversification benefit to CIB trading VaR | (30 | ) | (a) | NM |
| (b) | NM |
| (b) | | (34 | ) | (a) | NM |
| (b) | NM |
| (b) | | (32 | ) | (a) | (36 | ) | (a) |
| CIB trading VaR | 35 |
| | 24 |
| | 49 |
| | | 43 |
| | 21 |
| | 66 |
| | | 38 |
| | 36 |
| |
| Credit portfolio VaR | 13 |
| | 8 |
| | 18 |
| | | 13 |
| | 10 |
| | 18 |
| | | 16 |
| | 11 |
| |
| Diversification benefit to CIB VaR | (8 | ) | (a) | NM |
| (b) | NM |
| (b) | | (9 | ) | (a) | NM |
| (b) | NM |
| (b) | | (9 | ) | (a) | (5 | ) | (a) |
| CIB VaR | 40 |
| | 29 |
| | 56 |
| | | 47 |
| | 25 |
| | 74 |
| | | 45 |
| | 42 |
| |
| | | | | | | | | | | | | | | | | | | |
| Mortgage Banking VaR | 7 |
| | 2 |
| | 28 |
| | | 12 |
| | 4 |
| | 24 |
| | | 3 |
| | 5 |
| |
Treasury and CIO VaR (c) | 4 |
| | 3 |
| | 6 |
| | | 6 |
| | 3 |
| | 14 |
| | | 4 |
| | 4 |
| |
| Asset Management VaR | 3 |
| | 2 |
| | 4 |
| | | 4 |
| | 2 |
| | 5 |
| | | 2 |
| | 3 |
| |
| Diversification benefit to other VaR | (4 | ) | (a) | NM |
| (b) | NM |
| (b) | | (8 | ) | (a) | NM |
| (b) | NM |
| (b) | | (3 | ) | (a) | (5 | ) | (a) |
| Other VaR | 10 |
| | 5 |
| | 27 |
| | | 14 |
| | 6 |
| | 28 |
| | | 6 |
| | 7 |
| |
| Diversification benefit to CIB and other VaR | (7 | ) | (a) | NM |
| (b) | NM |
| (b) | | (9 | ) | (a) | NM |
| (b) | NM |
| (b) | | (5 | ) | (a) | (5 | ) | (a) |
| Total VaR | $ | 43 |
| | $ | 30 |
| | $ | 70 |
| | | $ | 52 |
| | $ | 29 |
| | $ | 87 |
| | | $ | 46 |
| | $ | 44 |
| |
| |
(a) | Average portfolio VaR and period-end portfolio VaR were less than the sum of the VaR of the components described above, which is due to portfolio diversification. The diversification effect reflects the fact that risks are not perfectly correlated. |
| |
(b) | Designated as not meaningful (“NM”), because the minimum and maximum may occur on different days for distinct risk components, and hence it is not meaningful to compute a portfolio-diversification effect. |
| |
(c) | The Treasury and CIO VaR includes Treasury VaR as of the third quarter of 2013. |
As presented in the table above, average Total VaR and average CIB VaR decreased during 2014, compared with 2013. The decrease in Total VaR was primarily due to risk reduction in CIB and Mortgage Banking as well as lower volatility in the historical one-year look-back period during 2014 versus 2013.
Average CIB trading VaR decreased during 2014 primarily due to lower VaR in Fixed Income (driven by unwinding of risk and redemptions in the synthetic credit portfolio, and lower volatility in the historical one-year look-back period) and to reduced risk positions in commodities.
Average Mortgage Banking VaR decreased during 2014 as a result of reduced exposures due to lower loan originations.
Average Treasury and CIO VaR decreased during 2014, compared with 2013. The decrease predominantly reflected the unwind and roll-off of certain marked to market positions, and lower market volatility in the historical one-year look-back period.
The Firm’s average Total VaR diversification benefit was $7 million or 16% of the sum for 2014, compared with $9 million or 17% of the sum for 2013. In general, over the course of the year, VaR exposure can vary significantly as positions change, market volatility fluctuates and diversification benefits change.
VaR back-testing
The Firm evaluates the effectiveness of its VaR methodology by back-testing, which compares the daily Risk Management VaR results with the daily gains and losses recognized on market-risk related revenue.
The Firm’s definition of market risk-related gains and losses is consistent with the definition used by the banking regulators under Basel III. Under this definition market risk-related gains and losses are defined as: profits and losses on the Firm’s Risk Management positions, excluding fees, commissions, certain valuation adjustments (e.g., liquidity and DVA), net interest income, and gains and losses arising from intraday trading.
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134 | | JPMorgan Chase & Co./2014 Annual Report |
The following chart compares the daily market risk-related gains and losses on the Firm’s Risk Management positions for the year ended December 31, 2014. As the chart presents market risk-related gains and losses related to those positions included in the Firm’s Risk Management VaR, the results in the table below differ from the results of backtesting disclosed in the Market Risk section of the
Firm’s Basel III Pillar 3 Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to covered positions. The chart shows that for the year ended December 31, 2014, the Firm observed five VaR band breaks and posted gains on 157 of the 260 days in this period.
Other risk measures
Economic-value stress testing
Along with VaR, stress testing is an important tool in measuring and controlling risk. While VaR reflects the risk of loss due to adverse changes in markets using recent historical market behavior as an indicator of losses, stress testing is intended to capture the Firm’s exposure to unlikely but plausible events in abnormal markets. The Firm runs weekly stress tests on market-related risks across the lines of business using multiple scenarios that assume significant changes in risk factors such as credit spreads, equity prices, interest rates, currency rates or commodity prices. The framework uses a grid-based approach, which calculates multiple magnitudes of stress for both market rallies and market sell-offs for each risk factor. Stress-test results, trends and explanations based on current market risk positions are reported to the Firm’s senior management and to the lines of business to allow them to better understand the sensitivity of positions to certain defined events and to enable them to manage their risks with more transparency.
Stress scenarios are defined and reviewed by Market Risk, and significant changes are reviewed by the relevant Risk Committees. While most of the scenarios estimate losses based on significant market moves, such as an equity market collapse or credit crisis, the Firm also develops scenarios to quantify risk arising from specific portfolios or concentrations of risks, which attempt to capture certain idiosyncratic market movements. Scenarios may be redefined on an ongoing basis to reflect current market conditions. Ad hoc scenarios are run in response to specific market events or concerns. The Firm’s stress testing framework is utilized in calculating results under scenarios mandated by the Federal Reserve’s CCAR and ICAAP (“Internal Capital Adequacy Assessment Process”) processes.
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JPMorgan Chase & Co./2014 Annual Report | | 135 |
Management’s discussion and analysis
Nonstatistical risk measures
Nonstatistical risk measures include sensitivities to variables used to value positions, such as credit spread sensitivities, interest rate basis point values and market values. These measures provide granular information on the Firm’s market risk exposure. They are aggregated by line-of-business and by risk type, and are used for tactical control and monitoring limits.
Loss advisories and profit and loss drawdowns
Loss advisories and profit and loss drawdowns are tools used to highlight trading losses above certain levels of risk tolerance. Profit and loss drawdowns are defined as the decline in net profit and loss since the year-to-date peak revenue level.
Earnings-at-risk
The VaR and stress-test measures described above illustrate the total economic sensitivity of the Firm’s Consolidated balance sheets to changes in market variables. The effect of interest rate exposure on the Firm’s reported net income is also important as interest rate risk represents one of the Firm’s significant market risks. Interest rate risk arises not only from trading activities but also from the Firm’s traditional banking activities, which include extension of loans and credit facilities, taking deposits and issuing debt. The Firm evaluates its structural interest rate risk exposure through earnings-at-risk, which measures the extent to which changes in interest rates will affect the Firm’s core net interest income (see page 78 for further discussion of core net interest income) and interest rate-sensitive fees. Earnings-at-risk excludes the impact of trading activities and MSR, as these sensitivities are captured under VaR.
The CIO, Treasury and Corporate (“CTC”) Risk Committee establishes the Firm’s structural interest rate risk policies and market risk limits, which are subject to approval by the Risk Policy Committee of the Firm’s Board of Directors. CIO, working in partnership with the lines of business, calculates the Firm’s structural interest rate risk profile and reviews it with senior management including the CTC Risk Committee and the Firm’s ALCO. In addition, oversight of structural interest rate risk is managed through a dedicated risk function reporting to the CTC CRO. This risk function is responsible for providing independent oversight and governance around assumptions; and establishing and monitoring limits for structural interest rate risk.
Structural interest rate risk can occur due to a variety of factors, including:
Differences in the timing among the maturity or repricing of assets, liabilities and off-balance sheet instruments.
Differences in the amounts of assets, liabilities and off-balance sheet instruments that are repricing at the same time.
Differences in the amounts by which short-term and long-term market interest rates change (for example, changes in the slope of the yield curve).
The impact of changes in the maturity of various assets, liabilities or off-balance sheet instruments as interest rates change.
The Firm manages interest rate exposure related to its assets and liabilities on a consolidated, corporate-wide basis. Business units transfer their interest rate risk to Treasury through a transfer-pricing system, which takes into account the elements of interest rate exposure that can be risk-managed in financial markets. These elements include asset and liability balances and contractual rates of interest, contractual principal payment schedules, expected prepayment experience, interest rate reset dates and maturities, rate indices used for repricing, and any interest rate ceilings or floors for adjustable rate products. All transfer-pricing assumptions are dynamically reviewed.
The Firm manages structural interest rate risk generally through its investment securities portfolio and related derivatives.
The Firm conducts simulations of changes in structural interest rate-sensitive revenue under a variety of interest rate scenarios. Earnings-at-risk scenarios estimate the potential change in this revenue, and the corresponding impact to the Firm’s pretax core net interest income, over the following 12 months, utilizing multiple assumptions as described below. These scenarios highlight exposures to changes in interest rates, pricing sensitivities on deposits, optionality and changes in product mix. The scenarios include forecasted balance sheet changes, as well as prepayment and reinvestment behavior. Mortgage prepayment assumptions are based on current interest rates compared with underlying contractual rates, the time since origination, and other factors which are updated periodically based on historical experience.
|
| | | | | | | | | | | | |
| JPMorgan Chase’s 12-month pretax core net interest income sensitivity profiles. |
| (Excludes the impact of trading activities and MSRs) |
| | Instantaneous change in rates | |
| (in millions) | +200 bps | +100 bps | -100 bps | -200 bps |
| December 31, 2014 | $ | 4,667 |
|
| $ | 2,864 |
|
| NM | (a) | NM | (a) |
| |
(a) | Downward 100- and 200-basis-points parallel shocks result in a federal funds target rate of zero and negative three- and six-month U.S. Treasury rates. The earnings-at-risk results of such a low-probability scenario are not meaningful. |
The Firm’s benefit to rising rates is largely a result of reinvesting at higher yields and assets re-pricing at a faster pace than deposits.
Additionally, another interest rate scenario used by the Firm — involving a steeper yield curve with long-term rates rising by 100 basis points and short-term rates staying at current levels — results in a 12-month pretax core net interest income benefit of $566 million. The increase in core net interest income under this scenario reflects the Firm reinvesting at the higher long-term rates, with funding costs remaining unchanged.
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136 | | JPMorgan Chase & Co./2014 Annual Report |
Country risk is the risk that a sovereign event or action alters the value or terms of contractual obligations of obligors, counterparties and issuers or adversely affects markets related to a particular country. The Firm has a comprehensive country risk management framework for assessing country risks, determining risk tolerance, and measuring and monitoring direct country exposures in the Firm. The Country Risk Management group is responsible for developing guidelines and policies for managing country risk in both emerging and developed countries. The Country Risk Management group actively monitors the various portfolios giving rise to country risk to ensure the Firm’s country risk exposures are diversified and that exposure levels are appropriate given the Firm’s strategy and risk tolerance relative to a country.
Country risk organization
The Country Risk Management group is an independent risk management function which works in close partnership with other risk functions to identify and monitor country risk within the Firm. The Firmwide Risk Executive for Country Risk reports to the Firm’s CRO.
Country Risk Management is responsible for the following functions:
Developing guidelines and policies consistent with a comprehensive country risk framework
Assigning sovereign ratings and assessing country risks
Measuring and monitoring country risk exposure and stress across the Firm
Managing country limits and reporting trends and limit breaches to senior management
Developing surveillance tools for early identification of potential country risk concerns
Providing country risk scenario analysis
Country risk identification and measurement
The Firm is exposed to country risk through its lending, investing, and market-making activities, whether cross-border or locally funded. Country exposure includes activity with both government and private-sector entities in a country. Under the Firm’s internal country risk management approach, country exposure is reported based on the country where the majority of the assets of the obligor, counterparty, issuer or guarantor are located or where the majority of its revenue is derived, which may be different than the domicile (legal residence) or country of incorporation of the obligor, counterparty, issuer or guarantor. Country exposures are generally measured by considering the Firm’s risk to an immediate default of the counterparty or obligor, with zero recovery. Assumptions are sometimes required in determining the measurement and allocation of country exposure, particularly in the case of certain tranched credit derivatives. Different measurement approaches or assumptions would affect the amount of reported country exposure.
Under the Firm’s internal country risk measurement framework:
Lending exposures are measured at the total committed amount (funded and unfunded), net of the allowance for credit losses and cash and marketable securities collateral received
Securities financing exposures are measured at their receivable balance, net of collateral received
Debt and equity securities are measured at the fair value of all positions, including both long and short positions
Counterparty exposure on derivative receivables is measured at the derivative’s fair value, net of the fair value of the related collateral. Counterparty exposure on derivatives can change significantly because of market movements.
Credit derivatives protection purchased and sold is reported based on the underlying reference entity and is measured at the notional amount of protection purchased or sold, net of the fair value of the recognized derivative receivable or payable. Credit derivatives protection purchased and sold in the Firm’s market-making activities is measured on a net basis, as such activities often result in selling and purchasing protection related to the same underlying reference entity; this reflects the manner in which the Firm manages these exposures
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JPMorgan Chase & Co./2014 Annual Report | | 137 |
Management’s discussion and analysis
The Firm also has indirect exposures to country risk (for example, related to the collateral received on securities financing receivables or related to client clearing activities). These indirect exposures are managed in the normal course of business through the Firm’s credit, market, and operational risk governance, rather than through Country Risk Management.
The Firm’s internal country risk reporting differs from the reporting provided under the Federal Financial Institutions Examination Council (“FFIEC”) bank regulatory requirements as there are significant differences in reporting methodology. For further information on the FFIEC’s reporting methodology, see Cross-border outstandings on page 325.
Country risk stress testing
The country risk stress framework aims to identify potential losses arising from a country crisis by capturing the impact of large asset price movements in a country based on market shocks combined with counterparty specific assumptions. Country Risk Management periodically defines and runs ad hoc stress scenarios for individual countries in response to specific market events and sector performance concerns.
Country risk monitoring and control
The Country Risk Management Group establishes guidelines for sovereign ratings reviews and limit management. Country stress and nominal exposures are measured under a comprehensive country limit framework. Country ratings and limits activity are actively monitored and reported on a regular basis. Country limit requirements are reviewed and approved by senior management as often as necessary, but at least annually. In addition, the Country Risk Management group uses surveillance tools for early identification of potential country risk concerns, such as signaling models and ratings indicators.
Country risk reporting
The following table presents the Firm’s top 20 exposures by country (excluding the U.S.) as of December 31, 2014. The selection of countries is based solely on the Firm’s largest total exposures by country, based on the Firm’s internal country risk management approach, and does not represent the Firm’s view of any actual or potentially adverse credit conditions. Country exposures may fluctuate from period-to-period due to normal client activity and market flows.
|
| | | | | | | | | | | | | |
| Top 20 country exposures | | | |
| | December 31, 2014 |
(in billions) | | Lending(a) | Trading and investing(b)(c) | Other(d) | Total exposure |
| United Kingdom | | $ | 25.8 |
| $ | 31.1 |
| $ | 1.4 |
| $ | 58.3 |
|
| Germany | | 23.5 |
| 21.6 |
| 0.2 |
| 45.3 |
|
| Netherlands | | 6.1 |
| 19.2 |
| 2.1 |
| 27.4 |
|
| France | | 11.4 |
| 15.2 |
| 0.2 |
| 26.8 |
|
| China | | 10.8 |
| 7.0 |
| 0.5 |
| 18.3 |
|
| Japan | | 11.5 |
| 5.5 |
| 0.4 |
| 17.4 |
|
| Australia | | 6.4 |
| 10.8 |
| — |
| 17.2 |
|
| Canada | | 12.4 |
| 4.2 |
| 0.3 |
| 16.9 |
|
| Switzerland | | 9.3 |
| 1.7 |
| 2.3 |
| 13.3 |
|
| India | | 5.8 |
| 6.2 |
| 0.6 |
| 12.6 |
|
| Brazil | | 6.3 |
| 6.3 |
| — |
| 12.6 |
|
| Korea | | 5.1 |
| 5.2 |
| 0.1 |
| 10.4 |
|
| Spain | | 3.4 |
| 3.5 |
| — |
| 6.9 |
|
| Hong Kong | | 1.7 |
| 4.1 |
| 1.0 |
| 6.8 |
|
| Italy | | 2.4 |
| 3.4 |
| 0.2 |
| 6.0 |
|
| Belgium | | 3.1 |
| 2.6 |
| 0.1 |
| 5.8 |
|
| Taiwan | | 2.2 |
| 3.5 |
| — |
| 5.7 |
|
| Singapore | | 3.1 |
| 1.9 |
| 0.5 |
| 5.5 |
|
| Mexico | | 2.5 |
| 3.0 |
| — |
| 5.5 |
|
| Luxembourg | | 3.5 |
| 0.3 |
| 1.1 |
| 4.9 |
|
| |
(a) | Lending includes loans and accrued interest receivable, net of collateral and the allowance for loan losses, deposits with banks, acceptances, other monetary assets, issued letters of credit net of participations, and undrawn commitments to extend credit. Excludes intra-day and operating exposures, such as from settlement and clearing activities. |
| |
(b) | Includes market-making inventory, securities held in AFS accounts, counterparty exposure on derivative and securities financings net of collateral and hedging. |
| |
(c) | Includes single-name and index and tranched credit derivatives for which one or more of the underlying reference entities is in a country listed in the above table. |
| |
(d) | Includes capital invested in local entities and physical commodity inventory. |
The Firm’s country exposure to Russia was $4.2 billion at December 31, 2014. The Firm is closely monitoring events in the region, and assessing the impact of falling oil prices, a weakening currency, ongoing sanctions and potential countermeasures such as capital controls. The Firm is also focused on possible contagion effects, via trade, financial or political channels.
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138 | | JPMorgan Chase & Co./2014 Annual Report |
Model risk
Model risk is the potential for adverse consequences from decisions based on incorrect or misused model outputs and reports.
The Firm uses models, for many purposes, but primarily for the measurement, monitoring and management of risk positions. Valuation models are employed by the Firm to value certain financial instruments that cannot otherwise be valued using quoted prices. These valuation models may also be employed as inputs to risk management models, including VaR and economic stress models. The Firm also makes use of models for a number of other purposes, including the calculation of regulatory capital requirements and estimating the allowance for credit losses.
Models are owned by various functions within the Firm based on the specific purposes of such models. For example, VaR models and certain regulatory capital models are owned by the line of business-aligned risk management functions. Owners of models are responsible for the development, implementation and testing of their models, as well as referral of models to the Model Risk function (within the Model Risk and Development unit) for review and approval. Once models have been approved, model owners are responsible for the maintenance of a robust operating environment and must monitor and evaluate the performance of the models on an ongoing basis. Model owners may seek to enhance models in response to changes in the portfolios and for changes in product and market developments, as well as to capture improvements in available modeling techniques and systems capabilities.
The Model Risk review and governance functions are independent of the model owners and they review and approve a wide range of models, including risk management, valuation and regulatory capital models used by the Firm. The Model Risk review and governance functions are part of the Firm’s Model Risk and Development unit, and the Firmwide Model Risk and Development Executive reports to the Firm’s CRO.
Models are tiered based on an internal standard according to their complexity, the exposure associated with the model and the Firm’s reliance on the model. This tiering is subject to the approval of the Model Risk function. A model review conducted by the Model Risk function considers the model’s suitability for the specific uses to which it will be put. The factors considered in reviewing a model include whether the model accurately reflects the characteristics of the product and its significant risks, the selection and reliability of model inputs, consistency with models for similar products, the appropriateness of any model-related adjustments, and sensitivity to input parameters and assumptions that cannot be observed from the market. When reviewing a model, the Model Risk function analyzes and challenges the model methodology and the reasonableness of model assumptions and may perform or require additional testing, including back-testing of model outcomes. Model reviews are approved by the appropriate level of management within the Model Risk function based on the relevant tier of the model.
Under the Firm’s model risk policy, new models, as well as material changes to existing models, are reviewed and approved by the Model Risk function prior to implementation in the operating environment.
In the event that the Model Risk function does not approve a model, the model owner is required to remediate the model within a time period agreed upon with the Model Risk function. The model owner is also required to resubmit the model for review to the Model Risk function and to take appropriate actions to mitigate the model risk if it is to be used in the interim. These actions will depend on the model and may include, for example, limitation of trading activity. The Firm may also implement other appropriate risk measurement tools to augment the model that is subject to remediation. In certain circumstances, exceptions to the Firm’s model risk policy may be granted by the head of the Model Risk function to allow a model to be used prior to review or approval.
For a summary of valuations based on models, see Critical Accounting Estimates Used by the Firm and Note 3.
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JPMorgan Chase & Co./2014 Annual Report | | 139 |
Management’s discussion and analysis
|
| | | | |
PRINCIPAL RISK MANAGEMENT |
Principal investments are predominantly privately-held financial assets and instruments, typically representing an ownership or junior capital position, that have unique risks due to their illiquidity or for which there is less observable market or valuation data. Such investing activities are typically intended to be held over extended investment periods and, accordingly, the Firm has no expectation for short-term gain with respect to these investments. Principal investments cover multiple asset classes and are made either in stand-alone investing businesses or as part of a broader business platform. Asset classes include tax-oriented investments including affordable housing and alternative energy investments, private equity, and mezzanine/junior debt investments.
The Firm’s principal investments are managed under various lines of business and are captured within the respective LOB’s financial results. The Firm’s approach to managing principal risk is consistent with the Firm’s general risk governance structure. A Firmwide risk policy framework exists for all principal investing activities. All investments are approved by investment committees that include executives who are independent from the investing businesses. The Firm’s independent control functions are responsible for reviewing the appropriateness of the carrying value of principal investments in accordance with relevant policies. Targeted levels for total and annual investments are established in order to manage the overall size of the portfolios. Industry, geographic, and position level concentration limits are in place intended to ensure diversification of the portfolios. The Firm also conducts stress testing on these portfolios using specific scenarios that estimate losses based on significant market moves and/or other risk events.
The Firm has taken steps to reduce its exposure to principal investments, selling portions of Corporate’s One Equity Partners private equity portfolio and the CIB’s Global Special Opportunities Group equity and mezzanine financing portfolio.
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140 | | JPMorgan Chase & Co./2014 Annual Report |
|
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OPERATIONAL RISK MANAGEMENT |
Operational risk is the risk of loss resulting from inadequate or failed processes or systems or due to external events that are neither market nor credit-related. Operational risk is inherent in the Firm’s activities and can manifest itself in various ways, including fraudulent acts, business interruptions, inappropriate behavior of employees, failure to comply with applicable laws and regulations or failure of vendors to perform in accordance with their arrangements. These events could result in financial losses, litigation and regulatory fines, as well as other damage to the Firm. The goal is to keep operational risk at appropriate levels, in light of the Firm’s financial strength, the characteristics of its businesses, the markets in which it operates, and the competitive and regulatory environment to which it is subject.
Overview
To monitor and control operational risk, the Firm maintains an overall Operational Risk Management Framework (“ORMF”) which comprises governance oversight, risk assessment, capital measurement, and reporting and monitoring. The ORMF is intended to enable the Firm to function with a sound and well-controlled operational environment.
Risk Management is responsible for prescribing the ORMF to the lines of business and corporate functions and to provide independent oversight of its implementation. In 2014, Operational Risk Officers (“OROs”) were appointed across each line of business and corporate function to provide this independent oversight.
The lines of business and corporate functions are responsible for implementing the ORMF. The Firmwide Oversight and Control Group, comprised of dedicated control officers within each of the lines of business and corporate functional areas, as well as a central oversight team, is responsible for day to day review and monitoring of ORMF execution.
Operational risk management framework
The components of the Operational Risk Management Framework are:
Oversight and governance
Control committees oversee the operational risks and control environment of the respective line of business, function or region. These committees escalate operational risk issues to their respective line of business, function or regional Risk committee and also escalate significant risk issues (and/or risk issues with potential Firmwide impact) to the Firmwide Control Committee (“FCC”). The FCC provides a monthly forum for reviewing and discussing Firmwide operational risk metrics and management, including existing and emerging issues, and reviews execution against the ORMF. It escalates significant issues to the Firmwide Risk Committee, as appropriate. For additional information on the Firmwide Control Committee, see Risk Governance on pages 106–109.
Risk self-assessment
In order to evaluate and monitor operational risk, the lines of business and functions utilize the Firm’s standard risk and control self-assessment (“RCSA”) process and supporting architecture. The RCSA process requires management to identify material inherent operational risks, assess the design and operating effectiveness of relevant controls in place to mitigate such risks, and evaluate residual risk. Action plans are developed for control issues that are identified, and businesses are held accountable for tracking and resolving issues on a timely basis. Commencing in 2015, Risk Management will perform sample independent challenge of the RCSA program.
Risk reporting and monitoring
Operational risk management and control reports provide information, including actual operational loss levels, self-assessment results and the status of issue resolution to the lines of business and senior management. The purpose of these reports is to enable management to maintain operational risk at appropriate levels within each line of business, to escalate issues and to provide consistent data aggregation across the Firm’s businesses and functions.
The Firm has a process for capturing, tracking and monitoring operational risk events. The Firm analyzes errors and losses and identifies trends. Such analysis enables identification of the causes associated with risk events faced by the lines of business.
Capital measurement
Operational risk capital is measured primarily using a statistical model based on the Loss Distribution Approach (“LDA”). The operational risk capital model uses actual losses (internal and external to the Firm), an inventory of material forward-looking potential loss scenarios and adjustments to reflect changes in the quality of the control environment in determining Firmwide operational risk capital. This methodology is designed to comply with the Advanced Measurement rules under the Basel framework.
The Firm’s capital methodology incorporates four required elements of the Advanced Measurement Approach (“AMA”):
Internal losses,
External losses,
Scenario analysis, and
Business environment and internal control factors (“BEICF”).
The primary component of the operational risk capital estimate is the result of a statistical model, the LDA, which simulates the frequency and severity of future operational risk losses based on historical data. The LDA model is used to estimate an aggregate operational loss over a one-year time horizon, at a 99.9% confidence level. The LDA model incorporates actualoperational losses in the quarter following the period in which those losses were realized,
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JPMorgan Chase & Co./2014 Annual Report | | 141 |
Management’s discussion and analysis
and the calculation generally continues to reflect such losses even after the issues or business activities giving rise to the losses have been remediated or reduced.
The LDA is supplemented by both management’s view of plausible tail risk, which is captured as part of the Scenario Analysis process, and evaluation of key LOB internal control metrics (BEICF). The Firm may further supplement such analysis to incorporate management judgment and feedback from its bank regulators. For information related to operational risk RWA, see Regulatory capital on pages 146–153.
Audit alignment
Internal Audit utilizes a risk-based program of audit coverage to provide an independent assessment of the design and effectiveness of key controls over the Firm’s operations, regulatory compliance and reporting. This includes reviewing the operational risk framework, the effectiveness of the RCSA process, and the loss data-collection and reporting activities.
Insurance
One of the ways operational loss is mitigated is through insurance maintained by the Firm. The Firm purchases insurance to be in compliance with local laws and regulations (e.g., workers compensation), as well as to serve other needs (e.g., property loss and public liability). Insurance may also be required by third parties with whom the Firm does business. The insurance purchased is reviewed and approved by senior management.
Cybersecurity
The Firm devotes significant resources to maintain and regularly update its systems and processes that are designed to protect the security of the Firm’s computer systems, software, networks and other technology assets against attempts by unauthorized parties to obtain access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage. In 2014, the Firm spent more than $250 million, and had approximately 1,000 people focused on cybersecurity efforts, and these efforts are expected to grow significantly over the coming years.
Third parties with which the Firm does business or that facilitate the Firm’s business activities (e.g., vendors, exchanges, clearing houses, central depositories, and financial intermediaries) could also be sources of cybersecurity risk to the Firm, including with respect to breakdowns or failures of their systems, misconduct by the employees of such parties, or cyberattacks which could affect their ability to deliver a product or service to the Firm or result in lost or compromised information of the Firm or its clients. In addition, customers with which or whom the Firm does business can also be sources of cybersecurity risk to the Firm, particularly when their activities and systems are beyond the Firm’s own security and control systems. Customers will generally be responsible for losses incurred due to their own failure to maintain the security of their own systems and processes.
The Firm and several other U.S. financial institutions have experienced significant distributed denial-of-service attacks from technically sophisticated and well-resourced unauthorized parties which are intended to disrupt online banking services. The Firm and its clients are also regularly targeted by unauthorized parties using malicious code and viruses.
On September 10, 2014, the Firm disclosed that a cyberattack against the Firm had occurred. On October 2, 2014, the Firm updated that information and disclosed that, while user contact information (name, address, phone number and email address) and internal JPMorgan Chase information relating to such users had been compromised, there had been no evidence that account information for such affected customers -- account numbers, passwords, user IDs, dates of birth or Social Security numbers -- was compromised during the attack. The Firm continues to vigilantly monitor the situation. In addition, as of the October 2, 2014 announcement, as well as of the date of this Annual Report, the Firm has not seen any unusual customer fraud related to this incident. The Firm is cooperating with government agencies in connection with their investigation of the incident. The Firm also notified its customers that they were not liable for unauthorized transactions in their accounts attributable to this attack that they promptly alerted the Firm about.
The Firm has established, and continues to establish, defenses on an ongoing basis to mitigate this and other possible future attacks. The cyberattacks experienced to date have not resulted in any material disruption to the Firm’s operations or had a material adverse effect on the Firm’s results of operations. The Board of Directors and the Audit Committee are regularly apprised regarding the cybersecurity policies and practices of the Firm as well as the Firm’s efforts regarding this attack and other significant cybersecurity events.
Cybersecurity attacks, like the one experienced by the Firm, highlight the need for continued and increased cooperation among businesses and the government, and the Firm continues to work with the appropriate government and law enforcement agencies and other businesses, including the Firm’s third-party service providers, to continue to enhance defenses and improve resiliency to cybersecurity threats.
Business and Technology Resiliency
JPMorgan Chase’s global resiliency and crisis management program is intended to ensure that the Firm has the ability to recover its critical business functions and supporting assets (i.e., staff, technology and facilities) in the event of a business interruption, and to remain in compliance with global laws and regulations as they relate to resiliency risk. The program includes corporate governance, awareness and training, as well as strategic and tactical initiatives aimed to ensure that risks are properly identified, assessed, and managed.
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142 | | JPMorgan Chase & Co./2014 Annual Report |
The Firm has established comprehensive tracking and reporting of resiliency plans in order to proactively anticipate and manage various potential disruptive circumstances such as severe weather, technology and communications outages, flooding, mass transit shutdowns and terrorist threats, among others. The resiliency measures utilized by the Firm include backup infrastructure for data centers, a geographically distributed workforce, dedicated recovery facilities, providing technological capabilities to support remote work capacity for displaced staff and accommodation of employees at alternate locations. JPMorgan Chase continues to coordinate its global resiliency program across the Firm and mitigate business continuity risks by reviewing and testing recovery procedures. The strength and proficiency of the Firm’s global resiliency program has played an integral role in maintaining the Firm’s business operations during and quickly after various events in 2014 that have resulted in business interruptions, such as severe winter weather in the U.S., tropical storms in the Philippines, and geopolitical events in Brazil and Hong Kong.
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JPMorgan Chase & Co./2014 Annual Report | | 143 |
Management’s discussion and analysis
Legal risk is the risk of loss or imposition of damages, fines, penalties or other liability arising from failure to comply with a contractual obligation or to comply with laws or regulations to which the Firm is subject.
Overview
In addition to providing legal services and advice to the Firm, and communicating and helping the lines business adjust to the legal and regulatory changes they face, including the heightened scrutiny and expectations of the Firm’s regulators, the global Legal function is responsible for working with the businesses and corporate functions to fully understand and assess their adherence to laws and regulations, as well as potential exposures on key litigation and transactional matters. In particular, Legal assists Oversight & Control, Risk, Finance, Compliance and Internal Audit in their efforts to ensure compliance with all applicable laws and regulations and the Firm’s corporate standards for doing business. The Firm’s lawyers also advise the Firm on potential legal exposures on key litigation and transactional matters, and perform a significant defense and advocacy role by defending the Firm against claims and potential claims and, when needed, pursuing claims against others.
Governance and Oversight
The Firm’s General Counsel reports to the CEO and is a member of the Operating Committee, the Firmwide Risk Committee and the Firmwide Control Committee. The General Counsel’s leadership team includes a General Counsel for each line of business, the heads of the Litigation and Corporate & Regulatory practices, as well as the Firm’s Corporate Secretary. Each region (e.g., Latin America, Asia Pacific) has a General Counsel who is responsible for managing legal risk across all lines of business and functions in the region.
Legal works with various committees (including new business initiative and reputation risk committees) and the Firm’s businesses to protect the Firm’s reputation beyond any particular legal requirements. In addition, the Firm’s Conflicts Office examines the Firm’s wholesale transactions that may have the potential to create conflicts of interest for the Firm.
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COMPLIANCE RISK MANAGEMENT |
Compliance risk is the risk fines or sanctions or of financial damage or loss due to the failure to comply with laws, rules, and regulations.
Overview
Global Compliance Risk Management’s (“Compliance”) role is to identify, measure, monitor, and report on and provide oversight regarding compliance risks arising from business operations, and provide guidance on how the Firm can mitigate these risks.
While each line of business is accountable for managing its compliance risk, the Firm’s Compliance teams work closely with the Operating Committee and senior management to provide independent review and oversight of the lines of business operations, with a focus on compliance with applicable global, regional and local laws and regulations. In recent years, the Firm has experienced heightened scrutiny by its regulators of its compliance with regulations, and with respect to its controls and operational processes. The Firm expects such regulatory scrutiny will continue.
Governance and Oversight
Compliance operates independent of the lines of business, and is led by the Chief Compliance Officer (“CCO”) who reports directly to the Firm’s COO. The Firm maintains oversight and coordination in its Compliance Risk Management practices globally through ongoing dialog and reporting between the lines of business, Regional Chief Compliance Officers and the CCO regarding significant compliance and regulatory management matters, as well as implementation of the Compliance program across the lines of business and Regions.
The Firm has in place a Code of Conduct (the “Code”), and each employee is given annual training in respect of the Code and is required annually to affirm his or her compliance with the Code. The Code sets forth the Firm’s core principles and fundamental values, including that no employee should ever sacrifice integrity - or give the impression that he or she has - even if one thinks it would help the Firm’s business. The Code requires prompt reporting of any known or suspected violation of the Code, any internal Firm policy, or any law or regulation applicable to the Firm’s business. It also requires the reporting of any illegal conduct, or conduct that violates the underlying principles of the Code, by any of the Firm’s customers, suppliers, contract workers, business partners, or agents. Specified employees are specially trained and designated as “code specialists” who act as a resource to employees on Code of Conduct matters. In addition, concerns may be reported anonymously and the Firm prohibits retaliation against employees for the good faith reporting of any actual or suspected violations of the Code.
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144 | | JPMorgan Chase & Co./2014 Annual Report |
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FIDUCIARY RISK MANAGEMENT |
Fiduciary risk is the risk of a failure to exercise the applicable high standard of care, to act in the best interests of clients or to treat clients fairly, as required under applicable law or regulation.
Depending on the fiduciary activity and capacity in which the Firm is acting, federal and state statutes and regulations, and common law require the Firm to adhere to specific duties in which the Firm must always place the client’s interests above its own.
Fiduciary risk governance
Fiduciary Risk Management is the responsibility of the relevant LOB risk and/or other governance committees. Senior business, legal, risk and compliance managers, who have particular responsibility for fiduciary matters, work with the relevant LOB risk committees with the goal of ensuring that businesses providing investment, trusts and estates, or other fiduciary products or services that give rise to fiduciary duties to clients perform at the appropriate standard relative to their fiduciary relationship with a client. Each LOB and its respective risk and/or other governance committees are responsible for the oversight and management of the fiduciary risks in their businesses. Of particular focus are the policies and practices that address a business’s responsibilities to a client, including performance and service requirements and expectations; client suitability determinations; and disclosure obligations and communications. In this way, the relevant LOB risk and/or other governance committees provide oversight of the Firm’s efforts to monitor, measure and control the performance and delivery of the products or services to clients that may give rise to such fiduciary duties, as well as the Firm’s fiduciary responsibilities with respect to the Firm’s employee benefit plans.
The Firmwide Fiduciary Risk Committee (“FFRC”) is a forum for risk matters related to the Firm’s fiduciary activities and oversees the firmwide fiduciary risk governance framework. It supports the consistent identification and escalation of fiduciary risk matters by the relevant lines of business or corporate functions responsible for managing fiduciary activities. The committee escalates significant issues to the Firmwide Risk Committee and any other committee considered appropriate.
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REPUTATION RISK MANAGEMENT |
Reputation risk is the risk that an action, transaction, investment or event will reduce the trust that clients, shareholders, employees or the broader public has in the Firm’s integrity or competence. Maintaining the Firm’s reputation is the responsibility of each individual employee of the Firm. The Firm’s Reputation Risk policy explicitly vests each employee with the responsibility to consider the reputation of the Firm when engaging in any activity. Since the types of events that could harm the Firm’s reputation are so varied across the Firm’s lines of business, each line of business has a separate reputation risk governance infrastructure in place, which comprises three key elements: clear, documented escalation criteria appropriate to the business footprint; a designated primary discussion forum – in most cases, one or more dedicated reputation risk committees; and a list of designated contacts. Line of business reputation risk governance is overseen by a Firmwide Reputation Risk Governance function, which provides oversight of the governance infrastructure and process to support the consistent identification, escalation, management and reporting of reputation risk issues firmwide.
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JPMorgan Chase & Co./2014 Annual Report | | 145 |
Management’s discussion and analysis
Capital risk is the risk the Firm has an insufficient level and composition of capital to support the Firm’s business activities and associated risks during normal economic environments and under stressed conditions.
A strong capital position is essential to the Firm’s business strategy and competitive position. Maintaining a strong balance sheet to manage through economic volatility is considered a strategic imperative of the Firm’s Board of Directors, CEO and Operating Committee. The Firm’s fortress balance sheet philosophy focuses on risk-adjusted returns, strong capital and robust liquidity. The Firm’s capital risk management strategy focuses on maintaining long-term stability which enables the Firmto enable it to build and invest in market-leading businesses, even in a highly stressed environment. Prior to making any decisions on future business activities, seniorSenior management considers the implications on the Firm’s capital.capital prior to making decisions that could impact future business activities. In addition to considering the Firm’s earnings outlook, senior management evaluates all sources and uses of capital with a view to preserving the Firm’s capital strength. Maintaining a strong balance sheet to manage through economic volatility is considered a strategic imperative by the Firm’s Board of Directors, CEO and Operating Committee. The Firm’s balance sheet philosophy focuses on risk-adjusted returns, strong capital and reserves, and robust liquidity.
The Firm’s capital risk management objectives are to hold capital sufficient to:
Cover all material risks underlying the Firm’s business activities;
Maintain “well-capitalized” status under regulatory requirements;
Maintain debt ratings that enablefor the Firm to optimizeand its funding mix and liquidity sources while minimizing costs;insured depository institution (“IDI”) subsidiaries;
Retain flexibility to take advantage of future investment opportunities;Support risks underlying business activities;
Maintain sufficient capital in order to continue to build and invest in its businesses through the cycle and in stressed environments;
Retain flexibility to take advantage of future investment opportunities;
Serve as a source of strength to its subsidiaries;
Meet capital distribution objectives; and
Distribute excessMaintain sufficient capital resources to shareholders while balancing other stated objectives.operate throughout a resolution period in accordance with the Firm’s preferred resolution strategy.
These objectives are achieved through ongoing monitoringthe establishment of the Firm’sminimum capital position, regular stress testing,targets and a strong capital governance framework. Capital risk management is intended to be flexible in order to react to a range of potential events. JPMorgan Chase has firmwideThe Firm’s minimum capital targets are based on the most binding of three pillars: an internal assessment of the Firm’s capital needs; an estimate of required capital under the CCAR and LOB processes for ongoingDodd-Frank Act stress testing requirements; and Basel III Fully Phased-In regulatory minimums. Where necessary, each pillar may include a management-established buffer. The capital governance framework requires regular monitoring of the Firm’s capital positions, stress testing and active managementdefining escalation protocols, both at the Firm and material legal entity levels.
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| 82 | | JPMorgan Chase & Co./2017 Annual Report |
The following tables present the Firm’s Transitional and Fully Phased-In risk-based and leverage-based capital metrics under both the Basel III Standardized and Advanced Approaches. The Firm’s Basel III ratios exceed both the Transitional and Fully Phased-In regulatory minimums as of itsDecember 31, 2017 and 2016. For further discussion of these capital position.metrics, including regulatory minimums, and the Standardized and Advanced Approaches, refer to Strategy and Governance on pages 84–88.
Capital strategy
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| | Transitional | Fully Phased-In | |
December 31, 2017 (in millions, except ratios) | Standardized | | Advanced | | Minimum capital ratios | | Standardized | | Advanced | | Minimum capital ratios | |
| Risk-based capital metrics: | | | | | | | | | | | | |
| CET1 capital | $ | 183,300 |
| | $ | 183,300 |
| | | | $ | 183,244 |
| | $ | 183,244 |
| | | |
| Tier 1 capital | 208,644 |
| | 208,644 |
| | | | 208,564 |
| | 208,564 |
| | | |
| Total capital | 238,395 |
| | 227,933 |
| | | | 237,960 |
| | 227,498 |
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| Risk-weighted assets | 1,499,506 |
| | 1,435,825 |
| | | | 1,509,762 |
| | 1,446,696 |
| | | |
| CET1 capital ratio | 12.2 | % | | 12.8 | % | | 7.5 | % | | 12.1 | % | | 12.7 | % | | 10.5 | % | |
| Tier 1 capital ratio | 13.9 |
| | 14.5 |
| | 9.0 |
| | 13.8 |
| | 14.4 |
| | 12.0 |
| |
| Total capital ratio | 15.9 |
| | 15.9 |
| | 11.0 |
| | 15.8 |
| | 15.7 |
| | 14.0 |
| |
| Leverage-based capital metrics: | | | | | | | | | | | | |
Adjusted average assets(a) | $ | 2,514,270 |
| | $ | 2,514,270 |
| | | | $ | 2,514,822 |
| | $ | 2,514,822 |
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Tier 1 leverage ratio(b) | 8.3 | % | | 8.3 | % | | 4.0 | % | | 8.3 | % | | 8.3 | % | | 4.0 | % | |
| Total leverage exposure | NA |
| | $ | 3,204,463 |
| | | | NA |
| | $ | 3,205,015 |
| | | |
SLR(c) | NA |
| | 6.5 | % | | NA |
| | NA |
| | 6.5 | % | | 5.0 | % | (e) |
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| | Transitional | Fully Phased-In | |
December 31, 2016 (in millions, except ratios) | Standardized | | Advanced | | Minimum capital ratios | | Standardized | | Advanced | | Minimum capital ratios | |
| Risk-based capital metrics: | | | | | | | | | | | | |
| CET1 capital | $ | 182,967 |
| | $ | 182,967 |
| | | | $ | 181,734 |
| | $ | 181,734 |
| | | |
| Tier 1 capital | 208,112 |
| | 208,112 |
| | | | 207,474 |
| | 207,474 |
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| Total capital | 239,553 |
| | 228,592 |
| | | | 237,487 |
| | 226,526 |
| | | |
| Risk-weighted assets | 1,483,132 |
| (d) | 1,476,915 |
| | | | 1,492,816 |
| (d) | 1,487,180 |
| | | |
| CET1 capital ratio | 12.3 | % | (d) | 12.4 | % | | 6.25 | % | | 12.2 | % | (d) | 12.2 | % | | 10.5 | % | |
| Tier 1 capital ratio | 14.0 |
| (d) | 14.1 |
| | 7.75 |
| | 13.9 |
| (d) | 14.0 |
| | 12.0 |
| |
| Total capital ratio | 16.2 |
| (d) | 15.5 |
| | 9.75 |
| | 15.9 |
| (d) | 15.2 |
| | 14.0 |
| |
| Leverage based capital metrics: | | | | | | | | | | | | |
Adjusted average assets(a) | $ | 2,484,631 |
| | $ | 2,484,631 |
| | | | $ | 2,485,480 |
| | $ | 2,485,480 |
| | | |
Tier 1 leverage ratio(b) | 8.4 | % | | 8.4 | % | | 4.0 | % | | 8.3 | % | | 8.3 | % | | 4.0 | % | |
| Total leverage exposure | NA |
| | $ | 3,191,990 |
| | | | NA |
| | $ | 3,192,839 |
| | | |
SLR(c) | NA |
| | 6.5 | % | | NA |
| | NA |
| | 6.5 | % | | 5.0 | % | (e) |
Note: As of December 31, 2017 and 2016, the lower of the Standardized or Advanced capital ratios under each of the Transitional and Fully Phased-In Approaches in the table above represents the Firm’s Collins Floor, as discussed in Risk-based capital regulatory minimums on page 85.
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| (a) | Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for unrealized gains/(losses) on available-for-sale (“AFS”) securities, less deductions for goodwill and other intangible assets, defined benefit pension plan assets, and deferred tax assets related to tax attributes, including net operating losses (“NOLs”). |
| |
| (b) | The Tier 1 leverage ratio is calculated by dividing Tier 1 capital by adjusted total average assets. |
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| (c) | The SLR leverage ratio is calculated by dividing Tier 1 capital by total leverage exposure. For additional information on total leverage exposure, see SLR on page 88. |
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| (d) | The prior period amounts have been revised to conform with the current period presentation. |
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| (e) | In the case of the SLR, the Fully Phased-In minimum ratio is effective January 1, 2018. |
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| JPMorgan Chase & Co./2017 Annual Report | | 83 |
Management’s discussion and analysis
Strategy and governance
The Firm’s CEO, in conjunctiontogether with the Board of Directors and its subcommittees, establishthe Operating Committee, establishes principles and guidelines for capital planning, capital issuance, usage and distributions, and establishminimum capital targets for the level and composition of capital in both business-as-usual and highly stressed environments.
The DRPC reviews and approves the capital management and governance policy of the Firm. The Firm’s senior management recognizesAudit Committee is responsible for reviewing and approving the importance of a capital management function that supports strategic decision-making. stress testing control framework.
The Firm has established the Capital Governance Committee and the Regulatory Capital Management Office (“RCMO”) as key components in support of this objective.the Firm’s strategic capital decision-making. The Capital Governance Committee is responsible for reviewing the Firm’s Capital Management Policy and the principles underlying capital issuance and distribution alternatives. The Committee is also responsible
overseesfor governing the capital adequacy assessment process, including the overall design, scenario development and macro assumptions, and risk streams, and ensuringensures that capital stress test programs are designed to adequately capture the idiosyncratic risks acrossspecific to the Firm’s businesses. RCMO, which reports to the Firm’s CFO, is responsible for reviewing, approvingdesigning and monitoring the implementationFirm’s execution of the Firm’sits capital policies and strategies once approved by the Board, as well as reviewing and monitoring the execution of its capital adequacy assessment process. The DRPC assessesBasel Independent Review function (“BIR”), which reports to the RCMO, conducts independent assessments of the Firm’s regulatory capital adequacy processframework to ensure compliance with the applicable U.S. Basel rules in support of senior management’s responsibility for assessing and its components. This review determinesmanaging capital and for the effectivenessDRPC’s oversight of the capital adequacy process, the appropriateness of the risk tolerance levels, and the strength of the control infrastructure.management in executing that responsibility. For additional discussion on the DRPC, see Enterprise-wide Risk Management on pages 105–109.75–137.
Capital disciplinesMonitoring and management of capital
In its monitoring and management of capital, management, the Firm uses three primary disciplines, which are further described below:takes into consideration an assessment of economic risk and all regulatory capital requirements to determine the level of capital needed to meet and maintain the objectives discussed above, as well as to support the framework for allocating capital to its business segments. While economic risk is considered prior to making decisions on future business activities, in most cases the Firm considers risk-based regulatory capital to be a proxy for economic risk capital.
Regulatory capital
Economic capital
Line of business equity
Regulatory capital
The Federal Reserve establishes capital requirements, including well-capitalized standards, for the consolidated financial holding company. The Office of the Comptroller of the Currency (“OCC”)OCC establishes similar minimum capital requirements and standards for the Firm’s national banks, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.
The U.S. capital requirements generally follow the Capital Accord of the Basel Committee, as amended from time to time. Prior to January 1, 2014, the Firm and its banking subsidiaries were subject to the capital requirements of Basel I and Basel 2.5. Effective January 1, 2014, the Firm became subject to Basel III (which incorporates Basel 2.5).
Basel III overview
Capital rules under Basel III for U.S. bank holding companies and banks, revises, among other things, the definition of capital and introduces a new common equity Tier 1 capital (“CET1 capital”) requirement; presents two comprehensive methodologies for calculating risk-weighted assets (“RWA”), a general (Standardized) approach, which replaces Basel I RWA (“Basel III Standardized”) and an advanced approach, which replaces Basel II RWA (“Basel III Advanced”); and sets outestablish minimum capital ratios and overall capital adequacy standards.standards for large and internationally active U.S. bank holding companies (“BHC”) and banks, including the Firm and its IDI subsidiaries. Basel III sets forth two comprehensive approaches for calculating RWA: a standardized approach (“Basel III Standardized”), and an advanced approach (“Basel III Advanced”). Certain of the requirements of Basel III are subject to phase-in periods that began on January 1, 2014 and continue through the end of 2018 (“Transitionaltransitional period”) as described below. Both .
Basel III Standardized and Basel III Advanced became effective commencing January 1, 2014 for large and internationally active U.S. bank holding companies and banks, including the Firm and its insured depository institution (“IDI”) subsidiaries.
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146 | | JPMorgan Chase & Co./2014 Annual Report |
Prior to the implementation of Basel III Advanced, the Firm was required to complete a qualification period (“parallel run”) during which it needed to demonstrate that it met the requirements of the rule to the satisfaction of its U.S. banking regulators. On February 21, 2014, the Federal Reserve and the OCC informed the Firm and its national bank subsidiaries that they had satisfactorily completed the parallel run requirements and were approved to calculate capital under Basel III Advanced, in addition to Basel III Standardized, as of April 1, 2014. In conjunction with its exit from the parallel run, the capital adequacy of the Firm and its national bank subsidiaries is evaluated against the Basel III approach (Standardized or Advanced) which results, for each quarter beginning with the second quarter of 2014, in the lower ratio (the “Collins Floor”), as required by the Collins Amendment of the Dodd-Frank Act.
Definition of capital
Basel III revises Basel I and II by narrowing the definition of capital and increasing theestablishes capital requirements for specific exposures. Under Basel III, CET1 capital predominantly includes common stockholders’ equity (including capital for AOCI related to debt and equity securities classified as AFS as well as for defined benefit pension and other post-retirement employee benefit (“OPEB”) plans), less certain deductions for goodwill, MSRs and deferred tax assets that arise from net operating loss (“NOL”) and tax credit carryforwards. Tier 1 capital is predominantly comprised of CET1 capital as well as perpetual preferred stock. Tier 2 capital includes long-term debt qualifying as Tier 2 and qualifying allowance for credit losses. Total capital is Tier 1 capital plus Tier 2 capital. The revisions to CET1 capital, Tier 1 capital and Tier 2 capital are subject to phase-in periods that began January 1, 2014, and continue through the end of 2018, and during that period, CET1 capital, Tier 1 capital and Tier 2 capital represent Basel III Transitional capital.
Risk-weighted assets
Basel III establishes two comprehensive methodologies for calculating RWA (a Standardized approach and an Advanced approach) which include capital requirements for credit risk RWA and market risk RWA, and in the case of Basel III Advanced, also operational risk.risk RWA. Key differences in the calculation of credit risk RWA between the Standardized and Advanced approaches are that for Basel III Advanced, credit risk RWA is based on risk-sensitive approaches which largely rely on the use of internal credit models and parameters, whereas for Basel III Standardized, credit risk RWA is generally based on supervisory risk-weightings which vary primarily by counterparty type and asset class. Market risk RWA is calculated on a generally consistent basis between Basel III Standardized and Basel III Advanced, both of which incorporate the requirements set forth in Basel 2.5.Advanced. In addition to the RWA calculated under these methodologies, the Firm may supplement such amounts to incorporate management judgment and feedback from its bank regulators.
Supplementary leverage ratio (“SLR”)
Basel III also includes a requirement for Advanced Approach banking organizations, including the Firm, to calculate the SLR. For additional information on the SLR, see page 88.
On December 7, 2017, the Basel Committee issued the Basel III Reforms. Potential changes to the requirements for U.S. financial institutions are being considered by the U.S. banking regulators. For additional information on Basel III reforms, refer to Supervision & Regulation on pages 1–8.
Basel III Fully Phased-In
The Basel III transitional period will end on December 31, 2018, at which point the Firm will calculate its capital ratios under both the Basel III Standardized and Advanced Approaches on a SLR. Fully Phased–In basis. In the case of the SLR, the Fully Phased-In well-capitalized ratio is effective January 1, 2018. The Firm manages each of its lines of business, as well as the corporate functions, primarily on a Basel III Fully Phased-In basis.
For additional information on the Firm, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.’s capital, RWA and capital ratios under Basel III Standardized and Advanced Fully Phased-In rules and the SLR calculated under the Basel III Advanced Fully Phased-In rules, all of which are considered key regulatory capital measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 52–54.
|
| | |
| 84 | | JPMorgan Chase & Co./2017 Annual Report |
The Basel III Standardized and Advanced Fully Phased-In capital, RWA and capital ratios, and SLRs for the Firm, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. are based on the current published U.S. Basel III rules.
Risk-based capital regulatory minimums
The following chart presents the Basel III minimum CET1 capital ratio during the transitional periods and on a fully phased-in basis under the Basel III rules currently in effect.
The Basel III rules include minimum capital ratio requirements that are subject to phase-in periods through the end of 2018. The capital adequacy of the Firm and its IDI subsidiaries, both during the transitional period and upon full phase-in, is evaluated against the Basel III approach (Standardized or Advanced) which, for each quarter, results in the lower ratio as required by the Collins Amendment of the Dodd-Frank Act (the “Collins Floor”). The Basel III Standardized Fully Phased-In CET1 ratio is the Firm’s current binding constraint, and the Firm expects that this will remain its binding constraint for the foreseeable future.
Additional information regarding the Firm’s capital ratios, as well as the U.S. federal regulatory capital standards to which the Firm is subject, is presented in Note 26. For further information on the Firm’s Basel III measures, see the Firm’s Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website (http://investor.shareholder.com/jpmorganchase/basel.cfm).
All banking institutions are currently required to have a minimum capital ratio of 4.5% of risk weighted assets. Certain banking organizations, including the Firm, are required to hold additional amounts of capital to serve as a “capital conservation buffer”. The capital conservation buffer is intended to be used to absorb potential losses in times of financial or economic stress. If not maintained, the Firm could be limited in the amount of capital that may be distributed, including dividends and common equity repurchases. The capital conservation buffer is subject to a
phase-in period that began January 1, 2016 and continues through the end of 2018.
As an expansion of the capital conservation buffer, the Firm is also required to hold additional levels of capital in the form of a GSIB surcharge and a countercyclical capital buffer.
Under the Federal Reserve’s final rule, the Firm is required to calculate its GSIB surcharge on an annual basis under two separately prescribed methods, and is subject to the higher of the two. The first (“Method 1”), reflects the GSIB surcharge as prescribed by the Basel Committee’s assessment methodology, and is calculated across five criteria: size, cross-jurisdictional activity, interconnectedness, complexity and substitutability. The second (“Method 2”), modifies the Method 1 requirements to include a measure of short-term wholesale funding in place of substitutability, and introduces a GSIB score “multiplication factor”. The following table represents the Firm’s GSIB surcharge. |
| | | | |
| | 2017 |
| 2016 |
|
| Fully Phased-In: | | |
| Method 1 | 2.50 | % | 2.50 | % |
| Method 2 | 3.50 | % | 4.50 | % |
| | | |
Transitional(a) | 1.75 | % | 1.125 | % |
| |
| (a) | The GSIB surcharge is subject to transition provisions (in 25% increments) through the end of 2018. |
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 85 |
Management’s discussion and analysis
The Firm’s effective GSIB surcharge for 2018 is anticipated to be 3.5%.
The countercyclical capital buffer takes into account the macro financial environment in which large, internationally active banks function. On September 8, 2016 the Federal Reserve published the framework that will apply to the setting of the countercyclical capital buffer. As of December 1, 2017, the Federal Reserve reaffirmed setting the U.S. countercyclical capital buffer at 0%, and stated that it will review the amount at least annually. The countercyclical capital buffer can be increased if the Federal Reserve, FDIC and OCC determine that credit growth in the economy has become excessive and can be set at up to an additional 2.5% of RWA subject to a 12-month implementation period.
The Firm believes that it will operate with a Basel III CET1 capital ratio between 11% and 12% over the medium term. It is the Firm’s intention that its capital ratios will continue to meet regulatory minimums as they are fully phased in 2019 and thereafter.
In addition to meeting the capital ratio requirements of Basel III, the Firm also must maintain minimum capital and leverage ratios in order to be “well-capitalized.” The following table represents the ratios that the Firm and its IDI subsidiaries must maintain in order to meet the definition of “well-capitalized” under the regulations issued by the Federal Reserve and the Prompt Corrective Action (“PCA”) requirements of the FDIC Improvement Act (“FDICIA”), respectively.
|
| | | | | | | |
| | Well-capitalized ratios |
| | BHC | | IDI |
| Capital ratios | | | | | |
| CET1 | — | % | | | 6.5 | % | |
| Tier 1 capital | 6.0 |
| | | 8.0 |
| |
| Total capital | 10.0 |
| | | 10.0 |
| |
| Tier 1 leverage | — |
| | | 5.0 |
| |
SLR(a) | 5.0 |
| | | 6.0 |
| |
| |
| (a) | In the case of the SLR, the Fully Phased-In well-capitalized ratio is effective January 1, 2018. |
Capital
The following table presents reconciliations of total stockholders’ equity to Basel III Fully Phased-In CET1 capital, Tier 1 capital and Basel III Advanced and Standardized Fully Phased-In Total capital as of December 31, 2017 and 2016. For additional information on the components of regulatory capital, see Note 26.
|
| | | | | | |
| Capital components | | |
| (in millions) | December 31, 2017 |
| December 31, 2016 |
|
| Total stockholders’ equity | $ | 255,693 |
| $ | 254,190 |
|
| Less: Preferred stock | 26,068 |
| 26,068 |
|
| Common stockholders’ equity | 229,625 |
| 228,122 |
|
| Less: | | |
| Goodwill | 47,507 |
| 47,288 |
|
| Other intangible assets | 855 |
| 862 |
|
| Add: | | |
Certain Deferred tax liabilities(a)(b) | 2,204 |
| 3,230 |
|
Less: Other CET1 capital adjustments(b) | 223 |
| 1,468 |
|
| Standardized/Advanced Fully Phased-In CET1 capital | 183,244 |
| 181,734 |
|
| Preferred stock | 26,068 |
| 26,068 |
|
| Less: | | |
Other Tier 1 adjustments(c) | 748 |
| 328 |
|
| Standardized/Advanced Fully Phased-In Tier 1 capital | $ | 208,564 |
| $ | 207,474 |
|
| Long-term debt and other instruments qualifying as Tier 2 capital | $ | 14,827 |
| $ | 15,253 |
|
| Qualifying allowance for credit losses | 14,672 |
| 14,854 |
|
| Other | (103 | ) | (94 | ) |
| Standardized Fully Phased-In Tier 2 capital | $ | 29,396 |
| $ | 30,013 |
|
| Standardized Fully Phased-in Total capital | $ | 237,960 |
| $ | 237,487 |
|
| Adjustment in qualifying allowance for credit losses for Advanced Tier 2 capital | (10,462 | ) | (10,961 | ) |
| Advanced Fully Phased-In Tier 2 capital | $ | 18,934 |
| $ | 19,052 |
|
| Advanced Fully Phased-In Total capital | $ | 227,498 |
| $ | 226,526 |
|
| |
| (a) | Represents deferred tax liabilities related to tax-deductible goodwill and identifiable intangibles created in nontaxable transactions, which are netted against goodwill and other intangibles when calculating TCE. |
| |
| (b) | Includes the effect from the revaluation of the Firm’s net deferred tax liability as a result of the enactment of the TCJA. |
| |
| (c) | Includes the deduction associated with the permissible holdings of covered funds (as defined by the Volcker Rule). The deduction was not material as of December 31, 2017 and 2016. |
|
| | |
| 86 | | JPMorgan Chase & Co./2017 Annual Report |
The following table presents reconciliations of the Firm’s Basel III Transitional CET1 capital to the Firm’s Basel III Fully Phased-In CET1 capital as of December 31, 2017 and 2016.
|
| | | | | | |
| (in millions) | December 31, 2017 |
| December 31, 2016 |
|
| Transitional CET1 capital | $ | 183,300 |
| $ | 182,967 |
|
AOCI phase-in(a) | 128 |
| (156 | ) |
CET1 capital deduction phase-in(b) | (20 | ) | (695 | ) |
Intangible assets deduction phase-in(c) | (160 | ) | (312 | ) |
Other adjustments to CET1 capital(d) | (4 | ) | (70 | ) |
| Fully Phased-In CET1 capital | $ | 183,244 |
| $ | 181,734 |
|
| |
| (a) | Includes the remaining balance of accumulated other comprehensive income (“AOCI”) related to AFS debt securities and defined benefit pension and other postretirement employee benefit (“OPEB”) plans that will qualify as Basel III CET1 capital upon full phase-in. |
| |
| (b) | Predominantly includes regulatory adjustments related to changes in DVA, as well as CET1 deductions for defined benefit pension plan assets and deferred tax assets related to tax attributes, including NOLs. |
| |
| (c) | Relates to intangible assets, other than goodwill and MSRs, that are required to be deducted from CET1 capital upon full phase-in. |
| |
| (d) | Includes minority interest and the Firm’s investments in its own CET1 capital instruments. |
Capital rollforward
The following table presents the changes in Basel III Fully Phased-In CET1 capital, Tier 1 capital and Tier 2 capital for the year ended December 31, 2017.
|
| | | |
| Year Ended December 31, (in millions) | 2017 |
|
| Standardized/Advanced CET1 capital at December 31, 2016 | $ | 181,734 |
|
Net income applicable to common equity(a) | 22,778 |
|
| Dividends declared on common stock | (7,542 | ) |
| Net purchase of treasury stock | (13,741 | ) |
| Changes in additional paid-in capital | (1,048 | ) |
| Changes related to AOCI | 536 |
|
Adjustment related to DVA(b) | 468 |
|
Changes related to other CET1 capital adjustments(c) | 59 |
|
| Increase in Standardized/Advanced CET1 capital | 1,510 |
|
Standardized/Advanced CET1 capital at December 31, 2017 | $ | 183,244 |
|
| | |
Standardized/Advanced Tier 1 capital at December 31, 2016 | $ | 207,474 |
|
| Change in CET1 capital | 1,510 |
|
| Net issuance of noncumulative perpetual preferred stock | — |
|
| Other | (420 | ) |
| Increase in Standardized/Advanced Tier 1 capital | 1,090 |
|
Standardized/Advanced Tier 1 capital at December 31, 2017 | $ | 208,564 |
|
| | |
| Standardized Tier 2 capital at December 31, 2016 | $ | 30,013 |
|
| Change in long-term debt and other instruments qualifying as Tier 2 | (426 | ) |
| Change in qualifying allowance for credit losses | (182 | ) |
| Other | (9 | ) |
| Decrease in Standardized Tier 2 capital | (617 | ) |
| Standardized Tier 2 capital at December 31, 2017 | $ | 29,396 |
|
| Standardized Total capital at December 31, 2017 | $ | 237,960 |
|
| Advanced Tier 2 capital at December 31, 2016 | $ | 19,052 |
|
| Change in long-term debt and other instruments qualifying as Tier 2 | (426 | ) |
| Change in qualifying allowance for credit losses | 317 |
|
| Other | (9 | ) |
| Decrease in Advanced Tier 2 capital | (118 | ) |
| Advanced Tier 2 capital at December 31, 2017 | $ | 18,934 |
|
| Advanced Total capital at December 31, 2017 | $ | 227,498 |
|
| |
| (a) | Includes a $2.4 billion decrease to net income as a result of the enactment of the TCJA. For additional information related to the impact of the TCJA, see Note 24. |
| |
| (b) | Includes DVA related to structured notes recorded in AOCI. |
| |
| (c) | Includes the effect from the revaluation of the Firm’s net deferred tax liability as a result of the enactment of the TCJA. |
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 87 |
Management’s discussion and analysis
RWA rollforward
The following table presents changes in the components of RWA under Basel III Standardized and Advanced Fully Phased-In for the year ended December 31, 2017. The amounts in the rollforward categories are estimates, based on the predominant driver of the change.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Standardized | | Advanced |
Year ended December 31, 2017 (in millions) | Credit risk RWA | | Market risk RWA | Total RWA | | Credit risk RWA | Market risk RWA | Operational risk RWA | Total RWA |
| December 31, 2016 | $ | 1,365,137 |
| (d) | $ | 127,679 |
| $ | 1,492,816 |
| (d) | $ | 959,523 |
| $ | 127,657 |
| $ | 400,000 |
| $ | 1,487,180 |
|
Model & data changes(a) | (8,214 | ) | | 1,739 |
| (6,475 | ) | | (14,189 | ) | 1,739 |
| — |
| (12,450 | ) |
Portfolio runoff(b) | (13,600 | ) | | — |
| (13,600 | ) | | (16,100 | ) | — |
| — |
| (16,100 | ) |
Movement in portfolio levels(c) | 42,737 |
| | (5,716 | ) | 37,021 |
| | (6,329 | ) | (5,605 | ) | — |
| (11,934 | ) |
| Changes in RWA | 20,923 |
| | (3,977 | ) | 16,946 |
| | (36,618 | ) | (3,866 | ) | — |
| (40,484 | ) |
| December 31, 2017 | $ | 1,386,060 |
| | $ | 123,702 |
| $ | 1,509,762 |
| | $ | 922,905 |
| $ | 123,791 |
| $ | 400,000 |
| $ | 1,446,696 |
|
| |
| (a) | Model & data changes refer to material movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rule changes). |
| |
| (b) | Portfolio runoff for credit risk RWA primarily reflects (under both the Standardized and Advanced approaches) reduced risk from position rolloffs in legacy portfolios in Home Lending, the sale of the student loan portfolio during the second quarter of 2017, and the sale of reverse mortgages in CIB during the third quarter of 2017. |
| |
| (c) | Movement in portfolio levels for credit risk RWA refers to changes primarily in book size, composition, credit quality, and market movements; and for market risk RWA refers to changes in position and market movements. |
| |
| (d) | The prior period amounts have been revised to conform with the current period presentation. |
Supplementary leverage ratio
The SLR a non-GAAP financial measure, is defined as Tier 1 capital under Basel III divided by the Firm’s total leverage exposure. Total leverage exposure is calculated by taking the Firm’s total average on-balance sheet assets, less amounts permitted to be deducted for Tier 1 capital, and adding certain off-balance sheet exposures, such as undrawn commitments and derivatives potential future exposure.
On September 3, 2014,The following table presents the U.S. banking regulators adopted a final rule for the calculationcomponents of the SLR. The U.S. final rule requires public disclosureFirm’s Fully Phased-In SLR as of the SLR beginning with the first quarterDecember 31, 2017 and 2016.
|
| | | | | | |
| (in millions, except ratio) | December 31, 2017 |
| December 31, 2016 |
|
| Tier 1 capital | $ | 208,564 |
| $ | 207,474 |
|
| Total average assets | 2,562,155 |
| 2,532,457 |
|
| Less: Adjustments for deductions from Tier 1 capital | 47,333 |
| 46,977 |
|
Total adjusted average assets(a) | 2,514,822 |
| 2,485,480 |
|
Off-balance sheet exposures(b) | 690,193 |
| 707,359 |
|
| Total leverage exposure | $ | 3,205,015 |
| $ | 3,192,839 |
|
| SLR | 6.5 | % | 6.5 | % |
| |
| (a) | Adjusted average assets, for purposes of calculating the SLR, includes total quarterly average assets adjusted for on-balance sheet assets that are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets. |
| |
| (b) | Off-balance sheet exposures are calculated as the average of the three month-end spot balances during the reporting quarter. |
As of 2015, and also requires U.S. bank holding companies, including the Firm, to have a minimum SLR of at least 5% and IDI subsidiaries, includingDecember 31, 2017, JPMorgan Chase Bank, N.A.’s and Chase Bank USA, N.A.’s Fully Phased-In SLRs are approximately 6.7% and 11.8%, respectively.
Line of business equity
Each business segment is allocated capital by taking into consideration stand-alone peer comparisons and regulatory capital requirements. For 2016, capital was allocated to haveeach business segment for, among other things, goodwill and other intangibles associated with acquisitions effected by the line of business. ROE is measured and internal targets for expected returns are established as key measures of a minimum SLR ofbusiness segment’s performance.
On at least 6%, both beginningan annual basis, the Firm assesses the level of capital required for each line of business as well as the assumptions and methodologies used to allocate capital. Through the end of 2016, capital was allocated to the lines of business based on a single measure, Basel III Advanced Fully Phased-In RWA. Effective January 1, 2018.2017, the Firm’s methodology used to allocate capital to the Firm’s business segments was updated. The new methodology incorporates Basel III Standardized Fully Phased-In RWA (as well as Basel III Advanced Fully Phased-In RWA), leverage, the GSIB surcharge, and a simulation of capital in a severe stress environment. The methodology will continue to be weighted towards Basel III Advanced Fully Phased-In RWA because the Firm believes it to be the best proxy for economic risk. The Firm will consider further changes to its capital allocation methodology as the regulatory framework evolves. In addition, under the new methodology, capital is no longer allocated to each line of business for goodwill and other intangibles associated with acquisitions effected by the line of business. The Firm will continue to establish internal ROE targets for its business segments, against which they will be measured, as a key performance indicator.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 147 |
Management’s discussion and analysis
Capital ratios
The basis to calculate the Firm’s capital ratios (both risk-based and leverage) under Basel III during the transitional period and when fully phased-in are shown in the table below.
|
| | | | | | | |
| | | Transitional period | | Fully Phased-In |
| | | 2014 | | 2015 – 2017 | 2018 | | 2019+ |
| | | | | | | | |
| Capital (Numerator) | | Basel III Transitional Capital(a) | | Basel III Capital |
| | | | | | | | |
|
| | | | | | | |
| | | | | | | |
RWA (Denominator) | Standardized Approach | Basel I with 2.5(b)
| | Basel III Standardized |
| | | | | | | |
| Advanced
Approach
| Basel III Advanced |
| | | | | | | |
| | | | | | | |
Leverage (Denominator) | Tier 1 Leverage | Adjusted average assets(c)
|
| | | | | | | |
| Supplementary leverage | | | Adjusted average assets(c) + off-balance sheet exposures
|
| | | | | | | |
| |
(a) | Trust preferred securities (“TruPS”) are being phased out from inclusion in Basel III capital commencing January 1, 2014, continuing through the end of 2021. |
| |
(b) | Defined as Basel III Standardized Transitional for 2014. Beginning January 1, 2015, Basel III Standardized RWA is calculated under the Basel III definition of the Standardized Approach. |
| |
(c) | Adjusted average assets, for purposes of calculating the leverage ratio and SLR, includes total quarterly average assets adjusted for unrealized gains/(losses) on securities, less deductions for disallowed goodwill and other intangible assets, investments in certain subsidiaries, and the total adjusted carrying value of nonfinancial equity investments that are subject to deductions from Tier 1 capital. |
Risk-based capital regulatory minimums
The Basel III rules include minimum capital ratio requirements that are also subject to phase-in periods through January 1, 2019.
In addition to the regulatory minimum capital requirements, certain banking organizations, including the Firm, will be required to hold an additional 2.5% of CET1 capital to serve as a “capital conservation buffer.” The capital conservation buffer is intended to be used to absorb potential losses in times of financial or economic stress; if not maintained, the Firm could be limited in the amount of capital that may be distributed, including dividends and common equity repurchases. The capital conservation buffer will be phased-in beginning January 1, 2016.
Moreover, G-SIBs will be required to maintain, in addition to the capital conservation buffer, further amounts of capital ranging from 1% to 2.5% across all tiers of regulatory capital. In November 2014, based upon data as of December 31, 2013, the Financial Stability Board (“FSB”) indicated that certain G-SIBs, including the Firm, would be required to hold the additional 2.5% of capital; the requirement will be phased-in beginning January 1, 2016.
The Basel Committee has stated that G-SIBs could in the future be required to hold 3.5% or more of additional capital if their relative systemic importance were to increase. Currently, no G-SIB is required to hold more than the additional 2.5% of capital.
Consequently, based upon the final rules currently in effect, the minimum Basel III CET1 capital ratio requirement for the Firm is expected to be 9.5%, comprised of the minimum ratio of 4.5% plus the 2.5% capital conservation buffer and the 2.5% G-SIB requirement both beginning January 1, 2019.
Basel III also establishes a minimum 6.5% CET1 standard for the definition of “well capitalized” under the Prompt Corrective Action (“PCA”) requirements of the FDIC Improvement Act (“FDICIA”). The CET1 standard is effective beginning with the first quarter of 2015.
|
| | |
14888 | | JPMorgan Chase & Co./20142017 Annual Report |
The following chart presents the Basel III minimum CET1 capital ratio during the transitional periods and on a fully phased-in basis under the Basel III rules currently in effect. It istable below reflects the Firm’s current expectation that its Basel III CET1 ratio will exceed the regulatory minimums, both during the transition period and upon full implementation in 2019 and thereafter.
On December 9, 2014, the Federal Reserve issued a Noticeassessed level of Proposed Rulemaking (“NPR”) that would establish a new capital surcharge across all tiers of regulatory capital for G-SIBs in the U.S., including the Firm. The Firm estimates its fully phased-in G-SIB surcharge (based upon data as of December 31, 2013) would be 4.5% under the NPR, comparedallocated to a fully phased-in G-SIB surcharge of 2.5% as estimated under the Basel III rules currently in effect.
Basel III Advanced Fully Phased-In
Based on the U.S. capital rules currently in effect, Basel III capital rules will become fully phased-in on January 1, 2019, at which point the Firm will continue to calculate its capital ratios under both the Basel III Standardized and Advanced Approaches, and the Firm will continue to have its capital adequacy evaluated against the approach that results in the lower ratio. While the Firm has recently imposed Basel III Standardized Fully Phased-In RWA limits on the lines of business in adapting its capital framework, the Firm currently expects to manage each of the businesses (including line of business equity allocations), as well as the corporate functions, primarily on a Basel III Advanced Fully Phased-In basis.
The Firm’s capital, RWA and capital ratios that are presented under Basel III Advanced Fully Phased-In (and CET1 under Basel I as of December 31, 2013), are non-GAAP financial measures. However, such measures are used by bank regulators, investors and analysts to assess the Firm’s capital position and to compare the Firm’s capital to that of other financial services companies.
The Firm’s estimates of its Basel III Advanced Fully Phased-In capital, RWA and capital ratios and of the Firm’s, JPMorgan Chase Bank, N.A.’s, and Chase Bank USA, N.A.’s SLRs reflect management’s current understanding of the U.S. Basel III rules based on the current published rules and
on the application of such rules to the Firm’s businesses as currently conducted. The actual impact on the Firm’s capital ratios and SLR as of the effective date of the rules may differ from the Firm’s current estimates depending on changes the Firm may make to its businesses in the future, further implementation guidance from the regulators, and regulatory approval of certain of the Firm’s internal risk models (or, alternatively, regulatory disapproval of the Firm’s internal risk models that have previously been conditionally approved).
The following table presents the estimated Basel III Advanced Fully Phased-In Capital ratios for JPMorgan Chase at December 31, 2014. Also included in the table are the regulatory minimum ratios currently expected to be in effect beginning January 1, 2019. |
| | | | | | | | | | |
| | | Basel III Advanced Fully Phased-In | | | | |
| | | December 31, 2014 | Fully phased-in minimum capital ratios(a) | Fully phased-in well-capitalized ratios(b) |
| Risk-based capital ratios: | | | | | | | |
| CET1 capital | | 10.2 | % | | 9.5 | % | | 6.5 | % | |
| Tier 1 capital | | 11.4 |
| | 11.0 |
| | 8.0 |
| |
| Total capital | | 12.8 |
| | 13.0 |
| | 10.0 |
| |
| Leverage ratio: | | | | | | | |
| Tier 1 | | 7.5 |
| | 4.0 |
| | 5.0 |
| |
| SLR | | 5.6 |
| | 3.0 |
| | 5.0 |
| |
| |
(a) | Represents the minimum capital ratios applicable to the Firm under fully phased-in Basel III rules currently in effect. |
| |
(b) | Represents the minimum Basel III Fully Phased-In capital ratios applicable to the Firm under the PCA requirements of FDICIA. |
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 149 |
Management’s discussion and analysis
A reconciliation of total stockholders’ equity to Basel III Advanced Fully Phased-In CET1 capital, Tier 1 capital and Total qualifying capital is presented in the table below. |
| | | | |
| Risk-based capital components and assets |
| | Basel III Advanced Fully Phased-In |
| (in millions) | December 31, 2014 | |
| Total stockholders’ equity | | $ | 232,065 |
|
| Less: Preferred stock | | 20,063 |
|
| Common stockholders’ equity | | 212,002 |
|
| Less: | | |
Goodwill(a) | | 44,925 |
|
Other intangible assets(a) | | 1,062 |
|
| Other CET1 capital adjustments | | 1,163 |
|
| CET1 capital | | 164,852 |
|
| Preferred stock | | 20,063 |
|
| Less: | | |
| Other Tier 1 adjustments | | 5 |
|
| Total Tier 1 capital | | 184,910 |
|
| Long-term debt and other instruments qualifying as Tier 2 capital | | 17,504 |
|
| Qualifying allowance for credit losses | | 4,266 |
|
| Other | | (86 | ) |
| Total Tier 2 capital | | 21,684 |
|
| Total capital | | $ | 206,594 |
|
| Credit risk RWA | | $ | 1,040,087 |
|
| Market risk RWA | | 179,200 |
|
| Operational risk RWA | | 400,000 |
|
| Total RWA | | $ | 1,619,287 |
|
| SLR leverage exposure | | $ | 3,320,404 |
|
| |
(a) | Goodwill and other intangible assets are net of any associated deferred tax liabilities. |
Capital rollforward
The following table presents the changes in CET1 capital, Tier 1 capital and Tier 2 capital for the year ended December 31, 2014. Under Basel I CET1 represents Tier 1 common capital. |
| | | |
| Year ended December 31, (in millions) | 2014 |
| Basel I CET1 capital at December 31, 2013 | $ | 148,887 |
|
Effect of rule changes(a) | 2,315 |
|
| Basel III Advanced Fully Phased-In CET1 capital at December 31, 2013 | 151,202 |
|
| Net income applicable to common equity | 20,637 |
|
| Dividends declared on common stock | (6,078 | ) |
| Net purchases of treasury stock | (3,009 | ) |
| Changes in additional paid-in capital | (558 | ) |
| Changes related to AOCI | 1,327 |
|
| Adjustment related to FVA/DVA | 580 |
|
| Other | 751 |
|
| Increase in CET1 capital | 13,650 |
|
| Basel III Advanced Fully Phased-In CET1 capital at December 31, 2014 | $ | 164,852 |
|
| | |
| Basel I Tier 1 capital at December 31, 2013 | $ | 165,663 |
|
Effect of rule changes(b) | (3,295 | ) |
| Basel III Advanced Fully Phased-In Tier 1 capital at December 31, 2013 | 162,368 |
|
| Change in CET1 capital | 13,650 |
|
| Net issuance of noncumulative perpetual preferred stock | 8,905 |
|
| Other | (13 | ) |
| Increase in Tier 1 capital | 22,542 |
|
| Basel III Advanced Fully Phased-In Tier 1 capital at December 31, 2014 | $ | 184,910 |
|
| | |
| Basel I Tier 2 capital at December 31, 2013 | $ | 33,623 |
|
Effect of rule changes(c) | (11,644 | ) |
| Basel III Advanced Fully Phased-In Tier 2 capital at December 31, 2013 | 21,979 |
|
| Change in long-term debt and other instruments qualifying as Tier 2 | 809 |
|
| Change in allowance for credit losses | (1,063 | ) |
| Other | (41 | ) |
| Decrease in Tier 2 capital | (295 | ) |
| Basel III Advanced Fully Phased-In Tier 2 capital at December 31, 2014 | $ | 21,684 |
|
| Basel III Advanced Fully Phased-In Total capital at December 31, 2014 | $ | 206,594 |
|
| |
(a) | Predominantly represents: (1) the addition of certain exposures, which were deducted from capital under Basel I, that are risk-weighted under Basel III; (2) adjustments related to AOCI for AFS securities and defined benefit pension and OPEB plans; and (3) a deduction for deferred tax assets related to NOL carryforwards. |
| |
(b) | Predominantly represents the exclusion of TruPS from Tier 1 capital under Basel III. |
| |
(c) | Predominantly represents a change in the calculation of qualifying allowance for credit losses under Basel III. |
|
| | |
150 | | JPMorgan Chase & Co./2014 Annual Report |
RWA rollforward
The following table presents changes in the components of RWA under Basel III Advanced Fully Phased-In for the year ended December 31, 2014. The amounts in the rollforward categories are estimates, based on the predominant driver of the change.dates indicated.
|
| | | | | | | | | | | | | | | |
| | Year ended December 31, (in millions) |
| (in billions) | Credit risk RWA | | Market risk RWA | | Operational risk RWA | | Total RWA |
| Basel I RWA at December 31, 2013 | $ | 1,223 |
| | $ | 165 |
| | NA |
| | $ | 1,388 |
|
Effect of rule changes(a) | (168 | ) | | (4 | ) | | 375 |
| | 203 |
|
| Basel III Advanced Fully Phased-In RWA at December 31, 2013 | 1,055 |
| | 161 |
| | 375 |
| | 1,591 |
|
Model & data changes(b) | 56 |
| | 36 |
| | 25 |
| | 117 |
|
Portfolio runoff(c) | (22 | ) | | (22 | ) | | — |
| | (44 | ) |
Movement in portfolio levels(d) | (49 | ) | | 4 |
| | — |
| | (45 | ) |
| Changes in RWA | (15 | ) | | 18 |
| | 25 |
| | 28 |
|
| Basel III Advanced Fully Phased-In RWA at December 31, 2014 | $ | 1,040 |
| | $ | 179 |
| | $ | 400 |
| | $ | 1,619 |
|
| |
(a) | Effect of rule changes refers to movements in levels of RWA as a result of changing to calculating RWA under the Basel III Advanced Fully Phased-In rules. See Risk-weighted assets on page 147 for additional information on the calculation of RWA under Basel III. |
| |
(b) | Model & data changes refer to movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rule changes). |
| |
(c) | Portfolio runoff for credit risk RWA reflects lower loan balances in Mortgage Banking and reduced risk from position rolloffs in legacy portfolios, and for market risk RWA reflects reduced risk from position rolloffs in legacy portfolios. |
| |
(d) | Movement in portfolio levels for credit risk RWA refers to changes in book size, composition, credit quality, and market movements; and for market risk RWA, refers to changes in position and market movements. |
|
| | | | | | | | | | |
| Line of business equity (Allocated capital) | |
| | | | December 31, |
| (in billions) | January 1, 2018 | | 2017 | 2016 |
| Consumer & Community Banking | $ | 51.0 |
| | $ | 51.0 |
| $ | 51.0 |
|
| Corporate & Investment Bank | 70.0 |
| | 70.0 |
| 64.0 |
|
| Commercial Banking | 20.0 |
| | 20.0 |
| 16.0 |
|
| Asset & Wealth Management | 9.0 |
| | 9.0 |
| 9.0 |
|
| Corporate | 79.6 |
| | 79.6 |
| 88.1 |
|
| Total common stockholders’ equity | $ | 229.6 |
| | $ | 229.6 |
| $ | 228.1 |
|
Basel III Transitional
Basel III Transitional capital requirements became effective on January 1, 2014,Planning and will become fully phased-in on January 1, 2019. The following table presents a reconciliation of the Firm’s Basel III Advanced Transitional capital and RWA to the Firm’s estimated Basel III Advanced Fully Phased-In capital and RWA as of December 31, 2014. |
| | | |
December 31, 2014 (in millions) | |
| Basel III Advanced Transitional CET1 capital | $ | 164,764 |
|
AOCI phase-in(a) | 2,249 |
|
CET1 capital deduction phased-in(b) | (1,212 | ) |
Intangibles deduction phase-in(c) | (850 | ) |
Other adjustments to CET1 capital(d) | (99 | ) |
| Basel III Advanced Fully Phased-In CET1 capital | $ | 164,852 |
|
| | |
| Basel III Advanced Transitional Additional Tier 1 capital | $ | 21,868 |
|
| Non-qualifying instruments phase-out | (2,670 | ) |
Tier 1 capital deduction phased-out(b) | 1,212 |
|
Other adjustments to Tier 1 capital(d) | (352 | ) |
| Basel III Advanced Fully Phased-In Additional Tier 1 capital | $ | 20,058 |
|
| | |
| Basel III Advanced Fully Phased-In Tier 1 capital | $ | 184,910 |
|
| | |
| Basel III Advanced Transitional Tier 2 capital | $ | 24,390 |
|
| Non-qualifying instruments phase-out | (2,670 | ) |
Other adjustments to Tier 2 capital(e) | (36 | ) |
| Basel III Advanced Fully Phased-In Tier 2 capital | $ | 21,684 |
|
| | |
| Basel III Advanced Fully Phased-In Total capital | $ | 206,594 |
|
| | |
| Basel III Advanced Transitional RWA | $ | 1,608,240 |
|
Adjustment related to change in risk-weighting(f) | 11,047 |
|
| Basel III Advanced Fully Phased-In RWA | $ | 1,619,287 |
|
| |
(a) | Includes the remaining balance of AOCI related to AFS debt securities and defined benefit pension and OPEB plans that will qualify as Basel III CET1 capital upon full phase-in. |
| |
(b) | Predominantly includes regulatory adjustments related to changes in FVA/DVA, as well as CET1 deductions for defined benefit pension plan assets and DTA related to net operating loss carryforwards. |
| |
(c) | Relates to intangible assets, other than goodwill and MSRs, that are required to be deducted from CET1 capital upon full phase-in. |
| |
(d) | Includes minority interest and the Firm’s investments in its own CET1 capital instruments. |
| |
(e) | Includes the Firm’s investments in its own Tier 2 capital instruments and unrealized gains on AFS equity securities. |
| |
(f) | Primarily relates to the risk-weighting of items not subject to capital deduction thresholds including MSRs. |
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 151 |
Management’s discussion and analysis
The following table presents the regulatory capital ratios as of December 31 2014, under Basel III Standardized Transitional and Basel III Advanced Transitional. Also included in the table are the regulatory minimum ratios in effect as of December 31, 2014. |
| | | | | | | | | | |
| | December 31, 2014 | | | | |
| | Basel III Standardized Transitional | Basel III Advanced Transitional | | Minimum capital ratios(b) | Well-capitalized ratios(c) | |
Risk-based capital ratios(a): | | | | | | |
| CET1 capital | 11.2 | % | 10.2 | % | | 4.0 | % | NA |
| (d) |
| Tier 1 capital | 12.7 |
| 11.6 |
| | 5.5 |
| 6.0 | % | |
| Total capital | 15.0 |
| 13.1 |
| | 8.0 |
| 10.0 |
| |
| Leverage ratio: | | | | | | |
| Tier 1 leverage | 7.6 |
| 7.6 |
| | 4.0 |
| 5.0 |
| |
| |
(a) | For each of the risk-based capital ratios the lower of the Standardized Transitional or Advanced Transitional ratio represents the Collins Floor. |
| |
(b) | Represents the minimum capital ratios for 2014 currently applicable to the Firm under Basel III. |
| |
(c) | Represents the minimum capital ratios for 2014 currently applicable to the Firm under the PCA requirements of the FDICIA. |
| |
(d) | The CET1 capital ratio became a relevant measure of capital under the prompt corrective action requirements on January 1, 2015. |
At December 31, 2014, JPMorgan Chase maintained Basel III Standardized Transitional and Basel III Advanced Transitional capital ratios in excess of the well-capitalized standards established by the Federal Reserve.
Additional information regarding the Firm’s capital ratios and the U.S. federal regulatory capital standards to which the Firm is subject is presented in Note 28. For further information on the Firm’s Basel III measures, see the Firm’s consolidated Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website (http://investor.shareholder.com/jpmorganchase/basel.cfm).
Supplementary leverage ratio
The Firm estimates that if the U.S. SLR final rule were in effect at December 31, 2014, the Firm’s SLR would have been approximately 5.6% and JPMorgan Chase Bank, N.A.’s and Chase Bank USA, N.A.’s SLRs would have been approximately 5.9% and 8.1%, respectively, at that date.stress testing
Comprehensive Capital Analysis and Review (“CCAR”)
The Federal Reserve requires large bank holding companies, including the Firm, to submit a capital plan on an annual basis. The Federal Reserve uses the CCAR and Dodd-Frank Act stress test processes to ensure that large bank holding companiesBHCs have sufficient capital during periods of economic and financial stress, and have robust, forward-looking capital assessment and planning processes in place that address each BHC’s unique risks to enable them to have the abilityit to absorb losses under certain stress scenarios. Through the CCAR, the Federal Reserve evaluates each BHC’s capital adequacy and internal capital adequacy assessment processes (“ICAAP”), as well as its plans to make capital distributions, such as dividend payments or stock repurchases.
On March 26, 2014,June 28, 2017, the Federal Reserve informed the Firm that it did not object, on either a quantitative or qualitative basis, to the Firm’s 20142017 capital plan. For information on actions taken by the Firm’s Board of Directors following the 20142017 CCAR results, see Capital actions on page 154.
On January 5, 2015, the Firm submitted its 2015 capital plan to the Federal Reserve under the Federal Reserve’s 2015 CCAR process. The Firm expects to receive the Federal Reserve’s final response to its plan no later than March 31, 2015.pages 89-90.
The Firm’s CCAR process is integrated into and employs the same methodologies utilized in the Firm’s Internal Capital Adequacy Assessment Process (“ICAAP”)ICAAP process, as discussed below.
Internal Capital Adequacy Assessment Process
Semiannually, the Firm completes the ICAAP, which provides management with a view of the impact of severe and unexpected events on earnings, balance sheet positions, reserves and capital. The Firm’s ICAAP integrates stress testing protocols with capital planning.
The process assesses the potential impact of alternative economic and business scenarios on the Firm’s earnings and capital. Economic scenarios, and the parameters underlying those scenarios, are defined centrally and applied uniformly across the businesses. These scenarios are articulated in terms of macroeconomic factors, which are key drivers of business results; global market shocks, which generate short-term but severe trading losses; and idiosyncratic operational risk events. The scenarios are intended to capture and stress key vulnerabilities and idiosyncratic risks facing the Firm. However, when defining a broad range of scenarios, realizedactual events can always be worse. Accordingly, management considers additional stresses outside these scenarios, as necessary. ICAAP results are reviewed by management and the BoardAudit Committee.
Capital actions
Preferred stock
Preferred stock dividends declared were $1.7 billion for the year ended December 31, 2017.
On October 20, 2017, the Firm issued $1.3 billion of Directors.fixed-to-floating rate non-cumulative preferred stock, Series CC, with an initial dividend rate of 4.625%. On December 1, 2017, the Firm redeemed all $1.3 billion of its outstanding 5.50% non-cumulative preferred stock, Series O.
Minimum Total Loss Absorbing Capacity (“TLAC”)For additional information on the Firm’s preferred stock, see Note 20.
In November 2014,Trust preferred securities
On December 18, 2017, the FSB, in consultation withDelaware trusts that issued seven series of outstanding trust preferred securities were liquidated, $1.6 billion of trust preferred and $56 million of common securities originally issued by those trusts were cancelled, and the Basel Committee on Banking Supervision, issued a consultative document proposing that, in order for G-SIBsjunior subordinated debentures previously held by each trust issuer were distributed pro rata to have sufficient loss absorbing and recapitalization capacity to support an orderly resolution, they would be required to have outstanding a sufficient amount and type of debt and capital instruments. This amount and type of debt and capital instruments (or “total loss absorbing capacity” or TLAC) is intended to effectively absorb losses, as necessary, upon a failure of a G-SIB, without imposing such losses on taxpayersthe holders of the relevant jurisdiction or causing severe systemic disruptions,corresponding series of trust preferred and thereby ensuring the continuity of the G-SIBs critical functions. The document identifies specific criteria that must be met for instruments to be considered eligible under TLAC and sets out minimum requirements that include existing Basel III minimum capital requirements, excluding capital buffers. The FSB’s proposed range for a common minimum TLAC requirement is 16-20% of the financial institution’s RWA and at least twice its Basel III Tier 1 leverage ratio. The Firm estimated that it has approximately 15% minimum TLAC as a percentage of
|
| | |
152 | | JPMorgan Chase & Co./2014 Annual Report |
Basel III Advanced Fully Phased-in RWA, excluding capital buffers currently in effect, at year end 2014 based on its understanding of how the FSB proposal may be implemented in the United States. The FSB is expected to revise its proposal following a period of public consultation and findings from a quantitative impact study and market survey to be conducted in the first quarter of 2015. The final proposal is expected to be submitted to the G-20 in advance of the G-20 Summit scheduled for fourth quarter of 2015. U.S. banking regulators are expected to issue an NPR that would outline TLAC requirements specific to U.S. banks.
Regulatory capital outlooksecurities.
The Firm expects to continue to accrete capitalredeemed $1.6 billion of trust preferred securities in the near term and believes its current capital levels enable it to retain market access, continue its strategy to invest in and grow its businesses and maintain flexibility to distribute excess capital. The Firm intends to balance return of capital to shareholders with achieving higher capital ratios over time. Additionally, the Firm expects the capital ratio calculated under the Basel III Standardized Fully Phased-In Approach to become its binding constraint by the end of 2015, or slightly thereafter. As a result, the Firm expects to reach Basel III Advanced and Standardized Fully Phased-In CET1 ratios of approximately 11% by the end of 2015 and is targeting reaching a Basel III CET1 ratio of approximately 12% by the end of 2018.year ended December 31, 2016.
The Firm’s capital targets take into consideration the current U.S. Basel III requirements and contemplate the requirements under the U.S. G-SIB proposal issued on December 9, 2014 and therefore, assume a 4.5% G-SIB capital surcharge. These targets are subject to revision in the future as a result of changes that may be introduced by banking regulators to the required minimum ratios to which the Firm is subject. In particular, if the Firm’s G-SIB capital surcharge is determined to be lower than 4.5%, the capital targets would be adjusted accordingly. The Firm intends to manage its capital so that it achieves the required capital levels and composition in line with or in advance of the required timetables of current and proposed rules.
Economic risk capital
Economic risk capital is another of the disciplines the Firm uses to assess the capital required to support its businesses. Economic risk capital is a measure of the capital needed to cover JPMorgan Chase’s business activities in the event of unexpected losses. The Firm measures economic risk capital using internal risk-assessment methodologies and models based primarily on four risk factors: credit, market, operational and private equity risk and considers factors, assumptions and inputs that differ from those required to be used for regulatory capital requirements. Accordingly, economic risk capital provides a complementary measure to regulatory capital. As economic risk capital is a separate component of the capital framework for Advanced Approach banking organizations under Basel III, the Firm continues to enhance its economic risk capital framework.
Line of business equity
The Firm’s framework for allocating capital to its business segments is based on the following objectives:
Integrate firmwide and line of business capital management activities;
Measure performance consistently across all lines of business; and
Provide comparability with peer firms for each of the lines of business
Equity for a line of business represents the amount the Firm believes the business would require if it were operating independently, considering capital levels for similarly rated peers, regulatory capital requirements (as estimated under Basel III Advanced Fully Phased-In) and economic risk measures. Capital is also allocated to each line of business for, among other things, goodwill and other intangibles associated with acquisitions effected by the line of business. ROE is measured and internal targets for expected returns are established as key measures of a business segment’s performance.
|
| | | | | | | | | | | | |
| Line of business equity | | Yearly average |
Year ended December 31, (in billions) | | 2014 |
| | 2013 |
| | 2012 |
|
| Consumer & Community Banking | | $ | 51.0 |
| | $ | 46.0 |
| | $ | 43.0 |
|
| Corporate & Investment Bank | | 61.0 |
| | 56.5 |
| | 47.5 |
|
| Commercial Banking | | 14.0 |
| | 13.5 |
| | 9.5 |
|
| Asset Management | | 9.0 |
| | 9.0 |
| | 7.0 |
|
| Corporate | | 72.4 |
| | 71.4 |
| | 77.4 |
|
| Total common stockholders’ equity | | $ | 207.4 |
| | $ | 196.4 |
| | $ | 184.4 |
|
Effective January 1, 2013, the Firm refined the capital allocation framework to align it with the revised line of business structure that became effective in the fourth quarter of 2012. The change in equity levels for the lines of businesses was largely driven by the evolving regulatory requirements and higher capital targets the Firm had established under the Basel III Advanced Approach.
On at least an annual basis, the Firm assesses the level of capital required for each line of business as well as the assumptions and methodologies used to allocate capital to its lines of business and updates the equity allocations to its lines of business as refinements are implemented.
|
| | | | | | | | | | | |
| Line of business equity | January 1, |
| | December 31, |
| (in billions) | 2015(a) | | 2014 | | 2013 |
| Consumer & Community Banking | $ | 51.0 |
| | $ | 51.0 |
| | $ | 46.0 |
|
| Corporate & Investment Bank | 62.0 |
| | 61.0 |
| | 56.5 |
|
| Commercial Banking | 14.0 |
| | 14.0 |
| | 13.5 |
|
| Asset Management | 9.0 |
| | 9.0 |
| | 9.0 |
|
| Corporate | 76.0 |
| | 77.0 |
| | 75.0 |
|
| Total common stockholders’ equity | $ | 212.0 |
| | $ | 212.0 |
| | $ | 200.0 |
|
| |
(a) | Reflects refined capital allocations effective January 1, 2015. |
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 153 |
Management’s discussion and analysis
Capital actions
DividendsCommon stock dividends
The Firm’s common stock dividend policy reflects JPMorgan Chase’s earnings outlook, desired dividend payout ratio, capital objectives, and alternative investment opportunities.
The Firm’s current expectation is to continue to target a payout ratio of approximately 30% of normalized earnings over time. FollowingOn September 19, 2017, the Federal Reserve’s non-objection to the Firm’s 2014 capital plan, theFirm announced that its Board of Directors increased the quarterly common stock dividend on May 20, 2014, from $0.38 to $0.40$0.56 per share, effective beginning with the dividend paid on JulyOctober 31, 2014,2017. The Firm’s dividends are subject to stockholdersthe Board of recordDirectors’ approval on July 3, 2014.a quarterly basis.
For information regarding dividend restrictions, see Note 2220 and Note 27.25.
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 89 |
Management’s discussion and analysis
The following table shows the common dividend payout ratio based on reported net income.income applicable to common equity.
| | | Year ended December 31, | 2014 |
| | 2013 |
| | 2012 |
| 2017 |
| | 2016 |
| | 2015 |
|
| Common dividend payout ratio | 29 | % | | 33 | % | | 23 | % | 33 | % | | 30 | % | | 28 | % |
Preferred stockCommon equity
During the year ended December 31, 2014,2017, warrant holders exercised their right to purchase 9.9 million shares of the Firm’s common stock. The Firm issued $8.9 billionfrom treasury stock 5.4 million shares of noncumulative preferred stock. Preferredits common stock dividends declared were $1.1 billion for the year endedas a result of these exercises. As of December 31, 2014. Assuming all preferred stock issuances were2017, 15.0 million warrants remained outstanding, for the entire year and quarterly dividends were declared on such issuances, preferred stock dividends would have been $1.3 billion for the year endedcompared with 24.9 million outstanding as of December 31, 2014. For additional information on2016.
Effective June 28, 2017, the Firm’s preferred stock, see Note 22.
Redemption of outstanding trust preferred securities
On May 8, 2013, the Firm redeemed approximately $5.0 billion, or 100% of the liquidation amount, of the following eight series of trust preferred securities: JPMorgan Chase Capital X, XI, XII, XIV, XVI, XIX, XXIV, and BANK ONE Capital VI. For a further discussion of trust preferred securities, see Note 21.
Common equity
On March 13, 2012, the Board of Directors authorized a $15.0the repurchase of up to $19.4 billion of common equity (i.e., common(common stock and warrants) repurchase program. between July 1, 2017 and June 30, 2018, as part of its annual capital plan.
As of December 31, 2014, $3.82017, $9.8 billion (on a trade-date basis) of authorized repurchase capacity remained under the program. The amount of equity that may be repurchased by the Firm is also subject to the amount that is set forth in the Firm’s annual capital plan submitted to the Federal Reserve as part of the CCAR process. In conjunction with the Federal Reserve’s release of its 2014 CCAR results, the Firm’s Board of Directors has authorized the Firm to repurchase $6.5 billion of common equity between April 1, 2014, and March 31, 2015. As of December 31, 2014, $2.1 billion (on a trade-date basis) of such repurchase capacity remains. This authorization includes shares repurchased to offset issuances under the Firm’s equity-based compensation plans.program.
The following table sets forth the Firm’s repurchases of common equity for the years ended December 31, 2014, 20132017, 2016 and 2012, on a trade-date basis.2015. There were no repurchases of warrants repurchased during the years ended December 31, 2014,2017, 2016 and 2013.2015.
| | | Year ended December 31, (in millions) | | 2014 | | 2013 | | 2012 | | 2017 |
| | 2016 |
| | 2015 |
|
| Total number of shares of common stock repurchased | | 83.4 |
| | 96.1 |
| | 30.9 |
| | 166.6 |
| | 140.4 |
| | 89.8 |
|
| Aggregate purchase price of common stock repurchases | | $ | 4,834 |
| | $ | 4,789 |
| | $ | 1,329 |
| | $ | 15,410 |
| | $ | 9,082 |
| | $ | 5,616 |
|
| Total number of warrants repurchased | | — |
| | — |
| | 18.5 |
| |
| Aggregate purchase price of warrant repurchases | | $ | — |
| | $ | — |
| | $ | 238 |
| |
The Firm may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate repurchases in accordance with the common equity repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common equity — for example, during internal trading “blackoutblackout periods.” All purchases under a Rule 10b5-1 planplans must be made according to a predefined planschedules established when the Firm is not aware of material nonpublic information.
The authorization to repurchase common equity will be utilized at management’s discretion, and the timing of purchases and the exact amount of common equity that may be repurchased is subject to various factors, including market conditions; legal and regulatory considerations affecting the amount and timing of repurchase activity; the Firm’s capital position (taking into account goodwill and intangibles); internal capital generation; and alternative investment opportunities. The repurchase program does not include specific price targets or timetables; may be executed through open market purchases or privately negotiated transactions, or utilizing Rule 10b5-1 programs;plans; and may be suspended by management at any time.
For additional information regarding repurchases of the Firm’s equity securities, see Part II, Item 5: Market for registrant’s common equity, related stockholder mattersRegistrant’s Common Equity, Related Stockholder Matters and issuer purchasesIssuer Purchases of equityEquity Securities on page 28.
Other capital requirements
TLAC
On December 15, 2016, the Federal Reserve issued its final TLAC rule which requires the top-tier holding companies of eight U.S. GSIB holding companies, including the Firm, to maintain minimum levels of external TLAC and external long-term debt that satisfies certain eligibility criteria (“eligible LTD”), effective January 1, 2019.
The minimum external TLAC and the minimum level of eligible long-term debt requirements are shown below:
(a) RWA is the greater of Standardized and Advanced.
The final TLAC rule permanently grandfathered all long-term debt issued before December 31, 2016, to the extent these securities would be ineligible because they contained impermissible acceleration rights or were governed by non-U.S. law. As of December 31, 2017, the Firm was compliant with the requirements under the current rule to which it will be subject on pages 18–19.January 1, 2019.
|
| | |
15490 | | JPMorgan Chase & Co./20142017 Annual Report |
Broker-dealer regulatory capital
JPMorgan Securities
JPMorgan Chase’s principal U.S. broker-dealer subsidiaries are J.P. Morgan Securities LLC (“subsidiary is JPMorgan Securities”) and J.P. Morgan Clearing Corp. (“JPMorgan Clearing”). JPMorgan Clearing is a subsidiary ofSecurities. JPMorgan Securities and provides clearing and settlement services. JPMorgan Securities and JPMorgan Clearing are eachis subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Net Capital Rule”). JPMorgan Securities and JPMorgan Clearing areis also each registered as a futures commission merchantsmerchant and subject to Rule 1.17 of the Commodity Futures Trading Commission (“CFTC”).CFTC.
JPMorgan Securities and JPMorgan Clearing havehas elected to compute theirits minimum net capital requirements in accordance with the “Alternative Net Capital Requirements” of the Net Capital Rule. At December 31, 2014, JPMorgan Securities’ net capital, as defined by the Net Capital Rule, was $12.8 billion, exceeding the minimum requirement by $10.6 billion, and JPMorgan Clearing’s net capital was $7.5 billion, exceeding the minimum requirement by $5.6 billion.
In addition to its minimum net capital requirement, JPMorgan Securities is required to hold tentative net capital in excess of $1.0 billion and is also required to notify the Securities and Exchange Commission (“SEC”) in the event that tentative net capital is less than $5.0 billion, in accordance with the market and credit risk standards of Appendix E of the Net Capital Rule.Rule, JPMorgan Securities is eligible to use the alternative method of computing net capital if, in addition to meeting its minimum net capital requirements, it maintains tentative net capital of at least $1.0 billion and is also required to notify the SEC in the event that tentative net capital is less than $5.0 billion. As of December 31, 2014,2017, JPMorgan Securities had tentative net capital in excess of the minimum and notification requirements. The following table presents JPMorgan Securities’ net capital information:
|
| | | | | | |
| December 31, 2017 | Net capital |
| (in billions) | Actual |
| Minimum |
|
| JPMorgan Securities | $ | 13.6 |
| $ | 2.8 |
|
J.P. Morgan Securities plc
J.P. Morgan Securities plc is a wholly owned subsidiary of JPMorgan Chase Bank, N.A. and is the Firm’s principal operating subsidiary in the U.K. It has authority to engage in banking, investment banking and broker-dealer activities. J.P. Morgan Securities plc is jointly regulated by the U.K. Prudential Regulation Authority (“PRA”)PRA and Financial Conduct Authority (“FCA”). Commencing January 1, 2014,the FCA. J.P. Morgan Securities plc becameis subject to the European Union Capital Requirements Regulation and the U.K. PRA capital rules, each of which implemented Basel III capital rules.
At December 31, 2014,and thereby subject J.P. Morgan Securities plc had estimated totalto its requirements.
The following table presents J.P. Morgan Securities plc’s capital of $30.1 billion; its estimated CET1 capital ratio was 10.7% and its estimated Total capital ratio was 14.1%. Both ratios exceeded the minimum transitional standards (4.0% and 8.0% for the CET1 ratio and Total capital ratio, respectively) as established by the Capital Requirements Directive and Regulation (the European Union (“EU”) implementation of Basel III) as well as additional minimum requirements specified by the Prudential Regulatory Authority as Individual Capital Guidance and PRA Buffer requirements.information: |
| | | | | | | | | |
| December 31, 2017 | Total capital | | CET1 ratio | | Total capital ratio |
| (in billions, except ratios) | Estimated | | Estimated | Minimum | | Estimated | Minimum |
| J.P. Morgan Securities plc | $ | 39.6 |
| | 15.9 | 4.5 | | 15.9 | 8.0 |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 15591 |
Management’s discussion and analysis
|
| | | | |
| LIQUIDITY RISK MANAGEMENT |
Liquidity risk is the risk that the Firm will be unable to meet its contractual and contingent obligations. Liquidity risk management is intended to ensurefinancial obligations as they arise or that the Firm hasit does not have the appropriate amount, composition and tenor of funding and liquidity into support of its assets.assets and liabilities.
Liquidity Risk Oversightrisk oversight
The Firm has an independenta liquidity risk oversight function whose primary objective is to provide assessment, measurement, monitoring, and control of liquidity risk across the Firm. Liquidity risk oversight is managed through a dedicated firmwide Liquidity Risk Oversight group reporting into thegroup. The CIO, Treasury and Corporate (“CTC”) Chief Risk Officer (“CRO”). The CTC CRO, has responsibilitywho reports to the Firm’s CRO, as part of the IRM function, is responsible for firmwide Liquidity Risk Oversight and reports to the Firm’s CRO.Oversight. Liquidity Risk Oversight’s responsibilities include but are not limited to:include:
Establishing and monitoring limits, indicators, and thresholds, including liquidity risk appetite tolerances;
DefiningMonitoring internal firmwide and monitoring internal Firmwide andmaterial legal entity liquidity stress tests, and monitoring and reporting regulatory defined liquidity stress testing;
Reporting and monitoringApproving or escalating for review liquidity stress assumptions;
Monitoring liquidity positions, balance sheet variances and funding activities;activities, and
Conducting ad hoc analysis to identify potential emerging liquidity risks.risks.
Risk Governance and Measurement
Specific committees responsible for liquidity governance include firmwide ALCO as well as lines of business and regional ALCOs, and the CTC Risk Committee. For further discussion of the risk and risk-related committees, see Enterprise-wide Risk Management on pages 105–109.
Internal Stress testing
Liquidity stress tests are intended to ensure sufficient liquidity for the Firm under a variety of adverse scenarios. Results of stress tests are therefore considered in the formulation of the Firm’s funding planmanagement
Treasury and assessment of its liquidity position. Liquidity outflow assumptions are modeled across a range of time horizons and contemplate both market and idiosyncratic stress. Standard stress tests are performed on a regular basis and ad hoc stress tests are performed in response to specific market events or concerns. In addition, stress scenarios are produced for the parent holding company and the Firm’s major subsidiaries.
Liquidity stress tests assume all of the Firm’s contractual obligations are met and then take into consideration varying levels of access to unsecured and secured funding markets. Additionally, assumptions with respect to potential non-contractual and contingent outflows are contemplated.
Liquidity Management
TreasuryCIO is responsible for liquidity management. The primary objectives of effective liquidity management are to ensureto:
Ensure that the Firm’s core businesses and material legal entities are able to operate in support of client needs and meet contractual and contingent financial obligations through normal economic cycles as well as during stress events, ensureand
Manage an optimal funding mix optimization, and
availability of liquidity sources.
The Firm manages liquidity and funding using a centralized, global approach across its entities, taking into consideration both their current liquidity profile and any potential changes over time, in order to optimize liquidity sources and uses.
In the context of the Firm’s liquidity management, Treasury and CIO is responsible for:
Analyzing and understanding the liquidity characteristics of the assets and liabilities of the Firm, lines of business and legal entities’ assets and liabilities,entities, taking into account legal, regulatory, and operational restrictions;
Developing internal liquidity stress testing assumptions;
Defining and monitoring firmwide and legal entityentity-specific liquidity strategies, policies, guidelines, reporting and contingency funding plans;
Managing liquidity within the Firm’s approved liquidity risk appetite tolerances and limits;
Managing compliance with regulatory requirements related to funding and liquidity risk, and
Setting transfer pricing in accordance with underlying liquidity characteristics of balance sheet assets and liabilities as well as certain off-balance sheet items.
Risk governance and measurement
Specific committees responsible for liquidity governance include the firmwide ALCO as well as line of business and regional ALCOs, and the CTC Risk Committee. In addition, the DRPC reviews and recommends to the Board of Directors, for formal approval, the Firm’s liquidity risk tolerances, liquidity strategy, and liquidity policy at least annually. For further discussion of ALCO and other risk-related committees, see Enterprise-wide Risk Management on pages 75–137.
Internal stress testing
Liquidity stress tests are intended to ensure that the Firm has sufficient liquidity under a variety of adverse scenarios, including scenarios analyzed as part of the Firm’s resolution and recovery planning. Stress scenarios are produced for JPMorgan Chase & Co. (“Parent Company”) and the Firm’s material legal entities on a regular basis, and ad hoc stress tests are performed, as needed, in response to specific market events or concerns. Liquidity stress tests assume all of the Firm’s contractual financial obligations are met and take into consideration:
Varying levels of access to unsecured and secured funding markets,
Estimated non-contractual and contingent cash outflows, and
Potential impediments to the availability and transferability of liquidity between jurisdictions and material legal entities such as regulatory, legal or other restrictions.
Liquidity outflow assumptions are modeled across a range of time horizons and currency dimensions and contemplate both market and idiosyncratic stresses.
Results of stress tests are considered in the formulation of the Firm’s funding plan and assessment of its liquidity position. The Parent Company acts as a source of funding for the Firm through equity and long-term debt issuances, and the IHC provides funding support to the ongoing operations of the Parent Company and its subsidiaries, as necessary. The Firm maintains liquidity at the Parent Company and the IHC, in addition to liquidity held at the operating subsidiaries, at levels sufficient to comply with liquidity risk tolerances and minimum liquidity requirements, and to manage through periods of stress where access to normal funding sources is disrupted.
|
| | |
| 92 | | JPMorgan Chase & Co./2017 Annual Report |
Contingency funding plan
The Firm’s contingency funding plan (“CFP”), which is reviewedapproved by the firmwide ALCO and approved by the DRPC, is a compilation of procedures and action plans for managing liquidity through stress events. The CFP incorporates the limits and indicators set by the Liquidity Risk Oversight group. These limits and indicators are reviewed regularly to identify the emergence of risks or vulnerabilities in the Firm’s liquidity position. The CFP identifies the alternative contingent funding and liquidity resources available to the Firm and its legal entities in a stress event.
Parent holding company and subsidiary funding
The parent holding company acts as a source of funding to its subsidiaries. The Firm’s liquidity management is intended to maintain liquidity at the parent holding company, in addition to funding and liquidity raised at the subsidiary operating level, at levels sufficient to fund the operations of the parent holding company and its subsidiaries for an extended period of time in a stress environment where access to normal funding sources is disrupted. The parent holding company currently holds more than 18 months of pre-funding assuming no access to wholesale funding markets.stress.
LCR and NSFRHQLA
In December 2010,The LCR rule requires the Basel Committee introduced two new measuresFirm to maintain an amount of liquidity risk: the liquidity coverage ratio (“LCR”), whichunencumbered HQLA that is intendedsufficient to measuremeet its estimated total net cash outflows over a prospective 30 calendar-day period of significant stress. HQLA is the amount of “high-quality liquid assets” (“HQLA”) held by the Firm in relation to estimated net cash outflows within a 30-day period during an acute stress event; and the net stable funding ratio (“NSFR”) which is intended to measure the “available” amount of stable funding relative to the “required” amount of stable funding over a one-year horizon. The standards require that the LCR be no lower than 100% and the NSFR be greater than 100%.
|
| | |
156 | | JPMorgan Chase & Co./2014 Annual Report |
On September 3, 2014, the U.S. banking regulators approved the final LCR rule (“U.S. LCR”), which became effective on January 1, 2015. Under the final rules, the LCR is required to be 80% at January 1, 2015, increasing by 10% each year until reaching 100% at January 1, 2017. At December 31, 2014, the Firm was compliant with the fully phased-in U.S. LCR based on its current understanding of the final rule. The Firm’s LCR may fluctuate from period-to-period due to normal flows from client activity.
On October 31, 2014, the Basel Committee issued the final standard for the NSFR which will become a minimum standard by January 1, 2018. At December 31, 2014, the Firm was compliant with the NSFR based on its current understanding of the final Basel rule. The U.S. Banking Regulators are expected to issue a proposal on the NSFR that would outline requirements specific to U.S. banks.
HQLA
HQLA is the estimated amount of assets that qualify for inclusion in the U.S. LCR. HQLA primarily consistsconsist of unencumbered cash and certain unencumbered high quality liquid assetssecurities as defined in the LCR rule.
AsUnder the LCR rule, the amount of December 31, 2014, HQLA was estimatedheld by JPMorgan Chase Bank N.A. and Chase Bank USA, N.A that are in excess of each entity’s standalone 100% minimum LCR requirement, and that are not transferable to non-bank affiliates, must be excluded from the Firm’s reported HQLA. Effective January 1, 2017, the LCR is required to be approximately $600 billion, as determined undera minimum of 100%.
On December 19, 2016, the Federal Reserve published final LCR public disclosure requirements for certain BHCs and non-bank financial companies. Beginning with the second quarter of 2017, the Firm disclosed its average LCR for the quarter and the key quantitative components of the average LCR, along with a qualitative discussion of material drivers of the ratio, changes over time, and causes of such changes. The Firm will continue to make available its U.S. LCR final rule, compared with $522 billion as of December 31, 2013, which was calculated usingDisclosure report on a quarterly basis on the Basel Committee’s definition of HQLA. The increase in HQLA was due to higher cash balances largely driven by higher deposit balances, partially offset by the impact of the application of the U.S. LCR rule which excludes certain types of securities that are permitted under the Basel Rules. HQLA may fluctuate from period-to-period primarily due to normal flows from client activity.Firm’s website at: (https://investor.shareholder.com/jpmorganchase/basel.cfm)
The following table presentssummarizes the estimated HQLA included inFirm’s average LCR for the U.S. LCR broken out by HQLA-eligible cash and HQLA-eligible securities as of three months ended December 31, 2014.2017 based on the Firm’s current interpretation of the finalized LCR framework.
| | | (in billions) | December 31, 2014 | | |
Average amount (in millions) | | Three months ended December 31, 2017 |
|
| HQLA | | | |
Eligible cash(a) | | $ | 454 |
| $ | 370,126 |
|
Eligible securities(b)(c) | | 146 |
| 189,955 |
|
Total HQLA | | $ | 600 |
| $ | 560,081 |
|
| Net cash outflows | | $ | 472,078 |
|
| LCR | | 119 | % |
Net excess HQLA (d) | | $ | 88,003 |
|
| |
| (a) | PredominantlyRepresents cash on deposit at central banks.banks, primarily Federal Reserve Banks. |
| |
| (b) | Predominantly includes U.S. agency mortgage-backed securities,Agency MBS, U.S. Treasuries, and sovereign bonds.bonds net of applicable haircuts under the LCR rules |
| |
| (c) | HQLA eligible securities may be reported in securities borrowed or purchased under resale agreements, trading assets, or securities on the Firm’s Consolidated balance sheets. |
| |
| (d) | Excludes average excess HQLA at JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. that are not transferable to non-bank affiliates. |
For the three months ended December 31, 2017, the Firm’s average LCR was 119%, compared with an average of 120% for the three months ended September 30, 2017. The decrease in the ratio was largely attributable to a decrease in average HQLA, driven primarily by long-term debt maturities. The Firm’s average LCR may fluctuate from period to period, due to changes in its HQLA and estimated net cash outflows under the LCR as a result of ongoing business activity. The Firm’s HQLA are expected to be available to meet its liquidity needs in a time of stress.
Other liquidity sources
InAs of December 31, 2017, in addition to assets reported in the Firm’s HQLA as of December 31, 2014,under the LCR rule, the Firm hashad approximately $321$208 billion of unencumbered marketable securities, such as equity securities and fixed income debt securities, available to raise liquidity, if required. Furthermore,This includes HQLA-eligible securities included as part of the excess liquidity at JPMorgan Chase Bank, N.A. that are not transferable to non-bank affiliates.
As of December 31, 2017, the Firm maintainsalso had approximately $277 billion of available borrowing capacity at various Federal Home Loan Banks (“FHLBs”), thediscount windows at Federal Reserve Bank discount windowBanks and various other central banks as a result of collateral pledged by the Firm to such banks. This borrowing capacity excludes the benefit of securities reported in the Firm’s HQLA or other unencumbered securities that are currently pledged at Federal Reserve Bank discount windows. Although available, the Firm does not view the borrowing capacity at the Federal Reserve Bank discount
window windows and the various other central banks as a primary source of liquidity. As
NSFR
The net stable funding ratio (“NSFR”) is intended to measure the adequacy of “available” and “required” amounts of stable funding over a one-year horizon. On April 26, 2016, the U.S. NSFR proposal was released for large banks and BHCs and was largely consistent with the Basel Committee’s final standard.
While the final U.S. NSFR rule has yet to be released, as of December 31, 2014, the Firm’s remaining borrowing capacity at various FHLBs and the Federal Reserve Bank discount window was approximately $143 billion. This borrowing capacity excludes the benefit of securities included above in HQLA or other unencumbered securities held at the Federal Reserve Bank discount window for which2017 the Firm has not drawn liquidity.estimates that it was compliant with the proposed 100% minimum NSFR based on its current understanding of the proposed rule.
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| JPMorgan Chase & Co./2017 Annual Report | | 93 |
Management’s discussion and analysis
Funding
Sources of funds
Management believes that the Firm’s unsecured and secured funding capacity is sufficient to meet its on- and off-balance sheet obligations.
The Firm funds its global balance sheet through diverse sources of funding including a stable deposit franchise as well as secured and unsecured funding in the capital markets. The Firm’s loan portfolio (aggregating approximately $757.3 billion at December 31, 2014), is funded with a portion of the Firm’s deposits, (aggregating approximately $1,363.4 billion at December 31, 2014) and through securitizations and, with respect to a portion of the Firm’s real estate-related loans, with secured borrowings from the FHLBs. Deposits in excess of the amount utilized to fund loans are primarily invested in the Firm’s investment securities portfolio or deployed in cash or other short-term liquid investments based on their interest rate and liquidity risk characteristics. Capital markets secured financing assetsSecurities
borrowed or purchased under resale agreements and trading assetsassets-debt and equity instruments are primarily funded by the Firm’s capital markets secured financing liabilities,securities loaned or sold under agreements to repurchase, trading liabilitiesliabilities–debt and equity instruments, and a portion of the Firm’s long-term debt and stockholders’ equity.
In addition to funding capital markets assets,securities borrowed or purchased under resale agreements and trading assets-debt andequity instruments, proceeds from the Firm’s debt and equity issuances are used to fund certain loans and other financial and non-financial assets, or may be invested in the Firm’s investment securities portfolio. See the discussion below for additional disclosuresinformation relating to Deposits, Short-term funding, and Long-term funding and issuance.
Deposits
The table below summarizes, by line of business, the period-end and average deposit balances as of and for the years ended December 31, 2017 and 2016.
|
| | | | | | | | | | | | | |
| Deposits | | | Year ended December 31, |
| As of or for the year ended December 31, | | | | Average |
| (in millions) | 2017 | 2016 | | 2017 | 2016 |
| Consumer & Community Banking | $ | 659,885 |
| $ | 618,337 |
| | $ | 640,219 |
| $ | 586,637 |
|
| Corporate & Investment Bank | 455,883 |
| 412,434 |
| | 447,697 |
| 409,680 |
|
| Commercial Banking | 181,512 |
| 179,532 |
| | 176,884 |
| 172,835 |
|
| Asset & Wealth Management | 146,407 |
| 161,577 |
| | 148,982 |
| 153,334 |
|
| Corporate | 295 |
| 3,299 |
| | 3,604 |
| 5,482 |
|
| Total Firm | $ | 1,443,982 |
| $ | 1,375,179 |
| | $ | 1,417,386 |
| $ | 1,327,968 |
|
A key strength of the Firm is its diversified deposit franchise, through each of its lines of business, which provides a stable source of funding and limits reliance on the wholesale funding markets. As of December 31, 2014, the Firm’s loans-to-deposits ratio was 56%, compared with 57% at December 31, 2013.
As of December 31, 2014, total deposits for the Firm were $1,363.4 billion, compared with $1,287.8 billion at December 31, 2013 (58% of total liabilities at both December 31, 2014 and 2013). The increase was due to growth in both wholesale and consumer deposits. For further information, see Balance Sheet Analysis on pages 72–73.
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| | |
JPMorgan Chase & Co./2014 Annual Report | | 157 |
Management’s discussion and analysis
The Firm typically experiences higher customer deposit inflows at period-ends. Therefore, the Firm believes average deposit balances are more representative of deposit trends. The table below summarizes, by line of business, the period-end and average deposit balances as of and for the years ended December 31, 2014 and 2013.
|
| | | | | | | | | | | | | |
| Deposits | | | Year ended December 31, |
| As of or for the period ended December 31, | | | | Average |
| (in millions) | 2014 | 2013 | | 2014 | 2013 |
| Consumer & Community Banking | $ | 502,520 |
| $ | 464,412 |
| | $ | 486,919 |
| $ | 453,304 |
|
| Corporate & Investment Bank | 468,423 |
| 446,237 |
| | 417,517 |
| 384,289 |
|
| Commercial Banking | 213,682 |
| 206,127 |
| | 190,425 |
| 184,409 |
|
| Asset Management | 155,247 |
| 146,183 |
| | 150,121 |
| 139,707 |
|
| Corporate | 23,555 |
| 24,806 |
| | 19,319 |
| 27,433 |
|
| Total Firm | $ | 1,363,427 |
| $ | 1,287,765 |
| | $ | 1,264,301 |
| $ | 1,189,142 |
|
A significant portion of the Firm’s deposits are consumer deposits (37% and 36% at December 31, 2014 and 2013, respectively),wholesale operating deposits, which are considered particularly stable as they are less sensitive to interest rate changes or market volatility. Additionally, the majority of the Firm’s institutional deposits are alsoboth considered to be stable sources of funding sinceliquidity. Wholesale operating deposits are considered to be stable sources of liquidity because they are generated from customers that maintain operating service relationships with the Firm.
The table below shows the loan and deposit balances, the loans-to-deposits ratios, and deposits as a percentage of total liabilities, as of December 31, 2017 and 2016.
|
| | | | | | |
As of December 31, (in billions except ratios) | | |
| 2017 | 2016 |
| Deposits | $ | 1,444.0 |
| $ | 1,375.2 |
|
| Deposits as a % of total liabilities | 63 | % | 61 | % |
| Loans | 930.7 |
| 894.8 |
|
| Loans-to-deposits ratio | 64 | % | 65 | % |
Deposits increased due to both higher consumer and wholesale deposits. The higher consumer deposits reflect the continuation of strong growth from new and existing customers, and low attrition rates. The higher wholesale deposits largely were driven by growth in client cash management activity in CIB’s Securities Services business, partially offset by lower balances in AWM reflecting balance migration predominantly into the Firm’s investment-related products.
The Firm believes average deposit balances are generally more representative of deposit trends than period-end deposit balances. The increase in average deposits for the year ended December 31, 2017 compared with the year ended December 31, 2016, was driven by an increase in both consumer and wholesale deposits. For further discussions of deposit and liability balance trends, see the discussion of the results for the Firm’s business segments results and the Consolidated Balance Sheet Analysis on pages 79–10455–74 and pages 72–73,47-48, respectively.
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| | |
| 94 | | JPMorgan Chase & Co./2017 Annual Report |
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 20142017 and 2013,2016, and average balances for the years ended December 31, 20142017 and 2013.2016. For additional information, see the Consolidated Balance SheetSheets Analysis on pages 72–7347-48 and Note 21.19.
|
| | | | | | | | | | | | | |
| Sources of funds (excluding deposits) | 2014 | 2013 | | |
| As of or for the year ended December 31, | | Average |
| (in millions) | | 2014 | 2013 |
| Commercial paper: | | | | | |
| Wholesale funding | $ | 24,052 |
| $ | 17,249 |
| | $ | 19,442 |
| $ | 17,785 |
|
| Client cash management | 42,292 |
| 40,599 |
| | 40,474 |
| 35,932 |
|
| Total commercial paper | $ | 66,344 |
| $ | 57,848 |
| | $ | 59,916 |
| $ | 53,717 |
|
| | | | | | |
Obligations of Firm-administered multi-seller conduits(a) | $ | 12,047 |
| $ | 14,892 |
| | $ | 10,427 |
| $ | 15,504 |
|
| | | | | | |
| Other borrowed funds | $ | 30,222 |
| $ | 27,994 |
| | $ | 31,721 |
| $ | 30,449 |
|
| | | | | | |
| Securities loaned or sold under agreements to repurchase: | | | | | |
| Securities sold under agreements to repurchase | $ | 167,077 |
| $ | 155,808 |
| | $ | 181,186 |
| $ | 207,106 |
|
| Securities loaned | 21,798 |
| 19,509 |
| | 22,586 |
| 26,068 |
|
Total securities loaned or sold under agreements to repurchase(b)(c)(d) | $ | 188,875 |
| $ | 175,317 |
| | $ | 203,772 |
| $ | 233,174 |
|
| | | | | | |
| Total senior notes | $ | 142,480 |
| $ | 135,754 |
| | $ | 139,707 |
| $ | 137,662 |
|
| Trust preferred securities | 5,496 |
| 5,445 |
| | 5,471 |
| 7,178 |
|
| Subordinated debt | 29,472 |
| 29,578 |
| | 29,082 |
| 27,955 |
|
| Structured notes | 30,021 |
| 28,603 |
| | 30,311 |
| 29,517 |
|
| Total long-term unsecured funding | $ | 207,469 |
| $ | 199,380 |
| | $ | 204,571 |
| $ | 202,312 |
|
| | | | | | |
| Credit card securitization | $ | 31,239 |
| $ | 26,580 |
| | $ | 28,935 |
| $ | 27,834 |
|
Other securitizations(e) | 2,008 |
| 3,253 |
| | 2,734 |
| 3,501 |
|
| FHLB advances | 64,994 |
| 61,876 |
| | 60,667 |
| 55,487 |
|
Other long-term secured funding(f) | 4,373 |
| 6,633 |
| | 5,031 |
| 6,284 |
|
| Total long-term secured funding | $ | 102,614 |
| $ | 98,342 |
| | $ | 97,367 |
| $ | 93,106 |
|
| | | | | | |
Preferred stock(g) | $ | 20,063 |
| $ | 11,158 |
| | 17,018 |
| $ | 10,960 |
|
Common stockholders’ equity(g) | $ | 212,002 |
| $ | 200,020 |
| | 207,400 |
| $ | 196,409 |
|
|
| | | | | | | | | | | | | |
| Sources of funds (excluding deposits) | | | | |
| As of or for the year ended December 31, | | | | Average |
| (in millions) | 2017 | 2016 | | 2017 | 2016 |
| Commercial paper | $ | 24,186 |
| $ | 11,738 |
| | $ | 19,920 |
| $ | 15,001 |
|
| Other borrowed funds | 27,616 |
| 22,705 |
| | 26,612 |
| 21,139 |
|
| Total short-term borrowings | $ | 51,802 |
| $ | 34,443 |
| | $ | 46,532 |
| $ | 36,140 |
|
| | | | | | |
Obligations of Firm-administered multi-seller conduits(a) | $ | 3,045 |
| $ | 2,719 |
| | $ | 3,206 |
| $ | 5,153 |
|
| | | | | | |
| Securities loaned or sold under agreements to repurchase: | | | | | |
Securities sold under agreements to repurchase(b) | $ | 146,432 |
| $ | 149,826 |
| | $ | 171,973 |
| $ | 160,458 |
|
Securities loaned(c) | 7,910 |
| 12,137 |
| | 11,526 |
| 13,195 |
|
Total securities loaned or sold under agreements to repurchase(d) | $ | 154,342 |
| $ | 161,963 |
| | $ | 183,499 |
| $ | 173,653 |
|
| | | | | | |
| Senior notes | $ | 155,852 |
| $ | 151,042 |
| | $ | 154,352 |
| $ | 153,768 |
|
Trust preferred securities(e) | 690 |
| 2,345 |
| | 2,276 |
| 3,724 |
|
Subordinated debt(e) | 16,553 |
| 21,940 |
| | 18,832 |
| 24,224 |
|
| Structured notes | 45,727 |
| 37,292 |
| | 42,918 |
| 35,978 |
|
| Total long-term unsecured funding | $ | 218,822 |
| $ | 212,619 |
| | $ | 218,378 |
| $ | 217,694 |
|
| | | | | | |
Credit card securitization(a) | $ | 21,278 |
| $ | 31,181 |
| | $ | 25,933 |
| $ | 29,428 |
|
Other securitizations(a)(f) | — |
| 1,527 |
| | 626 |
| 1,669 |
|
| FHLB advances | 60,617 |
| 79,519 |
| | 69,916 |
| 73,260 |
|
Other long-term secured funding(g) | 4,641 |
| 3,107 |
| | 3,195 |
| 4,619 |
|
| Total long-term secured funding | $ | 86,536 |
| $ | 115,334 |
| | $ | 99,670 |
| $ | 108,976 |
|
| | | | | | |
Preferred stock(h) | $ | 26,068 |
| $ | 26,068 |
| | 26,212 |
| $ | 26,068 |
|
Common stockholders’ equity(h) | $ | 229,625 |
| $ | 228,122 |
| | 230,350 |
| $ | 224,631 |
|
| |
| (a) | Included in beneficial interestsinterest issued by consolidated variable interest entities on the Firm’s Consolidated balance sheets. |
| |
| (b) | Excludes long-term structured repurchase agreements of $1.3 billion and $1.8 billion as of December 31, 2017 and 2016, respectively, and average balances of $1.5 billion and $2.9 billion for the years ended December 31, 2017 and 2016, respectively. |
| |
| (c) | Excludes long-term securities loaned of $1.3 billion and $1.2 billion as of December 31, 2017 and 2016, respectively, and average balances of $1.3 billion for both the years ended December 31, 2017 and 2016. |
| |
| (d) | Excludes federal funds purchased. |
| |
(c)(e) | Excluded long-term structured repurchase agreementsSubordinated debt includes $1.6 billion of $2.7junior subordinated debentures distributed pro rata to the holders of the $1.6 billion and $4.6 billion as of trust preferred securities which were cancelled on December 31, 2014 and 2013, respectively, and average balance of $4.2 billion for the years ended December 31, 2014 and 2013. |
|
| | |
158 | | JPMorgan Chase & Co./2014 Annual Report |
| |
(d) | Excluded long-term securities loaned of $483 million as of December 31, 2013, and average balance of $24 million and $414 million for the years ended December 31, 2014 and 2013, respectively. There were no long-term securities loaned as of December 31, 2014.18, 2017. For further information see Note 19 . |
| |
(e)(f) | Other securitizations includes securitizations of residential mortgages and student loans. The Firm deconsolidated the student loan securitization entities in the second quarter of 2017 as it no longer had a controlling financial interest in these entities as a result of the sale of the student loan portfolio. The Firm’s wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizationstransactions, which are not considered to be a source of funding for the Firm and are not included in the table. |
| |
(f)(g) | Includes long-term structured notes which are secured. |
| |
(g)(h) | For additional information on preferred stock and common stockholders’ equity see Capital Risk Management on pages 146–155,82–91, Consolidated statements of changes in stockholders’ equity, Note 2220 and Note 23.21. |
Short-term funding
A significant portion of the Firm’s total commercial paper liabilities, approximately 64% as of December 31, 2014, were not sourced from wholesale funding markets, but were originated from deposits that customers choose to sweep into commercial paper liabilities as a cash management program offered to customers of the Firm.
The Firm’s sources of short-term secured funding primarily consist of securities loaned or sold under agreements to repurchase. Securities loaned or sold under agreements to repurchaseThese instruments are secured predominantly by high-quality securities collateral, including government-issued debt, agency debt and agency MBS, and constitute a significant portion of the federal funds purchased and securities loaned or sold under purchase agreements.repurchase agreements on the Consolidated balance sheets. The amountsincrease in the average balance of securities loaned or sold under agreements to repurchase at December 31, 2014, increased predominantly due to a change in the mix of the Firm’s funding sources. The decrease in average balances for the year ended December 31, 2014,2017, compared withto December 31, 2013,2016, was predominantlylargely due to less secured financing of the Firm’s investment securities portfolio, and a changeclient activities in the mix of the Firm’s funding sources.CIB. The balances associated with securities loaned or sold under agreements to repurchase fluctuate over time due to customers’ investment and financing activities; the Firm’s demand for financing; the ongoing management of the mix of the Firm’s liabilities, including its secured and unsecured financing (for both the investment
securities and market-making portfolios); and other market and portfolio factors.
The Firm’s sources of short-term unsecured funding primarily consist of issuances of wholesale commercial paper. The increase in short-term unsecured funding was primarily due to higher issuance of commercial paper reflecting in part a change in the mix of funding from securities sold under repurchase agreements for CIB Markets activities.
Long-term funding and issuance
Long-term funding provides additional sources of stable funding and liquidity for the Firm. The Firm’s long-term funding plan is driven primarily by expected client activity, liquidity considerations, and regulatory requirements.requirements, including TLAC. Long-term funding objectives include maintaining diversification, maximizing market access and
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 95 |
Management’s discussion and analysis
optimizing funding costs, as well as maintaining a certain level of pre-funding at the parent holding company.costs. The Firm evaluates various funding markets, tenors and currencies in creating its optimal long-term funding plan.
The significant majority of the Firm’s long-term unsecured funding is issued by the parent holding companyParent Company to provide maximum flexibility in support of both bank and nonbanknon-bank subsidiary funding.funding needs. The Parent Company advances substantially all net funding proceeds to its subsidiary, the IHC. The IHC does not issue debt to external counterparties. The following table summarizes long-term unsecured issuance and maturities or redemptions for the years ended December 31, 20142017 and 2013.2016. For additional information, see Note 21.19.
| | | Long-term unsecured funding | | |
Year ended December 31, (in millions) | 2014 | 2013 | 2017 | 2016 |
| Issuance | | |
| Senior notes issued in the U.S. market | $ | 16,373 |
| $ | 19,835 |
| $ | 21,192 |
| $ | 25,639 |
|
| Senior notes issued in non-U.S. markets | 11,221 |
| 8,843 |
| 2,210 |
| 7,063 |
|
| Total senior notes | 27,594 |
| 28,678 |
| 23,402 |
| 32,702 |
|
| Subordinated debt | 4,979 |
| 3,232 |
| — |
| 1,093 |
|
| Structured notes | 19,806 |
| 16,979 |
| 29,040 |
| 22,865 |
|
| Total long-term unsecured funding – issuance | $ | 52,379 |
| $ | 48,889 |
| $ | 52,442 |
| $ | 56,660 |
|
| | | |
| Maturities/redemptions | | |
| Total senior notes | $ | 21,169 |
| $ | 18,418 |
| |
| Senior notes | | $ | 22,337 |
| $ | 29,989 |
|
| Trust preferred securities | — |
| 5,052 |
| — |
| 1,630 |
|
| Subordinated debt | 4,487 |
| 2,418 |
| 6,901 |
| 3,596 |
|
| Structured notes | 18,554 |
| 17,785 |
| 22,581 |
| 15,925 |
|
| Total long-term unsecured funding – maturities/redemptions | $ | 44,210 |
| $ | 43,673 |
| $ | 51,819 |
| $ | 51,140 |
|
In addition, from January 1, 2015, through February 24, 2015, the Firm issued $10.1 billion of senior notes.
The Firm raises secured long-term funding through securitization of consumer credit card loans and advances from the FHLBs. It may also in the future raise long-term funding through securitization of residential mortgages, auto loans and student loans, which will increase funding and investor diversity.
The following table summarizes the securitization issuance and FHLB advances and their respective maturities or redemption for the years ended December 31, 20142017 and 2013.2016.
| | | Long-term secured funding | Long-term secured funding | | | | Long-term secured funding | | |
Year ended December 31, | Issuance | | Maturities/Redemptions | Issuance | | Maturities/Redemptions |
| (in millions) | 2014 | 2013 | | 2014 | 2013 | 2017 | 2016 | | 2017 | 2016 |
| Credit card securitization | $ | 8,350 |
| $ | 8,434 |
| | $ | 3,774 |
| $ | 11,853 |
| $ | 1,545 |
| $ | 8,277 |
| | $ | 11,470 |
| $ | 5,025 |
|
Other securitizations(a) | — |
| — |
| | 309 |
| 427 |
|
| — |
| | 55 |
| 233 |
|
| FHLB advances | 15,200 |
| 23,650 |
| | 12,079 |
| 3,815 |
| — |
| 17,150 |
| | 18,900 |
| 9,209 |
|
Other long-term secured funding | $ | 802 |
| $ | 751 |
| | $ | 3,076 |
| $ | 159 |
| 2,354 |
| 455 |
| | 731 |
| 2,645 |
|
| Total long-term secured funding | $ | 24,352 |
| $ | 32,835 |
| | $ | 19,238 |
| $ | 16,254 |
| $ | 3,899 |
| $ | 25,882 |
| | $ | 31,156 |
| $ | 17,112 |
|
| |
| (a) | Other securitizations includes securitizations of residential mortgages and student loans. The Firm deconsolidated the student loan securitization entities in the second quarter of 2017 as it no longer had a controlling financial interest in these entities as a result of the sale of the student loan portfolio. |
|
| | |
JPMorgan Chase & Co./2014 Annual Report(b) | | 159Includes long-term structured notes which are secured. |
Management’s discussion and analysis
The Firm’s wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are not considered to be a source of funding for the Firm and are not included in the table above. For further description of the client-driven loan securitizations, see Note 16.14.
|
| | |
| 96 | | JPMorgan Chase & Co./2017 Annual Report |
Credit ratings
The cost and availability of financing are influenced by credit ratings. Reductions in these ratings could have an adverse effect on the Firm’s access to liquidity sources, increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors and counterparties willing to lend to the Firm. Additionally, the Firm’s funding requirements for VIEs and other third third-
party commitments may be adversely affected by a decline in credit ratings. For additional information on the impact of a credit ratings downgrade on the funding requirements for VIEs, and on derivatives and collateral agreements, see Special-purpose entitiesSPEs on page 74,50, and Creditcredit risk, liquidity risk and credit-related contingent features in
Note 6.
5 on page 186.
The credit ratings of the parent holding companyParent Company and the Firm’s principal bank and nonbanknon-bank subsidiaries as of December 31, 2014,2017, were as follows.
|
| | | | | | | | | | | |
| | JPMorgan Chase & Co. | | JPMorgan Chase Bank, N.A. Chase Bank USA, N.A. | | J.P. Morgan Securities LLC J.P. Morgan Securities plc |
December 31, 20142017 | Long-term issuer | Short-term issuer | Outlook | | Long-term issuer | Short-term issuer | Outlook | | Long-term issuer | Short-term issuer | Outlook |
Moody’s Investor ServicesInvestors Service | A3 | P-2 | Stable | | Aa3 | P-1 | Stable | | Aa3A1 | P-1 | Stable |
| Standard & Poor’s | AA- | A-1A-2 | NegativeStable | | A+ | A-1 | Stable | | A+ | A-1 | Stable |
| Fitch Ratings | A+ | F1 | Stable | | A+AA- | F1F1+ | Stable | | A+AA- | F1F1+ | Stable |
On February 22, 2017, Moody’s published its updated rating methodologies for securities firms. As a result of this methodology change, J.P. Morgan Securities LLC’s long-term issuer rating was downgraded by one notch from Aa3 to A1; the short-term issuer rating was unchanged and the outlook remained stable.
On June 1, 2017, JPMorgan Chase Bank, N.A. terminated its guarantee of the payment of all obligations of J.P. Morgan Securities plc arising after such termination. J.P. Morgan Securities plc, whose credit ratings previously reflected the benefit of this guarantee, is now rated on a stand-alone, non-guaranteed basis.
Downgrades of the Firm’s long-term ratings by one or two notches could result in a downgrade of the Firm’s short-term ratings. If this were to occur, the Firm believesan increase in its cost of funds, could increase and access to certain funding markets could be reduced as noted above. The nature and magnitude of the impact of ratings downgrades depends on numerous contractual and behavioral factors (whichwhich the Firm believes are incorporated in its liquidity risk and stress testing metrics).metrics. The Firm believes that it maintains sufficient liquidity to withstand a
potential decrease in funding capacity due to ratings downgrades.
JPMorgan Chase’s unsecured debt does not contain requirements that would call for an acceleration of payments, maturities or changes in the structure of the existing debt, provide any limitations on future borrowings or require additional collateral, based on unfavorable changes in the Firm’s credit ratings, financial ratios, earnings, or stock price.
Critical factors in maintaining high credit ratings include a stable and diverse earnings stream, strong capital ratios, strong credit quality and risk management controls, diverse funding sources, and disciplined liquidity monitoring procedures. Rating agencies continue to evaluate economic and geopolitical trends, regulatory developments, rating uplift assumptions surrounding government support, future profitability, risk management practices, and litigation matters, as well as their broader ratings methodologies. Changes in any of these factors could lead to changes in the Firm’s credit ratings.
On September 18, 2014, S&P revised its ratings methodology for hybrid capital securities issued by financial institutions, and on September 29, 2014, the ratings of the Firm’s hybrid capital securities (including trust preferred securities and preferred stock) were lowered by 1 notch from BBB to BBB-, reflecting the new methodology. Furthermore, S&P has announced a Request for Comment on a proposed change to rating criteria related to additional loss absorbing capacity. In addition, Moody’s and Fitch are in the process of reviewing their ratings methodologies: Moody’s has announced a Request for Comment on the revision to its Bank Rating Methodology and Fitch has announced a review of the ratings differential that it applies between bank holding companies and their bank subsidiaries.
Although the Firm closely monitors and endeavors to manage, to the extent it is able, factors influencing its credit ratings, there is no assurance that its credit ratings will not be changed in the future.
|
| | |
160JPMorgan Chase & Co./2017 Annual Report | | 97 |
|
| | | | |
| REPUTATION RISK MANAGEMENT |
Reputation risk is the potential that an action, inaction, transaction, investment or event will reduce trust in the Firm’s integrity or competence by its various constituents, including clients, counterparties, investors, regulators, employees and the broader public. Maintaining the Firm’s reputation is the responsibility of each individual employee of the Firm. The Firm’s Reputation Risk Governance policy explicitly vests each employee with the responsibility to consider the reputation of the Firm when engaging in any activity. Because the types of events that could harm the Firm’s reputation are so varied across the Firm’s lines of business, each line of business has a separate reputation risk governance infrastructure in place, which consists of
three key elements: clear, documented escalation criteria appropriate to the business; a designated primary discussion forum — in most cases, one or more dedicated reputation risk committees; and a list of designated contacts to whom questions relating to reputation risk should be referred. Any matter giving rise to reputation risk that originates in a corporate function is required to be escalated directly to Firmwide Reputation Risk Governance (“FRRG”) or to the relevant Risk Committee. Reputation risk governance is overseen by FRRG, which provides oversight of the governance infrastructure and process to support the consistent identification, escalation, management and monitoring of reputation risk issues firmwide.
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| 98 | | JPMorgan Chase & Co./20142017 Annual Report |
|
| | | | |
| CREDIT AND INVESTMENT RISK MANAGEMENT |
Credit and investment risk is the risk associated with the default or change in credit profile of a client, counterparty or customer; or loss of principal or a reduction in expected returns on investments.
Credit risk management
Credit risk is the risk associated with the default or change in credit profile of a client, counterparty or customer. The Firm provides credit to a variety of customers, ranging from large corporate and institutional clients to individual consumers and small businesses. In its consumer businesses, the Firm is exposed to credit risk primarily through its home lending, credit card, auto, and business banking businesses. In its wholesale businesses, the Firm is exposed to credit risk through its underwriting, lending, market-making, and hedging activities with and for clients and counterparties, as well as through its operating services activities (such as cash management and clearing activities), securities financing activities, investment securities portfolio, and cash placed with banks.
Credit risk management is an independent risk management function that monitors, measures and manages credit risk throughout the Firm and defines credit risk policies and procedures. The credit risk function reports to the Firm’s CRO. The Firm’s credit risk management governance includes the following activities:
Establishing a comprehensive credit risk policy framework
Monitoring, measuring and managing credit risk across all portfolio segments, including transaction and exposure approval
Setting industry concentration limits and establishing underwriting guidelines
Assigning and managing credit authorities in connection with the approval of all credit exposure
Managing criticized exposures and delinquent loans
Estimating credit losses and ensuring appropriate credit risk-based capital management
Risk identification and measurement
The Credit Risk Management function monitors, measures, manages and limits credit risk across the Firm’s businesses. To measure credit risk, the Firm employs several methodologies for estimating the likelihood of obligor or counterparty default. Methodologies for measuring credit risk vary depending on several factors, including type of asset (e.g., consumer versus wholesale), risk measurement parameters (e.g., delinquency status and borrower’s credit score versus wholesale risk-rating) and risk management and collection processes (e.g., retail collection center versus centrally managed workout groups). Credit risk measurement is based on the probability of default of an obligor or counterparty, the loss severity given a default event and the exposure at default.
Based on these factors and related market-based inputs, the Firm estimates credit losses for its exposures. Probable credit losses inherent in the consumer and wholesale held-for-investment loan portfolios are reflected in the allowance for loan losses, and probable credit losses inherent in lending-related commitments are reflected in the allowance for lending-related commitments. These losses are estimated using statistical analyses and other factors as described in Note 13. In addition, potential and unexpected credit losses are reflected in the allocation of credit risk capital and represent the potential volatility of actual losses relative to the established allowances for loan losses and lending-related commitments. The analyses for these losses include stress testing that considers alternative economic scenarios as described in the Stress testing section below. For further information, see Critical Accounting Estimates used by the Firm on pages 138–140.
The methodologies used to estimate credit losses depend on the characteristics of the credit exposure, as described below.
Scored exposure
The scored portfolio is generally held in CCB and predominantly includes residential real estate loans, credit card loans, and certain auto and business banking loans. For the scored portfolio, credit loss estimates are based on statistical analysis of credit losses over discrete periods of time. The statistical analysis uses portfolio modeling, credit scoring, and decision-support tools, which consider loan-level factors such as delinquency status, credit scores, collateral values, and other risk factors. Credit loss analyses also consider, as appropriate, uncertainties and other factors, including those related to current macroeconomic and political conditions, the quality of underwriting standards, and other internal and external factors. The factors and analysis are updated on a quarterly basis or more frequently as market conditions dictate.
Risk-rated exposure
Risk-rated portfolios are generally held in CIB, CB and AWM, but also include certain business banking and auto dealer loans held in CCB that are risk-rated because they have characteristics similar to commercial loans. For the risk-rated portfolio, credit loss estimates are based on estimates of the probability of default (“PD”) and loss severity given a default. The probability of default is the likelihood that a borrower will default on its obligation; the loss given default (“LGD”) is the estimated loss on the loan that would be realized upon the default and takes into consideration collateral and structural support for each credit facility. The estimation process includes assigning risk ratings to each borrower and credit facility to differentiate risk within the portfolio. These risk ratings are reviewed regularly by Credit Risk Management and revised as needed to reflect the borrower’s current financial position, risk profile and related collateral. The calculations and assumptions are
|
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| JPMorgan Chase & Co./2017 Annual Report | | 99 |
Management’s discussion and analysis
based on both internal and external historical experience and management judgment and are reviewed regularly.
Stress testing
Stress testing is important in measuring and managing credit risk in the Firm’s credit portfolio. The process assesses the potential impact of alternative economic and business scenarios on estimated credit losses for the Firm. Economic scenarios and the underlying parameters are defined centrally, articulated in terms of macroeconomic factors and applied across the businesses. The stress test results may indicate credit migration, changes in delinquency trends and potential losses in the credit portfolio. In addition to the periodic stress testing processes, management also considers additional stresses outside these scenarios, including industry and country- specific stress scenarios, as necessary. The Firm uses stress testing to inform decisions on setting risk appetite both at a Firm and LOB level, as well as to assess the impact of stress on individual counterparties.
Risk monitoring and management
The Firm has developed policies and practices that are designed to preserve the independence and integrity of the approval and decision-making process of extending credit to ensure credit risks are assessed accurately, approved properly, monitored regularly and managed actively at both the transaction and portfolio levels. The policy framework establishes credit approval authorities, concentration limits, risk-rating methodologies, portfolio review parameters and guidelines for management of distressed exposures. In addition, certain models, assumptions and inputs used in evaluating and monitoring credit risk are independently validated by groups that are separate from the line of businesses.
Consumer credit risk is monitored for delinquency and other trends, including any concentrations at the portfolio level, as certain of these trends can be modified through changes in underwriting policies and portfolio guidelines. Consumer Risk Management evaluates delinquency and other trends against business expectations, current and forecasted economic conditions, and industry benchmarks. Historical and forecasted economic performance and trends are incorporated into the modeling of estimated consumer credit losses and are part of the monitoring of the credit risk profile of the portfolio.
Wholesale credit risk is monitored regularly at an aggregate portfolio, industry, and individual client and counterparty level with established concentration limits that are reviewed and revised as deemed appropriate by management, typically on an annual basis. Industry and counterparty limits, as measured in terms of exposure and economic risk appetite, are subject to stress-based loss constraints. In addition, wrong-way risk — the risk that exposure to a counterparty is positively correlated with the impact of a default by the same counterparty, which could cause exposure to increase at the same time as the counterparty’s capacity to meet its obligations is decreasing — is actively
monitored as this risk could result in greater exposure at default compared with a transaction with another counterparty that does not have this risk.
Management of the Firm’s wholesale credit risk exposure is accomplished through a number of means, including:
Loan underwriting and credit approval process
Loan syndications and participations
Loan sales and securitizations
Credit derivatives
Master netting agreements
Collateral and other risk-reduction techniques
In addition to Credit Risk Management, an independent Credit Review function is responsible for:
Independently validating or changing the risk grades assigned to exposures in the Firm’s wholesale and commercial-oriented retail credit portfolios, and assessing the timeliness of risk grade changes initiated by responsible business units; and
Evaluating the effectiveness of business units’ credit management processes, including the adequacy of credit analyses and risk grading/LGDrationales, proper monitoring and management of credit exposures, and compliance with applicable grading policies and underwriting guidelines.
For further discussion of consumer and wholesale loans, see Note 12.
Risk reporting
To enable monitoring of credit risk and effective decision-making, aggregate credit exposure, credit quality forecasts, concentration levels and risk profile changes are reported regularly to senior members of Credit Risk Management. Detailed portfolio reporting of industry; clients, counterparties and customers; product and geographic concentrations occurs monthly, and the appropriateness of the allowance for credit losses is reviewed by senior management at least on a quarterly basis. Through the risk reporting and governance structure, credit risk trends and limit exceptions are provided regularly to, and discussed with, risk committees, senior management and the Board of Directors as appropriate.
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| | |
| 100 | | JPMorgan Chase & Co./2017 Annual Report |
In the following tables, reported loans include loans retained (i.e., held-for-investment); loans held-for-sale; and certain loans accounted for at fair value. The following tables do not include certain loans the Firm accounts for at fair value and classifies as trading assets. For further information regarding these loans, see Note 2 and Note 3. For additional information on the Firm’s loans, lending-related commitments, and derivative receivables, including the Firm’s accounting policies, see Note 12, Note 27, and Note 5, respectively.
For further information regarding the credit risk inherent in the Firm’s cash placed with banks, investment securities portfolio, and securities financing portfolio, see Note 4, Note 10, and Note 11, respectively.
For discussion of the consumer credit environment and consumer loans, see Consumer Credit Portfolio on pages 102-107 and Note 12. For discussion of the wholesale credit environment and wholesale loans, see Wholesale Credit Portfolio on pages 108–116 and Note 12.
|
| | | | | | | | | | | | | |
| Total credit portfolio | | | | |
December 31, (in millions) | Credit exposure | | Nonperforming(e)(f) |
| 2017 | 2016 | | 2017 | 2016 |
| Loans retained | $ | 924,838 |
| $ | 889,907 |
| | $ | 5,943 |
| $ | 6,721 |
|
| Loans held-for-sale | 3,351 |
| 2,628 |
| | — |
| 162 |
|
| Loans at fair value | 2,508 |
| 2,230 |
| | — |
| — |
|
| Total loans – reported | 930,697 |
| 894,765 |
| | 5,943 |
| 6,883 |
|
| Derivative receivables | 56,523 |
| 64,078 |
| | 130 |
| 223 |
|
Receivables from customers and other (a) | 26,272 |
| 17,560 |
| | — |
| — |
|
| Total credit-related assets | 1,013,492 |
| 976,403 |
| | 6,073 |
| 7,106 |
|
| Assets acquired in loan satisfactions | | | | | |
| Real estate owned | NA |
| NA |
| | 311 |
| 370 |
|
| Other | NA |
| NA |
| | 42 |
| 59 |
|
Total assets acquired in loan satisfactions | NA |
| NA |
| | 353 |
| 429 |
|
| Lending-related commitments | 991,482 |
| 975,152 |
| (d) | 731 |
| 506 |
|
| Total credit portfolio | $ | 2,004,974 |
| $ | 1,951,555 |
| (d) | $ | 7,157 |
| $ | 8,041 |
|
Credit derivatives used in credit portfolio management activities(b) | $ | (17,609 | ) | $ | (22,114 | ) | | $ | — |
| $ | — |
|
Liquid securities and other cash collateral held against derivatives(c) | (16,108 | ) | (22,705 | ) | | NA |
| NA |
|
|
| | | | | | | |
Year ended December 31, (in millions, except ratios) | | 2017 | 2016 |
Net charge-offs(g) | | $ | 5,387 |
| $ | 4,692 |
|
| Average retained loans | | | |
| Loans | | 898,979 |
| 861,345 |
|
Loans – reported, excluding residential real estate PCI loans | | 865,887 |
| 822,973 |
|
Net charge-off rates(g) | | | |
| Loans | | 0.60 | % | 0.54 | % |
| Loans – excluding PCI | | 0.62 |
| 0.57 |
|
| |
| (a) | Receivables from customers and other primarily represents held-for-investment margin loans to brokerage customers. |
| |
| (b) | Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on pages 115–116 and Note 5. |
| |
| (c) | Includes collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained. |
| |
| (d) | The prior period amounts have been revised to conform with the current period presentation. |
| |
| (e) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing. |
| |
| (f) | At December 31, 2017 and 2016, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $4.3 billion and $5.0 billion, respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the FFELP of zero and $263 million, respectively, that are 90 or more days past due; and (3) Real estate owned (“REO”) insured by U.S. government agencies of $95 million and $142 million, respectively. These amounts have been excluded based upon the government guarantee. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance issued by the Federal Financial Institutions Examination Council (“FFIEC”). |
| |
| (g) | For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for loans would have been 0.55% and for loans - excluding PCI would have been 0.57%. |
|
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| JPMorgan Chase & Co./2017 Annual Report | | 101 |
Management’s discussion and analysis
|
| | | | |
| CONSUMER CREDIT PORTFOLIO |
The Firm’s retained consumer portfolio consists primarily of residential real estate loans, credit card loans, auto loans, and business banking loans, as well as associated lending-related commitments. The Firm’s focus is on serving primarily the prime segment of the consumer credit market. Originated mortgage loans are retained in the mortgage portfolio, securitized or sold to U.S. government agencies and U.S. government-sponsored enterprises; other types of consumer loans are typically retained on the balance sheet. The credit performance of the consumer portfolio continues to benefit from discipline in credit underwriting as well as improvement in the economy driven by increasing home prices and low unemployment. The total amount of residential real estate loans delinquent 30+ days, excluding government guaranteed and purchased credit impaired loans, increased from December 31, 2016 due to the impact of recent hurricanes; however, the 30+ day delinquency rate decreased due to growth in the portfolio. The Credit Card 30+ day delinquency rate and the net charge-off rate increased from the prior year, in line with expectations. For further information on consumer loans, see Note 12. For further information on lending-related commitments, see Note 27.
|
| | |
| 102 | | JPMorgan Chase & Co./2017 Annual Report |
The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime mortgage and home equity loans held by AWM, and prime mortgage loans held by Corporate. For further information about the Firm’s nonaccrual and charge-off accounting policies, see Note 12.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consumer credit portfolio |
As of or for the year ended December 31, (in millions, except ratios) | Credit exposure | | Nonaccrual loans(k)(l) | | Net charge-offs/(recoveries)(e)(m)(n) | | Average annual net charge-off rate(e)(m)(n) |
| 2017 | | 2016 | | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 |
| Consumer, excluding credit card | | | | | | | | | | | | |
| Loans, excluding PCI loans and loans held-for-sale | | | | | | | | | | | | |
Residential mortgage(a) | $ | 216,496 |
| | $ | 192,486 |
| | $ | 2,175 |
| $ | 2,256 |
| | $ | (10 | ) | $ | 16 |
| | — | % | 0.01 | % |
| Home equity | 33,450 |
| | 39,063 |
| | 1,610 |
| 1,845 |
| | 69 |
| 189 |
| | 0.19 |
| 0.45 |
|
Auto(b)(c) | 66,242 |
| | 65,814 |
| | 141 |
| 214 |
| | 331 |
| 285 |
| | 0.51 |
| 0.45 |
|
Consumer & Business Banking(a)(c)(d) | 25,789 |
| | 24,307 |
| | 283 |
| 287 |
| | 257 |
| 257 |
| | 1.03 |
| 1.10 |
|
Student(a)(e) | — |
| | 7,057 |
| | — |
| 165 |
| | 498 |
| 162 |
| | NM |
| 2.13 |
|
| Total loans, excluding PCI loans and loans held-for-sale | 341,977 |
| | 328,727 |
| | 4,209 |
| 4,767 |
| | 1,145 |
| 909 |
| | 0.34 |
| 0.28 |
|
| Loans – PCI | | | | | | | | | | | | |
| Home equity | 10,799 |
| | 12,902 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
| Prime mortgage | 6,479 |
| | 7,602 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
| Subprime mortgage | 2,609 |
| | 2,941 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
Option ARMs(f) | 10,689 |
| | 12,234 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
| Total loans – PCI | 30,576 |
| | 35,679 |
| | NA |
| NA |
| | NA |
| NA |
| | NA |
| NA |
|
| Total loans – retained | 372,553 |
| | 364,406 |
| | 4,209 |
| 4,767 |
| | 1,145 |
| 909 |
| | 0.31 |
| 0.25 |
|
| Loans held-for-sale | 128 |
| | 238 |
| | — |
| 53 |
| | — |
| — |
| | — |
| — |
|
| Total consumer, excluding credit card loans | 372,681 |
| | 364,644 |
| | 4,209 |
| 4,820 |
| | 1,145 |
| 909 |
| | 0.31 |
| 0.25 |
|
Lending-related commitments(g) | 48,553 |
| | 53,247 |
| (j) | | | | | | | | |
Receivables from customers(h) | 133 |
| | 120 |
| | | | | | | | | |
| Total consumer exposure, excluding credit card | 421,367 |
| | 418,011 |
| (j) | | | | | | | | |
| Credit Card | | | | | | | | | | | | |
Loans retained(i) | 149,387 |
| | 141,711 |
| | — |
| — |
| | 4,123 |
| 3,442 |
| | 2.95 |
| 2.63 |
|
| Loans held-for-sale | 124 |
| | 105 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
|
| Total credit card loans | 149,511 |
| | 141,816 |
| | — |
| — |
| | 4,123 |
| 3,442 |
| | 2.95 |
| 2.63 |
|
Lending-related commitments(g) | 572,831 |
| | 553,891 |
| | | | | | | | | |
| Total credit card exposure | 722,342 |
| | 695,707 |
| | | | | | | | | |
| Total consumer credit portfolio | $ | 1,143,709 |
| | $ | 1,113,718 |
| (j) | $ | 4,209 |
| $ | 4,820 |
| | $ | 5,268 |
| $ | 4,351 |
| | 1.04 | % | 0.89 | % |
| Memo: Total consumer credit portfolio, excluding PCI | $ | 1,113,133 |
| | $ | 1,078,039 |
| (j) | $ | 4,209 |
| $ | 4,820 |
| | $ | 5,268 |
| $ | 4,351 |
| | 1.11 | % | 0.96 | % |
| |
| (a) | Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation. |
| |
| (b) | At December 31, 2017 and 2016, excluded operating lease assets of $17.1 billion and $13.2 billion, respectively. These operating lease assets are included in other assets on the Firm’s Consolidated balance sheets. The risk of loss on these assets relates to the residual value of the leased vehicles, which is managed through projection of the lease residual value at lease origination, periodic review of residual values, and through arrangements with certain auto manufacturers that mitigates this risk. |
| |
| (c) | Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses; these loans are managed by CCB, and therefore, for consistency in presentation, are included within the consumer portfolio. |
| |
| (d) | Predominantly includes Business Banking loans. |
| |
| (e) | For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for Total consumer, excluding credit card and PCI loans and loans held-for-sale would have been 0.20%; Total consumer - retained excluding credit card loans would have been 0.18%; Total consumer credit portfolio would have been 0.95%; and Total consumer credit portfolio, excluding PCI loans would have been 1.01%. |
| |
| (f) | At December 31, 2017 and 2016, approximately 68% and 66%, respectively, of the PCI option adjustable rate mortgages (“ARMs”) portfolio has been modified into fixed-rate, fully amortizing loans. |
| |
| (g) | Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice. For further information, see Note 27. |
| |
| (h) | Receivables from customers represent held-for-investment margin loans to brokerage customers that are collateralized through assets maintained in the clients’ brokerage accounts. These receivables are reported within accrued interest and accounts receivable on the Firm’s Consolidated balance sheets. |
| |
| (i) | Includes billed interest and fees net of an allowance for uncollectible interest and fees. |
| |
| (j) | The prior period amounts have been revised to conform with the current period presentation. |
| |
| (k) | At December 31, 2017 and 2016, nonaccrual loans excluded loans 90 or more days past due as follows: (1) mortgage loans insured by U.S. government agencies of $4.3 billion and $5.0 billion, respectively; and (2) student loans insured by U.S. government agencies under the FFELP of zero and $263 million, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status, as permitted by regulatory guidance issued by the FFIEC. |
| |
| (l) | Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing. |
| |
| (m) | Net charge-offs and net charge-off rates excluded write-offs in the PCI portfolio of $86 million and $156 million for the years ended December 31, 2017 and 2016. These write-offs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 117–119 for further details. |
| |
| (n) | Average consumer loans held-for-sale were $1.5 billion and $496 million for the years ended December 31, 2017 and 2016, respectively. These amounts were excluded when calculating net charge-off rates. |
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 103 |
Management’s discussion and analysis
Consumer, excluding credit card
Portfolio analysis
Consumer loan balances increased from December 31, 2016 predominantly due to originations of high-quality prime mortgage loans that have been retained on the balance sheet, partially offset by the sale of the student loan portfolio as well as paydowns and the charge-off or liquidation of delinquent loans.
PCI loans are excluded from the following discussions of individual loan products and are addressed separately below. For further information about the Firm’s consumer portfolio, including information about delinquencies, loan modifications and other credit quality indicators, see
Note 12.
Residential mortgage: The residential mortgage portfolio predominantly consists of high-quality prime mortgage loans with a small component (approximately 1%) of subprime mortgage loans. These subprime mortgage loans continue to run-off and are performing in line with expectations. The residential mortgage portfolio, including loans held-for-sale, increased from December 31, 2016 due to retained originations of primarily high-quality fixed rate prime mortgage loans partially offset by paydowns. Residential mortgage 30+ day delinquencies increased from December 31, 2016 due to the impact of recent hurricanes. Nonaccrual loans decreased from the prior year primarily as a result of loss mitigation activities. There was a net recovery for the year ended December 31, 2017 compared to a net charge-off for the year ended December 31, 2016, reflecting continued improvement in home prices and delinquencies.
At December 31, 2017 and 2016, the Firm’s residential mortgage portfolio, including loans held-for-sale, included $8.6 billion and $9.5 billion, respectively, of mortgage loans insured and/or guaranteed by U.S. government agencies, of which $6.2 billion and $7.0 billion, respectively, were 30 days or more past due (of these past due loans, $4.3 billion and $5.0 billion, respectively, were 90 days or more past due). The Firm monitors its exposure to certain potential unrecoverable claim payments related to government insured loans and considers this exposure in estimating the allowance for loan losses.
At December 31, 2017 and 2016, the Firm’s residential mortgage portfolio included $20.2 billion and $19.1 billion, respectively, of interest-only loans. These loans have an interest-only payment period generally followed by an adjustable-rate or fixed-rate fully amortizing payment period to maturity and are typically originated as higher-balance loans to higher-income borrowers. To date, losses on this portfolio generally have been consistent with the broader residential mortgage portfolio. The Firm continues to monitor the risks associated with these loans.
Home equity: The home equity portfolio declined from December 31, 2016 primarily reflecting loan paydowns. The amount of 30+ day delinquencies decreased from December 31, 2016 but was impacted by recent hurricanes. Nonaccrual loans decreased from December 31, 2016 primarily as a result of loss mitigation activities. Net charge-offs for the year ended December 31, 2017 declined when compared with the prior year, partially as a result of lower loan balances.
At December 31, 2017, approximately 90% of the Firm’s home equity portfolio consists of home equity lines of credit (“HELOCs”) and the remainder consists of home equity loans (“HELOANs”). HELOANs are generally fixed-rate, closed-end, amortizing loans, with terms ranging from 3–30 years. In general, HELOCs originated by the Firm are revolving loans for a 10-year period, after which time the HELOC recasts into a loan with a 20-year amortization period.
The carrying value of HELOCs outstanding was $30 billion at December 31, 2017. Of such amounts, $14 billion have recast from interest-only to fully amortizing payments or have been modified and $5 billion are interest-only balloon HELOCs, which primarily mature after 2030. The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are exhibiting a material deterioration in their credit risk profile.
|
| | |
| 104 | | JPMorgan Chase & Co./2017 Annual Report |
The Firm monitors risks associated with junior lien loans where the borrower has a senior lien loan that is more than 90 days delinquent or has been modified. These loans are considered “high-risk seconds” and are classified as nonaccrual as they are considered to pose a higher risk of default than other junior lien loans. At December 31, 2017, the Firm estimated that the carrying value of its home equity portfolio contained approximately $725 million of current junior lien loans that were considered high-risk seconds, compared with $1.1 billion at December 31, 2016. For further information, see Note 12.
Auto: The auto loan portfolio, which predominantly consists of prime-quality loans, was relatively flat compared with December 31, 2016, as new originations were largely offset by paydowns and the charge-off or liquidation of delinquent loans. Nonaccrual loans decreased compared with December 31, 2016. Net charge-offs for the year ended December 31, 2017 increased compared with the prior year, primarily as a result of an incremental adjustment recorded in accordance with regulatory guidance regarding the timing of loss recognition for certain loans in bankruptcy and loans where assets were acquired in loan satisfaction.
Consumer & Business banking: Consumer & Business Banking loans increased compared with December 31, 2016 as growth due to loan originations was partially offset by paydowns and the charge-off or liquidation of delinquent loans. Nonaccrual loans and net charge-offs were relatively flat compared with prior year.
Student: The Firm wrote down and subsequently sold the student loan portfolio during 2017. Net charge-offs for the year ended December 31, 2017 increased as a result of the write-down.
Purchased credit-impaired loans: PCI loans decreased as the portfolio continues to run off. As of December 31, 2017, approximately 11% of the option ARM PCI loans were delinquent and approximately 68% of the portfolio had been modified into fixed-rate, fully amortizing loans. The borrowers for substantially all of the remaining loans are making amortizing payments, although such payments are not necessarily fully amortizing. This latter group of loans is subject to the risk of payment shock due to future payment recast. Default rates generally increase on option ARM loans when payment recast results in a payment increase. The expected increase in default rates is considered in the Firm’s quarterly impairment assessment.
The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or the allowance for loan losses. |
| | | | | | | | | | | | | | | |
| Summary of PCI loans lifetime principal loss estimates |
| | Lifetime loss estimates(a) | | Life-to-date liquidation losses(b) |
| December 31, (in billions) | 2017 | | 2016 | | 2017 | | 2016 |
| Home equity | $ | 14.2 |
| | $ | 14.4 |
| | $ | 12.9 |
| | $ | 12.8 |
|
| Prime mortgage | 4.0 |
| | 4.0 |
| | 3.8 |
| | 3.7 |
|
| Subprime mortgage | 3.3 |
| | 3.2 |
| | 3.1 |
| | 3.1 |
|
| Option ARMs | 10.0 |
| | 10.0 |
| | 9.7 |
| | 9.7 |
|
| Total | $ | 31.5 |
| | $ | 31.6 |
| | $ | 29.5 |
| | $ | 29.3 |
|
| |
| (a) | Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses recognized subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was $842 million and $1.1 billion at December 31, 2017 and 2016, respectively. |
| |
| (b) | Represents both realization of loss upon loan resolution and any principal forgiven upon modification. |
For further information on the Firm’s PCI loans, including write-offs, see Note 12.
Geographic composition of residential real estate loans
At December 31, 2017, $152.8 billion, or 63% of the total retained residential real estate loan portfolio, excluding mortgage loans insured by U.S. government agencies and PCI loans, were concentrated in California, New York, Illinois, Texas and Florida, compared with $139.9 billion, or 63%, at December 31, 2016. For additional information on the geographic composition of the Firm’s residential real estate loans, see Note 12.
Current estimated loan-to-values of residential real estate loans
Average current estimated loan-to-value (“LTV”) ratios have declined consistent with improvements in home prices, customer pay downs, and charge-offs or liquidations of higher LTV loans. For further information on current estimated LTVs of residential real estate loans, see Note 12.
Loan modification activities for residential real estate loans
The performance of modified loans generally differs by product type due to differences in both the credit quality and the types of modifications provided. Performance metrics for modifications to the residential real estate portfolio, excluding PCI loans, that have been seasoned more than six months show weighted-average redefault rates of 24% for residential mortgages and 21% for home equity. The cumulative performance metrics for modifications to the PCI residential real estate portfolio that have been seasoned more than six months show weighted average redefault rates of 20% for home equity, 19% for prime mortgages, 16% for option ARMs and 34% for subprime mortgages. The cumulative redefault rates reflect the performance of modifications completed under both the U.S. Government’s Home Affordable Modification Program (“HAMP”) and the Firm’s proprietary modification programs
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 105 |
Management’s discussion and analysis
(primarily the Firm’s modification program that was modeled after HAMP) from October 1, 2009, through December 31, 2017.
Certain loans that were modified under HAMP and the Firm’s proprietary modification programs have interest rate reset provisions (“step-rate modifications”). Interest rates on these loans generally began to increase commencing in 2014 by 1% per year, and will continue to do so until the rate reaches a specified cap. The cap on these loans is typically at a prevailing market interest rate for a fixed-rate mortgage loan as of the modification date. At December 31, 2017, the carrying value of non-PCI loans and the unpaid principal balance of PCI loans modified in step-rate modifications, which have not yet met their specified caps, were $3 billion and $7 billion, respectively. The Firm continues to monitor this risk exposure and the impact of these potential interest rate increases is considered in the Firm’s allowance for loan losses.
The following table presents information as of December 31, 2017 and 2016, relating to modified retained residential real estate loans for which concessions have been granted to borrowers experiencing financial difficulty. For further information on modifications for the years ended December 31, 2017 and 2016, see Note 12.
|
| | | | | | | | | | | | |
| Modified residential real estate loans |
| | 2017 | 2016 |
December 31, (in millions) | Retained loans | Nonaccrual retained loans(d) | Retained loans | Nonaccrual retained loans(d) |
Modified residential real estate loans, excluding PCI loans(a)(b) | | | | |
| Residential mortgage | 5,620 |
| 1,743 |
| 6,032 |
| 1,755 |
|
| Home equity | $ | 2,118 |
| $ | 1,032 |
| $ | 2,264 |
| $ | 1,116 |
|
| Total modified residential real estate loans, excluding PCI loans | $ | 7,738 |
| $ | 2,775 |
| $ | 8,296 |
| $ | 2,871 |
|
Modified PCI loans(c) | | | | |
| Home equity | $ | 2,277 |
| NA |
| $ | 2,447 |
| NA |
|
| Prime mortgage | 4,490 |
| NA |
| 5,052 |
| NA |
|
| Subprime mortgage | 2,678 |
| NA |
| 2,951 |
| NA |
|
| Option ARMs | 8,276 |
| NA |
| 9,295 |
| NA |
|
| Total modified PCI loans | $ | 17,721 |
| NA |
| $ | 19,745 |
| NA |
|
| |
| (a) | Amounts represent the carrying value of modified residential real estate loans. |
| |
| (b) | At December 31, 2017 and 2016, $3.8 billion and $3.4 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance with the standards of the appropriate government agency (i.e., Federal Housing Administration (“FHA”), U.S. Department of Veterans Affairs (“VA”), Rural Housing Service of the U.S. Department of Agriculture (“RHS”)) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure. For additional information about sales of loans in securitization transactions with Ginnie Mae, see Note 14. |
| |
| (c) | Amounts represent the unpaid principal balance of modified PCI loans. |
| |
| (d) | As of December 31, 2017 and 2016, nonaccrual loans included $2.2 billion and $2.3 billion, respectively, of troubled debt restructuring (“TDRs”) for which the borrowers were less than 90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status, see Note 12. |
Nonperforming assets
The following table presents information as of December 31, 2017 and 2016, about consumer, excluding credit card, nonperforming assets.
|
| | | | | | | |
Nonperforming assets(a) | | | |
| December 31, (in millions) | 2017 |
| | 2016 |
|
Nonaccrual loans(b) | | | |
Residential real estate(c) | $ | 3,785 |
| | $ | 4,154 |
|
Other consumer(c) | 424 |
| | 666 |
|
| Total nonaccrual loans | 4,209 |
| | 4,820 |
|
| Assets acquired in loan satisfactions | | | |
| Real estate owned | 225 |
| | 292 |
|
| Other | 40 |
| | 57 |
|
| Total assets acquired in loan satisfactions | 265 |
| | 349 |
|
| Total nonperforming assets | $ | 4,474 |
| | $ | 5,169 |
|
| |
| (a) | At December 31, 2017 and 2016, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $4.3 billion and $5.0 billion, respectively, that are 90 or more days past due; (2) student loans insured by U.S. government agencies under the FFELP of zero and $263 million, respectively, that are 90 or more days past due; and (3) real estate owned insured by U.S. government agencies of $95 million and $142 million, respectively. These amounts have been excluded based upon the government guarantee. |
| |
| (b) | Excludes PCI loans which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of individual loans within the pools, is not meaningful. The Firm is recognizing interest income on each pool of loans as each of the pools is performing. |
| |
| (c) | Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation. |
Nonaccrual loans in the residential real estate portfolio at December 31, 2017 decreased to $3.8 billion from $4.2 billion at December 31, 2016, of which 26% and 29% were greater than 150 days past due, respectively. In the aggregate, the unpaid principal balance of residential real estate loans greater than 150 days past due was charged down by approximately 40% and 43% to the estimated net realizable value of the collateral at December 31, 2017 and 2016, respectively.
Active and suspended foreclosure: For information on loans that were in the process of active or suspended foreclosure, see Note 12.
Nonaccrual loans: The following table presents changes in the consumer, excluding credit card, nonaccrual loans for the years ended December 31, 2017 and 2016. |
| | | | | | | |
| Nonaccrual loan activity | | |
| Year ended December 31, | | | |
| (in millions) | | 2017 |
| 2016 |
|
| Beginning balance | | $ | 4,820 |
| $ | 5,413 |
|
| Additions | | 3,525 |
| 3,858 |
|
| Reductions: | | | |
Principal payments and other(a) | | 1,577 |
| 1,437 |
|
| Charge-offs | | 699 |
| 843 |
|
| Returned to performing status | | 1,509 |
| 1,589 |
|
| Foreclosures and other liquidations | | 351 |
| 582 |
|
| Total reductions | | 4,136 |
| 4,451 |
|
| Net changes | | (611 | ) | (593 | ) |
| Ending balance | | $ | 4,209 |
| $ | 4,820 |
|
| |
| (a) | Other reductions includes loan sales. |
|
| | |
| 106 | | JPMorgan Chase & Co./2017 Annual Report |
Credit card
Total credit card loans increased from December 31, 2016 due to strong new account growth and higher sales volume. The December 31, 2017 30+ day delinquency rate increased to 1.80% from 1.61% at December 31, 2016, while the December 31, 2017 90+ day delinquency rate increased to 0.92% from 0.81% at December 31, 2016, in line with expectations. Net charge-offs increased for the year ended December 31, 2017 primarily due to growth in newer vintages which, as anticipated, have higher loss rates than the more seasoned portion of the portfolio. The credit card portfolio continues to reflect a largely well-seasoned portfolio that has strong U.S. geographic diversification.
Loans outstanding in the top five states of California, Texas, New York, Florida and Illinois consisted of $67.2 billion in receivables, or 45% of the retained loan portfolio, at December 31, 2017, compared with $62.8 billion, or 44%, at December 31, 2016. For more information on the geographic and FICO composition of the Firm’s credit card loans, see Note 12.
Modifications of credit card loans
At both December 31, 2017 and 2016, the Firm had $1.2 billion of credit card loans outstanding that have been modified in TDRs. These balances included both credit card loans with modified payment terms and credit card loans that reverted back to their pre-modification payment terms because the cardholder did not comply with the modified payment terms.
Consistent with the Firm’s policy, all credit card loans typically remain on accrual status until charged off. However, the Firm establishes an allowance, which is offset against loans and charged to interest income, for the estimated uncollectible portion of accrued and billed interest and fee income.
For additional information about loan modification programs to borrowers, see Note 12.
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 107 |
Management’s discussion and analysis
|
| | | | |
| WHOLESALE CREDIT PORTFOLIO |
In its wholesale businesses, the Firm is exposed to credit risk through its underwriting, lending, market-making, and hedging activities with and for clients and counterparties, as well as through its operating services activities (such as cash management and clearing activities), securities financing activities, investment securities portfolio, and cash placed with banks. A portion of the loans originated or acquired by the Firm’s wholesale businesses is generally retained on the balance sheet. The Firm distributes a significant percentage of the loans it originates into the market as part of its syndicated loan business and to manage portfolio concentrations and credit risk.
The wholesale credit portfolio was stable for the year ended December 31, 2017, characterized by low levels of criticized exposure, nonaccrual loans and charge-offs. See industry discussion on pages 109–112 for further information. The increase in retained loans was driven by new originations in CB and higher loans to Private Banking clients in AWM, which was partially offset by paydowns in CIB. Discipline in underwriting across all areas of lending continues to be a key point of focus. The wholesale portfolio is actively managed, in part by conducting ongoing, in-depth reviews of client credit quality and transaction structure inclusive of collateral where applicable, and of industry, product and client concentrations.
In the following tables, the Firm’s wholesale credit portfolio includes exposure held in CIB, CB, AWM and Corporate, and excludes all exposure managed by CCB.
|
| | | | | | | | | | | | | |
| Wholesale credit portfolio |
December 31, (in millions) | Credit exposure | | Nonperforming(c) |
| 2017 | 2016 | | 2017 | 2016 |
| Loans retained | $ | 402,898 |
| $ | 383,790 |
| | $ | 1,734 |
| $ | 1,954 |
|
| Loans held-for-sale | 3,099 |
| 2,285 |
| | — |
| 109 |
|
| Loans at fair value | 2,508 |
| 2,230 |
| | — |
| — |
|
| Loans – reported | 408,505 |
| 388,305 |
| | 1,734 |
| 2,063 |
|
| Derivative receivables | 56,523 |
| 64,078 |
| | 130 |
| 223 |
|
Receivables from customers and other(a) | 26,139 |
| 17,440 |
| | — |
| — |
|
| Total wholesale credit-related assets | 491,167 |
| 469,823 |
| | 1,864 |
| 2,286 |
|
| Lending-related commitments | 370,098 |
| 368,014 |
| | 731 |
| 506 |
|
| Total wholesale credit exposure | $ | 861,265 |
| $ | 837,837 |
| | $ | 2,595 |
| $ | 2,792 |
|
Credit derivatives used in credit portfolio management activities(b) | $ | (17,609 | ) | $ | (22,114 | ) | | $ | — |
| $ | — |
|
| Liquid securities and other cash collateral held against derivatives | (16,108 | ) | (22,705 | ) | | NA |
| NA |
|
| |
| (a) | Receivables from customers and other include $26.0 billion and $17.3 billion of held-for-investment margin loans at December 31, 2017 and 2016, respectively, to brokerage customers in CIB Prime Services and in AWM; these are classified in accrued interest and accounts receivable on the Consolidated balance sheets. |
| |
| (b) | Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on pages 115–116, and Note 5. |
| |
| (c) | Excludes assets acquired in loan satisfactions. |
|
| | |
| 108 | | JPMorgan Chase & Co./2017 Annual Report |
The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2017 and 2016. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to the ratings assigned by S&P and Moody’s. For additional information on wholesale loan portfolio risk ratings, see Note 12.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Wholesale credit exposure – maturity and ratings profile | | | | | | | |
| | Maturity profile(d) | | Ratings profile | | |
| | Due in 1 year or less | Due after 1 year through 5 years | Due after 5 years | Total | | Investment-grade | | Noninvestment-grade | | Total | Total % of IG |
December 31, 2017
(in millions, except ratios) | | AAA/Aaa to BBB-/Baa3 | | BB+/Ba1 & below | |
| Loans retained | $ | 121,643 |
| $ | 177,033 |
| $ | 104,222 |
| $ | 402,898 |
| | $ | 311,681 |
| | $ | 91,217 |
| | $ | 402,898 |
| 77 | % |
| Derivative receivables | | | | 56,523 |
| | | | | | 56,523 |
| |
| Less: Liquid securities and other cash collateral held against derivatives | | | | (16,108 | ) | | | | | | (16,108 | ) | |
| Total derivative receivables, net of all collateral | 9,882 |
| 10,463 |
| 20,070 |
| 40,415 |
| | 32,373 |
| | 8,042 |
| | 40,415 |
| 80 |
|
| Lending-related commitments | 80,273 |
| 275,317 |
| 14,508 |
| 370,098 |
| | 274,127 |
| | 95,971 |
| | 370,098 |
| 74 |
|
| Subtotal | 211,798 |
| 462,813 |
| 138,800 |
| 813,411 |
| | 618,181 |
| | 195,230 |
| | 813,411 |
| 76 |
|
Loans held-for-sale and loans at fair value(a) | | | | 5,607 |
| | | | | | 5,607 |
| |
| Receivables from customers and other | | | | 26,139 |
| | | | | | 26,139 |
| |
| Total exposure – net of liquid securities and other cash collateral held against derivatives | | | | $ | 845,157 |
| | | | | | $ | 845,157 |
| |
Credit derivatives used in credit portfolio management activities(b)(c) | $ | (1,807 | ) | $ | (11,011 | ) | $ | (4,791 | ) | $ | (17,609 | ) | | $ | (14,984 | ) | | $ | (2,625 | ) | | $ | (17,609 | ) | 85 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Maturity profile(d) | | Ratings profile |
| | Due in 1 year or less | Due after 1 year through 5 years | Due after 5 years | Total | | Investment-grade | | Noninvestment-grade | | Total | Total % of IG |
December 31, 2016
(in millions, except ratios) | | AAA/Aaa to BBB-/Baa3 | | BB+/Ba1 & below | |
| Loans retained | $ | 117,238 |
| $ | 167,235 |
| $ | 99,317 |
| $ | 383,790 |
| | $ | 289,923 |
| | $ | 93,867 |
| | $ | 383,790 |
| 76 | % |
| Derivative receivables | | | | 64,078 |
| | | | | | 64,078 |
| |
| Less: Liquid securities and other cash collateral held against derivatives | | | | (22,705 | ) | | | | | | (22,705 | ) | |
| Total derivative receivables, net of all collateral | 14,019 |
| 8,510 |
| 18,844 |
| 41,373 |
| | 33,081 |
| | 8,292 |
| | 41,373 |
| 80 |
|
| Lending-related commitments | 88,399 |
| 271,825 |
| 7,790 |
| 368,014 |
| | 269,820 |
| | 98,194 |
| | 368,014 |
| 73 |
|
| Subtotal | 219,656 |
| 447,570 |
| 125,951 |
| 793,177 |
| | 592,824 |
| | 200,353 |
| | 793,177 |
| 75 |
|
Loans held-for-sale and loans at fair value(a) | | | | 4,515 |
| | | | | | 4,515 |
| |
| Receivables from customers and other | | | | 17,440 |
| | | | | | 17,440 |
| |
| Total exposure – net of liquid securities and other cash collateral held against derivatives | | | | $ | 815,132 |
| | | | | | $ | 815,132 |
| |
Credit derivatives used in credit portfolio management activities (b)(c) | $ | (1,354 | ) | $ | (16,537 | ) | $ | (4,223 | ) | $ | (22,114 | ) | | $ | (18,710 | ) | | $ | (3,404 | ) | | $ | (22,114 | ) | 85 | % |
| |
| (a) | Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value. |
| |
| (b) | These derivatives do not qualify for hedge accounting under U.S. GAAP. |
| |
| (c) | The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference entity on which protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection used in credit portfolio management activities, are executed with investment-grade counterparties. |
| |
| (d) | The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivative contracts that are in a receivable position at December 31, 2017, may become payable prior to maturity based on their cash flow profile or changes in market conditions. |
Wholesale credit exposure – industry exposures
The Firm focuses on the management and diversification of its industry exposures, and pays particular attention to industries with actual or potential credit concerns. Exposures deemed criticized align with the U.S. banking regulators’ definition of criticized exposures, which consist
of the special mention, substandard and doubtful categories. The total criticized component of the portfolio, excluding loans held-for-sale and loans at fair value, was $15.6 billion at December 31, 2017, compared with $19.8 billion at December 31, 2016, driven by a 47% decrease in the Oil & Gas portfolio.
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 109 |
Management’s discussion and analysis
In 2017, the Firm revised its methodology for the assignment of industry classifications, to better monitor and manage concentrations. This largely resulted in the re-assignment of holding companies from All other to the industry of risk category based on the primary business activity of the holding company’s underlying entities. In the tables and industry discussions below, the prior period amounts have been revised to conform with the current period presentation.
Below are summaries of the Firm’s exposures as of December 31, 2017 and 2016. For additional information on industry concentrations, see Note 4.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Wholesale credit exposure – industries(a) | | | | | |
| | | Selected metrics |
| | | | | | | 30 days or more past due and accruing
loans | Net charge-offs/ (recoveries) | Credit derivative hedges(f) | Liquid securities and other cash collateral held against derivative
receivables |
| | | | Noninvestment-grade |
| | Credit exposure(e) | Investment- grade | Noncriticized | Criticized performing | Criticized nonperforming |
As of or for the year ended
December 31, 2017
(in millions) |
| Real Estate | $ | 139,409 |
| $ | 115,401 |
| $ | 23,012 |
| $ | 859 |
| $ | 137 |
| $ | 254 |
| $ | (4 | ) | $ | — |
| $ | (2 | ) |
| Consumer & Retail | 87,679 |
| 55,737 |
| 29,619 |
| 1,791 |
| 532 |
| 30 |
| 34 |
| (275 | ) | (9 | ) |
Technology, Media &
Telecommunications | 59,274 |
| 36,510 |
| 20,453 |
| 2,258 |
| 53 |
| 14 |
| (12 | ) | (910 | ) | (19 | ) |
| Healthcare | 55,997 |
| 42,643 |
| 12,731 |
| 585 |
| 38 |
| 82 |
| (1 | ) | — |
| (207 | ) |
| Industrials | 55,272 |
| 37,198 |
| 16,770 |
| 1,159 |
| 145 |
| 150 |
| (1 | ) | (196 | ) | (21 | ) |
| Banks & Finance Cos | 49,037 |
| 34,654 |
| 13,767 |
| 612 |
| 4 |
| 1 |
| 6 |
| (1,216 | ) | (3,174 | ) |
| Oil & Gas | 41,317 |
| 21,430 |
| 14,854 |
| 4,046 |
| 987 |
| 22 |
| 71 |
| (747 | ) | (1 | ) |
| Asset Managers | 32,531 |
| 28,029 |
| 4,484 |
| 4 |
| 14 |
| 27 |
| — |
| — |
| (5,290 | ) |
| Utilities | 29,317 |
| 24,486 |
| 4,383 |
| 227 |
| 221 |
| — |
| 11 |
| (160 | ) | (56 | ) |
State & Municipal Govt(b) | 28,633 |
| 27,977 |
| 656 |
| — |
| — |
| 12 |
| 5 |
| (130 | ) | (524 | ) |
| Central Govt | 19,182 |
| 18,741 |
| 376 |
| 65 |
| — |
| 4 |
| — |
| (10,095 | ) | (2,520 | ) |
| Chemicals & Plastics | 15,945 |
| 11,107 |
| 4,764 |
| 74 |
| — |
| 4 |
| — |
| — |
| — |
|
| Transportation | 15,797 |
| 9,870 |
| 5,302 |
| 527 |
| 98 |
| 9 |
| 14 |
| (32 | ) | (131 | ) |
| Automotive | 14,820 |
| 9,321 |
| 5,278 |
| 221 |
| — |
| 10 |
| 1 |
| (284 | ) | — |
|
| Metals & Mining | 14,171 |
| 6,989 |
| 6,822 |
| 321 |
| 39 |
| 3 |
| (13 | ) | (316 | ) | (1 | ) |
| Insurance | 14,089 |
| 11,028 |
| 2,981 |
| — |
| 80 |
| 1 |
| — |
| (157 | ) | (2,195 | ) |
| Financial Markets Infrastructure | 5,036 |
| 4,775 |
| 261 |
| — |
| — |
| — |
| — |
| — |
| (23 | ) |
| Securities Firms | 4,113 |
| 2,559 |
| 1,553 |
| 1 |
| — |
| — |
| — |
| (274 | ) | (335 | ) |
All other(c) | 147,900 |
| 134,110 |
| 13,283 |
| 260 |
| 247 |
| 901 |
| 8 |
| (2,817 | ) | (1,600 | ) |
| Subtotal | $ | 829,519 |
| $ | 632,565 |
| $ | 181,349 |
| $ | 13,010 |
| $ | 2,595 |
| $ | 1,524 |
| $ | 119 |
| $ | (17,609 | ) | $ | (16,108 | ) |
| Loans held-for-sale and loans at fair value | 5,607 |
| | | | | | | | |
| Receivables from customers and other | 26,139 |
| | | | | | | | |
Total(d) | $ | 861,265 |
| | | | | | | | |
|
| | |
| 110 | | JPMorgan Chase & Co./2017 Annual Report |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | Selected metrics |
| | | | | | | 30 days or more past due and accruing
loans | Net charge-offs/ (recoveries) | Credit derivative hedges(f) | Liquid securities and other cash collateral held against derivative
receivables(g) |
| | | | Noninvestment-grade |
| | Credit exposure(e) | Investment- grade | Noncriticized | Criticized performing | Criticized nonperforming |
As of or for the year ended
December 31, 2016
(in millions) |
| Real Estate | $ | 134,287 |
| $ | 104,869 |
| $ | 28,281 |
| $ | 937 |
| $ | 200 |
| $ | 206 |
| $ | (7 | ) | $ | (54 | ) | $ | (11 | ) |
| Consumer & Retail | 84,804 |
| 54,730 |
| 28,255 |
| 1,571 |
| 248 |
| 75 |
| 24 |
| (424 | ) | (69 | ) |
| Technology, Media & Telecommunications | 63,324 |
| 39,998 |
| 21,751 |
| 1,559 |
| 16 |
| 9 |
| 2 |
| (589 | ) | (30 | ) |
| Healthcare | 49,445 |
| 39,244 |
| 9,279 |
| 882 |
| 40 |
| 86 |
| 37 |
| (286 | ) | (246 | ) |
| Industrials | 55,733 |
| 36,710 |
| 17,854 |
| 1,033 |
| 136 |
| 128 |
| 3 |
| (434 | ) | (40 | ) |
| Banks & Finance Cos | 48,393 |
| 35,385 |
| 12,560 |
| 438 |
| 10 |
| 21 |
| (2 | ) | (1,336 | ) | (7,337 | ) |
| Oil & Gas | 40,367 |
| 18,629 |
| 12,274 |
| 8,069 |
| 1,395 |
| 31 |
| 233 |
| (1,532 | ) | (18 | ) |
| Asset Managers | 33,201 |
| 29,194 |
| 4,006 |
| 1 |
| — |
| 17 |
| — |
| — |
| (5,737 | ) |
| Utilities | 29,672 |
| 24,203 |
| 4,959 |
| 424 |
| 86 |
| 8 |
| — |
| (306 | ) | — |
|
State & Municipal Govt(b) | 28,263 |
| 27,603 |
| 624 |
| 6 |
| 30 |
| 107 |
| (1 | ) | (130 | ) | — |
|
| Central Govt | 20,408 |
| 20,123 |
| 276 |
| 9 |
| — |
| 4 |
| — |
| (11,691 | ) | (4,183 | ) |
| Chemicals & Plastics | 15,043 |
| 10,405 |
| 4,452 |
| 156 |
| 30 |
| 3 |
| — |
| (35 | ) | (3 | ) |
| Transportation | 19,096 |
| 12,178 |
| 6,421 |
| 444 |
| 53 |
| 9 |
| 10 |
| (93 | ) | (188 | ) |
| Automotive | 16,736 |
| 9,235 |
| 7,299 |
| 201 |
| 1 |
| 7 |
| — |
| (401 | ) | (14 | ) |
| Metals & Mining | 13,419 |
| 5,523 |
| 6,744 |
| 1,133 |
| 19 |
| — |
| 36 |
| (621 | ) | (62 | ) |
| Insurance | 13,510 |
| 10,918 |
| 2,459 |
| — |
| 133 |
| 9 |
| — |
| (275 | ) | (2,538 | ) |
| Financial Markets Infrastructure | 8,732 |
| 7,980 |
| 752 |
| — |
| — |
| — |
| — |
| — |
| (390 | ) |
| Securities Firms | 4,211 |
| 1,812 |
| 2,399 |
| — |
| — |
| — |
| — |
| (273 | ) | (491 | ) |
All other(c) | 137,238 |
| 124,661 |
| 11,988 |
| 303 |
| 286 |
| 598 |
| 6 |
| (3,634 | ) | (1,348 | ) |
| Subtotal | $ | 815,882 |
| $ | 613,400 |
| $ | 182,633 |
| $ | 17,166 |
| $ | 2,683 |
| $ | 1,318 |
| $ | 341 |
| $ | (22,114 | ) | $ | (22,705 | ) |
| Loans held-for-sale and loans at fair value | 4,515 |
| | | | | | | | |
| Receivables from customers and other | 17,440 |
| | | | | | | | |
Total(d) | $ | 837,837 |
| | | | | | | | |
| |
| (a) | The industry rankings presented in the table as of December 31, 2016, are based on the industry rankings of the corresponding exposures at December 31, 2017, not actual rankings of such exposures at December 31, 2016. |
| |
| (b) | In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2017 and 2016, noted above, the Firm held: $9.8 billion and $9.1 billion, respectively, of trading securities; $32.3 billion and $31.6 billion, respectively, of AFS securities; and $14.4 billion and $14.5 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 2 and Note 10. |
| |
| (c) | All other includes: individuals; SPEs; and private education and civic organizations, representing approximately 59%, 37% and 4%, respectively, at both December 31, 2017 and December 31, 2016. |
| |
| (d) | Excludes cash placed with banks of $421.0 billion and $380.2 billion, at December 31, 2017 and 2016, respectively, which is predominantly placed with various central banks, primarily Federal Reserve Banks. |
| |
| (e) | Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables. |
| |
| (f) | Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices. |
| |
| (g) | Prior period amounts have been revised to conform with the current period presentation. |
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 111 |
Management’s discussion and analysis
Presented below is additional detail on certain industries to which the Firm has exposure.
Real Estate
Exposure to the Real Estate industry increased $5.1 billion during the year ended December 31, 2017, to $139.4 billion predominantly driven by multifamily lending within CB. For the year ended December 31, 2017, the investment-grade percentage of the portfolio was 83%, up from 78% for the year ended December 31, 2016. For further information on Real Estate loans, see Note 12.
|
| | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | |
| (in millions, except ratios) | Loans and Lending-related Commitments | | Derivative Receivables | | Credit exposure | | % Investment-grade | % Drawn(c) |
Multifamily(a) | $ | 84,635 |
| | $ | 34 |
| | $ | 84,669 |
| | 89 | % | | 92 | % | |
| Other | 54,620 |
| | 120 |
| | 54,740 |
| | 74 |
| | 66 |
| |
Total Real Estate Exposure(b) | 139,255 |
| | 154 |
| | 139,409 |
| | 83 |
| | 82 |
| |
| | | | | | | | | | | |
| | December 31, 2016 | |
| (in millions, except ratios) | Loans and Lending-related Commitments | | Derivative
Receivables | | Credit exposure | | % Investment-
grade | % Drawn(c) |
Multifamily(a) | $ | 80,280 |
| | $ | 34 |
| | $ | 80,314 |
| | 82 | % | | 90 | % | |
| Other | 53,801 |
| | 172 |
| | 53,973 |
| | 72 |
| | 62 |
| |
Total Real Estate Exposure(b) | 134,081 |
| | 207 |
| | 134,287 |
| | 78 |
| | 79 |
| |
| |
| (a) | Multifamily exposure is largely in California. |
| |
| (b) | Real Estate exposure is predominantly secured; unsecured exposure is largely investment-grade. |
| |
| (c) | Represents drawn exposure as a percentage of credit exposure. |
Oil & Gas and Natural Gas Pipelines
Exposure to the Oil & Gas and Natural Gas Pipeline portfolios increased by $1.1 billion during the year ended December 31, 2017 to $45.9 billion. During the year ended December 31, 2017, the credit quality of this exposure continued to improve, with the investment-grade percentage increasing from 48% to 53% and criticized exposure decreasing by $4.5 billion.
|
| | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | |
| (in millions, except ratios) | Loans and Lending-related Commitments | | Derivative Receivables | | Credit exposure | | % Investment-grade | % Drawn(d) |
| Exploration & Production (“E&P”) and Oilfield Services | $ | 20,558 |
| | $ | 1,175 |
| | $ | 21,733 |
| | 34 | % | | 33 | % | |
Other Oil & Gas(a) | 19,032 |
| | 552 |
| | 19,584 |
| | 72 |
| | 28 |
| |
| Total Oil & Gas | 39,590 |
| | 1,727 |
| | 41,317 |
| | 52 |
| | 31 |
| |
Natural Gas Pipelines(b) | 4,507 |
| | 38 |
| | 4,545 |
| | 66 |
| | 14 |
| |
Total Oil & Gas and Natural Gas Pipelines(c) | $ | 44,097 |
| | $ | 1,765 |
| | $ | 45,862 |
| | 53 |
| | 29 |
| |
| | | | | | | | | | | |
| | December 31, 2016 | |
| (in millions, except ratios) | Loans and Lending-related Commitments | | Derivative Receivables | | Credit exposure | | % Investment-grade | % Drawn(d) |
| E&P and Oilfield Services | $ | 20,971 |
| | $ | 1,256 |
| | $ | 22,227 |
| | 27 | % | | 35 | % | |
Other Oil & Gas(a) | 17,518 |
| | 622 |
| | 18,140 |
| | 70 |
| | 31 |
| |
| Total Oil & Gas | 38,489 |
| | 1,878 |
| | 40,367 |
| | 46 |
| | 33 |
| |
Natural Gas Pipelines(b) | 4,253 |
| | 106 |
| | 4,359 |
| | 66 |
| | 30 |
| |
Total Oil & Gas and Natural Gas Pipelines(c) | $ | 42,742 |
| | $ | 1,984 |
| | $ | 44,726 |
| | 48 |
| | 33 |
| |
(a) Other Oil & Gas includes Integrated Oil & Gas companies, Midstream/Oil Pipeline companies and refineries.
(b) Natural Gas Pipelines is reported within the Utilities Industry.
(c) Secured lending is $14.0 billion and $14.3 billion at December 31, 2017 and December 31, 2016, respectively, approximately half of which is reserve-based lending to the Exploration & Production sub-sector; unsecured exposure is largely investment-grade.
(d) Represents drawn exposure as a percentage of credit exposure.
|
| | |
| 112 | | JPMorgan Chase & Co./2017 Annual Report |
Loans
In the normal course of its wholesale business, the Firm provides loans to a variety of clients, ranging from large corporate and institutional clients to high-net-worth individuals. For further discussion on loans, including information on credit quality indicators and sales of loans, see Note 12.
The following table presents the change in the nonaccrual loan portfolio for the years ended December 31, 2017 and 2016.
|
| | | | | | | |
Wholesale nonaccrual loan activity(a) | | |
| Year ended December 31, (in millions) | | 2017 | 2016 |
| Beginning balance | | $ | 2,063 |
| $ | 1,016 |
|
| Additions | | 1,482 |
| 2,981 |
|
| Reductions: | | | |
| Paydowns and other | | 1,137 |
| 1,148 |
|
| Gross charge-offs | | 200 |
| 385 |
|
| Returned to performing status | | 189 |
| 242 |
|
| Sales | | 285 |
| 159 |
|
| Total reductions | | 1,811 |
| 1,934 |
|
| Net changes | | (329 | ) | 1,047 |
|
| Ending balance | | $ | 1,734 |
| $ | 2,063 |
|
(a) Loans are placed on nonaccrual status when management believes full payment of principal or interest is not expected, regardless of delinquency status, or when principal or interest have been in default for a period of 90 days or more unless the loan is both well-secured and in the process of collection.
The following table presents net charge-offs/recoveries, which are defined as gross charge-offs less recoveries, for the years ended December 31, 2017 and 2016. The amounts in the table below do not include gains or losses from sales of nonaccrual loans.
|
| | | | | | |
| Wholesale net charge-offs/(recoveries) |
Year ended December 31, (in millions, except ratios) | 2017 | 2016 |
| Loans – reported | | |
| Average loans retained | $ | 392,263 |
| $ | 371,778 |
|
| Gross charge-offs | 212 |
| 398 |
|
| Gross recoveries | (93 | ) | (57 | ) |
| Net charge-offs | 119 |
| 341 |
|
| Net charge-off rate | 0.03 | % | 0.09 | % |
Lending-related commitments
The Firm uses lending-related financial instruments, such as commitments (including revolving credit facilities) and guarantees, to meet the financing needs of its clients. The contractual amounts of these financial instruments represent the maximum possible credit risk should the counterparties draw down on these commitments or the Firm fulfill its obligations under these guarantees, and the counterparties subsequently fail to perform according to the terms of these contracts. Most of these commitments and guarantees are refinanced, extended, cancelled, or expire without being drawn upon or a default occurring. In the Firm’s view, the total contractual amount of these wholesale lending-related commitments is not representative of the Firm’s expected future credit exposure or funding requirements. For further information on wholesale lending-related commitments, see Note 27.
Clearing services
The Firm provides clearing services for clients entering into securities and derivative transactions. Through the provision of these services the Firm is exposed to the risk of non-performance by its clients and may be required to share in losses incurred by central counterparties. Where possible, the Firm seeks to mitigate its credit risk to its clients through the collection of adequate margin at inception and throughout the life of the transactions and can also cease provision of clearing services if clients do not adhere to their obligations under the clearing agreement. For further discussion of clearing services, see Note 27.
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 113 |
Management’s discussion and analysis
Derivative contracts
In the normal course of business, the Firm uses derivative instruments predominantly for market-making activities. Derivatives enable counterparties to manage exposures to fluctuations in interest rates, currencies and other markets. The Firm also uses derivative instruments to manage its own credit and other market risk exposure. The nature of the counterparty and the settlement mechanism of the derivative affect the credit risk to which the Firm is exposed. For OTC derivatives the Firm is exposed to the credit risk of the derivative counterparty. For exchange-traded derivatives (“ETD”), such as futures and options, and “cleared” over-the-counter (“OTC-cleared”) derivatives, the Firm is generally exposed to the credit risk of the relevant CCP. Where possible, the Firm seeks to mitigate its credit risk exposures arising from derivative transactions through the use of legally enforceable master netting arrangements and collateral agreements. For further discussion of derivative contracts, counterparties and settlement types, see Note 5.
The following table summarizes the net derivative receivables for the periods presented.
|
| | | | | | |
| Derivative receivables | | |
| December 31, (in millions) | 2017 |
| 2016 |
|
| Interest rate | $ | 24,673 |
| $ | 28,302 |
|
| Credit derivatives | 869 |
| 1,294 |
|
| Foreign exchange | 16,151 |
| 23,271 |
|
| Equity | 7,882 |
| 4,939 |
|
| Commodity | 6,948 |
| 6,272 |
|
| Total, net of cash collateral | 56,523 |
| 64,078 |
|
Liquid securities and other cash collateral held against derivative receivables(a) | (16,108 | ) | (22,705 | ) |
| Total, net of all collateral | $ | 40,415 |
| $ | 41,373 |
|
| |
| (a) | Includes collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained. |
Derivative receivables reported on the Consolidated balance sheets were $56.5 billion and $64.1 billion at December 31, 2017 and 2016, respectively. Derivative receivables decreased predominantly as a result of client-driven market-making activities in CIB Markets, which reduced foreign exchange and interest rate derivative receivables, and increased equity derivative receivables, driven by market movements.
Derivative receivables amounts represent the fair value of the derivative contracts after giving effect to legally enforceable master netting agreements and cash collateral held by the Firm. However, in management’s view, the appropriate measure of current credit risk should also take into consideration additional liquid securities (primarily U.S. government and agency securities and other group of seven nations (“G7”) government bonds) and other cash collateral held by the Firm aggregating $16.1 billion and $22.7 billion at December 31, 2017 and 2016, respectively, that may be used as security when the fair value of the client’s exposure is in the Firm’s favor.
In addition to the collateral described in the preceding paragraph, the Firm also holds additional collateral (primarily cash, G7 government securities, other liquid government-agency and guaranteed securities, and corporate debt and equity securities) delivered by clients at the initiation of transactions, as well as collateral related to contracts that have a non-daily call frequency and collateral that the Firm has agreed to return but has not yet settled as of the reporting date. Although this collateral does not reduce the balances and is not included in the table above, it is available as security against potential exposure that could arise should the fair value of the client’s derivative transactions move in the Firm’s favor. The derivative receivables fair value, net of all collateral, also does not include other credit enhancements, such as letters of credit. For additional information on the Firm’s use of collateral agreements, see Note 5.
While useful as a current view of credit exposure, the net fair value of the derivative receivables does not capture the potential future variability of that credit exposure. To capture the potential future variability of credit exposure, the Firm calculates, on a client-by-client basis, three measures of potential derivatives-related credit loss: Peak, Derivative Risk Equivalent (“DRE”), and Average exposure (“AVG”). These measures all incorporate netting and collateral benefits, where applicable.
Peak represents a conservative measure of potential exposure to a counterparty calculated in a manner that is broadly equivalent to a 97.5% confidence level over the life of the transaction. Peak is the primary measure used by the Firm for setting of credit limits for derivative transactions, senior management reporting and derivatives exposure management. DRE exposure is a measure that expresses the risk of derivative exposure on a basis intended to be equivalent to the risk of loan exposures. DRE is a less extreme measure of potential credit loss than Peak and is used for aggregating derivative credit risk exposures with loans and other credit risk.
Finally, AVG is a measure of the expected fair value of the Firm’s derivative receivables at future time periods, including the benefit of collateral. AVG exposure over the total life of the derivative contract is used as the primary metric for pricing purposes and is used to calculate credit risk capital and the CVA, as further described below. The three year AVG exposure was $29.0 billion and $31.1 billion at December 31, 2017 and 2016, respectively, compared with derivative receivables, net of all collateral, of $40.4 billion and $41.4 billion at December 31, 2017 and 2016, respectively.
The fair value of the Firm’s derivative receivables incorporates CVA to reflect the credit quality of counterparties. CVA is based on the Firm’s AVG to a counterparty and the counterparty’s credit spread in the credit derivatives market. The Firm believes that active risk management is essential to controlling the dynamic credit risk in the derivatives portfolio. In addition, the Firm’s risk management process takes into consideration the potential
|
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| 114 | | JPMorgan Chase & Co./2017 Annual Report |
impact of wrong-way risk, which is broadly defined as the potential for increased correlation between the Firm’s exposure to a counterparty (AVG) and the counterparty’s credit quality. Many factors may influence the nature and magnitude of these correlations over time. To the extent that these correlations are identified, the Firm may adjust the CVA associated with that counterparty’s AVG. The Firm risk manages exposure to changes in CVA by entering into credit derivative transactions, as well as interest rate, foreign exchange, equity and commodity derivative transactions.
The accompanying graph shows exposure profiles to the Firm’s current derivatives portfolio over the next 10 years as calculated by the Peak, DRE and AVG metrics. The three measures generally show that exposure will decline after the first year, if no new trades are added to the portfolio.
Exposure profile of derivatives measures
December 31, 2017
(in billions)
The following table summarizes the ratings profile by derivative counterparty of the Firm’s derivative receivables, including credit derivatives, net of all collateral, at the dates indicated. The ratings scale is based on the Firm’s internal ratings, which generally correspond to the ratings as assigned by S&P and Moody’s.
|
| | | | | | | | | | | |
| Ratings profile of derivative receivables | | | | | |
| Rating equivalent | 2017 | | 2016 |
December 31, (in millions, except ratios) | Exposure net of all collateral | % of exposure net of all collateral | | Exposure net of all collateral | % of exposure net of all collateral |
| AAA/Aaa to AA-/Aa3 | $ | 11,529 |
| 29 | % | | $ | 11,449 |
| 28 | % |
| A+/A1 to A-/A3 | 6,919 |
| 17 |
| | 8,505 |
| 20 |
|
| BBB+/Baa1 to BBB-/Baa3 | 13,925 |
| 34 |
| | 13,127 |
| 32 |
|
| BB+/Ba1 to B-/B3 | 7,397 |
| 18 |
| | 7,308 |
| 18 |
|
| CCC+/Caa1 and below | 645 |
| 2 |
| | 984 |
| 2 |
|
| Total | $ | 40,415 |
| 100 | % | | $ | 41,373 |
| 100 | % |
As previously noted, the Firm uses collateral agreements to mitigate counterparty credit risk. The percentage of the Firm’s over-the-counter derivatives transactions subject to collateral agreements — excluding foreign exchange spot trades, which are not typically covered by collateral agreements due to their short maturity and centrally cleared trades that are settled daily — was approximately 90% as of December 31, 2017, largely unchanged compared with December 31, 2016.
Credit derivatives
The Firm uses credit derivatives for two primary purposes: first, in its capacity as a market-maker, and second, as an end-user to manage the Firm’s own credit risk associated with various exposures. For a detailed description of credit derivatives, see Credit derivatives in Note 5.
Credit portfolio management activities
Included in the Firm’s end-user activities are credit derivatives used to mitigate the credit risk associated with traditional lending activities (loans and unfunded commitments) and derivatives counterparty exposure in the Firm’s wholesale businesses (collectively, “credit portfolio management” activities). Information on credit portfolio management activities is provided in the table below. For further information on derivatives used in credit portfolio management activities, see Credit derivatives in Note 5.
The Firm also uses credit derivatives as an end-user to manage other exposures, including credit risk arising from certain securities held in the Firm’s market-making businesses. These credit derivatives are not included in credit portfolio management activities; for further information on these credit derivatives as well as credit derivatives used in the Firm’s capacity as a market-maker in credit derivatives, see Credit derivatives in Note 5.
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 115 |
Management’s discussion and analysis
|
| | | | | | | |
| Credit derivatives used in credit portfolio management activities |
| | Notional amount of protection purchased (a) |
| December 31, (in millions) | 2017 | 2016 |
| Credit derivatives used to manage: | | | |
| Loans and lending-related commitments | $ | 1,867 |
| | $ | 2,430 |
|
| Derivative receivables | 15,742 |
| | 19,684 |
|
| Credit derivatives used in credit portfolio management activities | $ | 17,609 |
| | $ | 22,114 |
|
| |
| (a) | Amounts are presented net, considering the Firm’s net protection purchased or sold with respect to each underlying reference entity or index. |
The credit derivatives used in credit portfolio management activities do not qualify for hedge accounting under U.S. GAAP; these derivatives are reported at fair value, with gains and losses recognized in principal transactions revenue. In contrast, the loans and lending-related commitments being risk-managed are accounted for on an accrual basis. This asymmetry in accounting treatment,
between loans and lending-related commitments and the credit derivatives used in credit portfolio management activities, causes earnings volatility that is not representative, in the Firm’s view, of the true changes in value of the Firm’s overall credit exposure.
The effectiveness of credit default swaps (“CDS”) as a hedge against the Firm’s exposures may vary depending on a number of factors, including the named reference entity (i.e., the Firm may experience losses on specific exposures that are different than the named reference entities in the purchased CDS); the contractual terms of the CDS (which may have a defined credit event that does not align with an actual loss realized by the Firm); and the maturity of the Firm’s CDS protection (which in some cases may be shorter than the Firm’s exposures). However, the Firm generally seeks to purchase credit protection with a maturity date that is the same or similar to the maturity date of the exposure for which the protection was purchased, and remaining differences in maturity are actively monitored and managed by the Firm.
|
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| 116 | | JPMorgan Chase & Co./2017 Annual Report |
|
| | | | |
| ALLOWANCE FOR CREDIT LOSSES |
JPMorgan Chase’s allowance for credit losses covers the retained consumer and wholesale loan portfolios, as well as the Firm’s wholesale and certain consumer lending-related commitments.
For a further discussion of the components of the allowance for credit losses and related management judgments, see Critical Accounting Estimates Used by the Firm on pages 138–140 and Note 13.
At least quarterly, the allowance for credit losses is reviewed by the CRO, the CFO and the Controller of the Firm, and discussed with the Board of Directors’ Risk Policy Committee (“DRPC”) and the Audit Committee. As of December 31, 2017, JPMorgan Chase deemed the allowance for credit losses to be appropriate and sufficient to absorb probable credit losses inherent in the portfolio.
The allowance for credit losses decreased as of December 31, 2017, driven by:
a net reduction in the wholesale allowance, reflecting credit quality improvements in the Oil & Gas, Natural Gas Pipelines, and Metals & Mining portfolios (compared with additions to the allowance in the prior year driven by downgrades in the same portfolios)
largely offset by
a net increase in the consumer allowance, reflecting
| |
| – | additions to the allowance for the credit card and business banking portfolios, driven by loan growth in both of these portfolios and higher loss rates in the credit card portfolio, |
largely offset by
| |
| – | a reduction in the allowance for the residential real estate portfolio, predominantly driven by continued improvement in home prices and delinquencies, and |
| |
| – | the utilization of the allowance in connection with the sale of the student loan portfolio. |
For additional information on the consumer and wholesale credit portfolios, see Consumer Credit Portfolio on pages 102-107, Wholesale Credit Portfolio on pages 108–116 and
Note 12.
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 117 |
Management’s discussion and analysis
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Summary of changes in the allowance for credit losses | | | | | |
| | 2017 | | 2016 |
| Year ended December 31, | Consumer, excluding credit card | Credit card | Wholesale | Total | | Consumer, excluding credit card | Credit card | Wholesale | Total |
| (in millions, except ratios) |
| Allowance for loan losses | | | | | | | | | |
| Beginning balance at January 1, | $ | 5,198 |
| $ | 4,034 |
| $ | 4,544 |
| $ | 13,776 |
| | $ | 5,806 |
| $ | 3,434 |
| $ | 4,315 |
| $ | 13,555 |
|
| Gross charge-offs | 1,779 |
| 4,521 |
| 212 |
| 6,512 |
| | 1,500 |
| 3,799 |
| 398 |
| 5,697 |
|
| Gross recoveries | (634 | ) | (398 | ) | (93 | ) | (1,125 | ) | | (591 | ) | (357 | ) | (57 | ) | (1,005 | ) |
Net charge-offs(a) | 1,145 |
| 4,123 |
| 119 |
| 5,387 |
| | 909 |
| 3,442 |
| 341 |
| 4,692 |
|
Write-offs of PCI loans(b) | 86 |
| — |
| — |
| 86 |
| | 156 |
| — |
| — |
| 156 |
|
| Provision for loan losses | 613 |
| 4,973 |
| (286 | ) | 5,300 |
| | 467 |
| 4,042 |
| 571 |
| 5,080 |
|
| Other | (1 | ) | — |
| 2 |
| 1 |
| | (10 | ) | — |
| (1 | ) | (11 | ) |
| Ending balance at December 31, | $ | 4,579 |
| $ | 4,884 |
| $ | 4,141 |
| $ | 13,604 |
| | $ | 5,198 |
| $ | 4,034 |
| $ | 4,544 |
| $ | 13,776 |
|
| Impairment methodology | | | | | | | | | |
Asset-specific(c) | $ | 246 |
| $ | 383 |
| $ | 461 |
| $ | 1,090 |
| | $ | 308 |
| $ | 358 |
| $ | 342 |
| $ | 1,008 |
|
| Formula-based | 2,108 |
| 4,501 |
| 3,680 |
| 10,289 |
| | 2,579 |
| 3,676 |
| 4,202 |
| 10,457 |
|
| PCI | 2,225 |
| — |
| — |
| 2,225 |
| | 2,311 |
| — |
| — |
| 2,311 |
|
| Total allowance for loan losses | $ | 4,579 |
| $ | 4,884 |
| $ | 4,141 |
| $ | 13,604 |
| | $ | 5,198 |
| $ | 4,034 |
| $ | 4,544 |
| $ | 13,776 |
|
| Allowance for lending-related commitments | | | | | | | | | |
| Beginning balance at January 1, | $ | 26 |
| $ | — |
| $ | 1,052 |
| $ | 1,078 |
| | $ | 14 |
| $ | — |
| $ | 772 |
| $ | 786 |
|
| Provision for lending-related commitments | 7 |
| — |
| (17 | ) | (10 | ) | | — |
| — |
| 281 |
| 281 |
|
| Other | — |
| — |
| — |
| — |
| | 12 |
| — |
| (1 | ) | 11 |
|
| Ending balance at December 31, | $ | 33 |
| $ | — |
| $ | 1,035 |
| $ | 1,068 |
| | $ | 26 |
| $ | — |
| $ | 1,052 |
| $ | 1,078 |
|
| Impairment methodology | | | | | | | | | |
| Asset-specific | $ | — |
| $ | — |
| $ | 187 |
| $ | 187 |
| | $ | — |
| $ | — |
| $ | 169 |
| $ | 169 |
|
| Formula-based | 33 |
| — |
| 848 |
| 881 |
| | 26 |
| — |
| 883 |
| 909 |
|
Total allowance for lending-related commitments(d) | $ | 33 |
| $ | — |
| $ | 1,035 |
| $ | 1,068 |
| | $ | 26 |
| $ | — |
| $ | 1,052 |
| $ | 1,078 |
|
| Total allowance for credit losses | $ | 4,612 |
| $ | 4,884 |
| $ | 5,176 |
| $ | 14,672 |
| | $ | 5,224 |
| $ | 4,034 |
| $ | 5,596 |
| $ | 14,854 |
|
| Memo: | | | | | | | | | |
| Retained loans, end of period | $ | 372,553 |
| $ | 149,387 |
| $ | 402,898 |
| $ | 924,838 |
| | $ | 364,406 |
| $ | 141,711 |
| $ | 383,790 |
| $ | 889,907 |
|
| Retained loans, average | 366,798 |
| 139,918 |
| 392,263 |
| 898,979 |
| | 358,486 |
| 131,081 |
| 371,778 |
| 861,345 |
|
| PCI loans, end of period | 30,576 |
| — |
| 3 |
| 30,579 |
| | 35,679 |
| — |
| 3 |
| 35,682 |
|
| Credit ratios | | | | | | | | | |
| Allowance for loan losses to retained loans | 1.23 | % | 3.27 | % | 1.03 | % | 1.47 | % | | 1.43 | % | 2.85 | % | 1.18 | % | 1.55 | % |
Allowance for loan losses to retained nonaccrual loans(e) | 109 |
| NM | 239 |
| 229 |
| | 109 |
| NM | 233 |
| 205 |
|
| Allowance for loan losses to retained nonaccrual loans excluding credit card | 109 |
| NM | 239 |
| 147 |
| | 109 |
| NM | 233 |
| 145 |
|
Net charge-off rate(a) | 0.31 |
| 2.95 |
| 0.03 |
| 0.60 |
| | 0.25 |
| 2.63 |
| 0.09 |
| 0.54 |
|
| Credit ratios, excluding residential real estate PCI loans | | | | | | | | | |
Allowance for loan losses to
retained loans | 0.69 |
| 3.27 |
| 1.03 |
| 1.27 |
| | 0.88 |
| 2.85 |
| 1.18 |
| 1.34 |
|
Allowance for loan losses to retained nonaccrual loans(e) | 56 |
| NM | 239 |
| 191 |
| | 61 |
| NM | 233 |
| 171 |
|
Allowance for loan losses to retained nonaccrual loans excluding credit card | 56 |
| NM | 239 |
| 109 |
| | 61 |
| NM | 233 |
| 111 |
|
Net charge-off rate(a) | 0.34 | % | 2.95 | % | 0.03 | % | 0.62 | % | | 0.28 | % | 2.63 | % | 0.09 | % | 0.57 | % |
| |
| Note: | In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures. |
| |
| (a) | For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for Consumer, excluding credit card would have been 0.18%; total Firm would have been 0.55%; Consumer, excluding credit card and PCI loans would have been 0.20%; and total Firm, excluding PCI would have been 0.57%. |
| |
| (b) | Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation). |
| |
| (c) | Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance for loan losses modified in a TDR is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates. |
| |
| (d) | The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets. |
| |
| (e) | The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. |
|
| | |
| 118 | | JPMorgan Chase & Co./2017 Annual Report |
Provision for credit losses
The following table presents the components of the Firm’s provision for credit losses:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31, (in millions) | Provision for loan losses | | Provision for lending-related commitments | | Total provision for credit losses |
| 2017 |
| 2016 |
| 2015 | | 2017 |
| 2016 |
| 2015 |
| | 2017 |
| 2016 |
| 2015 |
|
| Consumer, excluding credit card | $ | 613 |
| $ | 467 |
| $ | (82 | ) | | $ | 7 |
| $ | — |
| $ | 1 |
| | $ | 620 |
| $ | 467 |
| $ | (81 | ) |
| Credit card | 4,973 |
| 4,042 |
| 3,122 |
| | — |
| — |
| — |
| | 4,973 |
| 4,042 |
| 3,122 |
|
| Total consumer | 5,586 |
| 4,509 |
| 3,040 |
| | 7 |
| — |
| 1 |
| | 5,593 |
| 4,509 |
| 3,041 |
|
| Wholesale | (286 | ) | 571 |
| 623 |
| | (17 | ) | 281 |
| 163 |
| | (303 | ) | 852 |
| 786 |
|
| Total | $ | 5,300 |
| $ | 5,080 |
| $ | 3,663 |
| | $ | (10 | ) | $ | 281 |
| $ | 164 |
| | $ | 5,290 |
| $ | 5,361 |
| $ | 3,827 |
|
Provision for credit losses
The provision for credit losses decreased as of December 31, 2017 as a result of:
a net $422 million reduction in the wholesale allowance for credit losses, reflecting credit quality improvements in the Oil & Gas, Natural Gas Pipelines, and Metals & Mining portfolios, compared with an addition of $511 million in the prior year driven by downgrades in the same portfolios.
The decrease was predominantly offset by
a higher consumer provision driven by
| |
| – | $450 million of higher net charge-offs, primarily in the credit card portfolio due to growth in newer vintages which, as anticipated, have higher loss rates than the more seasoned portion of the portfolio, partially offset by a decrease in net charge-offs in the residential real estate portfolio reflecting continued improvement in home prices and delinquencies, |
| |
| – | a $218 million impact in connection with the sale of the student loan portfolio, and |
| |
| – | a $416 million higher addition to the allowance for credit losses. |
Current year additions to the consumer allowance included:
| |
| ◦ | an $850 million addition to the allowance for credit losses in the credit card portfolio, compared to a $600 million addition in the prior year, due to higher loss rates and loan growth in both years, and |
| |
| ◦ | a $50 million addition to the allowance for credit losses in the business banking portfolio, driven by loan growth |
the additions were partially offset by
| |
| ◦ | a $316 million net reduction in the allowance for credit losses in the residential real estate portfolio, compared to a $517 million net reduction in the prior year, reflecting continued improvement in home prices and delinquencies in both years. |
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 119 |
Management’s discussion and analysis
|
| | | | |
| INVESTMENT PORTFOLIO RISK MANAGEMENT |
Investment portfolio risk is the risk associated with the loss of principal or a reduction in expected returns on investments arising from the investment securities portfolio held by Treasury and CIO in connection with the Firm’s balance sheet or asset-liability management objectives or from principal investments managed in various LOBs in predominantly privately-held financial assets and instruments. Investments are typically intended to be held over extended periods and, accordingly, the Firm has no expectation for short-term realized gains with respect to these investments.
Investment securities risk
Investment securities risk includes the exposure associated with the default of principal plus coupon payments. This risk is minimized given that Treasury and CIO generally invest in high-quality securities. At December 31, 2017, the investment securities portfolio was $248.0 billion, and the average credit rating of the securities comprising the portfolio was AA+ (based upon external ratings where available and where not available, based primarily upon internal ratings that correspond to ratings as defined by S&P and Moody’s). For further information on the investment securities portfolio, see Note 10 on pages 203-208. For further information on the market risk inherent in the portfolio, see Market Risk Management on pages 121-128. For further information on related liquidity risk, see Liquidity Risk on pages 92–97.
Governance and oversight
Investment securities risks are governed by the Firm’s Risk Appetite framework, and discussed at the CIO, Treasury and Corporate (CTC) Risk Committee with regular updates to the DRPC.
The Firm’s independent control functions are responsible for reviewing the appropriateness of the carrying value of investment securities in accordance with relevant policies. Approved levels for investment securities are established for each risk category, including capital and credit risks.
Principal investment risk
Principal investments are typically private non-traded financial instruments representing ownership or other forms of junior capital. Principal investments cover multiple asset classes and are made either in stand-alone investing businesses or as part of a broader business platform. As of December 31, 2017, the carrying value of the principal investment portfolios included tax-oriented investments (e.g., affordable housing and alternative energy investments) of $14.0 billion and private equity and various debt and equity instruments of $5.5 billion. Increasingly, new principal investment activity seeks to enhance or accelerate LOB strategic business initiatives. The Firm’s principal investments are managed under various LOBs and are reflected within the respective LOB financial results.
Governance and oversight
The Firm’s approach to managing principal risk is consistent with the Firm’s general risk governance structure. A Firmwide risk policy framework exists for all principal investing activities. All investments are approved by investment committees that include executives who are independent from the investing businesses.
The Firm’s independent control functionsare responsible for reviewing the appropriateness of the carrying value of investments in accordance with relevant policies. Approved levels for investments are established for each relevant business in order to manage the overall size of the portfolios.
Industry, geographic and position level concentration limits have been set and are intended to ensure diversification of the portfolios. The Firm also conducts stress testing on these portfolios using specific scenarios that estimate losses based on significant market moves and/or other risk events.
|
| | |
| 120 | | JPMorgan Chase & Co./2017 Annual Report |
Market risk is the risk associated with the effect of changes in market factors, such as interest and foreign exchange rates, equity and commodity prices, credit spreads or implied volatilities, on the value of assets and liabilities held for both the short and long term.
Market Risk Management
Market Risk Management monitors market risks throughout the Firm and defines market risk policies and procedures. The Market Risk Management function reports to the Firm’s CRO.
Market Risk Management seeks to manage risk, facilitate efficient risk/return decisions, reduce volatility in operating performance and provide transparency into the Firm’s market risk profile for senior management, the Board of Directors and regulators. Market Risk Management is responsible for the following functions:
Establishment of a market risk policy framework
Independent measurement, monitoring and control of line of business and firmwide market risk
Definition, approval and monitoring of limits
Performance of stress testing and qualitative risk assessments
Risk measurement
Tools used to measure risk
There is no single measure to capture market risk and therefore the Firm uses various metrics, both statistical and nonstatistical, to assess risk including:
VaR
Economic-value stress testing
Nonstatistical risk measures
Loss advisories
Profit and loss drawdowns
Earnings-at-risk
Other sensitivities
Risk monitoring and control
Market risk exposure is managed primarily through a series of limits set in the context of the market environment and business strategy. In setting limits, the Firm takes into consideration factors such as market volatility, product liquidity and accommodation of client business, and management experience. The Firm maintains different levels of limits. Corporate level limits include VaR and stress limits. Similarly, line of business limits include VaR and stress limits and may be supplemented by loss advisories, nonstatistical measurements and profit and loss drawdowns. Limits may also be set within the lines of business, as well at the portfolio or legal entity level.
Market Risk Management sets limits and regularly reviews and updates them as appropriate, with any changes approved by line of business management and Market Risk Management. Senior management, including the Firm’s CEO and CRO, are responsible for reviewing and approving certain of these risk limits on an ongoing basis. All limits that have not been reviewed within specified time periods by Market Risk Management are escalated to senior management. The lines of business are responsible for adhering to established limits against which exposures are monitored and reported.
Limit breaches are required to be reported in a timely manner to limit approvers, Market Risk Management and senior management. In the event of a breach, Market Risk Management consults with senior management of the Firm and the line of business senior management to determine the appropriate course of action required to return the applicable positions to compliance, which may include a reduction in risk in order to remedy the breach. Certain Firm or line of business-level limits that have been breached for three business days or longer, or by more than 30%, are escalated to senior management and the Firmwide Risk Committee.
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 121 |
Management’s discussion and analysis
The following table summarizes by line of business the predominant business activities that give rise to market risk, and certain market risk tools used to measure those risks.
|
| | | | |
| Risk identification and classification by line of business |
| Line of Business | Predominant business activities and related market risks | Positions included in Risk Management VaR | Positions included in earnings-at-risk | Positions included in other sensitivity-based measures |
| CCB | • Services mortgage loans which give rise to complex, non-linear interest rate and basis risk • Non-linear risk arises primarily from prepayment options embedded in mortgages and changes in the probability of newly originated mortgage commitments actually closing • Basis risk results from differences in the relative movements of the rate indices underlying mortgage exposure and other interest rates • Originates loans and takes deposits | • Mortgage pipeline loans, classified as derivatives • Warehouse loans, classified as trading assets – debt instruments • MSRs • Hedges of pipeline loans, warehouse loans and MSRs, classified as derivatives • Interest-only securities, classified as trading assets - debt instruments, and related hedges, classified as derivatives | | |
CIB
| • Makes markets and services clients across fixed income, foreign exchange, equities and commodities• Market risk arises from changes in market prices (e.g., rates and credit spreads) resulting in a potential decline in net income• Originates loans and takes deposits | • Trading assets/liabilities – debt and marketable equity instruments, and derivatives, including hedges of the retained loan portfolio • Certain securities purchased, loaned or sold under resale agreements and securities borrowed • Fair value option elected liabilities • Derivative CVA and associated hedges | | • Private equity investments measured at fair value • Derivatives FVA and fair value option elected liabilities DVA |
| CB | • Engages in traditional wholesale banking activities which include extensions of loans and credit facilities and taking deposits• Risk arises from changes in interest rates and prepayment risk with potential for adverse impact on net interest income and interest-rate sensitive fees | | | |
| AWM | • Provides initial capital investments in products such as mutual funds, which give rise to market risk arising from changes in market prices in such products • Originates loans and takes deposits
| • Debt securities held in advance of distribution to clients, classified as trading assets - debt instruments | | • Initial seed capital investments and related hedges, classified as derivatives• Capital invested alongside third-party investors, typically in privately distributed collective vehicles managed by AWM (i.e., co-investments) |
| Corporate | • Manages the Firm’s liquidity, funding, structural interest rate and foreign exchange risks arising from activities undertaken by the Firm’s four major reportable business segments | • Derivative positions measured at fair value through noninterest revenue in earnings• Marketable equity investments measured at fair value through noninterest revenue in earnings | • Investment securities portfolio and related interest rate hedges• Long-term debt and related interest rate hedges | • Private equity investments measured at fair value • Foreign exchange exposure related to Firm-issued non-USD long-term debt (“LTD”) and related hedges |
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| 122 | | JPMorgan Chase & Co./2017 Annual Report |
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, to estimate the potential loss from adverse market moves in a normal market environment. The Firm has a single VaR framework used as a basis for calculating Risk Management VaR and Regulatory VaR.
The framework is employed across the Firm using historical simulation based on data for the previous 12 months. The framework’s approach assumes that historical changes in market values are representative of the distribution of potential outcomes in the immediate future. The Firm believes the use of Risk Management VaR provides a stable measure of VaR that is closely aligned to the day-to-day risk management decisions made by the lines of business, and provides the appropriate information needed to respond to risk events on a daily basis.
The Firm’s Risk Management VaR is calculated assuming a one-day holding period and an expected tail-loss methodology which approximates a 95% confidence level. Risk Management VaR provides a consistent framework to measure risk profiles and levels of diversification across product types and is used for aggregating risks and monitoring limits across businesses. VaR results are reported to senior management, the Board of Directors and regulators.
Under the Firm’s Risk Management VaR methodology, assuming current changes in market values are consistent with the historical changes used in the simulation, the Firm would expect to incur VaR “back-testing exceptions,” defined as losses greater than that predicted by VaR estimates, an average of five times every 100 trading days. The number of VaR back-testing exceptions observed can differ from the statistically expected number of back-testing exceptions if the current level of market volatility is materially different from the level of market volatility during the 12 months of historical data used in the VaR calculation.
Underlying the overall VaR model framework are individual VaR models that simulate historical market returns for individual products and/or risk factors. To capture material market risks as part of the Firm’s risk management framework, comprehensive VaR model calculations are performed daily for businesses whose activities give rise to market risk. These VaR models are granular and incorporate numerous risk factors and inputs to simulate daily changes in market values over the historical period; inputs are selected based on the risk profile of each portfolio, as sensitivities and historical time series used to generate daily market values may be different across product types or risk management systems. The VaR model results across all portfolios are aggregated at the Firm level.
As VaR is based on historical data, it is an imperfect measure of market risk exposure and potential losses, and it is not used to estimate the impact of stressed market conditions or to manage any impact from potential stress events. In addition, based on their reliance on available historical data, limited time horizons, and other factors, VaR measures are inherently limited in their ability to measure certain risks and to predict losses, particularly those associated with market illiquidity and sudden or severe shifts in market conditions.
For certain products, specific risk parameters are not captured in VaR due to the lack of inherent liquidity and availability of appropriate historical data. The Firm uses proxies to estimate the VaR for these and other products when daily time series are not available. It is likely that using an actual price-based time series for these products, if available, would affect the VaR results presented. The Firm therefore considers other measures such as stress testing and nonstatistical measures, in addition to VaR, to capture and manage its market risk positions.
The daily market data used in VaR models may be different than the independent third-party data collected for VCG price testing in its monthly valuation process. For example, in cases where market prices are not observable, or where proxies are used in VaR historical time series, the data sources may differ (see Valuation process in Note 2 for further information on the Firm’s valuation process). Because VaR model calculations require daily data and a consistent source for valuation, it may not be practical to use the data collected in the VCG monthly valuation process for VaR model calculations.
The Firm’s VaR model calculations are periodically evaluated and enhanced in response to changes in the composition of the Firm’s portfolios, changes in market conditions, improvements in the Firm’s modeling techniques and measurements, and other factors. Such changes may affect historical comparisons of VaR results. For information regarding model reviews and approvals, see Model Risk Management on page 137.
The Firm calculates separately a daily aggregated VaR in accordance with regulatory rules (“Regulatory VaR”), which is used to derive the Firm’s regulatory VaR-based capital requirements under Basel III. This Regulatory VaR model framework currently assumes a ten business-day holding period and an expected tail loss methodology which approximates a 99% confidence level. Regulatory VaR is applied to “covered” positions as defined by Basel III, which may be different than the positions included in the Firm’s Risk Management VaR. For example, credit derivative hedges of accrual loans are included in the Firm’s Risk Management VaR, while Regulatory VaR excludes these credit derivative hedges. In addition, in contrast to the Firm’s Risk Management VaR, Regulatory VaR currently excludes the diversification benefit for certain VaR models.
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| JPMorgan Chase & Co./2017 Annual Report | | 123 |
Management’s discussion and analysis
For additional information on Regulatory VaR and the other components of market risk regulatory capital for the Firm (e.g., VaR-based measure, stressed VaR-based measure and the respective backtesting), see JPMorgan Chase’s Basel III
Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website at: (http://investor.shareholder.com/jpmorganchase/basel.cfm).
The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total VaR | | | | |
| As of or for the year ended December 31, | 2017 | | 2016 |
| (in millions) | Avg. | Min | Max | | Avg. | Min | Max |
| CIB trading VaR by risk type | | | | | | | | | | | | | |
| Fixed income | $ | 28 |
| | $ | 20 |
| | $ | 40 |
| | | $ | 45 |
| | $ | 33 |
| | $ | 65 |
| |
| Foreign exchange | 10 |
| | 4 |
| | 20 |
| | | 12 |
| | 7 |
| | 27 |
| |
| Equities | 12 |
| | 8 |
| | 19 |
| | | 13 |
| | 5 |
| | 32 |
| |
| Commodities and other | 7 |
| | 4 |
| | 10 |
| | | 9 |
| | 7 |
| | 11 |
| |
| Diversification benefit to CIB trading VaR | (30 | ) | (a) | NM |
| (b) | NM |
| (b) | | (36 | ) | (a) | NM |
| (b) | NM |
| (b) |
| CIB trading VaR | 27 |
| | 14 |
| (b) | 38 |
| (b) | | 43 |
| | 28 |
| (b) | 79 |
| (b) |
| Credit portfolio VaR | 7 |
| | 3 |
| | 12 |
| | | 12 |
| | 10 |
| | 16 |
| |
| Diversification benefit to CIB VaR | (6 | ) | (a) | NM |
| (b) | NM |
| (b) | | (10 | ) | (a) | NM |
| (b) | NM |
| (b) |
| CIB VaR | 28 |
| | 17 |
| (b) | 39 |
| (b) | | 45 |
| | 32 |
| (b) | 81 |
| (b) |
| | | | | | | | | | | | | | |
| CCB VaR | 2 |
| | 1 |
| | 4 |
| | | 3 |
| | 1 |
| | 6 |
| |
| Corporate VaR | 4 |
| | 1 |
| | 16 |
| (c) | | 6 |
| | 3 |
| | 13 |
| (c) |
| AWM VaR | — |
| | — |
| | — |
| | | 2 |
| | — |
| | 4 |
| |
| Diversification benefit to other VaR | (1 | ) | (a) | NM |
| (b) | NM |
| (b) | | (3 | ) | (a) | NM |
| (b) | NM |
| (b) |
| Other VaR | 5 |
| | 2 |
| (b) | 16 |
| (b) | | 8 |
| | 4 |
| (b) | 16 |
| (b) |
| Diversification benefit to CIB and other VaR | (4 | ) | (a) | NM |
| (b) | NM |
| (b) | | (8 | ) | (a) | NM |
| (b) | NM |
| (b) |
| Total VaR | $ | 29 |
| | $ | 17 |
| (b) | $ | 42 |
| (b) | | $ | 45 |
| | $ | 33 |
| (b) | $ | 78 |
| (b) |
| |
| (a) | Average portfolio VaR is less than the sum of the VaR of the components described above, which is due to portfolio diversification. The diversification effect reflects that the risks are not perfectly correlated. |
| |
| (b) | Diversification benefit represents the difference between the total VaR and each reported level and the sum of its individual components. Diversification benefit reflects the non-additive nature of VaR due to imperfect correlation across lines of business and risk types. The maximum and minimum VaR for each portfolio may have occurred on different trading days than the components and consequently diversification benefit is not meaningful. |
| |
| (c) | Maximum Corporate VaR was higher than the prior year, due to a Private Equity position that became publicly traded in the fourth quarter of 2017. Previously, this position was included in other sensitivity-based measures. |
Average Total VaR decreased $16 million for the year-ended December 31, 2017 as compared with the prior year. The reduction is a result of refinements made to VaR models for certain asset-backed products, changes made to the scope of positions included in VaR in the third quarter of 2016, and lower volatility in the one-year historical look-back period.
In addition, Credit Portfolio VaR declined by $5 million reflecting the sale of select positions and lower volatility in the one-year historical look-back period.
In the first quarter of 2017, the Firm refined the historical proxy time series inputs to certain VaR models. These refinements are intended to more appropriately reflect the risk exposure from certain asset-backed products. In the absence of this refinement, the average Total VaR, CIB fixed income VaR, CIB trading VaR and CIB VaR would have each been higher by $4 million for the year ended December 31, 2017.
VaR can vary significantly as positions change, market volatility fluctuates, and diversification benefits change.
VaR back-testing
The Firm evaluates the effectiveness of its VaR methodology by back-testing, which compares the daily Risk Management VaR results with the daily gains and losses actually recognized on market-risk related revenue.
The Firm’s definition of market risk-related gains and losses is consistent with the definition used by the banking regulators under Basel III. Under this definition market risk-related gains and losses are defined as: gains and losses on the positions included in the Firm’s Risk Management VaR, excluding fees, commissions, certain valuation adjustments (e.g., liquidity and FVA), net interest income, and gains and losses arising from intraday trading.
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| 124 | | JPMorgan Chase & Co./2017 Annual Report |
The following chart compares actual daily market risk-related gains and losses with the Firm’s Risk Management VaR for the year ended December 31, 2017. As the chart presents market risk-related gains and losses related to those positions included in the Firm’s Risk Management VaR, the results in the table below differ from the results of back-testing disclosed in the Market Risk section of the Firm’s Basel III Pillar 3 Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to covered positions. The chart shows that for the year ended December 31, 2017 the Firm observed 15 VaR back-testing exceptions and posted gains on 145 of the 258 days.
Daily Market Risk-Related Gains and Losses
vs. Risk Management VaR (1-day, 95% Confidence level)
Year endedDecember 31, 2017
Market Risk-Related Gains and LossesRisk Management VaR |
| | | |
First Quarter 2017 | Second Quarter 2017 | Third Quarter 2017 | Fourth Quarter 2017 |
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| JPMorgan Chase & Co./2017 Annual Report | | 125 |
Management’s discussion and analysis
Other risk measures
Economic-value stress testing
Along with VaR, stress testing is an important tool in measuring and controlling risk. While VaR reflects the risk of loss due to adverse changes in markets using recent historical market behavior as an indicator of losses, stress testing is intended to capture the Firm’s exposure to unlikely but plausible events in abnormal markets. The Firm runs weekly stress tests on market-related risks across the lines of business using multiple scenarios that assume significant changes in risk factors such as credit spreads, equity prices, interest rates, currency rates and commodity prices.
The Firm uses a number of standard scenarios that capture different risk factors across asset classes including geographical factors, specific idiosyncratic factors and extreme tail events. The stress framework calculates multiple magnitudes of potential stress for both market rallies and market sell-offs for each risk factor and combines them in multiple ways to capture different market scenarios. For example, certain scenarios assess the potential loss arising from current exposures held by the Firm due to a broad sell-off in bond markets or an extreme widening in corporate credit spreads. The flexibility of the stress testing framework allows risk managers to construct new, specific scenarios that can be used to form decisions about future possible stress events.
Stress testing complements VaR by allowing risk managers
to shock current market prices to more extreme levels relative to those historically realized, and to stress test the relationships between market prices under extreme scenarios. Stress scenarios are defined and reviewed by Market Risk Management, and significant changes are reviewed by the relevant LOB Risk Committees and may be redefined on a periodic basis to reflect current market conditions.
Stress-test results, trends and qualitative explanations based on current market risk positions are reported to the respective LOBs and the Firm’s senior management to allow them to better understand the sensitivity of positions to certain defined events and to enable them to manage their risks with more transparency. Results are also reported to the Board of Directors.
The Firm’s stress testing framework is utilized in calculating results for the Firm’s CCAR and ICAAP processes. In addition, the results are incorporated into the quarterly assessment of the Firm’s Risk Appetite Framework and are also presented to the DRPC.
Nonstatistical risk measures
Nonstatistical risk measures include sensitivities to variables used to value positions, such as credit spread sensitivities, interest rate basis point values and market values. These measures provide granular information on the Firm’s market risk exposure. They are aggregated by line of business and by risk type, and are also used for monitoring internal market risk limits.
Loss advisories and profit and loss drawdowns
Loss advisories and profit and loss drawdowns are tools used to highlight trading losses above certain levels of risk tolerance. Profit and loss drawdowns are defined as the decline in net profit and loss since the year-to-date peak revenue level.
Earnings-at-risk
The VaR and sensitivity measures illustrate the economic sensitivity of the Firm’s Consolidated balance sheets to changes in market variables.
The effect of interest rate exposure on the Firm’s reported net income is also important as interest rate risk represents one of the Firm’s significant market risks. Interest rate risk arises not only from trading activities but also from the Firm’s traditional banking activities, which include extension of loans and credit facilities, taking deposits and issuing debt. The Firm evaluates its structural interest rate risk exposure through earnings-at-risk, which measures the extent to which changes in interest rates will affect the Firm’s net interest income and interest rate-sensitive fees. For a summary by line of business, identifying positions included in earnings-at-risk, see the table on page 122.
The CTC Risk Committee establishes the Firm’s structural interest rate risk policies and market risk limits, which are subject to approval by the DRPC. Treasury and CIO, working in partnership with the lines of business, calculates the Firm’s structural interest rate risk profile and reviews it with senior management including the CTC Risk Committee and the Firm’s ALCO. In addition, oversight of structural interest rate risk is managed through a dedicated risk function reporting to the CTC CRO. This risk function is responsible for providing independent oversight and governance around assumptions and establishing and monitoring limits for structural interest rate risk. The Firm manages structural interest rate risk generally through its investment securities portfolio and interest rate derivatives.
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| 126 | | JPMorgan Chase & Co./2017 Annual Report |
Structural interest rate risk can occur due to a variety of factors, including:
Differences in the timing among the maturity or repricing of assets, liabilities and off-balance sheet instruments
Differences in the amounts of assets, liabilities and off-balance sheet instruments that are repricing at the same time
Differences in the amounts by which short-term and long-term market interest rates change (for example, changes in the slope of the yield curve)
The impact of changes in the maturity of various assets, liabilities or off-balance sheet instruments as interest rates change
The Firm manages interest rate exposure related to its assets and liabilities on a consolidated, firmwide basis. Business units transfer their interest rate risk to Treasury and CIO through funds transfer pricing, which takes into account the elements of interest rate exposure that can be risk-managed in financial markets. These elements include asset and liability balances and contractual rates of interest, contractual principal payment schedules, expected prepayment experience, interest rate reset dates and maturities, rate indices used for repricing, and any interest rate ceilings or floors for adjustable rate products. All transfer-pricing assumptions are dynamically reviewed.
The Firm generates a baseline for net interest income and certain interest rate-sensitive fees, and then conducts simulations of changes for interest rate-sensitive assets and liabilities denominated in U.S. dollars and other currencies (“non-U.S. dollar” currencies). This simulation primarily includes, retained loans, deposits, deposits with banks, investment securities, long term debt and any related interest rate hedges, and excludes other positions in risk management VaR and other sensitivity-based measures as described on page 122.
Earnings-at-risk scenarios estimate the potential change in this baseline, over the following 12 months utilizing multiple assumptions. These scenarios consider the impact on exposures as a result of changes in interest rates from baseline rates, as well as pricing sensitivities of deposits, optionality and changes in product mix. The scenarios include forecasted balance sheet changes, as well as modeled prepayment and reinvestment behavior, but do not include assumptions about actions that could be taken by the Firm in response to any such instantaneous rate changes. Mortgage prepayment assumptions are based on scenario interest rates compared with underlying contractual rates, the time since origination, and other factors which are updated periodically based on historical experience. The pricing sensitivity of deposits in the baseline and scenarios use assumed rates paid which may differ from actual rates paid due to timing lags and other factors. The Firm’s earnings-at-risk scenarios are periodically evaluated and enhanced in response to changes in the composition of the Firm’s balance sheet, changes in market conditions, improvements in the Firm’s simulation and other factors.
The Firm’s U.S. dollar sensitivities are presented in the table below.
|
| | | | | | | | | | | | | |
| JPMorgan Chase’s 12-month earnings-at-risk sensitivity profiles |
| U.S. dollar | Instantaneous change in rates |
|
| (in billions) | +200 bps | +100 bps | -100 bps | -200 bps |
| December 31, 2017 | $ | 2.4 |
| | $ | 1.7 |
| | (3.6 | ) | (a) | NM | (b) |
| December 31, 2016 | $ | 4.0 |
| | $ | 2.4 |
| | NM |
| (b) | NM | (b) |
| |
| (a) | As a result of the 2017 increase in the Fed Funds target rate to between 1.25% and 1.50%, the -100 bps sensitivity has been included. |
| |
| (b) | Given the level of market interest rates, these downward parallel earnings-at-risk scenarios are not considered to be meaningful. |
The non-U.S. dollar sensitivities for an instantaneous increase in rates by 200 and 100 basis points results in a 12-month benefit to net interest income of approximately $800 million and $500 million, respectively, at December 31, 2017 and were not material at December 31, 2016. The non-U.S. dollar sensitivities for an instantaneous decrease in rates by 200 and 100 basis points were not material to the Firm’s earnings-at-risk at December 31, 2017 and 2016.
The Firm’s sensitivity to rates is largely a result of assets repricing at a faster pace than deposits.
The Firm’s net U.S. dollar sensitivities for an instantaneous increase in rates by 200 and 100 basis points decreased by approximately $1.6 billion and $700 million, respectively, when compared to December 31, 2016. The primary driver of that decrease was the updating of the Firm’s baseline to reflect higher interest rates. As higher interest rates are reflected in the Firm’s baselines, the magnitude of the sensitivity to further increases in rates would be expected to be less significant.
Separately, another U.S. dollar interest rate scenario used by the Firm — involving a steeper yield curve with long-term rates rising by 100 basis points and short-term rates staying at current levels — results in a 12-month benefit to net interest income of approximately $700 million and $800 million at December 31, 2017 and 2016, respectively. The increase in net interest income under this scenario reflects the Firm reinvesting at the higher long-term rates, with funding costs remaining unchanged. The results of the comparable non-U.S. dollar scenarios were not material to the Firm at December 31, 2017 and 2016.
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| JPMorgan Chase & Co./2017 Annual Report | | 127 |
Non-U.S. dollar foreign exchange risk
Non-U.S. dollar FX risk is the risk that changes in foreign exchange rates affect the value of the Firm’s assets or liabilities or future results. The Firm has structural non-U.S. dollar FX exposures arising from capital investments, forecasted expense and revenue, the investment securities
portfolio and non-U.S. dollar-denominated debt issuance. Treasury and CIO, working in partnership with the lines of business, primarily manage these risks on behalf of the Firm. Treasury and CIO may hedge certain of these risks using derivatives within risk limits governed by the CTC Risk Committee.
Other sensitivity-based measures
The Firm quantifies the market risk of certain investment and funding activities by assessing the potential impact on net revenue and OCI due to changes in relevant market variables. For additional information on the positions captured in other sensitivity-based measures, please refer to the Risk identification and classification table on page 122.
The table below represents the potential impact to net revenue or OCI for market risk sensitive instruments that are not included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are reported along with the positions being hedged. The sensitivities disclosed in the table below may not be representative of the actual gain or loss that would have been realized at December 31, 2017, as the movement in market parameters across maturities may vary and are not intended to imply management’s expectation of future deterioration in these sensitivities.
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| | | | | | | | | | | |
Gain/(loss) (in millions) | | | | | | | |
| Activity | | Description | | Sensitivity measure | December 31, 2017 | December 31, 2016 |
| | | | | | | | |
| Investment activities | | | | | | | |
| Investment management activities | | Consists of seed capital and related hedges; and fund co-investments | | 10% decline in market value | | $ | (110 | ) | $ | (166 | ) |
| Other investments | | Consists of private equity and other investments held at fair value | | 10% decline in market value | | (338 | ) | (358 | ) |
| | | | | | | | |
| Funding activities | | | | | | | |
| Non-USD LTD cross-currency basis | | Represents the basis risk on derivatives used to hedge the foreign exchange risk on the non-USD LTD | | 1 basis point parallel tightening of cross currency basis | | (10 | ) | (7 | ) |
| Non-USD LTD hedges foreign currency (“FX”) exposure | | Primarily represents the foreign exchange revaluation on the fair value of the derivative hedges | | 10% depreciation of currency | | (13 | ) | (23 | ) |
| Derivatives – funding spread risk | | Impact of changes in the spread related to derivatives FVA | | 1 basis point parallel increase in spread | | (6 | ) | (4 | ) |
Fair value option elected liabilities – funding spread risk | | Impact of changes in the spread related to fair value option elected liabilities DVA(a) | | 1 basis point parallel increase in spread | | 22 |
| 17 |
|
| Fair value option elected liabilities –interest rate sensitivity | | Interest rate sensitivity on fair value option liabilities resulting from a change in the Firm’s own credit spread(a) | | 1 basis point parallel increase in spread | | (1 | ) | NA |
|
| |
| (a) | Impact recognized through OCI. |
|
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| JPMorgan Chase & Co./2017 Annual Report | | 128 |
The Firm has a country risk management framework for monitoring and assessing how financial, economic, political or other significant developments adversely affect the value of the Firm’s exposures related to a particular country or set of countries. The Country Risk Management group actively monitors the various portfolios which may be impacted by these developments to ensure the Firm’s exposures are diversified and that exposure levels are appropriate given the Firm’s strategy and risk tolerance relative to a country.
Organization and management
Country Risk Management is an independent risk management function that assesses, manages and monitors country risk originated across the Firm. The Firmwide Risk Executive for Country Risk reports to the Firm’s CRO.
The Firm’s country risk management function includes the following activities:
Establishing policies, procedures and standards consistent with a comprehensive country risk framework
Assigning sovereign ratings, and assessing country risks and establishing risk tolerance relative to a country
Measuring and monitoring country risk exposure and stress across the Firm
Managing and approving country limits and reporting trends and limit breaches to senior management
Developing surveillance tools, such as signaling models and ratings indicators, for early identification of potential country risk concerns
Providing country risk scenario analysis
Sources and measurement
The Firm is exposed to country risk through its lending and deposits, investing, and market-making activities, whether cross-border or locally funded. Country exposure includes activity with both government and private-sector entities in a country. Under the Firm’s internal country risk management approach, country exposure is reported based on the country where the majority of the assets of the obligor, counterparty, issuer or guarantor are located or where the majority of its revenue is derived, which may be different than the domicile (legal residence) or country of incorporation of the obligor, counterparty, issuer or guarantor. Country exposures are generally measured by considering the Firm’s risk to an immediate default of the counterparty or obligor, with zero recovery. Assumptions are sometimes required in determining the measurement and allocation of country exposure, particularly in the case of certain non-linear or index exposures. The use of different measurement approaches or assumptions could affect the amount of reported country exposure.
Under the Firm’s internal country risk measurement framework:
Lending exposures are measured at the total committed amount (funded and unfunded), net of the allowance for credit losses and cash and marketable securities collateral received
Deposits are measured as the cash balances placed with central and commercial banks
Securities financing exposures are measured at their receivable balance, net of collateral received
Debt and equity securities are measured at the fair value of all positions, including both long and short positions
Counterparty exposure on derivative receivables is measured at the derivative’s fair value, net of the fair value of the related collateral. Counterparty exposure on derivatives can change significantly because of market movements
Credit derivatives protection purchased and sold is reported based on the underlying reference entity and is measured at the notional amount of protection purchased or sold, net of the fair value of the recognized derivative receivable or payable. Credit derivatives protection purchased and sold in the Firm’s market-making activities is measured on a net basis, as such activities often result in selling and purchasing protection related to the same underlying reference entity; this reflects the manner in which the Firm manages these exposures
Some activities may create contingent or indirect exposure related to a country (for example, providing clearing services or secondary exposure to collateral on securities financing receivables). These exposures are managed in the normal course of business through the Firm’s credit, market, and operational risk governance, rather than through Country Risk Management.
The Firm’s internal country risk reporting differs from the reporting provided under the FFIEC bank regulatory requirements. For further information on the FFIEC’s reporting methodology, see Cross-border outstandings on page 296 of the 2017 Form 10-K.
Stress testing
Stress testing is an important component of the Firm’s country risk management framework, which aims to estimate and limit losses arising from a country crisis by measuring the impact of adverse asset price movements to a country based on market shocks combined with counterparty specific assumptions. Country Risk Management periodically designs and runs tailored stress scenarios to test vulnerabilities to individual countries, or groups of countries, in response to specific or potential market events, sector performance concerns and geopolitical risks. These tailored stress results are used to assess potential risk reduction across the Firm, as necessary.
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| JPMorgan Chase & Co./2017 Annual Report | | 129 |
Management’s discussion and analysis
Risk Reporting
To enable effective risk management of country risk to the Firm, country nominal exposure and stress are measured and reported weekly, and used by Country Risk Management to identify trends, and monitor high usages and breaches against limits.
The following table presents the Firm’s top 20 exposures by country (excluding the U.S.) as of December 31, 2017. The selection of countries represents the Firm’s largest total exposures by country, based on the Firm’s internal country risk management approach, and does not represent the Firm’s view of any actual or potentially adverse credit conditions. Country exposures may fluctuate from period to period due to client activity and market flows.
|
| | | | | | | | | | | | | |
Top 20 country exposures (excluding the U.S.)(a) | |
| | December 31, 2017 |
(in billions) | | Lending and deposits(b) | Trading and investing(c)(d) | Other(e) | Total exposure |
| Germany | | $ | 43.3 |
| $ | 13.8 |
| $ | 0.3 |
| $ | 57.4 |
|
| United Kingdom | | 32.0 |
| 11.5 |
| 2.8 |
| 46.3 |
|
| Japan | | 24.7 |
| 5.7 |
| 0.4 |
| 30.8 |
|
| France | | 12.5 |
| 6.6 |
| 0.3 |
| 19.4 |
|
| China | | 9.6 |
| 5.5 |
| 1.2 |
| 16.3 |
|
| Canada | | 12.2 |
| 2.5 |
| 0.2 |
| 14.9 |
|
| Switzerland | | 8.5 |
| 1.5 |
| 3.9 |
| 13.9 |
|
| India | | 5.3 |
| 6.1 |
| 0.9 |
| 12.3 |
|
| Australia | | 5.8 |
| 5.6 |
| — |
| 11.4 |
|
| Luxembourg | | 8.7 |
| 0.8 |
| — |
| 9.5 |
|
| Netherlands | | 6.6 |
| 0.8 |
| 0.6 |
| 8.0 |
|
| Spain | | 4.7 |
| 2.1 |
| 0.1 |
| 6.9 |
|
| South Korea | | 4.6 |
| 1.9 |
| 0.3 |
| 6.8 |
|
| Italy | | 3.5 |
| 3.1 |
| 0.1 |
| 6.7 |
|
| Singapore | | 4.0 |
| 1.2 |
| 1.1 |
| 6.3 |
|
| Mexico | | 4.0 |
| 1.2 |
| — |
| 5.2 |
|
| Brazil | | 3.2 |
| 1.4 |
| 0.5 |
| 5.1 |
|
| Hong Kong | | 2.3 |
| 0.9 |
| 1.6 |
| 4.8 |
|
| Saudi Arabia | | 3.8 |
| 0.7 |
| — |
| 4.5 |
|
| Belgium | | 2.7 |
| 1.5 |
| — |
| 4.2 |
|
| |
| (a) | Country exposures above reflect 86% of total firmwide non U.S. exposure. |
| |
| (b) | Lending and deposits includes loans and accrued interest receivable (net of collateral and the allowance for loan losses), deposits with banks (including central banks), acceptances, other monetary assets, issued letters of credit net of participations, and unused commitments to extend credit. Excludes intra-day and operating exposures, such as from settlement and clearing activities. |
| |
| (c) | Includes market-making inventory, AFS securities, counterparty exposure on derivative and securities financings net of collateral and hedging. |
| |
| (d) | Includes single reference entity (“single-name”), index and other multiple reference entity transactions for which one or more of the underlying reference entities is in a country listed in the above table. |
| |
| (e) | Includes capital invested in local entities and physical commodity inventory. |
|
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| 130 | | JPMorgan Chase & Co./2017 Annual Report |
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| | | | |
| OPERATIONAL RISK MANAGEMENT |
Operational risk is the risk associated with inadequate or failed internal processes, people and systems, or from external events; operational risk includes cybersecurity risk, business and technology resiliency risk, payment fraud risk, and third-party outsourcing risk. Operational risk is inherent in the Firm’s activities and can manifest itself in various ways, including fraudulent acts, business interruptions, inappropriate employee behavior, failure to comply with applicable laws and regulations or failure of vendors to perform in accordance with their arrangements. These events could result in financial losses, litigation and regulatory fines, as well as other damages to the Firm. The goal is to keep operational risk at appropriate levels in light of the Firm’s financial position, the characteristics of its businesses, and the markets and regulatory environments in which it operates.
Operational Risk Management Framework
To monitor and control operational risk, the Firm has an Operational Risk Management Framework (“ORMF”) which is designed to enable the Firm to maintain a sound and well-controlled operational environment. The ORMF has four main components: Governance, Risk Identification and Assessment, Measurement, and Monitoring and Reporting.
Governance
The lines of business and corporate functions are responsible for owning and managing their operational risks. The Firmwide Oversight and Control Group, which consists of control officers within each line of business and corporate function, is responsible for the day-to-day execution of the ORMF.
Line of business and corporate function control committees oversee the operational risk and control environments of their respective businesses and functions. These committees escalate operational risk issues to the FCC, as appropriate. For additional information on the FCC, see Enterprise-wide Risk Management on pages 75–137.
The Firmwide Risk Executive for Operational Risk Governance (“ORG”), a direct report to the CRO, is responsible for defining the ORMF and establishing minimum standards for its execution. Operational Risk Officers report to both the line of business CROs and to the Firmwide Risk Executive for ORG, and are independent of the respective businesses or corporate functions they oversee.
The Firm’s Operational Risk Governance Policy is approved by the DRPC. This policy establishes the Operational Risk Management Framework for the Firm.
Risk identification and assessment
The Firm utilizes several tools to identify, assess, mitigate and manage its operational risk. One such tool is the Risk and Control Self-Assessment (“RCSA”) program which is executed by LOBs and corporate functions in accordance with the minimum standards established by ORG. As part of the RCSA program, lines of business and corporate functions identify key operational risks inherent in their activities, evaluate the effectiveness of relevant controls in place to mitigate identified risks, and define actions to reduce residual risk. Action plans are developed for identified control issues and businesses and corporate functions are held accountable for tracking and resolving issues in a timely manner. Operational Risk Officers independently challenge the execution of the RCSA program and evaluate the appropriateness of the residual risk results.
In addition to the RCSA program, the Firm tracks and monitors events that have led to or could lead to actual operational risk losses, including litigation-related events. Responsible businesses and corporate functions analyze their losses to evaluate the effectiveness of their control environment to assess where controls have failed, and to determine where targeted remediation efforts may be required. ORG provides oversight of these activities and may also perform independent assessments of significant operational risk events and areas of concentrated or emerging risk.
Measurement
In addition to the level of actual operational risk losses, operational risk measurement includes operational risk-based capital and operational risk loss projections under both baseline and stressed conditions.
The primary component of the operational risk capital estimate is the Loss Distribution Approach (“LDA”) statistical model, which simulates the frequency and severity of future operational risk loss projections based on historical data. The LDA model is used to estimate an aggregate operational risk loss over a one-year time horizon, at a 99.9% confidence level. The LDA model incorporates actual internal operational risk losses in the quarter following the period in which those losses were realized, and the calculation generally continues to reflect such losses even after the issues or business activities giving rise to the losses have been remediated or reduced.
As required under the Basel III capital framework, the Firm’s operational risk-based capital methodology, which uses the Advanced Measurement Approach, incorporates internal and external losses as well as management’s view of tail risk captured through operational risk scenario analysis, and evaluation of key business environment and internal control metrics.
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| JPMorgan Chase & Co./2017 Annual Report | | 131 |
Management’s discussion and analysis
The Firm considers the impact of stressed economic conditions on operational risk losses and develops a forward looking view of material operational risk events that may occur in a stressed environment. The Firm’s operational risk stress testing framework is utilized in calculating results for the Firm’s CCAR and ICAAP processes.
For information related to operational risk RWA, CCAR or ICAAP, see Capital Risk Management section, pages 82–91.
Monitoring and reporting
ORG has established standards for consistent operational risk monitoring and reporting. The standards also reinforce escalation protocols to senior management and to the Board of Directors. Operational risk reports are produced on a firmwide basis as well as by line of business and corporate function.
Subcategories and examples of operational risks
As mentioned previously, operational risk can manifest itself in various ways. Operational risk subcategories such as Compliance risk, Conduct risk, Legal risk and Estimations and Model risk, as well as other operational risks, can lead to losses which are captured through the Firm’s operational risk measurement processes. More information on Compliance risk, Conduct risk, Legal risk and Estimations and Model risk subcategories are discussed on pages 134, 135, 136 and 137, respectively. Details on other select examples of operational risks are provided below.
Cybersecurity risk
Cybersecurity risk is an important, continuous and evolving focus for the Firm. The Firm devotes significant resources to protecting and continuing to improve the security of the Firm’s computer systems, software, networks and other technology assets. The Firm’s security efforts are intended to protect against, among other things, cybersecurity attacks by unauthorized parties to obtain access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage. The Firm continues to make significant investments in enhancing its cyberdefense capabilities and to strengthen its partnerships with the appropriate government and law enforcement agencies and other businesses in order to understand the full spectrum of cybersecurity risks in the operating environment, enhance defenses and improve resiliency against cybersecurity threats. The Firm actively participates in discussions of cybersecurity risks with law enforcement, government officials, peer and industry groups, and has significantly increased efforts to educate employees and certain clients on the topic. Third parties with which the Firm does business or that facilitate the Firm’s business activities (e.g., vendors, exchanges, clearing houses, central depositories, and financial intermediaries) could also be sources of cybersecurity risk to the Firm. Third party cybersecurity incidents such as system breakdowns or failures, misconduct by the employees of such parties, or cyberattacks could affect their ability to deliver a product or service to the Firm or result in lost or compromised information of the Firm or its clients. Clients can also be
sources of cybersecurity risk to the Firm, particularly when their activities and systems are beyond the Firm’s own security and control systems. As a result, the Firm engages in regular and ongoing discussions with certain vendors and clients regarding cybersecurity risks and opportunities to improve security. However, where cybersecurity incidents are due to client failure to maintain the security of their own systems and processes, clients will generally be responsible for losses incurred.
To protect the confidentiality, integrity and availability of the Firm’s infrastructure, resources and information, the Firm leverages the ORMF to ensure risks are identified and managed within defined corporate tolerances. The Firm’s Board of Directors and the Audit Committee are regularly briefed on the Firm’s cybersecurity policies and practices and ongoing efforts to improve security, as well as its efforts regarding significant cybersecurity events.
Business and technology resiliency risk
Business disruptions can occur due to forces beyond the Firm’s control such as severe weather, power or telecommunications loss, flooding, transit strikes, terrorist threats or infectious disease. The safety of the Firm’s employees and customers is of the highest priority. The Firm’s global resiliency program is intended to enable the Firm to recover its critical business functions and supporting assets (i.e., staff, technology and facilities) in the event of a business interruption. The program includes corporate governance, awareness and training, as well as strategic and tactical initiatives to identify, assess, and manage business interruption and public safety risks.
The strength and proficiency of the Firm’s global resiliency program has played an integral role in maintaining the Firm’s business operations during and after various events.
Payment fraud risk
Payment fraud risk is the risk of external and internal parties unlawfully obtaining personal monetary benefit through misdirected or otherwise improper payment, and exposing the Firm to financial or reputational harm. Over the past year, the risk of payment fraud remained at a heightened level across the industry. The complexities of these attacks along with perpetrators’ strategies continue to evolve. A Payments Control Program has been established that includes Cybersecurity, Operations, Technology, Risk and the lines of business to manage the risk, implement controls and provide employee and client education and awareness training. In addition, a new wholesale fraud detection solution has been introduced which monitors high value payments for certain anomalies. The Firm’s monitoring of customer behavior is periodically evaluated and enhanced, and attempts to detect and mitigate new strategies implemented by fraud perpetrators. The Firm’s consumer and wholesale businesses collaborate closely to deploy risk mitigation controls across their businesses.
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| 132 | | JPMorgan Chase & Co./2017 Annual Report |
Third-party outsourcing risk
To identify and manage the operational risk inherent in its outsourcing activities, the Firm has a Third-Party Oversight (“TPO”) framework to assist lines of business and corporate functions in selecting, documenting, onboarding, monitoring and managing their supplier relationships. The objective of the TPO framework is to hold third parties to the same high level of operational performance as is expected of the Firm’s internal operations. The Corporate Third-Party Oversight group is responsible for Firmwide TPO training, monitoring, reporting and standards.
Insurance
One of the ways in which operational risk may be mitigated is through insurance maintained by the Firm. The Firm purchases insurance from commercial insurers and utilizes a wholly-owned captive insurer, Park Assurance Company, to ensure compliance with local laws and regulations (e.g., workers compensation), as well as to serve other needs (e.g., property loss and public liability). Insurance may also be required by third parties with whom the Firm does business. The insurance purchased is reviewed and approved by senior management.
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| JPMorgan Chase & Co./2017 Annual Report | | 133 |
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| | | | |
| COMPLIANCE RISK MANAGEMENT |
Compliance risk, a subcategory of operational risk, is the risk of failure to comply with applicable laws, rules and regulations.
Overview
Each line of business and function is accountable for managing its compliance risk. The Firm’s Compliance Organization (“Compliance”), which is independent of the lines of business, works closely with senior management to provide independent review, monitoring and oversight of business operations with a focus on compliance with the legal and regulatory obligations applicable to the delivery of the Firm’s products and services to clients and customers.
These compliance risks relate to a wide variety of legal and regulatory obligations, depending on the line of business and the jurisdiction, and include those related to financial products and services, relationships and interactions with clients and customers, and employee activities. For example, compliance risks include those associated with anti-money laundering compliance, trading activities, market conduct, and complying with the rules and regulations related to the offering of products and services across jurisdictional borders, among others. Compliance risk is also inherent in the Firm’s fiduciary activities, including the failure to exercise the applicable high standard of care (such as the duties of loyalty or care), to act in the best interest of clients and customers or to treat clients and customers fairly.
Other Functions provide oversight of significant regulatory obligations that are specific to their respective areas of responsibility.
Compliance implements various practices designed to identify and mitigate compliance risk by establishing policies, testing, monitoring, training and providing guidance.
Governance and oversight
Compliance is led by the Firms’ CCO who reports to the Firm’s CRO.
The Firm maintains oversight and coordination of its Compliance Risk Management practices through the Firm’s CCO, lines of business CCOs and regional CCOs to implement the Compliance program globally across the lines of business and regions. The Firm’s CCO is a member of the FCC and the FRC. The Firm’s CCO also provides regular updates to the Audit Committee and DRPC. In addition, certain Special Purpose Committees of the Board have been established to oversee the Firm’s compliance with regulatory Consent Orders.
The Firm has a Code of Conduct (the “Code”). Each employee is given annual training on the Code and is required annually to affirm his or her compliance with the Code. All new hires must complete Code training shortly after their start date with the Firm. The Code sets forth the Firm’s expectation that employees will conduct themselves with integrity at all times and provides the principles that govern employee conduct with clients, customers, shareholders and one another, as well as with the markets and communities in which the Firm does business. The Code requires employees to promptly report any known or suspected violation of the Code, any internal Firm policy, or any law or regulation applicable to the Firm’s business. It also requires employees to report any illegal conduct, or conduct that violates the underlying principles of the Code, by any of the Firm’s employees, customers, suppliers, contract workers, business partners, or agents. The Code prohibits retaliation against anyone who raises an issue or concern in good faith. Specified compliance officers are specially trained and designated as “code specialists” who act as a resource to employees on questions related to the Code. Employees can report any known or suspected violations of the Code through the Code Reporting Hotline by phone or the internet. The Hotline is anonymous, except in certain non-U.S. jurisdictions where laws prohibit anonymous reporting, and is available 24/7 globally, with translation services. It is maintained by an outside service provider. Annually, the Chief Compliance Office and Human Resources report to the Audit Committee on the Code of Conduct program and provide an update on the employee completion rate for Code of Conduct training and affirmation.
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| JPMorgan Chase & Co./2017 Annual Report | | 134 |
Conduct risk, a subcategory of operational risk, is the risk that any action or inaction by an employee of the Firm could lead to unfair client/customer outcomes, compromise the Firm’s reputation, impact the integrity of the markets in which the Firm operates, or reflect poorly on the Firm’s culture.
Overview
Each line of business or function is accountable for identifying and managing its conduct risk to provide appropriate engagement, ownership and sustainability of a culture consistent with the Firm’s How We Do Business Principles (“Principles”). The Principles serve as a guide for how employees are expected to conduct themselves. With the Principles serving as a guide, the Firm’s Code sets out the Firm’s expectations for each employee and provides information and resources to help employees conduct business ethically and in compliance with the law everywhere the Firm operates. For further discussion of the Code, see Compliance Risk Management on page 134.
Governance and oversight
The CMDC is the Board-level Committee with primary oversight of the firm’s Culture and Conduct Program. The Audit Committee is responsible for reviewing the program established by management to monitor compliance with the Code. Additionally, the DRPC reviews, at least annually, the Firm’s qualitative factors included in the Risk Appetite Framework, including conduct risk. The DRPC also meets annually with the CMDC to review and discuss aspects of the
Firm’s compensation practices. Finally, the Culture & Conduct Risk Committee provides oversight of certain culture and conduct risk initiatives at the Firm.
Conduct risk management is incorporated into various aspects of people management practices throughout the employee life cycle, including recruiting, onboarding, training and development, performance management, promotion and compensation processes. Businesses undertake annual RCSA assessments, and, as part of these reviews, identify their respective key inherent operational risks (including conduct risks), evaluate the design and effectiveness of their controls, identify control gaps and develop associated action plans. Each LOB and designated corporate function completes an assessment of conduct risk quarterly, reviews metrics and issues which may involve conduct risk, and provides business conduct training as appropriate.
The Firm’s Know Your Employee framework generally addresses how the Firm manages, oversees and responds to workforce conduct related matters that may otherwise expose the Firm to financial, reputational, compliance and other operating risks. The Firm also has a HR Control Forum, the primary purpose of which is to discuss conduct and accountability for more significant risk and control issues and review, when appropriate, employee actions including but not limited to promotion and compensation actions.
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| JPMorgan Chase & Co./2017 Annual Report | | 135 |
Management’s discussion and analysis
Legal risk, a subcategory of operational risk, is the risk of loss primarily caused by the actual or alleged failure to meet legal obligations that arise from the rule of law in jurisdictions in which the Firm operates, agreements with clients and customers, and products and services offered by the Firm.
Overview
The global Legal function (“Legal”) provides legal services and advice to the Firm. Legal is responsible for managing the Firm’s exposure to Legal risk by:
managing actual and potential litigation and enforcement matters, including internal reviews and investigations related to such matters
advising on products and services, including contract negotiation and documentation
advising on offering and marketing documents and new business initiatives
managing dispute resolution
interpreting existing laws, rules and regulations, and advising on changes thereto
advising on advocacy in connection with contemplated and proposed laws, rules and regulations, and
providing legal advice to the LOBs and corporate functions, in alignment with the lines of defense described under Enterprise-wide Risk Management.
Legal selects, engages and manages outside counsel for the Firm on all matters in which outside counsel is engaged. In addition, Legal advises the Firm’s Conflicts Office which reviews the Firm’s wholesale transactions that may have the potential to create conflicts of interest for the Firm.
Governance and oversight
The Firm’s General Counsel reports to the CEO and is a member of the Operating Committee, the Firmwide Risk Committee and the Firmwide Control Committee. The General Counsel’s leadership team includes a General Counsel for each line of business, the heads of the Litigation and Corporate & Regulatory practices, as well as the Firm’s Corporate Secretary. Each region (e.g., Latin America, Asia Pacific) has a General Counsel who is responsible for managing legal risk across all lines of business and functions in the region.
The Firm’s General Counsel and other members of Legal report on significant legal matters at each meeting of the Firm’s Board of Directors, at least quarterly to the Audit Committee, and periodically to the DRPC.
Legal serves on and advises various committees (including new business initiative and reputation risk committees) and advises the Firm’s businesses to protect the Firm’s reputation beyond any particular legal requirements.
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| 136 | | JPMorgan Chase & Co./2017 Annual Report |
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| ESTIMATIONS AND MODEL RISK MANAGEMENT |
Estimations and Model risk, a subcategory of operational risk, is the potential for adverse consequences from decisions based on incorrect or misused estimation outputs.
The Firm uses models and other analytical and judgment-based estimations across various businesses and functions. The estimation methods are of varying levels of sophistication and are used for many purposes, such as the valuation of positions and measurement of risk, assessing regulatory capital requirements, conducting stress testing, and making business decisions. A dedicated independent function, Model Risk Governance and Review (“MRGR”), defines and governs the Firm’s model risk management policies and certain analytical and judgment-based estimations, such as those used in risk management, budget forecasting and capital planning and analysis. MRGR reports to the Firm’s CRO.
Model risks are owned by the users of the models within the various businesses and functions in the Firm based on the specific purposes of such models. Users and developers of models are responsible for developing, implementing and testing their models, as well as referring models to the Model Risk function for review and approval. Once models have been approved, model users and developers are responsible for maintaining a robust operating environment, and must monitor and evaluate the performance of the models on an ongoing basis. Model users and developers may seek to enhance models in response to changes in the portfolios and in product and market developments, as well as to capture improvements in available modeling techniques and systems capabilities.
Models are tiered based on an internal standard according to their complexity, the exposure associated with the model and the Firm’s reliance on the model. This tiering is subject to the approval of the Model Risk function. A model review conducted by the Model Risk function considers the model’s suitability for the specific uses to which it will be put. The factors considered in reviewing a model include whether the model accurately reflects the characteristics of the product and its significant risks, the selection and reliability of model inputs, consistency with models for similar products, the appropriateness of any model-related adjustments, and sensitivity to input parameters and assumptions that cannot be observed from the market. When reviewing a model, the Model Risk function analyzes and challenges the model methodology and the reasonableness of model assumptions and may perform or require additional testing, including back-testing of model outcomes. Model reviews are approved by the appropriate level of management within the Model Risk function based on the relevant model tier.
Under the Firm’s Estimations and Model Risk Management Policy, the Model Risk function reviews and approves new models, as well as material changes to existing models, prior to implementation in the operating environment. In certain circumstances, the head of the Model Risk function may grant exceptions to the Firm’s policy to allow a model to be used prior to review or approval. The Model Risk function may also require the user to take appropriate actions to mitigate the model risk if it is to be used in the interim. These actions will depend on the model and may include, for example, limitation of trading activity.
The governance of analytical and judgment-based estimations, such as those used in risk management, budget forecasting, and capital planning and analysis, within MRGR’s scope, follows a consistent approach to the governance of models.
For a summary of valuations based on valuation models and other valuation techniques, see Critical Accounting Estimates Used by the Firm on pages 138–140 and Note 2.
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| JPMorgan Chase & Co./2017 Annual Report | | 137 |
Management’s discussion and analysis
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| CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM |
JPMorgan Chase’sChase’s accounting policies and use of estimates are integral to understanding its reported results. The Firm’s most complex accounting estimates require management’s judgment to ascertain the appropriate carrying value of assets and liabilities. The Firm has established policies and control procedures intended to ensure that estimation methods, including any judgments made as part of such methods, are well-controlled, independently reviewed and applied consistently from period to period. The methods used and judgments made reflect, among other factors, the nature of the assets or liabilities and the related business and risk management strategies, which may vary across the Firm’s businesses and portfolios. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The Firm believes its estimates for determining the carrying value of its assets and liabilities are appropriate. The following is a brief description of the Firm’s critical accounting estimates involving significant judgments.
Allowance for credit losses
JPMorgan Chase’sChase’s allowance for credit losses covers the retained consumer and wholesale loan portfolios, as well as the Firm’s consumerwholesale and wholesalecertain consumer lending-related commitments. The allowance for loan losses is intended to adjust the carrying value of the Firm’s loan assets to reflect probable credit losses inherent in the loan portfolio as of the balance sheet date. Similarly, the allowance for lending-related commitments is established to cover probable credit losses inherent in the lending-related commitments portfolio as of the balance sheet date.
The allowance for loancredit losses includes a formula-based component, an asset-specific component, a formula-based component, and a component related to PCI loans. The determination of each of these components involves significant judgment on a number of matters, as discussed below.matters. For further discussion of thethese components, areas of judgment and methodologies used in establishing the Firm’s allowance for credit losses, see Note 15.
Asset-specific component
The asset-specific allowance for loan losses for each of the Firm’s portfolio segments is generally measured as the difference between the recorded investment in the impaired loan and the present value of the cash flows expected to be collected, discounted at the loan’s original effective interest rate. Estimating the timing and amounts of future cash flows is highly judgmental as these cash flow projections rely upon estimates such as redefault rates, loss severities, the amounts and timing of prepayments and other factors that are reflective of current and expected future market conditions. These estimates are, in turn, dependent on factors such as the level of future home prices, the duration of current overall economic conditions, and other macroeconomic and portfolio-specific factors. All of these estimates and assumptions require significant management judgment and certain assumptions are highly subjective.
Formula-based component - Consumer loans and lending-related commitments, excluding PCI loans
The formula-based allowance for credit losses for the consumer portfolio, including credit card, is calculated by applying statistical credit loss factors to outstanding principal balances over an estimated loss emergence period to arrive at an estimate of incurred credit losses in the portfolio. The loss emergence period represents the time period between the date at which the loss is estimated to have been incurred and the ultimate realization of that loss (through a charge-off). Estimated loss emergence periods may vary by product and may change over time; management applies judgment in estimating loss emergence periods, using available credit information and trends. In addition, management applies judgment to the statistical loss estimates for each loan portfolio category, using delinquency trends and other risk characteristics to estimate the total incurred credit losses in the portfolio. Management uses additional statistical methods and considers portfolio and collateral valuation trends to review the appropriateness of the primary statistical loss estimate.
The statistical calculation is then adjusted to take into consideration model imprecision, external factors and current economic events that have occurred but that are not yet reflected in the factors used to derive the statistical calculation; these adjustments are accomplished in part by analyzing the historical loss experience for each major product segment. However, it is difficult to predict whether historical loss experience is indicative of future loss levels. Management applies judgment in making this adjustment, taking into account uncertainties associated with current macroeconomic and political conditions, quality of underwriting standards, borrower behavior, the potential impact of payment recasts within the HELOC portfolio, and other relevant internal and external factors affecting the credit quality of the portfolio. In certain instances, the interrelationships between these factors create further uncertainties. For example, the performance of a HELOC that experiences a payment recast may be affected by both the quality of underwriting standards applied in originating the loan and the general economic conditions in effect at the time of the payment recast. For junior lien products, management considers the delinquency and/or modification status of any senior liens in determining the adjustment. The application of different inputs into the statistical calculation, and the assumptions used by management to adjust the statistical calculation, are subject to management judgment, and emphasizing one input or assumption over another, or considering other inputs or assumptions, could affect the estimate of the allowance for loan losses for the consumer credit portfolio.
Overall, the allowance for credit losses for the consumer portfolio, including credit card, is sensitive to changes in the economic environment (e.g., unemployment rates), delinquency rates, the realizable value of collateral (e.g.,
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JPMorgan Chase & Co./2014 Annual Report | | 161 |
Management’s discussion and analysis
housing prices), FICO scores, borrower behavior and other risk factors. While all of these factors are important determinants of overall allowance levels, changes in the various factors may not occur at the same time or at the same rate, or changes may be directionally inconsistent such that improvement in one factor may offset deterioration in the other. In addition, changes in these factors would not necessarily be consistent across all geographies or product types. Finally, it is difficult to predict the extent to which changes in these factors would ultimately affect the frequency of losses, the severity of losses or both.
PCI loans
In connection with the Washington Mutual transaction, JPMorgan Chase acquired certain PCI loans, which are accounted for as described in Note 14. The allowance for loan losses for the PCI portfolio is based on quarterly estimates of the amount of principal and interest cash flows expected to be collected over the estimated remaining lives of the loans.
These cash flow projections are based on estimates regarding default rates (including redefault rates on modified loans), loss severities, the amounts and timing of prepayments and other factors that are reflective of current and expected future market conditions. These estimates are dependent on assumptions regarding the level of future home price declines, and the duration of current overall economic conditions, among other factors. These estimates and assumptions require significant management judgment and certain assumptions are highly subjective.
Formula-based component - Wholesale loans and lending-related commitments
The Firm’s methodology for determining the allowance for loan losses and the allowance for lending-related commitments requires the early identification of credits that are deteriorating. The formula-based component of the allowance calculation for wholesale loans and lending-related components is the product of an estimated PD and estimated LGD. These factors are determined based on the credit quality and specific attributes of the Firm’s loans and lending-related commitments to each obligor.
The Firm uses a risk rating system to determine the credit quality of its wholesale loans and lending-related commitments. In assessing the risk rating of a particular loan or lending-related commitment, among the factors considered are the obligor’s debt capacity and financial flexibility, the level of the obligor’s earnings, the amount and sources for repayment, the level and nature of contingencies, management strength, and the industry and geography in which the obligor operates. These factors are based on an evaluation of historical and current information and involve subjective assessment and interpretation. Emphasizing one factor over another or considering additional factors could affect the risk rating assigned by the Firm to that loan.
PD estimates are based on observable external through-the-cycle data, using credit rating agency default statistics. A LGD estimate is assigned to each loan or lending-related commitment. The estimate represents the amount of economic loss if the obligor were to default. The type of obligor, quality of collateral, and the seniority of the Firm’s loans in the obligor’s capital structure affect LGD. LGD estimates are based on the Firm’s history of actual credit losses over more than one credit cycle. Changes to the time period used for PD and LGD estimates (for example, point-in-time loss versus longer views of the credit cycle) could also affect the allowance for credit losses.
The Firm applies judgment in estimating PD and LGD used in calculating the allowances. Wherever possible, the Firm uses independent, verifiable data or the Firm’s own historical loss experience in its models for estimating the allowances, but differences in loan characteristics between the Firm’s specific loan portfolio and those reflected in external and Firm-specific historical data could affect loss estimates. Estimates of PD and LGD are subject to periodic refinement based on any changes to underlying external and Firm-specific historical data. The use of different inputs would change the amount of the allowance for credit losses determined appropriate by the Firm.
Management also applies its judgment to adjust the modeled loss estimates, taking into consideration model imprecision, external factors and economic events that have occurred but are not yet reflected in the loss factors. Historical experience of both LGD and PD are considered when estimating these adjustments. Factors related to concentrated and deteriorating industries also are incorporated where relevant. These estimates are based on management’s view of uncertainties that relate to current macroeconomic and political conditions, quality of underwriting standards and other relevant internal and external factors affecting the credit quality of the current portfolio.13.
Allowance for credit losses sensitivity
As noted above, theThe Firm’s allowance for credit losses is sensitive to numerous factors, which may differ depending on the portfolio. Changes in economic conditions or in the Firm’s assumptions and estimates could affect its estimate of probable credit losses inherent in the portfolio at the balance sheet date. For example,The Firm uses its best judgment to assess these economic conditions and loss data in estimating the allowance for credit losses and these estimates are subject to periodic refinement based on changes to underlying external or Firm-specific historical data. The use of alternate estimates, data sources, adjustments to modeled loss estimates for model imprecision and other factors would result in a different estimated allowance for credit losses, as well as impact any related sensitivities described below. During the second quarter of 2017, the Firm refined its loss estimates relating to the wholesale credit portfolio. See Note 13 for further discussion.
To illustrate the potential magnitude of certain alternate judgments, the Firm estimates that changes in the following inputs below would have the following effects on the Firm’s modeled credit loss estimates as of December 31, 2014,2017, without consideration of any offsetting or correlated effects of other inputs in the Firm’s allowance for loan losses:
For PCI loans, aA combined 5% decline in housing prices and a 1%100 basis point increase in unemployment rates from current levels could imply imply:
| |
| ◦ | an increase to modeled credit loss estimates of approximately $525 million for PCI loans. |
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| ◦ | an increase to modeled annual credit loss estimates of approximately $100 million for residential real estate, excluding PCI loans. |
For credit loss estimates of approximately $1.2 billion.
For the residential real estate portfolio, excluding PCIcard loans, a combined 5% decline in housing prices and a 1%100 basis point increase in unemployment rates from current levels could
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162 | | JPMorgan Chase & Co./2014 Annual Report |
imply an increase to modeled annual loss estimates of approximately $100 million.$1.0 billion.
A 50 basis point deteriorationAn increase in forecasted credit card loss rates could imply an increase to modeled annualized credit card loan loss estimates of approximately $600 million.
APD factors consistent with a one-notch downgrade in the Firm’s internal risk ratings for its entire wholesale loan portfolio could imply an increase in the Firm’s modeled credit loss estimates of approximately $1.8$1.4 billion.
A 100 basis point increase in estimated loss given default (“LGD”) for the Firm’s entire wholesale loan portfolio could imply an increase in the Firm’s modeled credit loss estimates of approximately $140$175 million.
The purpose of these sensitivity analyses is to provide an indication of the isolated impacts of hypothetical alternative assumptions on modeled loss estimates. The changes in the inputs presented above are not intended to imply management’s expectation of future deterioration of those risk factors. In addition, these analyses are not intended to estimate changes in the overall allowance for loan losses, which would also be influenced by the judgment management applies to the modeled loss estimates to reflect the uncertainty and imprecision of these modeled loss estimates based on then currentthen-current circumstances and conditions.
It is difficult to estimate how potential changes in specific factors might affect the overall allowance for credit losses because management considers a variety of factors and inputs in estimating the allowance for credit losses. Changes in these factors and inputs may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors may be directionally inconsistent, such that improvement in one factor may offset deterioration in other factors. In addition, it is difficult to predict how changes in specific economic conditions or assumptions could affect borrower behavior or other factors considered by management in estimating the allowance for credit losses. Given the process the Firm follows and the judgments made in evaluating the risk factors related to its loans and credit card loss estimates, management believes that its current estimate of the allowance for credit losslosses is appropriate.
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| 138 | | JPMorgan Chase & Co./2017 Annual Report |
Fair value of financial instruments, MSRs and commodities inventory
JPMorgan Chase carries a portion of its assets and liabilities at fair value. The majority of such assets and liabilities are measured at fair value on a recurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis, including certain mortgage, home equity and other loans, where the carrying value is based on the fair value of the underlying collateral.
Assets measured at fair value
The following table includes the Firm’s assets measured at fair value and the portion of such assets that are classified within level 3 of the valuation hierarchy. For further information, see Note 3.2.
| | December 31, 2014 (in billions, except ratio data) | Total assets at fair value | Total level 3 assets | |
December 31, 2017 (in billions, except ratio data) | | Total assets at fair value | Total level 3 assets |
| Trading debt and equity instruments | $ | 320.0 |
| | $ | 22.5 |
| | $ | 325.3 |
| | $ | 5.4 |
|
Derivative receivables | 79.0 |
| | 12.6 |
| | 56.5 |
| | 6.0 |
|
| Trading assets | 399.0 |
| | 35.1 |
| | 381.8 |
| | 11.4 |
|
| AFS securities | 298.8 |
| | 1.0 |
| | 202.2 |
| | 0.3 |
|
| Loans | 2.6 |
| | 2.5 |
| | 2.5 |
| | 0.3 |
|
| MSRs | 7.4 |
| | 7.4 |
| | 6.0 |
| | 6.0 |
|
Private equity investments(a) | 5.7 |
| | 2.5 |
| | |
| Other | 36.2 |
| | 2.4 |
| | 33.2 |
| | 1.2 |
|
Total assets measured at fair value on a recurring basis | 749.7 |
| | 50.9 |
| | 625.7 |
| | 19.2 |
|
| Total assets measured at fair value on a nonrecurring basis | 4.5 |
| | 3.2 |
| | 1.3 |
| | 0.8 |
|
Total assets measured at fair value | $ | 754.2 |
| | $ | 54.1 |
| | $ | 627.0 |
| | $ | 20.0 |
|
| Total Firm assets | $ | 2,573.1 |
| | | | $ | 2,533.6 |
| | |
| Level 3 assets as a percentage of total Firm assets | | | 2.1 | % | | |
| Level 3 assets as a percentage of total Firm assets at fair value | | | 7.2 | % | | |
Level 3 assets as a percentage of total Firm assets(a) | | | | 0.8 | % |
Level 3 assets as a percentage of total Firm assets at fair value(a) | | | | 3.2 | % |
| |
| (a) | Private equity instruments represent investments withinFor purposes of the Corporate linetable above, the derivative receivables total reflects the impact of business.netting adjustments; however, the $6.0 billion of derivative receivables classified as level 3 does not reflect the netting adjustment as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of an asset. The level 3 balances would be reduced if netting were applied, including the netting benefit associated with cash collateral. |
Valuation
Details of the Firm’s processes for determining fair value are set out in Note 3.2. Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available to the Firm. For instruments valued using internally developed valuation models and other valuation techniques that use significant unobservable inputs and are therefore classified within level 3 of the valuation hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.
In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate modelvaluation technique to use. Second, the lack of observability of certain significant inputs requires management to assess all relevant empirical data in deriving valuation inputs — including, for example, transaction details, yield curves, interest rates, prepayment rates, default rates, volatilities, correlations, equity or debt prices,
valuations of comparable instruments, foreign exchange rates and credit curves. For further discussion of the valuation of level 3 instruments, including unobservable inputs used, see
Note 3.2.
For instruments classified in levels 2 and 3, management judgment must be applied to assess the appropriate level of valuation adjustments to reflect counterparty credit quality, the Firm’s credit-worthiness,creditworthiness, market funding rates, liquidity considerations, unobservable parameters, and for portfolios that meet specified criteria, the size of the net open risk
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JPMorgan Chase & Co./2014 Annual Report | | 163 |
Management’s discussion and analysis
position. The judgments made are typically affected by the type of product and its specific contractual terms, and the level of liquidity for the product or within the market as a whole. For further discussion of valuation adjustments applied by the Firm see Note 3.2.
Imprecision in estimating unobservable market inputs or other factors can affect the amount of gain or loss recorded for a particular position. Furthermore, while the Firm believes its valuation methods are appropriate and consistent with those of other market participants, the methods and assumptions used reflect management judgment and may vary across the Firm’s businesses and portfolios.
The Firm uses various methodologies and assumptions in the determination of fair value. The use of methodologies or assumptions different than those used by the Firm could result in a different estimate of fair value at the reporting date. For a detailed discussion of the Firm’s valuation process and hierarchy, and its determination of fair value for individual financial instruments, see Note 3.2.
Goodwill impairment
Under U.S. GAAP, goodwill must be allocated to reporting units and tested for impairment at least annually. The Firm’s process and methodology used to conduct goodwill impairment testing is described in Note 17.15.
Management applies significant judgment when estimating the fair value of its reporting units. Estimates of fair value are dependent upon estimates of (a) the future earnings potential of the Firm’s reporting units, including the estimated effects of regulatory and legislative changes, such as the Dodd-Frank Act, (b) long-term growth rates and (c) the relevantestimated market cost of equity. Imprecision in estimating these factors can affect the estimated fair value of the reporting units.
During 2014, the Firm recognized an impairment of the Private Equity business’ goodwill totaling $276 million. Remaining goodwill of $101 million at December 31, 2014 associated with the Private Equity business was disposed of as part of the Private Equity sale completed in January 2015. For further information on the Private Equity sale, see Note 2.
Based upon the updated valuations for all of its reporting units, the Firm concluded that the goodwill allocated to its other reporting units was not impaired at December 31, 2014.2017. The fair values of these reporting units exceeded their carrying values. Except for the Firm’s mortgage banking business, the excess fair value as a percentage of carrying value ranged fromvalues by approximately 20-210% for the other reporting units15% or higher and did not indicate a significant risk of goodwill impairment based on current projections and valuations. The fair valueSuch valuations do not reflect the impact of the Firm’s Mortgage Banking business exceeded its carrying value by less than 5% and accordingly,TCJA that was enacted in December 2017 as such impact would not alter the associatedconclusion that goodwill of approximately $2 billion remains at an elevated risk for goodwill impairment.is not impaired.
The projections for all of the Firm’s reporting units are consistent with themanagement’s current short-term assumptions discussed in the Businessbusiness outlook on pages 66–67,assumptions, and in the longer term, incorporate a set of macroeconomic assumptions and the Firm’s best estimates of long-term growth and returns on equity of its
|
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| JPMorgan Chase & Co./2017 Annual Report | | 139 |
Management’s discussion and analysis
businesses. Where possible, the Firm uses third-party and peer data to benchmark its assumptions and estimates.
Deterioration in economic market conditions, increased estimates of the effects of recent regulatory or legislative changes, or additional regulatory or legislative changes may result in declines in projected business performance beyond management’s current expectations. For example, in the Firm’s Mortgage Banking business, such declines could result from increases in primary mortgage interest rates, lower mortgage origination volume, higher costs to resolve foreclosure-related matters or from deterioration in economic conditions, including decreases in home prices that result in increased credit losses. Declines in business performance, increases in equitycredit losses, increases in capital requirements, as well as deterioration in economic or market conditions, adverse estimates of regulatory or legislative changes or increases in the estimated market cost of equity, could cause the estimated fair values of the Firm’s reporting units or their associated goodwill to decline in the future, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill.
For additional information on goodwill, see Note 17.15.
Credit card rewards liability
JPMorgan Chase offers credit cards with various reward programs which allow cardholders to earn reward points based on their account activity and the terms and conditions of the rewards program. Generally, there are no limits on the points that an eligible cardholder can earn, nor do they expire, and these points can be redeemed for a variety of rewards, including cash (predominantly in the form of account credits), gift cards and travel.
The Firm maintains a rewards liability which represents the estimated cost of reward points earned and expected to be redeemed by cardholders. The rewards liability is sensitive to various assumptions, including cost per point and redemption rates for each of the various reward programs, which are evaluated periodically. The liability is accrued as the cardholder earns the benefit and is reduced when the cardholder redeems points. This liability was $4.9 billion and $3.8 billion at December 31, 2017 and 2016, respectively, and is recorded in accounts payable and other liabilities on the Consolidated balance sheets.
Income taxes
JPMorgan Chase is subject to the income tax laws of the various jurisdictions in which it operates, including U.S. federal, state and local, and non-U.S. jurisdictions. These laws are often complex and may be subject to different interpretations. To determine the financial statement impact of accounting for income taxes, including the provision for income tax expense and unrecognized tax benefits, JPMorgan Chase must make assumptions and judgments about how to interpret and apply these complex tax laws to numerous transactions and business events, as well as make judgments regarding the timing of when certain items may affect taxable income in the U.S. and non-U.S. tax jurisdictions.
JPMorgan Chase’s interpretations of tax laws around the world are subject to review and examination by the various taxing authorities in the jurisdictions where the Firm operates, and disputes may occur regarding its view on a tax position. These disputes over interpretations with the various taxing authorities may be settled by audit, administrative appeals or adjudication in the court systems of the tax jurisdictions in which the Firm operates. JPMorgan Chase regularly reviews whether it may be assessed additional income taxes as a result of the resolution of these matters, and the Firm records additional reserves as appropriate. In addition, the Firm may revise its estimate of income taxes due to changes in income tax
laws, legal interpretations, and tax planningbusiness strategies. It is possible that revisions in the Firm’s estimate of income
|
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164 | | JPMorgan Chase & Co./2014 Annual Report |
taxes may materially affect the Firm’s results of operations in any reporting period.
The Firm’s provision for income taxes is composed of current and deferred taxes. Deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes. Deferred tax assets are recognized if, in management’s judgment, their realizability is determined to be more likely than not. The Firm has also recognized deferred tax assets in connection with certain tax attributes, including NOLs. The Firm performs regular reviews to ascertain whether its deferred tax assets are realizable. These reviews include management’s estimates and assumptions regarding future taxable income, which also incorporates various tax planning strategies, including strategies that may be available to utilize NOLs before they expire. In connection with these reviews, if it is determined that a deferred tax asset is not realizable, a valuation allowance is established. The valuation allowance may be reversed in a subsequent reporting period if the Firm determines that, based on revised estimates of future taxable income or changes in tax planning strategies, it is more likely than not that all or part of the deferred tax asset will become realizable. As of December 31, 2014,2017, management has determined it is more likely than not that the Firm will realize its deferred tax assets, net of the existing valuation allowance.
JPMorgan Chase does not recordPrior to December 31, 2017, U.S. federal income taxes had not been provided on the undistributed earnings of certain non-U.S. subsidiaries, to the extent that such earnings havehad been reinvested abroad for an indefinite period of time. Changes toThe Firm will no longer maintain the income tax rates applicable to theseindefinite reinvestment assertion on the undistributed earnings of those non-U.S. subsidiaries may have a material impact onin light of the effective tax rateenactment of the TCJA. The U.S. federal and state and local income taxes associated with the undistributed and previously untaxed earnings of those non-U.S. subsidiaries was included in a future period if such changes were to occur.the deemed repatriation charge recorded as of December 31, 2017.
The Firm adjusts its unrecognized tax benefits as necessary when additional information becomes available. Uncertain tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the largest amount of benefit that management believes is more likely than not to be realized upon settlement. It is possible that the reassessment of JPMorgan Chase’s unrecognized tax benefits may have a material impact on its effective income tax rate in the period in which the reassessment occurs.
The income tax expense for the current year includes a reasonable estimate recorded under SEC Staff Accounting Bulletin No. 118 resulting from the enactment of the TCJA.
For additional information on income taxes, see Note 26.24.
Litigation reserves
For a description of the significant estimates and judgments associated with establishing litigation reserves, see
Note 31.29.
|
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| 140 | | JPMorgan Chase & Co./20142017 Annual Report | | 165 |
Management’s discussion and analysis
|
| | | | |
| ACCOUNTING AND REPORTING DEVELOPMENTS |
Amendments to the consolidation analysis
In February 2015, the Financial Accounting Standards Board (“FASB”) issued guidance regarding consolidation of legal entities such as limited partnerships, limited liability corporations, and securitization structures. The guidance eliminates the deferral issued by the FASB in February 2010 of the accounting guidance for VIEs for certain investment funds, including mutual funds, private equity funds and hedge funds. In addition, the guidance amends the evaluation of fees paid to a decision maker or a service provider, and exempts certain money market funds from consolidation. The guidance will be effective in the first quarter of 2016 with early adoption permitted. The Firm is currently evaluating the potential impact on the Consolidated Financial Statements.
Reclassification of residential real estate collateralized consumer mortgage loans upon foreclosure and classification of certain government-guaranteed mortgage loans upon foreclosure
In January 2014, the FASB issued guidance which clarified the timing of when a creditor is considered to have taken physical possession of residential real estate collateral for a consumer mortgage loan, resulting in the reclassification of the loan receivable to real estate owned. The final standard also requires disclosure of outstanding foreclosed residential real estate and the amount of the recorded investment in residential real estate mortgage loans in the process of foreclosure. In August 2014, the FASB issued separate guidance clarifying the classification and measurement of certain foreclosed government-guaranteed mortgage loans. Under the final standard, certain foreclosed government-insured mortgage loan amounts were reclassified on the balance sheet as a receivable from the guarantor at the guaranteed amount. The Firm early adopted both of these new standards in the third quarter of 2014 with a cumulative-effect adjustment as of January 1, 2014; the adoption of these standards (and related reclassification adjustment) had no material impact on the Firm’s Consolidated Financial Statements.
Measuring the financial assets and financial liabilities of a consolidated collateralized financing entity
In August 2014, the FASB issued guidance to address diversity in the accounting for differences in the measurement of the fair values of financial assets and liabilities of consolidated financing VIEs. The new guidance provides an alternative for consolidated financing VIEs to elect: (1) to measure their financial assets and liabilities separately under existing U.S. GAAP for fair value measurement with any differences in such fair values reflected in earnings; or (2) to measure both their financial assets and liabilities using the more observable of the fair value of the financial assets or the fair value of the financial liabilities. The guidance will become effective in the first quarter of 2016, with early adoption permitted. The
adoption of this guidance is not expected to have a material impact on the Firm’s Consolidated Financial Statements.
Repurchase agreements and similar transactions
In June 2014, the FASB issued guidance that amends the accounting for certain secured financing transactions, and requires enhanced disclosures with respect to transactions recognized as sales in which exposure to the derecognized asset is retained through a separate agreement with the counterparty. In addition, the guidance requires enhanced disclosures with respect to the types and quality of financial assets pledged in secured financing transactions. The guidance will become effective in the first quarter of 2015, except for the disclosures regarding the types and quality of financial assets pledged, which will become effective in the second quarter of 2015. The adoption of this guidance is not expected to have a material impact on the Firm’s Consolidated Financial Statements.
Revenue recognition – revenue from contracts with customers
In May 2014, the FASB issued revenue recognition guidance that is intended to create greater consistency with respect to how and when revenue from contracts with customers is shown in the statements of income. The guidance requires that revenue from contracts with customers be recognized upon delivery of a good or service based on the amount of consideration expected to be received, and requires additional disclosures about revenue. The guidance will be effective in the first quarter of 2017 and early adoption is prohibited. The Firm is currently evaluating the potential impact on the Consolidated Financial Statements.
Reporting discontinued operations and disclosures of disposals of components of an entity
In April 2014, the FASB issued guidance regarding the reporting of discontinued operations. The guidance changes the criteria for determining whether a disposition qualifies for discontinued operations presentation. It also requires enhanced disclosures about discontinued operations and significant dispositions that do not qualify to be presented as discontinued operations. The guidance will become effective in the first quarter of 2015. The adoption of this guidance is not expected to have a material impact on the Firm’s Consolidated Financial Statements.
|
| | | | |
166SEC Staff Accounting Bulletin adopted during 2017 |
| | JPMorgan Chase & Co./ | | |
| Bulletin | | Summary of guidance | | Effects on financial statements |
Application of U.S. GAAP related to the Tax Cuts and Jobs Act (“TCJA”) (SEC Staff Accounting Bulletin No. 118) Issued December 2017
| | • Provides guidance on the accounting for income taxes in the context of the TCJA. • For impacts of the tax law changes that are reasonably estimable, requires the recognition of provisional amounts in year-end 2017 financial statements. • Provides a 1-year measurement period in which to refine previously recorded provisional amounts based on new information or interpretations. | | • The TCJA resulted in a $2.4 billion decrease in net income driven by a deemed repatriation charge and adjustments to the value of the Firm’s tax oriented investments, partially offset by a benefit from the revaluation of the Firm’s net deferred tax liability. Certain of these amounts may be refined in accordance with SEC Staff Accounting Bulletin No. 118. • Refer to Note 24 for additional information related to the impacts of the TCJA.
|
| | | | |
| FASB Standards issued but not adopted as of December 31, 2017 |
| | | | |
| Standard | | Summary of guidance | | Effects on financial statements |
Revenue recognition – revenue from contracts with customers Issued May 2014 Annual Report
| | • Requires that revenue from contracts with customers be recognized upon transfer of control of a good or service in the amount of consideration expected to be received. • Changes the accounting for certain contract costs, including whether they may be offset against revenue in the Consolidated statements of income, and requires additional disclosures about revenue and contract costs. • May be adopted using a full retrospective approach or a modified, cumulative effect approach wherein the guidance is applied only to existing contracts as of the date of initial application, and to new contracts transacted after that date. | | • Adopted January 1, 2018. • The Firm adopted the revenue recognition guidance using the full retrospective method of adoption. • The adoption of the guidance did not result in any material changes in the timing of the Firm’s revenue recognition, but will require gross presentation of certain costs currently offset against revenue. This change in presentation will be reflected in the first quarter of 2018 and will increase both noninterest revenue and noninterest expense for the Firm by $1.1 billion and $900 million for the years ended December 31, 2017 and 2016, respectively. The increase is predominantly associated with certain distribution costs in AWM (currently offset against Asset management, administration and commissions), with the remainder of the increase associated with certain underwriting costs in CIB (currently offset against Investment banking fees). • The Firm’s Note 6 qualitative disclosures are consistent with the guidance.
|
Recognition and measurement of financial assets and financial liabilities Issued January 2016 | | • Requires that certain equity instruments be measured at fair value, with changes in fair value recognized in earnings. • Provides a measurement alternative for equity securities without readily determinable fair values to be measured at cost less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer. Any such price changes will be reflected in earnings beginning in the period of adoption. • Generally requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption, except for those equity securities that are eligible for the measurement alternative. | | • The Firm early adopted the provisions of this guidance related to presenting DVA in OCI for financial liabilities where the fair value option has been elected, effective January 1, 2016. The Firm adopted the portions of the guidance that were not eligible for early adoption on January 1, 2018. • Upon adoption, the Firm elected the measurement alternative for its equity securities that do not have readily determinable fair values, and the Firm did not record a cumulative-effect adjustment related to the adoption of this guidance.
|
Investments in qualified affordable housing projects
In January 2014, the FASB issued guidance regarding the accounting for investments in affordable housing projects that qualify for the low-income housing tax credit. The guidance replaces the effective yield method and allows companies to make an accounting policy election to amortize the initial cost of its investments in proportion to the tax credits and other benefits received if certain criteria are met, and to present the amortization as a component of income tax expense. The guidance will become effective in the first quarter of 2015 and is required to be applied retrospectively, such that the Firm’s results of operations for prior periods will be revised to reflect the guidance.
The Firm intends to adopt the guidance for all qualifying investments. The adoption of this guidance is estimated to reduce retained earnings by approximately $230 million. The Firm expects that reported other income and income tax expense will each increase as a result of presenting the amortization of the initial cost of its investments as component of income tax expense. The amount of this increase in each period depends on the size and characteristics of the Firm’s portfolio of affordable housing investments; the estimated increase for 2014 is approximately $900 million. The effect of this guidance on the Firm’s net income is not expected to be material.
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JPMorgan Chase & Co./20142017 Annual Report | | 167141 |
Management’s discussion and analysis
|
| | | | |
NONEXCHANGE-TRADED COMMODITY DERIVATIVE CONTRACTS AT FAIR VALUEFASB Standards issued but not adopted as of December 31, 2017 (continued) |
| | | | |
| Standard | | Summary of guidance | | Effects on financial statements |
Classification of certain cash receipts and cash payments in the statement of cash flows Issued August 2016
| | • Provides targeted amendments to the classification of certain cash flows, including treatment of cash payments for settlement of zero-coupon debt instruments and distributions received from equity method investments. • Requires retrospective application to all periods presented. | | • Adopted January 1, 2018. • No material impact upon adoption as the Firm was either in compliance with the amendments or the amounts to which it is applied are immaterial. |
Treatment of restricted cash on the statement of cash flows Issued November 2016 | | • Requires inclusion of restricted cash in the cash and cash equivalents balances in the Consolidated statements of cash flows. • Requires additional disclosures to supplement the Consolidated statements of cash flows. • Requires retrospective application to all periods presented. | | • Adopted January 1, 2018. • The adoption of the guidance will result in reclassification of restricted cash balances into Cash and restricted cash on the Consolidated statements of cash flows in the first quarter of 2018. The Firm will include Cash and due from banks and Deposits with banks in Cash and restricted cash in the Consolidated statements of cash flows, resulting in Deposits with banks no longer being reflected in Investing activities. • In addition, to align with the presentation of Cash and restricted cash on the Consolidated statements of cash flows, the Firm will reclassify restricted cash balances to Cash and due from banks and to Deposits with banks from Other assets and disclose the total for Cash and restricted cash on the Firm’s Consolidated balance sheets in the first quarter of 2018.
|
Definition of a business Issued January 2017 | | • Narrows the definition of a business and clarifies that, to be considered a business, the fair value of the gross assets acquired (or disposed of) may not be substantially all concentrated in a single identifiable asset or a group of similar assets. • In addition, in order to be considered a business, a set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. | | • Adopted January 1, 2018. • No impact upon adoption because the guidance is to be applied prospectively. Subsequent to adoption, fewer transactions will be treated as acquisitions or dispositions of a business. |
Presentation of net periodic pension cost and net periodic postretirement benefit cost Issued March 2017
| | • Requires the service cost component of net periodic pension and postretirement benefit cost to be reported separately in the consolidated results of operations from the other components (e.g., expected return on assets, interest costs, amortization of gains/losses and prior service costs). • Requires retrospective application and presentation in the consolidated results of operations of the service cost component in the same line item as other employee compensation costs and presentation of the other components in a different line item from the service cost component.
| | • Adopted January 1, 2018. • The adoption of the guidance in the first quarter of 2018 will result in an increase in compensation expense and a reduction in other expense of $223 million and $250 million for the years ended December 31, 2017 and 2016, respectively.
|
Premium amortization on purchased callable debt securities Issued March 2017
| | • Requires amortization of premiums to the earliest call date on debt securities with call features that are explicit, noncontingent and callable at fixed prices and on preset dates. • Does not impact securities held at a discount; the discount continues to be amortized to the contractual maturity. • Requires adoption on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.
| | • The Firm early adopted the new guidance on January 1, 2018. • The new guidance primarily impacts obligations of U.S. states and municipalities held in the Firm’s investment securities portfolio. • The adoption of this guidance resulted in a cumulative-effect adjustment that reduced retained earnings by approximately $505 million as of January 1, 2018, with a corresponding increase of $261 million (after tax) in AOCI and related adjustments to securities and tax liabilities. • Subsequent to adoption, although the guidance will reduce the interest income recognized prior to the earliest call date for callable debt securities held at a premium, the effect of this guidance on the Firm’s net interest income is not expected to be material. |
In the normal course of business, JPMorgan Chase trades nonexchange-traded commodity derivative contracts. To determine the fair value of these contracts, the Firm uses various fair value estimation techniques, primarily based on internal models with significant observable market parameters. The Firm’s nonexchange-traded commodity derivative contracts are primarily energy-related.
The following table summarizes the changes in fair value for nonexchange-traded commodity derivative contracts for the year ended December 31, 2014.
|
| | | | | | | |
Year ended December 31, 2014 (in millions) | Asset position | | Liability position |
| Net fair value of contracts outstanding at January 1, 2014 | $ | 8,128 |
| | $ | 9,929 |
|
| Effect of legally enforceable master netting agreements | 15,082 |
| | 15,318 |
|
| Gross fair value of contracts outstanding at January 1, 2014 | 23,210 |
| | 25,247 |
|
| Contracts realized or otherwise settled | (14,451 | ) | | (15,557 | ) |
| Fair value of new contracts | 13,954 |
| | 15,664 |
|
| Changes in fair values attributable to changes in valuation techniques and assumptions | — |
| | — |
|
| Other changes in fair value | 1,440 |
| | 1,783 |
|
| Gross fair value of contracts outstanding at December 31, 2014 | 24,153 |
| | 27,137 |
|
| Effect of legally enforceable master netting agreements | (14,327 | ) | | (13,211 | ) |
| Net fair value of contracts outstanding at December 31, 2014 | $ | 9,826 |
| | $ | 13,926 |
|
The following table indicates the maturities of nonexchange-traded commodity derivative contracts at December 31, 2014.
|
| | | | | | | |
| December 31, 2014 (in millions) | Asset position | | Liability position |
| Maturity less than 1 year | $ | 15,635 |
| | $ | 16,376 |
|
| Maturity 1–3 years | 6,561 |
| | 8,459 |
|
| Maturity 4–5 years | 1,230 |
| | 1,790 |
|
| Maturity in excess of 5 years | 727 |
| | 512 |
|
| Gross fair value of contracts outstanding at December 31, 2014 | 24,153 |
| | 27,137 |
|
| Effect of legally enforceable master netting agreements | (14,327 | ) | | (13,211 | ) |
| Net fair value of contracts outstanding at December 31, 2014 | $ | 9,826 |
| | $ | 13,926 |
|
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168142 | | JPMorgan Chase & Co./20142017 Annual Report |
|
| | | | |
FASB Standards issued but not adopted as of December 31, 2017 (continued)
|
| | | | |
| Standard | | Summary of guidance | | Effects on financial statements |
Hedge accounting Issued August 2017 | | • Reduces earnings volatility by better aligning the accounting with the economics of the risk management activities. • Expands the ability for certain hedges of interest rate risk to qualify for hedge accounting. • Allows recognition of ineffectiveness in cash flow hedges and net investment hedges in OCI. • Allows a one-time election at adoption to transfer certain securities classified as held-to-maturity to available-for-sale. • Simplifies hedge documentation requirements.
| | • The Firm early adopted the new guidance on January 1, 2018. • The adoption of the guidance resulted in a cumulative-effect adjustment that increased retained earnings in the amount of $34 million, with related adjustments to debt carrying values and AOCI. • The Firm will also amend its qualitative and quantitative disclosures within its derivative instruments note to the Consolidated Financial Statements in the first quarter of 2018. • In accordance with the new guidance, the Firm elected to transfer certain securities from HTM to AFS. The amendments provide the Firm with additional hedge accounting alternatives for its AFS securities (including those transferred under the election) to be considered as the Firm manages it structural interest rate risk and regulatory capital. The Firm is currently evaluating those risk management alternatives and intends to manage the transferred securities in a manner consistent with its existing AFS securities. This transfer is a non-cash transaction at fair value. |
Reclassification of Certain Tax Effects from AOCI Issued February 2018
| | • Provides an election to reclassify from AOCI to retained earnings stranded tax effects due to the revaluation of deferred tax assets and liabilities as a result of changes in applicable tax rates under the TCJA.• Requires additional disclosures related to the Firm’s election to reclassify amounts from AOCI to retained earnings and the Firm’s policy for releasing income tax effects from AOCI. • The guidance may be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.
| | • The Firm early adopted the new guidance on January 1, 2018.• The adoption of the guidance resulted in a cumulative-effect adjustment that increased retained earnings in the amount of $288 million in the first quarter of 2018. This amount is an estimate that may be refined in accordance with SEC Staff Accounting Bulletin No. 118, and represents the removal of the stranded tax effects from AOCI, thereby allowing the tax effects within AOCI to reflect the new respective corporate income tax rates. • Refer to Note 24 for additional information related to the impacts of the TCJA.
|
Leases Issued February 2016 | | • Requires lessees to recognize all leases longer than twelve months on the Consolidated balance sheets as lease liabilities with corresponding right-of-use assets. • Requires lessees and lessors to classify most leases using principles similar to existing lease accounting, but eliminates the “bright line” classification tests. • Permits the Firm to generally account for its existing leases consistent with current guidance, except for the incremental balance sheet recognition. • Expands qualitative and quantitative disclosures regarding leasing arrangements. • May be adopted using a modified cumulative effect approach wherein the guidance is applied only to existing contracts as of the date of initial application, and to new contracts transacted after that date. | | • Required effective date: January 1, 2019.(a) • The Firm is in the process of its implementation which has included an initial evaluation of its leasing contracts and activities. As a lessee, the Firm is developing its methodology to estimate the right-of-use assets and lease liabilities, which is based on the present value of lease payments. The Firm expects to recognize lease liabilities and corresponding right-of-use assets (at their present value) related to predominantly all of the $10 billion of future minimum payments required under operating leases as disclosed in Note 28. However, the population of contracts subject to balance sheet recognition and their initial measurement remains under evaluation. The Firm does not expect material changes to the recognition of operating lease expense in its Consolidated statements of income. • The Firm plans to adopt the new guidance in the first quarter of 2019.
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| | |
| JPMorgan Chase & Co./2017 Annual Report | | 143 |
Management’s discussion and analysis
|
| | | | |
FASB Standards issued but not adopted as of December 31, 2017 (continued)
|
| | | | |
| Standard | | Summary of guidance | | Effects on financial statements |
Financial instruments – credit losses Issued June 2016 | | • Replaces existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost (including HTM securities), which will reflect management’s estimate of credit losses over the full remaining expected life of the financial assets. • Eliminates existing guidance for PCI loans, and requires recognition of an allowance for expected credit losses on financial assets purchased with more than insignificant credit deterioration since origination. • Amends existing impairment guidance for AFS securities to incorporate an allowance, which will allow for reversals of impairment losses in the event that the credit of an issuer improves. • Requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. | | • Required effective date: January 1, 2020.(a) • The Firm has begun its implementation efforts by establishing a Firmwide, cross-discipline governance structure. The Firm is currently identifying key interpretive issues, and is assessing existing credit loss forecasting models and processes against the new guidance to determine what modifications may be required. • The Firm expects that the new guidance will result in an increase in its allowance for credit losses due to several factors, including: 1. The allowance related to the Firm’s loans and commitments will increase to cover credit losses over the full remaining expected life of the portfolio, and will consider expected future changes in macroeconomic conditions2. The nonaccretable difference on PCI loans will be recognized as an allowance, offset by an increase in the carrying value of the related loans3. An allowance will be established for estimated credit losses on HTM securities • The extent of the increase is under evaluation, but will depend upon the nature and characteristics of the Firm’s portfolio at the adoption date, and the macroeconomic conditions and forecasts at that date. |
Goodwill Issued January 2017 | | • Requires an impairment loss to be recognized when the estimated fair value of a reporting unit falls below its carrying value. • Eliminates the second condition in the current guidance that requires an impairment loss to be recognized only if the estimated implied fair value of the goodwill is below its carrying value. | | • Required effective date: January 1, 2020.(a) • Based on current impairment test results, the Firm does not expect a material effect on the Consolidated Financial Statements. • After adoption, the guidance may result in more frequent goodwill impairment losses due to the removal of the second condition. • The Firm is evaluating the timing of adoption. |
| |
| (a) | Early adoption is permitted. |
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| | |
| 144 | | JPMorgan Chase & Co./2017 Annual Report |
|
| | | | |
| FORWARD-LOOKING STATEMENTS |
From time to time, the Firm has made and will make forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “anticipate,” “target,” “expect,” “estimate,” “intend,” “plan,” “goal,” “believe,” or other words of similar meaning. Forward-looking statements provide JPMorgan Chase’s current expectations or forecasts of future events, circumstances, results or aspirations. JPMorgan Chase’s disclosures in this Annual Report contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Firm also may make forward-looking statements in its other documents filed or furnished with the Securities and Exchange Commission.SEC. In addition, the Firm’s senior management may make forward-looking statements orally to investors, analysts, representatives of the media and others.
All forward-looking statements are, by their nature, subject to risks and uncertainties, many of which are beyond the Firm’s control. JPMorgan Chase’s actual future results may differ materially from those set forth in its forward-looking statements. While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ from those in the forward-looking statements:
Local, regional and internationalglobal business, economic and political conditions and geopolitical events;
Changes in laws and regulatory requirements, including capital and liquidity requirements affecting the Firm’s businesses, and the ability of the Firm to address those requirements;
Heightened regulatory and governmental oversight and scrutiny of JPMorgan Chase’s business practices, including dealings with retail customers;
Changes in trade, monetary and fiscal policies and laws;
Changes in income tax laws and regulations;
Securities and capital markets behavior, including changes in market liquidity and volatility;
Changes in investor sentiment or consumer spending or savings behavior;
Ability of the Firm to manage effectively its capital and liquidity, including approval of its capital plans by banking regulators;
Changes in credit ratings assigned to the Firm or its subsidiaries;
Damage to the Firm’s reputation;
Ability of the Firm to deal effectively with an economic slowdown or other economic or market disruption;
Technology changes instituted by the Firm, its counterparties or competitors;
The success of the Firm’s business simplification initiatives and the effectiveness of its control agenda;
Ability of the Firm to develop new products and services, and the extent to which products or services previously sold by the Firm (including but not limited to mortgages and asset-backed securities) require the Firm to incur liabilities or absorb losses not contemplated at their initiation or origination;
Ability of the Firm to address enhanced regulatory requirements affecting its consumer businesses;
Acceptance of the Firm’s new and existing products and services by the marketplace and the ability of the Firm to innovate and to increase market share;
Ability of the Firm to attract and retain qualified employees;
Ability of the Firm to control expense;expenses;
Competitive pressures;
Changes in the credit quality of the Firm’s customers and counterparties;
Adequacy of the Firm’s risk management framework, disclosure controls and procedures and internal control over financial reporting;
Adverse judicial or regulatory proceedings;
Changes in applicable accounting policies;policies, including the introduction of new accounting standards;
Ability of the Firm to determine accurate values of certain assets and liabilities;
Occurrence of natural or man-made disasters or calamities or conflicts;conflicts and the Firm’s ability to deal effectively with disruptions caused by the foregoing;
Ability of the Firm to maintain the security of its financial, accounting, technology, data processing and other operatingoperational systems and facilities;
Ability of the Firm to withstand disruptions that may be caused by any failure of its operational systems or those of third parties;
Ability of the Firm to effectively defend itself against cyberattacks and other attempts by unauthorized parties to access information of the Firm or its customers or to disrupt the Firm’s systems; and
The other risks and uncertainties detailed in Part I, Item 1A: Risk Factors in the Firm’s Annual Report on Form 10-K for the year ended December 31, 2014.
2017.Any forward-looking statements made by or on behalf of the Firm speak only as of the date they are made, and JPMorgan Chase does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made.statements. The reader should, however, consult any further disclosures of a forward-looking nature the Firm may make in any subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, or Current Reports on Form 8-K.
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JPMorgan Chase & Co./20142017 Annual Report | | 169145 |
Management’s report on internal control over financial reporting
Management of JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Firm’s principal executive and principal financial officers, or persons performing similar functions, and effected by JPMorgan Chase’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
JPMorgan Chase’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Firm’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Firm are being made only in accordance with authorizations of JPMorgan Chase’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Firm’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has completed an assessment of the effectiveness of the Firm’s internal control over financial reporting as of December 31, 2014.2017. In making the assessment, management used the framework in “Internal Control -— Integrated Framework (2013)”Framework” (“COSO 2013”) promulgated by the Committee of Sponsoring Organizations of the Treadway Commission commonly referred to as the “COSO” criteria.(“COSO”).
Based upon the assessment performed, management concluded that as of December 31, 2014,2017, JPMorgan Chase’s internal control over financial reporting was effective based upon the COSO 2013 criteria.framework. Additionally, based upon management’s assessment, the Firm determined that there were no material weaknesses in its internal control over financial reporting as of December 31, 2014.2017.
The effectiveness of the Firm’s internal control over financial reporting as of December 31, 2014,2017, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
James Dimon
Chairman and Chief Executive Officer
Marianne Lake
Executive Vice President and Chief Financial Officer
February 24, 201527, 2018
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| | |
170146 | | JPMorgan Chase & Co./20142017 Annual Report |
Report of independent registered public accounting firm
To the Board of Directors and Stockholders of JPMorgan Chase & Co.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
In our opinion,We have audited the accompanying consolidated balance sheets of JPMorgan Chase & Co. and its subsidiaries (the “Firm”) as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Firm’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of JPMorgan Chase & Co. and its subsidiaries (the “Firm”)the Firm as of at December 31, 20142017 and 20132016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20142017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Firm maintained, in all material respects, effective internal control over financial reporting as of December 31, 20142017, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO.
Basis for Opinions
The Firm’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’sManagement’s report on internal control over financial reporting”.reporting. Our responsibility is to express opinions on thesethe Firm’s consolidated financial statements and on the Firm’s internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Firm in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
February 24, 2015
We have served as the Firm’s auditor since 1965.
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PricewaterhouseCoopers LLP Ÿ 300 Madison Avenue Ÿ New York, NY 10017 |
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| | |
JPMorgan Chase & Co./20142017 Annual Report | | 171147 |
Consolidated statements of income
| | | Year ended December 31, (in millions, except per share data) | | 2014 |
| | 2013 |
| | 2012 |
| 2017 |
| | 2016 |
| | 2015 |
|
| Revenue | | | | | | | | | | | |
| Investment banking fees | | $ | 6,542 |
| | $ | 6,354 |
| | $ | 5,808 |
| $ | 7,248 |
| | $ | 6,448 |
| | $ | 6,751 |
|
| Principal transactions | | 10,531 |
| | 10,141 |
| | 5,536 |
| 11,347 |
| | 11,566 |
| | 10,408 |
|
| Lending- and deposit-related fees | | 5,801 |
| | 5,945 |
| | 6,196 |
| 5,933 |
| | 5,774 |
| | 5,694 |
|
| Asset management, administration and commissions | | 15,931 |
| | 15,106 |
| | 13,868 |
| 15,377 |
| | 14,591 |
| | 15,509 |
|
Securities gains(a) | | 77 |
| | 667 |
| | 2,110 |
| |
| Securities gains/(losses) | | (66 | ) | | 141 |
| | 202 |
|
| Mortgage fees and related income | | 3,563 |
| | 5,205 |
| | 8,687 |
| 1,616 |
| | 2,491 |
| | 2,513 |
|
| Card income | | 6,020 |
| | 6,022 |
| | 5,658 |
| 4,433 |
| | 4,779 |
| | 5,924 |
|
| Other income | | 2,106 |
| | 3,847 |
| | 4,258 |
| 3,639 |
| | 3,795 |
| | 3,032 |
|
| Noninterest revenue | | 50,571 |
| | 53,287 |
| | 52,121 |
| 49,527 |
| | 49,585 |
| | 50,033 |
|
| Interest income | | 51,531 |
| | 52,669 |
| | 55,953 |
| 64,372 |
| | 55,901 |
| | 50,973 |
|
| Interest expense | | 7,897 |
| | 9,350 |
| | 11,043 |
| 14,275 |
| | 9,818 |
| | 7,463 |
|
| Net interest income | | 43,634 |
| | 43,319 |
| | 44,910 |
| 50,097 |
| | 46,083 |
| | 43,510 |
|
| Total net revenue | | 94,205 |
| | 96,606 |
| | 97,031 |
| 99,624 |
| | 95,668 |
| | 93,543 |
|
| | | | | | | | | | | | |
| Provision for credit losses | | 3,139 |
| | 225 |
| | 3,385 |
| 5,290 |
| | 5,361 |
| | 3,827 |
|
| | | | | | | | | | | | |
| Noninterest expense | | | | | | | | | | | |
| Compensation expense | | 30,160 |
| | 30,810 |
| | 30,585 |
| 31,009 |
| | 29,979 |
| | 29,750 |
|
| Occupancy expense | | 3,909 |
| | 3,693 |
| | 3,925 |
| 3,723 |
| | 3,638 |
| | 3,768 |
|
| Technology, communications and equipment expense | | 5,804 |
| | 5,425 |
| | 5,224 |
| 7,706 |
| | 6,846 |
| | 6,193 |
|
| Professional and outside services | | 7,705 |
| | 7,641 |
| | 7,429 |
| 6,840 |
| | 6,655 |
| | 7,002 |
|
| Marketing | | 2,550 |
| | 2,500 |
| | 2,577 |
| 2,900 |
| | 2,897 |
| | 2,708 |
|
| Other expense | | 11,146 |
| | 20,398 |
| | 14,989 |
| 6,256 |
| | 5,756 |
| | 9,593 |
|
| Total noninterest expense | | 61,274 |
| | 70,467 |
| | 64,729 |
| 58,434 |
| | 55,771 |
| | 59,014 |
|
| Income before income tax expense | | 29,792 |
| | 25,914 |
| | 28,917 |
| 35,900 |
| | 34,536 |
| | 30,702 |
|
| Income tax expense | | 8,030 |
| | 7,991 |
| | 7,633 |
| 11,459 |
| | 9,803 |
| | 6,260 |
|
| Net income | | $ | 21,762 |
| | $ | 17,923 |
| | $ | 21,284 |
| $ | 24,441 |
| | $ | 24,733 |
| | $ | 24,442 |
|
Net income applicable to common stockholders | | $ | 20,093 |
| | $ | 16,593 |
| | $ | 19,877 |
| $ | 22,567 |
| | $ | 22,834 |
| | $ | 22,651 |
|
| Net income per common share data | | | | | | | | | | | |
| Basic earnings per share | | $ | 5.34 |
| | $ | 4.39 |
| | $ | 5.22 |
| $ | 6.35 |
| | $ | 6.24 |
| | $ | 6.05 |
|
| Diluted earnings per share | | 5.29 |
| | 4.35 |
| | 5.20 |
| 6.31 |
| | 6.19 |
| | 6.00 |
|
| | | | | | | | | | | | |
Weighted-average basic shares | | 3,763.5 |
| | 3,782.4 |
| | 3,809.4 |
| 3,551.6 |
| | 3,658.8 |
| | 3,741.2 |
|
Weighted-average diluted shares | | 3,797.5 |
| | 3,814.9 |
| | 3,822.2 |
| 3,576.8 |
| | 3,690.0 |
| | 3,773.6 |
|
| Cash dividends declared per common share | | $ | 1.58 |
| | $ | 1.44 |
| | $ | 1.20 |
| $ | 2.12 |
| | $ | 1.88 |
| | $ | 1.72 |
|
| |
| (a) | The following other-than-temporary impairment losses are included in securities gains forprior period amounts have been revised to conform with the periods presented. current period presentation. The revision had no impact on the Firm’s reported earnings per share. |
|
| | | | | | | | | | | | |
| Year ended December 31, (in millions) | | 2014 |
| | 2013 |
| | 2012 |
|
| Debt securities the Firm does not intend to sell that have credit losses | | | | | | |
| Total other-than-temporary impairment losses | | $ | (2 | ) | | $ | (1 | ) | | $ | (113 | ) |
| Losses recorded in/(reclassified from) accumulated other comprehensive income | | — |
| | — |
| | 85 |
|
| Total credit losses recognized in income | | (2 | ) | | (1 | ) | | (28 | ) |
| Securities the Firm intends to sell | | (2 | ) | | (20 | ) | | (15 | ) |
| Total other-than-temporary impairment losses recognized in income | | $ | (4 | ) | | $ | (21 | ) | | $ | (43 | ) |
The Notes to Consolidated Financial Statements are an integral part of these statements.
|
| | |
172148 | | JPMorgan Chase & Co./20142017 Annual Report |
Consolidated statements of comprehensive income
| | | Year ended December 31, (in millions) | | 2014 |
| | 2013 |
| | 2012 |
| | 2017 |
| | 2016 |
| | 2015 |
|
| Net income | | $ | 21,762 |
| | $ | 17,923 |
| | $ | 21,284 |
| | $ | 24,441 |
| | $ | 24,733 |
| | $ | 24,442 |
|
| Other comprehensive income/(loss), after–tax | | | | | | | | | | | | |
| Unrealized gains/(losses) on investment securities | | 1,975 |
| | (4,070 | ) | | 3,303 |
| | 640 |
| | (1,105 | ) | | (2,144 | ) |
| Translation adjustments, net of hedges | | (11 | ) | | (41 | ) | | (69 | ) | | (306 | ) | | (2 | ) | | (15 | ) |
| Cash flow hedges | | 44 |
| | (259 | ) | | 69 |
| | 176 |
| | (56 | ) | | 51 |
|
| Defined benefit pension and OPEB plans | | (1,018 | ) | | 1,467 |
| | (145 | ) | | 738 |
| | (28 | ) | | 111 |
|
| DVA on fair value option elected liabilities | | | (192 | ) | | (330 | ) | | — |
|
| Total other comprehensive income/(loss), after–tax | | 990 |
| | (2,903 | ) | | 3,158 |
| | 1,056 |
| | (1,521 | ) | | (1,997 | ) |
| Comprehensive income | | $ | 22,752 |
| | $ | 15,020 |
| | $ | 24,442 |
| | $ | 25,497 |
| | $ | 23,212 |
| | $ | 22,445 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 173149 |
Consolidated balance sheets
|
| | | | | | | |
| December 31, (in millions, except share data) | 2014 | | 2013 |
| Assets | | | |
| Cash and due from banks | $ | 27,831 |
| | $ | 39,771 |
|
| Deposits with banks | 484,477 |
| | 316,051 |
|
Federal funds sold and securities purchased under resale agreements (included $28,585 and $25,135 at fair value) | 215,803 |
| | 248,116 |
|
Securities borrowed (included $992 and $3,739 at fair value) | 110,435 |
| | 111,465 |
|
Trading assets (included assets pledged of $125,034 and $116,499) | 398,988 |
| | 374,664 |
|
Securities (included $298,752 and $329,977 at fair value and assets pledged of $24,912 and $23,446) | 348,004 |
| | 354,003 |
|
Loans (included $2,611 and $2,011 at fair value) | 757,336 |
| | 738,418 |
|
| Allowance for loan losses | (14,185 | ) | | (16,264 | ) |
| Loans, net of allowance for loan losses | 743,151 |
| | 722,154 |
|
| Accrued interest and accounts receivable | 70,079 |
| | 65,160 |
|
| Premises and equipment | 15,133 |
| | 14,891 |
|
| Goodwill | 47,647 |
| | 48,081 |
|
| Mortgage servicing rights | 7,436 |
| | 9,614 |
|
| Other intangible assets | 1,192 |
| | 1,618 |
|
Other assets (included $12,366 and $15,187 at fair value and assets pledged of $1,396 and $2,066) | 102,950 |
| | 110,101 |
|
Total assets(a) | $ | 2,573,126 |
| | $ | 2,415,689 |
|
| Liabilities | | | |
Deposits (included $8,807 and $6,624 at fair value) | $ | 1,363,427 |
| | $ | 1,287,765 |
|
Federal funds purchased and securities loaned or sold under repurchase agreements (included $2,979 and $5,426 at fair value) | 192,101 |
| | 181,163 |
|
| Commercial paper | 66,344 |
| | 57,848 |
|
Other borrowed funds (included $14,739 and $13,306 at fair value) | 30,222 |
| | 27,994 |
|
| Trading liabilities | 152,815 |
| | 137,744 |
|
Accounts payable and other liabilities (included $36 and $25 at fair value) | 206,954 |
| | 194,491 |
|
Beneficial interests issued by consolidated variable interest entities (included $2,162 and $1,996 at fair value) | 52,362 |
| | 49,617 |
|
Long-term debt (included $30,226 and $28,878 at fair value) | 276,836 |
| | 267,889 |
|
Total liabilities(a) | 2,341,061 |
| | 2,204,511 |
|
| Commitments and contingencies (see Notes 29, 30 and 31) |
|
| |
|
|
| Stockholders’ equity | | | |
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,006,250 and 1,115,750 shares) | 20,063 |
| | 11,158 |
|
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares) | 4,105 |
| | 4,105 |
|
| Additional paid-in capital | 93,270 |
| | 93,828 |
|
| Retained earnings | 130,315 |
| | 115,756 |
|
| Accumulated other comprehensive income | 2,189 |
| | 1,199 |
|
Shares held in RSU trust, at cost (472,953 and 476,642 shares) | (21 | ) | | (21 | ) |
Treasury stock, at cost (390,144,630 and 348,825,583 shares) | (17,856 | ) | | (14,847 | ) |
| Total stockholders’ equity | 232,065 |
| | 211,178 |
|
| Total liabilities and stockholders’ equity | $ | 2,573,126 |
| | $ | 2,415,689 |
|
|
| | | | | | | |
| December 31, (in millions, except share data) | 2017 | | 2016 |
| Assets | | | |
| Cash and due from banks | $ | 25,827 |
| | $ | 23,873 |
|
| Deposits with banks | 404,294 |
| | 365,762 |
|
Federal funds sold and securities purchased under resale agreements (included $14,732 and $21,506 at fair value) | 198,422 |
| | 229,967 |
|
Securities borrowed (included $3,049 and $0 at fair value) | 105,112 |
| | 96,409 |
|
Trading assets (included assets pledged of $110,061 and $115,847) | 381,844 |
| | 372,130 |
|
Securities (included $202,225 and $238,891 at fair value and assets pledged of $17,969 and $16,115) | 249,958 |
| | 289,059 |
|
Loans (included $2,508 and $2,230 at fair value) | 930,697 |
| | 894,765 |
|
| Allowance for loan losses | (13,604 | ) | | (13,776 | ) |
| Loans, net of allowance for loan losses | 917,093 |
| | 880,989 |
|
| Accrued interest and accounts receivable | 67,729 |
| | 52,330 |
|
| Premises and equipment | 14,159 |
| | 14,131 |
|
Goodwill, MSRs and other intangible assets
| 54,392 |
| | 54,246 |
|
Other assets (included $16,128 and $7,557 at fair value and assets pledged of $1,526 and $1,603) | 114,770 |
| | 112,076 |
|
Total assets(a) | $ | 2,533,600 |
| | $ | 2,490,972 |
|
| Liabilities | | | |
Deposits (included $21,321 and $13,912 at fair value) | $ | 1,443,982 |
| | $ | 1,375,179 |
|
Federal funds purchased and securities loaned or sold under repurchase agreements (included $697 and $687 at fair value) | 158,916 |
| | 165,666 |
|
Short-term borrowings (included $9,191 and $9,105 at fair value) | 51,802 |
| | 34,443 |
|
| Trading liabilities | 123,663 |
| | 136,659 |
|
Accounts payable and other liabilities (included $9,208 and $9,120 at fair value) | 189,383 |
| | 190,543 |
|
Beneficial interests issued by consolidated VIEs (included $45 and $120 at fair value) | 26,081 |
| | 39,047 |
|
Long-term debt (included $47,519 and $37,686 at fair value) | 284,080 |
| | 295,245 |
|
Total liabilities(a) | 2,277,907 |
| | 2,236,782 |
|
| Commitments and contingencies (see Notes 27, 28 and 29) |
|
| |
|
|
| Stockholders’ equity | | | |
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,606,750 shares) | 26,068 |
| | 26,068 |
|
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares) | 4,105 |
| | 4,105 |
|
| Additional paid-in capital | 90,579 |
| | 91,627 |
|
| Retained earnings | 177,676 |
| | 162,440 |
|
| Accumulated other comprehensive income | (119 | ) | | (1,175 | ) |
Shares held in restricted stock units (“RSU”) trust, at cost (472,953 shares) | (21 | ) | | (21 | ) |
Treasury stock, at cost (679,635,064 and 543,744,003 shares) | (42,595 | ) | | (28,854 | ) |
| Total stockholders’ equity | 255,693 |
| | 254,190 |
|
| Total liabilities and stockholders’ equity | $ | 2,533,600 |
| | $ | 2,490,972 |
|
| |
| (a) | The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 20142017 and 20132016. The difference between total VIE assets and liabilities represents the Firm’s interests in those entities, which were eliminated in consolidation. |
| | | December 31, (in millions) | 2014 | | 2013 | 2017 | | 2016 |
| Assets | | | | | | |
| Trading assets | $ | 9,090 |
| | $ | 6,366 |
| $ | 1,449 |
| | $ | 3,185 |
|
| Loans | 68,880 |
| | 70,072 |
| 68,995 |
| | 75,614 |
|
| All other assets | 1,815 |
| | 2,168 |
| 2,674 |
| | 3,321 |
|
| Total assets | $ | 79,785 |
| | $ | 78,606 |
| $ | 73,118 |
| | $ | 82,120 |
|
| Liabilities | | | | | | |
| Beneficial interests issued by consolidated variable interest entities | $ | 52,362 |
| | $ | 49,617 |
| |
| Beneficial interests issued by consolidated VIEs | | $ | 26,081 |
| | $ | 39,047 |
|
| All other liabilities | 949 |
| | 1,061 |
| 349 |
| | 490 |
|
| Total liabilities | $ | 53,311 |
| | $ | 50,678 |
| $ | 26,430 |
| | $ | 39,537 |
|
The assets of the consolidated VIEs are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general credit of JPMorgan Chase. At December 31, 20142017 and 2013,2016, the Firm provided limited program-wide credit enhancement of $2.0$2.7 billion and $2.6$2.4 billion, respectively, related to its Firm-administered multi-seller conduits, which are eliminated in consolidation. For further discussion, see Note 16.14.
The Notes to Consolidated Financial Statements are an integral part of these statements.
|
| | |
174150 | | JPMorgan Chase & Co./20142017 Annual Report |
Consolidated statements of changes in stockholders’ equity
| | | Year ended December 31, (in millions, except per share data) | | 2014 | | 2013 | | 2012 | | 2017 |
| 2016 | | 2015 |
| Preferred stock | | | | | | | | | | | | |
| Balance at January 1 | | $ | 11,158 |
| | $ | 9,058 |
| | $ | 7,800 |
| | $ | 26,068 |
| | $ | 26,068 |
| | $ | 20,063 |
|
| Issuance of preferred stock | | 8,905 |
| | 3,900 |
| | 1,258 |
| |
| Redemption of preferred stock | | — |
| | (1,800 | ) | | — |
| |
| Issuance | | | 1,258 |
| | — |
| | 6,005 |
|
| Redemption | | | (1,258 | ) | | — |
| | — |
|
| Balance at December 31 | | 20,063 |
| | 11,158 |
| | 9,058 |
| | 26,068 |
| | 26,068 |
| | 26,068 |
|
| Common stock | | | | | | | | | | | | |
| Balance at January 1 and December 31 | | 4,105 |
| | 4,105 |
| | 4,105 |
| | 4,105 |
| | 4,105 |
| | 4,105 |
|
| Additional paid-in capital | | | | | | | | | | | | |
| Balance at January 1 | | 93,828 |
| | 94,604 |
| | 95,602 |
| | 91,627 |
| | 92,500 |
| | 93,270 |
|
| Shares issued and commitments to issue common stock for employee stock-based compensation awards, and related tax effects | | (508 | ) | | (752 | ) | | (736 | ) | |
| Shares issued and commitments to issue common stock for employee share-based compensation awards | | | (734 | ) | | (334 | ) | | (436 | ) |
| Other | | (50 | ) | | (24 | ) | | (262 | ) | | (314 | ) | | (539 | ) | | (334 | ) |
| Balance at December 31 | | 93,270 |
| | 93,828 |
| | 94,604 |
| | 90,579 |
| | 91,627 |
| | 92,500 |
|
| Retained earnings | | | | | | | | | | | | |
| Balance at January 1 | | 115,756 |
| | 104,223 |
| | 88,315 |
| | 162,440 |
| | 146,420 |
| | 129,977 |
|
| Cumulative effect of change in accounting principle | | | — |
| | (154 | ) | | — |
|
| Net income | | 21,762 |
| | 17,923 |
| | 21,284 |
| | 24,441 |
| | 24,733 |
| | 24,442 |
|
| Dividends declared: | | | | | | | | | | | | |
| Preferred stock | | (1,125 | ) | | (805 | ) | | (647 | ) | | (1,663 | ) | | (1,647 | ) | | (1,515 | ) |
Common stock ($1.58, $1.44 and $1.20 per share for 2014, 2013 and 2012, respectively) | | (6,078 | ) | | (5,585 | ) | | (4,729 | ) | |
Common stock ($2.12, $1.88 and $1.72 per share for 2017, 2016 and 2015, respectively) | | | (7,542 | ) | | (6,912 | ) | | (6,484 | ) |
| Balance at December 31 | | 130,315 |
| | 115,756 |
| | 104,223 |
| | 177,676 |
| | 162,440 |
| | 146,420 |
|
| Accumulated other comprehensive income/(loss) | | | | | | | |
| Accumulated other comprehensive income | | | | | | | |
| Balance at January 1 | | 1,199 |
| | 4,102 |
| | 944 |
| | (1,175 | ) | | 192 |
| | 2,189 |
|
| Cumulative effect of change in accounting principle | | | — |
| | 154 |
| | — |
|
| Other comprehensive income/(loss) | | 990 |
| | (2,903 | ) | | 3,158 |
| | 1,056 |
| | (1,521 | ) | | (1,997 | ) |
| Balance at December 31 | | 2,189 |
| | 1,199 |
| | 4,102 |
| | (119 | ) | | (1,175 | ) | | 192 |
|
| Shares held in RSU Trust, at cost | | | | | | | | | | | | |
| Balance at January 1 | | (21 | ) | | (21 | ) | | (38 | ) | |
| Reissuance from RSU Trust | | — |
| | — |
| | 17 |
| |
| Balance at December 31 | | (21 | ) | | (21 | ) | | (21 | ) | |
| Balance at January 1 and December 31 | | | (21 | ) | | (21 | ) | | (21 | ) |
| Treasury stock, at cost | | | | | | | | | | | | |
| Balance at January 1 | | (14,847 | ) | | (12,002 | ) | | (13,155 | ) | | (28,854 | ) | | (21,691 | ) | | (17,856 | ) |
| Purchase of treasury stock | | (4,760 | ) | | (4,789 | ) | | (1,415 | ) | |
| Reissuance from treasury stock | | 1,751 |
| | 1,944 |
| | 2,574 |
| |
| Share repurchases related to employee stock-based compensation awards | | — |
| | — |
| | (6 | ) | |
| Repurchase | | | (15,410 | ) | | (9,082 | ) | | (5,616 | ) |
| Reissuance | | | 1,669 |
| | 1,919 |
| | 1,781 |
|
| Balance at December 31 | | (17,856 | ) | | (14,847 | ) | | (12,002 | ) | | (42,595 | ) | | (28,854 | ) | | (21,691 | ) |
| Total stockholders’ equity | | $ | 232,065 |
| | $ | 211,178 |
| | $ | 204,069 |
| | $ | 255,693 |
| | $ | 254,190 |
| | $ | 247,573 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 175151 |
Consolidated statements of cash flows
| | | Year ended December 31, (in millions) | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 |
| Operating activities | | | | | | | | | | |
| Net income | $ | 21,762 |
| | $ | 17,923 |
| | $ | 21,284 |
| $ | 24,441 |
| | $ | 24,733 |
| | $ | 24,442 |
|
| Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | | | | | | | | | | |
| Provision for credit losses | 3,139 |
| | 225 |
| | 3,385 |
| 5,290 |
| | 5,361 |
| | 3,827 |
|
| Depreciation and amortization | 4,759 |
| | 5,306 |
| | 5,147 |
| 6,179 |
| | 5,478 |
| | 4,940 |
|
| Deferred tax expense | 4,210 |
| | 8,003 |
| | 1,130 |
| 2,312 |
| | 4,651 |
| | 1,333 |
|
| Investment securities gains | (77 | ) | | (667 | ) | | (2,110 | ) | |
| Stock-based compensation | 2,190 |
| | 2,219 |
| | 2,545 |
| |
| Other | | 2,136 |
| | 1,799 |
| | 1,785 |
|
| Originations and purchases of loans held-for-sale | (67,525 | ) | | (75,928 | ) | | (34,026 | ) | (94,628 | ) | | (61,107 | ) | | (48,109 | ) |
| Proceeds from sales, securitizations and paydowns of loans held-for-sale | 71,407 |
| | 73,566 |
| | 33,202 |
| 93,270 |
| | 60,196 |
| | 49,363 |
|
| Net change in: | | | | | | | | | | |
| Trading assets | (24,814 | ) | | 89,110 |
| | (5,379 | ) | 5,673 |
| | (20,007 | ) | | 62,212 |
|
| Securities borrowed | 1,020 |
| | 7,562 |
| | 23,455 |
| (8,653 | ) | | 2,313 |
| | 12,165 |
|
| Accrued interest and accounts receivable | (3,637 | ) | | (2,340 | ) | | 1,732 |
| (15,868 | ) | | (5,815 | ) | | 22,664 |
|
| Other assets | (9,166 | ) | | 526 |
| | (4,683 | ) | 4,318 |
| | (4,517 | ) | | (3,701 | ) |
| Trading liabilities | 26,818 |
| | (9,772 | ) | | (3,921 | ) | (26,256 | ) | | 5,198 |
| | (28,972 | ) |
| Accounts payable and other liabilities | 6,065 |
| | (5,743 | ) | | (13,069 | ) | (8,518 | ) | | 3,740 |
| | (23,361 | ) |
| Other operating adjustments | 442 |
| | (2,037 | ) | | (3,613 | ) | 7,803 |
| | (1,827 | ) | | (5,122 | ) |
| Net cash provided by operating activities | 36,593 |
| | 107,953 |
| | 25,079 |
| |
| Net cash provided by/(used in) operating activities | | (2,501 | ) | | 20,196 |
| | 73,466 |
|
| Investing activities | | | | | | | | | | |
| Net change in: | | | | | | | | | | |
| Deposits with banks | (168,426 | ) | | (194,363 | ) | | (36,595 | ) | (38,532 | ) | | (25,747 | ) | | 144,462 |
|
| Federal funds sold and securities purchased under resale agreements | 30,848 |
| | 47,726 |
| | (60,821 | ) | 31,448 |
| | (17,468 | ) | | 3,190 |
|
| Held-to-maturity securities: | | | | | | | | | | |
| Proceeds from paydowns and maturities | 4,169 |
| | 189 |
| | 4 |
| 4,563 |
| | 6,218 |
| | 6,099 |
|
| Purchases | (10,345 | ) | | (24,214 | ) | | — |
| (2,349 | ) | | (143 | ) | | (6,204 | ) |
| Available-for-sale securities: | | | | | | | | | | |
| Proceeds from paydowns and maturities | 90,664 |
| | 89,631 |
| | 112,633 |
| 56,117 |
| | 65,950 |
| | 76,448 |
|
| Proceeds from sales | 38,411 |
| | 73,312 |
| | 81,957 |
| 90,201 |
| | 48,592 |
| | 40,444 |
|
| Purchases | (121,504 | ) | | (130,266 | ) | | (189,630 | ) | (105,309 | ) | | (123,959 | ) | | (70,804 | ) |
| Proceeds from sales and securitizations of loans held-for-investment | 20,115 |
| | 12,033 |
| | 6,430 |
| 15,791 |
| | 15,429 |
| | 18,604 |
|
| Other changes in loans, net | (51,749 | ) | | (23,721 | ) | | (30,491 | ) | (61,650 | ) | | (80,996 | ) | | (108,962 | ) |
| Net cash received from/(used in) business acquisitions or dispositions | 843 |
| | (149 | ) | | 88 |
| |
| All other investing activities, net | 1,338 |
| | (679 | ) | | (3,400 | ) | (563 | ) | | (2,825 | ) | | 3,703 |
|
| Net cash used in investing activities | (165,636 | ) | | (150,501 | ) | | (119,825 | ) | |
| Net cash provided by/(used in) investing activities | | (10,283 | ) | | (114,949 | ) | | 106,980 |
|
| Financing activities | | | | | | | | | | |
| Net change in: | | | | | | | | | | |
| Deposits | 89,346 |
| | 81,476 |
| | 67,250 |
| 57,022 |
| | 97,336 |
| | (88,678 | ) |
| Federal funds purchased and securities loaned or sold under repurchase agreements | 10,905 |
| | (58,867 | ) | | 26,546 |
| (6,739 | ) | | 13,007 |
| | (39,415 | ) |
| Commercial paper and other borrowed funds | 9,242 |
| | 2,784 |
| | 9,315 |
| |
| Beneficial interests issued by consolidated variable interest entities | (834 | ) | | (10,433 | ) | | 345 |
| |
| Short-term borrowings | | 16,540 |
| | (2,461 | ) | | (57,828 | ) |
| Beneficial interests issued by consolidated VIEs | | (1,377 | ) | | (5,707 | ) | | (5,632 | ) |
| Proceeds from long-term borrowings | 78,515 |
| | 83,546 |
| | 86,271 |
| 56,271 |
| | 83,070 |
| | 79,611 |
|
| Payments of long-term borrowings | (65,275 | ) | | (60,497 | ) | | (96,473 | ) | (83,079 | ) | | (68,949 | ) | | (67,247 | ) |
| Excess tax benefits related to stock-based compensation | 407 |
| | 137 |
| | 255 |
| |
| Proceeds from issuance of preferred stock | 8,847 |
| | 3,873 |
| | 1,234 |
| 1,258 |
| | — |
| | 5,893 |
|
| Redemption of preferred stock | — |
| | (1,800 | ) | | — |
| (1,258 | ) | | — |
| | — |
|
| Treasury stock and warrants repurchased | (4,760 | ) | | (4,789 | ) | | (1,653 | ) | |
| Treasury stock repurchased | | (15,410 | ) | | (9,082 | ) | | (5,616 | ) |
| Dividends paid | (6,990 | ) | | (6,056 | ) | | (5,194 | ) | (8,993 | ) | | (8,476 | ) | | (7,873 | ) |
| All other financing activities, net | (1,175 | ) | | (1,050 | ) | | (189 | ) | 407 |
| | (467 | ) | | (726 | ) |
| Net cash provided by financing activities | 118,228 |
| | 28,324 |
| | 87,707 |
| |
| Net cash provided by/(used in) financing activities | | 14,642 |
| | 98,271 |
| | (187,511 | ) |
| Effect of exchange rate changes on cash and due from banks | (1,125 | ) | | 272 |
| | 1,160 |
| 96 |
| | (135 | ) | | (276 | ) |
| Net decrease in cash and due from banks | (11,940 | ) | | (13,952 | ) | | (5,879 | ) | |
| Net increase/(decrease) in cash and due from banks | | 1,954 |
| | 3,383 |
| | (7,341 | ) |
| Cash and due from banks at the beginning of the period | 39,771 |
| | 53,723 |
| | 59,602 |
| 23,873 |
| | 20,490 |
| | 27,831 |
|
| Cash and due from banks at the end of the period | $ | 27,831 |
| | $ | 39,771 |
| | $ | 53,723 |
| $ | 25,827 |
| | $ | 23,873 |
| | $ | 20,490 |
|
| Cash interest paid | $ | 8,194 |
| | $ | 9,573 |
| | $ | 11,161 |
| $ | 14,153 |
| | $ | 9,508 |
| | $ | 7,220 |
|
| Cash income taxes paid, net | 1,392 |
| | 3,502 |
| | 2,050 |
| 4,325 |
| | 2,405 |
| | 9,423 |
|
The Notes to Consolidated Financial Statements are an integral part of these statements.
|
| | |
176152 | | JPMorgan Chase & Co./20142017 Annual Report |
Notes to consolidated financial statements
Note 1 – Basis of presentation
JPMorgan Chase & Co. (“JPMorgan Chase”Chase” or the “Firm”), a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide. The Firm is a leader in investment banking, financial services for consumers and small business, commercial banking, financial transaction processing and asset management. For a discussion of the Firm’s business segments, see Note 33.31.
The accounting and financial reporting policies of JPMorgan Chase and its subsidiaries conform to accounting principles generally accepted in the U.S. (“U.S. GAAP”).GAAP. Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by regulatory authorities.
Certain amounts reported in prior periods have been reclassified to conform with the current presentation.
Consolidation
The Consolidated Financial Statements include the accounts of JPMorgan Chase and other entities in which the Firm has a controlling financial interest. All material intercompany balances and transactions have been eliminated.
Assets held for clients in an agency or fiduciary capacity by the Firm are not assets of JPMorgan Chase and are not included on the Consolidated balance sheets.
The Firm determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (“VIE”).entity.
Voting Interest Entities
Voting interest entities are entities that have sufficient equity and provide the equity investors voting rights that enable them to make significant decisions relating to the entity’s operations. For these types of entities, the Firm’s determination of whether it has a controlling interest is primarily based on the amount of voting equity interests held. Entities in which the Firm has a controlling financial interest, through ownership of the majority of the entities’ voting equity interests, or through other contractual rights that give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant influence over operating and financing decisions (but does not own a majority of the voting equity interests) are accounted for (i) in accordance with the equity method of accounting (which requires the Firm to recognize its proportionate share of the entity’s net earnings), or (ii) at fair value if the fair value option was elected. These investments are generally included in other assets, with income or loss included in other income.
Certain Firm-sponsored asset management funds are structured as limited partnerships or certain limited liability companies. For many of these entities, the Firm is the general partner or managing member, but the non-affiliated
partners or members have the ability to remove the Firm as the general partner or managing member without cause (i.e.
(i.e., kick-out rights), based on a simple majority vote, or the non-affiliated partners or members have rights to participate in important decisions. Accordingly, the Firm does not consolidate these funds. Invoting interest entities. However, in the limited cases where the nonaffiliatednon-managing partners or members do not have substantive kick-out or participating rights, the Firm evaluates the funds as VIEs and consolidates if it is the funds.general partner or managing member and has a potentially significant interest.
The Firm’s investment companies have investments in both publicly-held and privately-held entities, including investments in buyouts, growth equity and venture opportunities. These investments are accounted for under investment company guidelines and accordingly, irrespective of the percentage of equity ownership interests held, are carried on the Consolidated balance sheets at fair value, and are recorded in other assets.assets, with income or loss included in noninterest revenue.
Variable Interest Entities
VIEs are entities that, by design, either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity.
The most common type of VIE is a special purpose entity (“SPE”).an SPE. SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. The basic SPE structure involves a company selling assets to the SPE; the SPE funds the purchase of those assets by issuing securities to investors. The legal documents that govern the transaction specify how the cash earned on the assets must be allocated to the SPE’s investors and other parties that have rights to those cash flows. SPEs are generally structured to insulate investors from claims on the SPE’s assets by creditors of other entities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has a controlling financial interest) is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party that has both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and (2) through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the Firm considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 153 |
Notes to consolidated financial statements
second, identifying which party, if any, has power over those activities. In general, the parties that make the most
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 177 |
Notes to consolidated financial statements
significant decisions affecting the VIE (such as asset managers, collateral managers, servicers, or owners of call options or liquidation rights over the VIE’s assets) or have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the Firm considers all of its economic interests, including debt and equity investments, servicing fees, and derivativederivatives or other arrangements deemed to be variable interests in the VIE. This assessment requires that the Firm apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include: the design of the VIE, including its capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by the Firm.
The Firm performs on-going reassessments of: (1) whether entities previously evaluated under the majority voting-interest framework have become VIEs, based on certain events, and are therefore subject to the VIE consolidation framework; and (2) whether changes in the facts and circumstances regarding the Firm’s involvement with a VIE cause the Firm’s consolidation conclusion to change.
In February 2010, the Financial Accounting Standards Board (“FASB”) issued an amendment which deferred the requirements of the accounting guidance for VIEs for certain investment funds, including mutual funds, private equity funds and hedge funds. For the funds to which the deferral applies, the Firm continues to apply other existing authoritative accounting guidance to determine whether such funds should be consolidated.
Use of estimates in the preparation of consolidated financial statements
The preparation of the Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expense, and disclosures of contingent assets and liabilities. Actual results could be different from these estimates.
Foreign currency translation
JPMorgan Chase revalues assets, liabilities, revenue and expense denominated in non-U.S. currencies into U.S. dollars using applicable exchange rates.
Gains and losses relating to translating functional currency financial statements for U.S. reporting are included in other comprehensive income/(loss) (“OCI”)OCI within stockholders’ equity. Gains and losses relating to nonfunctional currency transactions, including non-U.S. operations where the functional currency is the U.S. dollar, are reported in the Consolidated statements of income.
Offsetting assets and liabilities
U.S. GAAP permits entities to present derivative receivables and derivative payables with the same counterparty and the related cash collateral receivables and payables on a net basis on the Consolidated balance sheetsheets when a legally enforceable master netting agreement exists. U.S. GAAP also permits securities sold and purchased under repurchase agreements and securities borrowed or loaned
under securities loan agreements to be presented net when specified conditions are met, including the existence of a legally enforceable master netting agreement. The Firm has elected to net such balances when the specified conditions are met.
The Firm uses master netting agreements to mitigate counterparty credit risk in certain transactions, including derivatives transactions,derivative, securities repurchase and reverse repurchase, agreements, and securities borrowedloaned and loaned agreements.borrow transactions. A master netting agreement is a single contractagreement with a counterparty that permits multiple transactions governed by that contractagreement to be terminated or accelerated and settled through a single payment in a single currency in the event of a default (e.g., bankruptcy, failure to make a required payment or securities transfer or deliver collateral or margin when due after expiration of any grace period)due). Upon the exercise of derivatives termination rights by the non-defaulting party (i) all transactions are terminated, (ii) all transactions are valued and the positive value orvalues of “in the money” transactions are netted against the negative value orvalues of “out of the money” transactions and (iii) the only remaining payment obligation is of one of the parties to pay the netted termination amount. Upon exercise of default rights under repurchase agreementagreements and securities loaned default rightsloan agreements in general (i) all securities loan transactions are terminated and accelerated, (ii) all values of securities or cash held or to be delivered are calculated, and all such sums are netted against each other and (iii) the only remaining payment obligation is of one of the parties to pay the netted termination amount.
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178 | | JPMorgan Chase & Co./2014 Annual Report |
Typical master netting agreements for these types of transactions also often contain a collateral/margin agreement that provides for a security interest in, or title transfer of, securities or cash collateral/margin to the party that has the right to demand margin (the “demanding party”). The collateral/margin agreement typically requires a party to transfer collateral/margin to the demanding party with a value equal to the amount of the margin deficit on a net basis across all transactions governed by the master netting agreement, less any threshold. The collateral/margin agreement grants to the demanding party, upon default by the counterparty, the right to set-off any amounts payable by the counterparty against any posted collateral or the cash equivalent of any posted collateral/margin. It also grants to the demanding party the right to liquidate collateral/margin and to apply the proceeds to an amount payable by the counterparty.
For further discussion of the Firm’s derivative instruments, see Note 6.5. For further discussion of the Firm’s repurchase and reverse repurchase agreements, and securities borrowing and lending agreements, see Note 13.11.
Statements of cash flows
For JPMorgan Chase’s Consolidated statements of cash flows, cash is defined as those amounts included in cash and due from banks.
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| 154 | | JPMorgan Chase & Co./2017 Annual Report |
Significant accounting policies
The following table identifies JPMorgan Chase’s other significant accounting policies and the Note and page where a detailed description of each policy can be found.
|
| | | |
| Fair value measurement | Note 32 | | Page 180155 |
| Fair value option | Note 43 | | Page 199174 |
| Derivative instruments | Note 5 | | Page 179 |
| Noninterest revenue | Note 6 | | Page 203 |
Noninterest revenue | Note 7 | | Page 216192 |
| Interest income and interest expense | Note 87 | | Page 218195 |
| Pension and other postretirement employee benefit plans | Note 8 | | Page 195 |
| Employee share-based incentives | Note 9 | | Page 218201 |
Employee stock-based incentivesSecurities | Note 10 | | Page 228 |
Securities | Note 12 | | Page 230203 |
| Securities financing activities | Note 1311 | | Page 235208 |
| Loans | Note 1412 | | Page 238211 |
| Allowance for credit losses | Note 1513 | | Page 258231 |
| Variable interest entities | Note 1614 | | Page 262236 |
Goodwill and other intangible assetsMortgage servicing rights | Note 1715 | | Page 271page 244 |
| Premises and equipment | Note 1816 | | Page 276page 248 |
| Long-term debt | Note 2119 | | Page 277page 249 |
| Income taxes | Note 2624 | | Page 282page 255 |
| Off–balance sheet lending-related financial instruments, guarantees and other commitments | Note 2927 | | Page 287page 261 |
| Litigation | Note 3129 | | Page 295page 268 |
Note 2 – Business changes and developments
Subsequent events
As part of the Firm’s business simplification agenda, the sale of a portion of the Private Equity Business (“Private Equity sale”) was completed on January 9, 2015. Concurrent with the sale, a new independent management company was formed by the former One Equity Partners (“OEP”) investment professionals. The new management company will provide investment management services to the acquirer of the investments sold in the Private Equity sale and for the portion of private equity investments retained by the Firm. Upon closing, this transaction did not have a material impact on the Firm’s Consolidated balance sheets or its results of operations.
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JPMorgan Chase & Co./2014 Annual Report | | 179 |
Notes to consolidated financial statements
Note 3 – Fair value measurement
JPMorgan Chase carries a portion of its assets and liabilities at fair value. These assets and liabilities are predominantly carried at fair value on a recurring basis (i.e., assets and liabilities that are measured and reported at fair value on the Firm’s Consolidated balance sheets). Certain assets (e.g., certain mortgage, home equity and other loans where the carrying value is based on the fair value of the underlying collateral)held-for-sale loans), liabilities and unfunded lending-related commitments are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on quoted market prices or inputs, where available. If listed prices or quotes are not available, fair value is based on valuation models and other valuation techniques that consider relevant transaction characteristics (such as maturity) and use as inputs observable or unobservable market parameters, including but not limited to yield curves, interest rates, volatilities, equity or debt prices, foreign exchange rates and credit curves. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, as described below.
The level of precision in estimating unobservable market inputs or other factors can affect the amount of gain or loss recorded for a particular position. Furthermore, while the Firm believes its valuation methods are appropriate and
consistent with those of other market participants, the methods and assumptions used reflect management judgment and may vary across the Firm’s businesses and portfolios.
The Firm uses various methodologies and assumptions in the determination of fair value. The use of different methodologies or assumptions toby other market participants compared with those used by the Firm could result in the Firm deriving a different estimate of fair value at the reporting date.
Valuation process
Risk-taking functions are responsible for providing fair value estimates for assets and liabilities carried on the Consolidated balance sheets at fair value. The Firm’s valuation control function,VCG, which is part of the Firm’s Finance function and independent of the risk-taking functions, is responsible for verifying these estimates and determining any fair value adjustments that may be required to ensure that the Firm’s positions are recorded at fair value. In addition, the Firm has a firmwide Valuation Governance Forum (“VGF”) comprisedThe VGF is composed of senior finance and risk executives to overseeand is responsible for overseeing the management of risks arising from valuation activities conducted across the Firm. The VGF is chaired by the Firmwide head of the valuation control function,VCG (under the direction of the Firm’s Controller), and also includes sub-forums forcovering the Corporate & Investment Bank (“CIB”), Mortgage Banking, (part of
Consumer & Community Banking)CIB, CCB, CB, AWM and certain corporate functions including Treasury and Chief Investment Office (“CIO”).CIO.
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| JPMorgan Chase & Co./2017 Annual Report | | 155 |
Notes to consolidated financial statements
Price verification process
The valuation control functionVCG verifies fair value estimates provided by the risk-taking functions by leveraging independently derived prices, valuation inputs and other market data, where available. Where independent prices or inputs are not available, the VCG performs additional review is performed by the valuation control function to ensure the reasonableness of the estimates, andestimates. The additional review may include:include evaluating the limited market activity including client unwinds;unwinds, benchmarking of valuation inputs to those used for similar instruments;instruments, decomposing the valuation of structured instruments into individual components;components, comparing expected to actual cash flows;flows, reviewing profit and loss trends;trends, and reviewing trends in collateral valuation. In addition thereThere are also additional levels of management review for more significant or complex positions.
The valuation control functionVCG determines any valuation adjustments that may be required to the estimates provided by the risk-taking functions. No adjustments to quoted prices are applied to the quoted market price for instruments classified within level 1 of the fair value hierarchy (see below for further information on the fair value hierarchy). For other positions, judgment is required to assess the need for valuation adjustments to appropriately reflect liquidity considerations, unobservable parameters, and, for certain portfolios that meet specified criteria, the size of the net open risk position. The determination of such adjustments follows a consistent framework across the Firm:
Liquidity valuation adjustments are considered where an observable external price or valuation parameter exists but is of lower reliability, potentially due to lower market activity. Liquidity valuation adjustments are applied and determined based on current market conditions. Factors that may be considered in determining the liquidity adjustment include analysis of: (1) the estimated bid-offer spread for the instrument being traded; (2) alternative pricing points for similar instruments in active markets; and (3) the range of reasonable values that the price or parameter could take.
The Firmmanages certain portfolios of financial instruments on the basis of net open risk exposure and, as permitted by U.S. GAAP, has elected to estimate the fair value of such portfolios on the basis of a transfer of the entire net open risk position in an orderly transaction. Where this is the case, valuation adjustments may be necessary to reflect the cost of exiting a larger-than-normal market-size net open risk position. Where applied, such adjustments are based on factors that a relevant market participant would consider in the transfer of the net open risk position, including the size of the adverse market move that is likely to occur during the period required to reduce the net open risk position to a normal market-size.
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180 | | JPMorgan Chase & Co./2014 Annual Report |
Unobservable parameter valuation adjustments may be made when positions are valued using prices or input parameters to valuation models that are unobservable due to a lack of market activity or because they cannot be implied from observable market data. Such prices or parameters must be estimated and are, therefore, subject to management judgment. Unobservable
parameter valuation adjustments are applied to reflect the uncertainty inherent in the resulting valuation estimate.
Where appropriate,the Firmalso applies adjustments to its estimates of fair value in order to appropriately reflect counterparty credit quality(CVA), the Firm’sown creditworthiness(DVA)and the impact of funding applying (FVA), using a consistent framework acrossthe Firm. For more information on such adjustments see Credit and funding adjustments on pages 196–197page 171 of this Note.
Valuation model review and approval
If prices or quotes are not available for an instrument or a similar instrument, fair value is generally determined using valuation models that consider relevant transaction data such as maturity and use as inputs market-based or independently sourced parameters. Where this is the case the price verification process described above is applied to the inputs to those models.
TheUnder the Firm’s Estimations and Model Risk function is independent of the model owners and reviews and approves a wide range of models, including risk management, valuation and certain regulatory capital models used by the Firm. The Model Risk function is part of the Firm’s Model Risk and Development unit, and the Firmwide Model Risk and Development Executive reports to the Firm’s CRO. When reviewing a model,Management Policy, the Model Risk function analyzesreviews and challenges the model methodology and the reasonableness of model assumptions and may perform or require additional testing, including back-testing of model outcomes.
New significant valuationapproves new models, as well as material changes to existing valuation models, are reviewed and approved prior to implementation except where specified conditions are met.in the operating environment. In certain circumstances, the head of the Model Risk function may grant exceptions to the Firm’s policy to allow a model to be used prior to review or approval. The Model Risk function performs an annual firmwidemay also require the user to take appropriate actions to mitigate the model risk assessment where developmentsif it is to be used in the product or market are considered in determining whether valuation models which have already been reviewed need to be reviewedinterim. These actions will depend on the model and approved again.
may include, for example, limitation of trading activity.Valuation hierarchy
A three-level valuation hierarchy has been established under U.S. GAAP for disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows.
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 – one or more inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
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| 156 | | JPMorgan Chase & Co./20142017 Annual Report | | 181 |
Notes to consolidated financial statements
The following table describes the valuation methodologies generally used by the Firm to measure its more significant products/instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy. |
| | | |
| | Product/instrument | Valuation methodology | Classifications in the valuation hierarchy |
| | Securities financing agreements | Valuations are based on discounted cash flows, which consider: | LevelPredominantly level 2 |
| | • Derivative features. Forfeatures: for further information refer to the discussion of derivatives below. |
| | • Market rates for the respective maturity |
| | • Collateral characteristics |
| | Loans and lending-related commitments -— wholesale | |
| | Trading portfolioLoans carried at fair value (e.g., trading loans and non-trading loans) and associated lending-related commitments | Where observable market data is available, valuations are based on: | Level 2 or 3 |
| | | • Observed market prices (circumstances are infrequent) | |
| | | • Relevant broker quotes | |
| | | • Observed market prices for similar instruments | |
| | | Where observable market data is unavailable or limited, valuations are based on discounted cash flows, which consider the following: | |
| | | • Yield | |
| | • LifetimeCredit spreads derived from the cost of CDS; or benchmark credit losses | |
| | • Loss severitycurves developed by the Firm, by industry and credit rating | |
| | | • Prepayment speed | |
| | | • Servicing costsCollateral characteristics | |
| | Loans held for investmentheld-for-investment and associated lending-related commitments | Valuations are based on discounted cash flows, which consider: | Predominantly level 3 |
| | • Credit spreads, derived from the cost of credit default swaps (“CDS”);CDS; or benchmark credit curves developed by the Firm, by industry and credit rating and which take into account the difference in loss severity rates between bonds and loans |
| | |
| | | • Prepayment speed | |
| | | Lending-related commitments are valued similarsimilarly to loans and reflect the portion of an unused commitment expected, based on the Firm’s average portfolio historical experience, to become funded prior to an obligor defaultdefault. | |
| | | |
| | | |
| | | For information regarding the valuation of loans measured at collateral value, see Note 14.12. | |
| | | |
| | Loans -— consumer | | |
| | Held for investmentHeld-for-investment consumer loans, excluding credit card | Valuations are based on discounted cash flows, which consider: | Predominantly level 32 |
| | • Discount rates (derived from primary origination rates and market activity) |
| |
| | • Expected lifetime creditCredit losses (considering– which consider expected and current default rates, for existing portfolios, collateral prices, and economic environment expectations (e.g., unemployment rates))loss severity |
| | |
| | |
| | | • Estimated prepaymentsPrepayment speed | |
| | | |
| | | | |
| | | • Market liquidity | |
| | For information regarding the valuation of loans measured at collateral value, see Note 14.12. | |
| | | |
| | Held for investmentHeld-for-investment credit card receivables | Valuations are based on discounted cash flows, which consider: | Level 3 |
| | • Projected interest income and late fee revenue, servicing and credit costs, and loan repayment rates |
| |
| | • Estimated life of receivables (based on projected loan payment rates) |
| | • Discount rate - based on cost of funding and expected return on receivables | |
| | • Credit costs - the allowance for loan losses is considered a reasonable proxy for the credit cost based on the short-term nature of credit card receivables |
| |
| | • Projected interest income, late-fee revenue and loan repayment rates |
| | • Discount rates | |
| | • Servicing costs | |
| | Trading loans - Conforming— conforming residential mortgage loans expected to be sold (CCB, CIB) | Fair value is based uponon observable prices for mortgage-backed securities with similar collateral and incorporates adjustments to these prices to account for differences between the securities and the value of the underlying loans, which include credit characteristics, portfolio composition, and liquidity. | Predominantly level 2 |
| |
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182 | | JPMorgan Chase & Co./20142017 Annual Report | | 157 |
Notes to consolidated financial statements
|
| | |
| Product/instrument | Valuation methodology, inputs and assumptions | Classifications in the valuation hierarchy |
SecuritiesInvestment and trading securities | Quoted market prices are used where available. | Level 1 |
| | In the absence of quoted market prices, securities are valued based on: | Level 2 or 3 |
| | • Observable market prices for similar securities | |
| | | |
| | | |
| | In addition, the following inputs to discounted cash flows are used for the following products: | |
| | Mortgage- and asset-backed securities specific inputs: | |
| | • Collateral characteristics | |
| | • Deal-specific payment and loss allocations | |
| | • Current market assumptions related to yield, prepayment speed, conditional default rates and loss severity | |
| | Collateralized loan obligations (“CLOs”), specific inputs: | |
| | • Collateral characteristics | |
| | • Deal-specific payment and loss allocations | |
| | • Expected prepayment speed, conditional default rates, loss severity | |
| | | |
| | • Credit rating data | |
| Physical commodities | Valued using observable market prices or datadata. | Predominantly Levellevel 1 and 2 |
| Derivatives | Exchange-traded derivatives that are actively traded and valued using the exchange price, and over-the-counter contracts where quoted prices are available in an active market.price. | Level 1 |
| | Derivatives that are valued using models such as the Black-Scholes option pricing model, simulation models, or a combination of models that may use observable or unobservable valuation inputs (e.g., plain vanilla optionsas well as considering the contractual terms. The key valuation inputs used will depend on the type of derivative and the nature of the underlying instruments and may include equity prices, commodity prices, interest rate yield curves, foreign exchange rates, volatilities, correlations, CDS spreads and recovery rates. Additionally, the credit default swaps). Inputs include:quality of the counterparty and of the Firm as well as market funding levels may also be considered. | Level 2 or 3 |
| | |
|
| •
Contractual terms including the period to maturity | |
| •
Readily observable parameters including interest rates and volatility | |
| •
Credit quality of the counterparty and of the Firm | |
| | |
| | |
| In addition, the following specific inputs are used for the following derivatives that are valued based on models with significant unobservable inputs:inputs are as follows:
| |
| | Structured credit derivatives specific inputs include: | |
| | • CDS spreads and recovery rates | |
| | • Credit correlation between the underlying debt instruments (levels are modeled on a transaction basis and calibrated to liquid benchmark tranche indices) | |
| | |
| |
| •
Actual transactions, where available, are used to regularly recalibrate unobservable parameters | |
| |
| Certain long-dated equityEquity option specific inputs include: | |
| | • Long-dated equityEquity volatilities | |
| | • Certain interest Equity correlation | |
| | |
| | |
| Interest rate and foreign exchange (“FX”) exotic options specific inputs include: | |
| • Interest rate spread volatility | |
| | • Interest rate correlation | |
| | • Interest rate spread volatility | |
| •
Foreign exchange correlation | |
| | • Correlation between interest rates and foreign exchange ratesInterest rate-FX correlation | |
| | •
Parameters describing the evolution of underlying interest rates | |
| Certain commodityCommodity derivatives specific inputs include: | |
| | | |
| | • Forward commodity price | |
| | Additionally, adjustments are made to reflect counterparty credit quality (credit valuation adjustments or “CVA”), the Firm’s own creditworthiness (debit valuation adjustments or “DVA”),(CVA) and funding valuation adjustment (“FVA”) to incorporate the impact of funding.funding (FVA). See pages 196–197page 171 of this Note. | |
| | |
| | |
| | |
|
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| 158 | | JPMorgan Chase & Co./20142017 Annual Report | | 183 |
Notes to consolidated financial statements
|
| | | |
| | Product/instrument | Valuation methodology, inputs and assumptions | Classification in the valuation hierarchy |
| | Mortgage servicing rights (“MSRs”) | See Mortgage servicing rights in Note 17.15. | Level 3 |
| | |
| | Private equity direct investments | Private equity direct investmentsFair value is estimated using all available information; the range of potential inputs include: | Level 2 or 3 |
| | | Fair value is estimated using all available information and considering the range of potential inputs, including: |
• Transaction prices |
| | | | |
| | •
Trading multiples of comparable public companies | |
| | | • Operating performance of the underlying portfolio company | |
| | | • Additional available inputs relevant to the investment | |
| | •
Adjustments as required, since comparable public companies are not identical to the company being valued, and for company-specific issues and lack of liquidity | |
| | | Public investments held in• Additional available inputs relevant to the Private Equity portfolio | Level 1 or 2 |
| | •
Valued using observable market prices less adjustments for relevant restrictions, where applicable | |
| investment. | |
| | Fund investments (i.e.(e.g., mutual/collective investment funds, private equity funds, hedge funds, and real estate funds) | Net asset value (“NAV”) | |
| | • NAV is validatedsupported by sufficient level of observable activity (i.e., purchasesthe ability to redeem and sales) | Level 1 |
| | |
| | • Adjustments to the NAV as required, for restrictions on redemption (e.g., lock uplock-up periods or withdrawal limitations) or where observable activity is limited | Level 2 or 3(a) |
| | | |
| | Beneficial interests issued by consolidated VIEs | Valued using observable market information, where availableavailable. | Level 2 or 3 |
| | In the absence of observable market information, valuations are based on the fair value of the underlying assets held by the VIEVIE. | |
| | Long-term debt, not carried at fair value | Valuations are based on discounted cash flows, which consider: | Predominantly level 2 |
| | • Market rates for respective maturity |
| | | • The Firm’s own creditworthiness (DVA). See pages 196-197 of this Note. |
| Structured notes (included in deposits, other borrowed fundsshort-term borrowings and long-term debt) | • Valuations are based on discounted cash flow analyses that consider the embedded derivative and the terms and payment structure of the note. • The embedded derivative features are considered using models such as the Black-Scholes option pricing model, simulation models, or a combination of models that may use observable or unobservable valuation inputs, depending on the embedded derivative. The specific inputs used vary according to the nature of the embedded derivative features, as described in the discussion above regarding derivativederivatives valuation. Adjustments are then made to this base valuation to reflect the Firm’s own creditworthinesscredit risk (DVA) and to incorporate the impact of funding (FVA). See pages 196–197page 171 of this Note. | Level 2 or 3 |
| |
| |
| |
| |
|
| | |
184(a) | | JPMorgan Chase & Co./2014 Annual ReportExcludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient. |
The following table presents the asset and liabilities reported at fair value as of December 31, 2014 and 2013, by major product category and fair value hierarchy. |
| | | | | | | | | | | | | | | | | |
Assets and liabilities measured at fair value on a recurring basis
| | | | | |
| | Fair value hierarchy | | | |
| December 31, 2014 (in millions) | Level 1 | Level 2 | | Level 3 | | Derivative netting adjustments | Total fair value |
| Federal funds sold and securities purchased under resale agreements | $ | — |
| $ | 28,585 |
| | $ | — |
| | $ | — |
| $ | 28,585 |
|
| Securities borrowed | — |
| 992 |
| | — |
| | — |
| 992 |
|
| Trading assets: | | | | | | | |
| Debt instruments: | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
U.S. government agencies(a) | 14 |
| 31,904 |
| | 922 |
| | — |
| 32,840 |
|
| Residential – nonagency | — |
| 1,381 |
| | 663 |
| | — |
| 2,044 |
|
| Commercial – nonagency | — |
| 927 |
| | 306 |
| | — |
| 1,233 |
|
| Total mortgage-backed securities | 14 |
| 34,212 |
| | 1,891 |
| | — |
| 36,117 |
|
U.S. Treasury and government agencies(a) | 17,816 |
| 8,460 |
| | — |
| | — |
| 26,276 |
|
| Obligations of U.S. states and municipalities | — |
| 9,298 |
| | 1,273 |
| | — |
| 10,571 |
|
| Certificates of deposit, bankers’ acceptances and commercial paper | — |
| 1,429 |
| | — |
| | — |
| 1,429 |
|
| Non-U.S. government debt securities | 25,854 |
| 27,294 |
| | 302 |
| | — |
| 53,450 |
|
| Corporate debt securities | — |
| 28,099 |
| | 2,989 |
| | — |
| 31,088 |
|
Loans(b) | — |
| 23,080 |
| | 13,287 |
| | — |
| 36,367 |
|
| Asset-backed securities | — |
| 3,088 |
| | 1,264 |
| | — |
| 4,352 |
|
| Total debt instruments | 43,684 |
| 134,960 |
| | 21,006 |
| | — |
| 199,650 |
|
| Equity securities | 104,890 |
| 748 |
| | 431 |
| | — |
| 106,069 |
|
Physical commodities(c) | 2,739 |
| 1,741 |
| | 2 |
| | — |
| 4,482 |
|
| Other | — |
| 8,762 |
| | 1,050 |
| | — |
| 9,812 |
|
Total debt and equity instruments(d) | 151,313 |
| 146,211 |
| | 22,489 |
| | — |
| 320,013 |
|
| Derivative receivables: | | | | | | | |
| Interest rate | 473 |
| 951,901 |
| | 4,149 |
| | (922,798 | ) | 33,725 |
|
| Credit | — |
| 73,853 |
| | 2,989 |
| | (75,004 | ) | 1,838 |
|
| Foreign exchange | 758 |
| 205,887 |
| | 2,276 |
| | (187,668 | ) | 21,253 |
|
| Equity | — |
| 44,240 |
| | 2,552 |
| | (38,615 | ) | 8,177 |
|
| Commodity | 247 |
| 42,807 |
| | 599 |
| | (29,671 | ) | 13,982 |
|
Total derivative receivables(e) | 1,478 |
| 1,318,688 |
| | 12,565 |
| | (1,253,756 | ) | 78,975 |
|
| Total trading assets | 152,791 |
| 1,464,899 |
| | 35,054 |
| | (1,253,756 | ) | 398,988 |
|
| Available-for-sale securities: | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
U.S. government agencies(a) | — |
| 65,319 |
| | — |
| | — |
| 65,319 |
|
| Residential – nonagency | — |
| 50,865 |
| | 30 |
| | — |
| 50,895 |
|
| Commercial – nonagency | — |
| 21,009 |
| | 99 |
| | — |
| 21,108 |
|
| Total mortgage-backed securities | — |
| 137,193 |
| | 129 |
| | — |
| 137,322 |
|
U.S. Treasury and government agencies(a) | 13,591 |
| 54 |
| | — |
| | — |
| 13,645 |
|
| Obligations of U.S. states and municipalities | — |
| 30,068 |
| | — |
| | — |
| 30,068 |
|
| Certificates of deposit | — |
| 1,103 |
| | — |
| | — |
| 1,103 |
|
| Non-U.S. government debt securities | 24,074 |
| 28,669 |
| | — |
| | — |
| 52,743 |
|
| Corporate debt securities | — |
| 18,532 |
| | — |
| | — |
| 18,532 |
|
| Asset-backed securities: | | | | | | | |
| Collateralized loan obligations | — |
| 29,402 |
| | 792 |
| | — |
| 30,194 |
|
| Other | — |
| 12,499 |
| | 116 |
| | — |
| 12,615 |
|
| Equity securities | 2,530 |
| — |
| | — |
| | — |
| 2,530 |
|
| Total available-for-sale securities | 40,195 |
| 257,520 |
| | 1,037 |
| | — |
| 298,752 |
|
| Loans | — |
| 70 |
| | 2,541 |
| | — |
| 2,611 |
|
| Mortgage servicing rights | — |
| — |
| | 7,436 |
| | — |
| 7,436 |
|
| Other assets: | | | | | | | |
Private equity investments(f) | 648 |
| 2,624 |
| | 2,475 |
| | — |
| 5,747 |
|
| All other | 4,018 |
| 230 |
| | 2,371 |
| | — |
| 6,619 |
|
| Total other assets | 4,666 |
| 2,854 |
| | 4,846 |
| | — |
| 12,366 |
|
| Total assets measured at fair value on a recurring basis | $ | 197,652 |
| $ | 1,754,920 |
| (g) | $ | 50,914 |
| (g) | $ | (1,253,756 | ) | $ | 749,730 |
|
| Deposits | $ | — |
| $ | 5,948 |
| | $ | 2,859 |
| | $ | — |
| $ | 8,807 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | — |
| 2,979 |
| | — |
| | — |
| 2,979 |
|
| Other borrowed funds | — |
| 13,286 |
| | 1,453 |
| | — |
| 14,739 |
|
| Trading liabilities: | | | | | | |
|
|
Debt and equity instruments(d) | 62,914 |
| 18,713 |
| | 72 |
| | — |
| 81,699 |
|
| Derivative payables: | | | | | | |
|
|
| Interest rate | 499 |
| 920,623 |
| | 3,523 |
| | (906,900 | ) | 17,745 |
|
| Credit | — |
| 73,095 |
| | 2,800 |
| | (74,302 | ) | 1,593 |
|
| Foreign exchange | 746 |
| 214,800 |
| | 2,802 |
| | (195,378 | ) | 22,970 |
|
| Equity | — |
| 46,228 |
| | 4,337 |
| | (38,825 | ) | 11,740 |
|
| Commodity | 141 |
| 44,318 |
| | 1,164 |
| | (28,555 | ) | 17,068 |
|
Total derivative payables(e) | 1,386 |
| 1,299,064 |
| | 14,626 |
| | (1,243,960 | ) | 71,116 |
|
| Total trading liabilities | 64,300 |
| 1,317,777 |
| | 14,698 |
| | (1,243,960 | ) | 152,815 |
|
| Accounts payable and other liabilities | — |
| — |
| | 36 |
| | — |
| 36 |
|
| Beneficial interests issued by consolidated VIEs | — |
| 1,016 |
| | 1,146 |
| | — |
| 2,162 |
|
| Long-term debt | — |
| 18,349 |
| | 11,877 |
| | — |
| 30,226 |
|
| Total liabilities measured at fair value on a recurring basis | $ | 64,300 |
| $ | 1,359,355 |
| | $ | 32,069 |
| | $ | (1,243,960 | ) | $ | 211,764 |
|
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 185159 |
Notes to consolidated financial statements
The following table presents the assets and liabilities reported at fair value as of December 31, 2017 and 2016, by major product category and fair value hierarchy. |
| | | | | | | | | | | | | | | | | |
| Assets and liabilities measured at fair value on a recurring basis | | | | | |
| | Fair value hierarchy | | | |
| December 31, 2017 (in millions) | Level 1 | Level 2 | | Level 3 | | Derivative netting adjustments | Total fair value |
| Federal funds sold and securities purchased under resale agreements | $ | — |
| $ | 14,732 |
| | $ | — |
| | $ | — |
| $ | 14,732 |
|
| Securities borrowed | — |
| 3,049 |
| | — |
| | — |
| 3,049 |
|
| Trading assets: | | | | | | | |
| Debt instruments: | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
U.S. government agencies(a) | — |
| 41,515 |
| | 307 |
| | — |
| 41,822 |
|
| Residential – nonagency | — |
| 1,835 |
| | 60 |
| | — |
| 1,895 |
|
| Commercial – nonagency | — |
| 1,645 |
| | 11 |
| | — |
| 1,656 |
|
| Total mortgage-backed securities | — |
| 44,995 |
| | 378 |
| | — |
| 45,373 |
|
U.S. Treasury and government agencies(a) | 30,758 |
| 6,475 |
| | 1 |
| | — |
| 37,234 |
|
| Obligations of U.S. states and municipalities | — |
| 9,067 |
| | 744 |
| | — |
| 9,811 |
|
| Certificates of deposit, bankers’ acceptances and commercial paper | — |
| 226 |
| | — |
| | — |
| 226 |
|
| Non-U.S. government debt securities | 28,887 |
| 28,831 |
| | 78 |
| | — |
| 57,796 |
|
| Corporate debt securities | — |
| 24,146 |
| | 312 |
| | — |
| 24,458 |
|
Loans(b) | — |
| 35,242 |
| | 2,719 |
| | — |
| 37,961 |
|
| Asset-backed securities | — |
| 3,284 |
| | 153 |
| | — |
| 3,437 |
|
| Total debt instruments | 59,645 |
| 152,266 |
| | 4,385 |
| | — |
| 216,296 |
|
| Equity securities | 87,346 |
| 197 |
| | 295 |
| | — |
| 87,838 |
|
Physical commodities(c) | 4,924 |
| 1,322 |
| | — |
| | — |
| 6,246 |
|
| Other | — |
| 14,197 |
| | 690 |
| | — |
| 14,887 |
|
Total debt and equity instruments(d) | 151,915 |
| 167,982 |
| | 5,370 |
| | — |
| 325,267 |
|
| Derivative receivables: | | | | | | | |
| Interest rate | 181 |
| 314,107 |
| | 1,704 |
| | (291,319 | ) | 24,673 |
|
| Credit | — |
| 21,995 |
| | 1,209 |
| | (22,335 | ) | 869 |
|
| Foreign exchange | 841 |
| 158,834 |
| | 557 |
| | (144,081 | ) | 16,151 |
|
| Equity | — |
| 37,722 |
| | 2,318 |
| | (32,158 | ) | 7,882 |
|
| Commodity | — |
| 19,875 |
| | 210 |
| | (13,137 | ) | 6,948 |
|
Total derivative receivables(e)(f) | 1,022 |
| 552,533 |
| | 5,998 |
| | (503,030 | ) | 56,523 |
|
Total trading assets(g) | 152,937 |
| 720,515 |
| | 11,368 |
| | (503,030 | ) | 381,790 |
|
| Available-for-sale securities: | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
U.S. government agencies(a) | — |
| 70,280 |
| | — |
| | — |
| 70,280 |
|
| Residential – nonagency | — |
| 11,366 |
| | 1 |
| | — |
| 11,367 |
|
| Commercial – nonagency | — |
| 5,025 |
| | — |
| | — |
| 5,025 |
|
| Total mortgage-backed securities | — |
| 86,671 |
| | 1 |
| | — |
| 86,672 |
|
U.S. Treasury and government agencies(a) | 22,745 |
| — |
| | — |
| | — |
| 22,745 |
|
| Obligations of U.S. states and municipalities | — |
| 32,338 |
| | — |
| | — |
| 32,338 |
|
| Certificates of deposit | — |
| 59 |
| | — |
| | — |
| 59 |
|
| Non-U.S. government debt securities | 18,140 |
| 9,154 |
| | — |
| | — |
| 27,294 |
|
| Corporate debt securities | — |
| 2,757 |
| | — |
| | — |
| 2,757 |
|
| Asset-backed securities: | | | | | | | |
| Collateralized loan obligations | — |
| 20,720 |
| | 276 |
| | — |
| 20,996 |
|
| Other | — |
| 8,817 |
| | — |
| | — |
| 8,817 |
|
| Equity securities | 547 |
| — |
| | — |
| | — |
| 547 |
|
| Total available-for-sale securities | 41,432 |
| 160,516 |
| | 277 |
| | — |
| 202,225 |
|
| Loans | — |
| 2,232 |
| | 276 |
| | — |
| 2,508 |
|
| Mortgage servicing rights | — |
| — |
| | 6,030 |
| | — |
| 6,030 |
|
Other assets(g) | 13,795 |
| 343 |
| | 1,265 |
| | — |
| 15,403 |
|
| Total assets measured at fair value on a recurring basis | $ | 208,164 |
| $ | 901,387 |
| | $ | 19,216 |
| | $ | (503,030 | ) | $ | 625,737 |
|
| Deposits | $ | — |
| $ | 17,179 |
| | $ | 4,142 |
| | $ | — |
| $ | 21,321 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | — |
| 697 |
| | — |
| | — |
| 697 |
|
| Short-term borrowings | — |
| 7,526 |
| | 1,665 |
| | — |
| 9,191 |
|
| Trading liabilities: | | | | | | |
|
|
Debt and equity instruments(d) | 64,664 |
| 21,183 |
| | 39 |
| | — |
| 85,886 |
|
| Derivative payables: | | | | | | |
|
|
| Interest rate | 170 |
| 282,825 |
| | 1,440 |
| | (277,306 | ) | 7,129 |
|
| Credit | — |
| 22,009 |
| | 1,244 |
| | (21,954 | ) | 1,299 |
|
| Foreign exchange | 794 |
| 154,075 |
| | 953 |
| | (143,349 | ) | 12,473 |
|
| Equity | — |
| 39,668 |
| | 5,727 |
| | (36,203 | ) | 9,192 |
|
| Commodity | — |
| 21,017 |
| | 884 |
| | (14,217 | ) | 7,684 |
|
Total derivative payables(e)(f) | 964 |
| 519,594 |
| | 10,248 |
| | (493,029 | ) | 37,777 |
|
| Total trading liabilities | 65,628 |
| 540,777 |
| | 10,287 |
| | (493,029 | ) | 123,663 |
|
| Accounts payable and other liabilities | 9,074 |
| 121 |
| | 13 |
| | — |
| 9,208 |
|
| Beneficial interests issued by consolidated VIEs | — |
| 6 |
| | 39 |
| | — |
| 45 |
|
| Long-term debt | — |
| 31,394 |
| | 16,125 |
| | — |
| 47,519 |
|
| Total liabilities measured at fair value on a recurring basis | $ | 74,702 |
| $ | 597,700 |
| | $ | 32,271 |
| | $ | (493,029 | ) | $ | 211,644 |
|
|
| | |
| 160 | | JPMorgan Chase & Co./2017 Annual Report |
| | | | Fair value hierarchy | | | Fair value hierarchy | | | | |
| December 31, 2013 (in millions) | Level 1 | Level 2 | | Level 3 | | Derivative netting adjustments | Total fair value | |
| December 31, 2016 (in millions) | | Level 1 | Level 2 | | Level 3 | | Derivative netting adjustments | | Total fair value |
| Federal funds sold and securities purchased under resale agreements | $ | — |
| $ | 25,135 |
| | $ | — |
| | $ | — |
| $ | 25,135 |
| $ | — |
| $ | 21,506 |
| | $ | — |
| | $ | — |
| | $ | 21,506 |
|
| Securities borrowed | — |
| 3,739 |
| | — |
| | — |
| 3,739 |
| — |
| — |
| | — |
| | — |
| | — |
|
| Trading assets: | | | | | | | | | | | | |
| Debt instruments: | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | |
U.S. government agencies(a) | 4 |
| 25,582 |
| | 1,005 |
| | — |
| 26,591 |
| 13 |
| 40,586 |
| | 392 |
| | — |
| | 40,991 |
|
| Residential – nonagency | — |
| 1,749 |
| | 726 |
| | — |
| 2,475 |
| — |
| 1,552 |
| | 83 |
| | — |
| | 1,635 |
|
| Commercial – nonagency | — |
| 871 |
| | 432 |
| | — |
| 1,303 |
| — |
| 1,321 |
| | 17 |
| | — |
| | 1,338 |
|
| Total mortgage-backed securities | 4 |
| 28,202 |
| | 2,163 |
| | — |
| 30,369 |
| 13 |
| 43,459 |
| | 492 |
| | — |
| | 43,964 |
|
U.S. Treasury and government agencies(a) | 14,933 |
| 10,547 |
| | — |
| | — |
| 25,480 |
| 19,554 |
| 5,201 |
| | — |
| | — |
| | 24,755 |
|
| Obligations of U.S. states and municipalities | — |
| 6,538 |
| | 1,382 |
| | — |
| 7,920 |
| — |
| 8,403 |
| | 649 |
| | — |
| | 9,052 |
|
| Certificates of deposit, bankers’ acceptances and commercial paper | — |
| 3,071 |
| | — |
| | — |
| 3,071 |
| — |
| 1,649 |
| | — |
| | — |
| | 1,649 |
|
| Non-U.S. government debt securities | 25,762 |
| 22,379 |
| | 143 |
| | — |
| 48,284 |
| 28,443 |
| 23,076 |
| | 46 |
| | — |
| | 51,565 |
|
Corporate debt securities(h) | — |
| 24,802 |
| | 5,920 |
| | — |
| 30,722 |
| — |
| 22,751 |
| | 576 |
| | — |
| | 23,327 |
|
Loans(b) | — |
| 17,331 |
| | 13,455 |
| | — |
| 30,786 |
| — |
| 28,965 |
| | 4,837 |
| | — |
| | 33,802 |
|
| Asset-backed securities | — |
| 3,647 |
| | 1,272 |
| | — |
| 4,919 |
| — |
| 5,250 |
| | 302 |
| | — |
| | 5,552 |
|
| Total debt instruments | 40,699 |
| 116,517 |
| | 24,335 |
| | — |
| 181,551 |
| 48,010 |
| 138,754 |
| | 6,902 |
| | — |
| | 193,666 |
|
| Equity securities | 107,667 |
| 954 |
| | 885 |
| | — |
| 109,506 |
| 96,759 |
| 281 |
| | 231 |
| | — |
| | 97,271 |
|
Physical commodities(c) | 4,968 |
| 5,217 |
| | 4 |
| | — |
| 10,189 |
| 5,341 |
| 1,620 |
| | — |
| | — |
| | 6,961 |
|
| Other | — |
| 5,659 |
| | 2,000 |
| | — |
| 7,659 |
| — |
| 9,341 |
| | 761 |
| | — |
| | 10,102 |
|
Total debt and equity instruments(d) | 153,334 |
| 128,347 |
| | 27,224 |
| | — |
| 308,905 |
| 150,110 |
| 149,996 |
| | 7,894 |
| | — |
| | 308,000 |
|
| Derivative receivables: | | | | | | | | | | | | |
| Interest rate | 419 |
| 848,862 |
| | 5,398 |
| | (828,897 | ) | 25,782 |
| 715 |
| 602,747 |
| | 2,501 |
| | (577,661 | ) | | 28,302 |
|
| Credit | — |
| 79,754 |
| | 3,766 |
| | (82,004 | ) | 1,516 |
| — |
| 28,256 |
| | 1,389 |
| | (28,351 | ) | | 1,294 |
|
| Foreign exchange | 434 |
| 151,521 |
| | 1,644 |
| | (136,809 | ) | 16,790 |
| 812 |
| 231,743 |
| | 870 |
| | (210,154 | ) | | 23,271 |
|
| Equity | — |
| 45,892 |
| | 7,039 |
| | (40,704 | ) | 12,227 |
| — |
| 34,032 |
| | 908 |
| | (30,001 | ) | | 4,939 |
|
| Commodity | 320 |
| 34,696 |
| | 722 |
| | (26,294 | ) | 9,444 |
| 158 |
| 18,360 |
| | 125 |
| | (12,371 | ) | | 6,272 |
|
Total derivative receivables(e) | 1,173 |
| 1,160,725 |
| | 18,569 |
| | (1,114,708 | ) | 65,759 |
| 1,685 |
| 915,138 |
| | 5,793 |
| | (858,538 | ) | | 64,078 |
|
Total trading assets | 154,507 |
| 1,289,072 |
| | 45,793 |
| | (1,114,708 | ) | 374,664 |
| 151,795 |
| 1,065,134 |
| | 13,687 |
| | (858,538 | ) | | 372,078 |
|
| Available-for-sale securities: | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | |
U.S. government agencies(a) | — |
| 77,815 |
| | — |
| | — |
| 77,815 |
| — |
| 64,005 |
| | — |
| | — |
| | 64,005 |
|
| Residential – nonagency | — |
| 61,760 |
| | 709 |
| | — |
| 62,469 |
| — |
| 14,442 |
| | 1 |
| | — |
| | 14,443 |
|
| Commercial – nonagency | — |
| 15,900 |
| | 525 |
| | — |
| 16,425 |
| — |
| 9,104 |
| | — |
| | — |
| | 9,104 |
|
| Total mortgage-backed securities | — |
| 155,475 |
| | 1,234 |
| | — |
| 156,709 |
| — |
| 87,551 |
| | 1 |
| | — |
| | 87,552 |
|
U.S. Treasury and government agencies(a) | 21,091 |
| 298 |
| | — |
| | — |
| 21,389 |
| 44,072 |
| 29 |
| | — |
| | — |
| | 44,101 |
|
| Obligations of U.S. states and municipalities | — |
| 29,461 |
| | — |
| | — |
| 29,461 |
| — |
| 31,592 |
| | — |
| | — |
| | 31,592 |
|
| Certificates of deposit | — |
| 1,041 |
| | — |
| | — |
| 1,041 |
| — |
| 106 |
| | — |
| | — |
| | 106 |
|
| Non-U.S. government debt securities | 25,648 |
| 30,600 |
| | — |
| | — |
| 56,248 |
| 22,793 |
| 12,495 |
| | — |
| | — |
| | 35,288 |
|
| Corporate debt securities | — |
| 21,512 |
| | — |
| | — |
| 21,512 |
| — |
| 4,958 |
| | — |
| | — |
| | 4,958 |
|
| Asset-backed securities: | | | | | | | | | | | | |
| Collateralized loan obligations | — |
| 27,409 |
| | 821 |
| | — |
| 28,230 |
| — |
| 26,738 |
| | 663 |
| | — |
| | 27,401 |
|
| Other | — |
| 11,978 |
| | 267 |
| | — |
| 12,245 |
| — |
| 6,967 |
| | — |
| | — |
| | 6,967 |
|
| Equity securities | 3,142 |
| — |
| | — |
| | — |
| 3,142 |
| 926 |
| — |
| | — |
| | — |
| | 926 |
|
| Total available-for-sale securities | 49,881 |
| 277,774 |
| | 2,322 |
| | — |
| 329,977 |
| 67,791 |
| 170,436 |
| | 664 |
| | — |
| | 238,891 |
|
| Loans | — |
| 80 |
| | 1,931 |
| | — |
| 2,011 |
| — |
| 1,660 |
| | 570 |
| | — |
| | 2,230 |
|
| Mortgage servicing rights | — |
| — |
| | 9,614 |
| | — |
| 9,614 |
| — |
| — |
| | 6,096 |
| | — |
| | 6,096 |
|
| Other assets: | | | | | | |
Private equity investments(f) | 606 |
| 429 |
| | 6,474 |
| | — |
| 7,509 |
| |
| All other | 4,213 |
| 289 |
| | 3,176 |
| | — |
| 7,678 |
| |
| Total other assets | 4,819 |
| 718 |
| | 9,650 |
| | — |
| 15,187 |
| |
Other assets(g) | | 4,357 |
| — |
| | 2,223 |
| | — |
| | 6,580 |
|
| Total assets measured at fair value on a recurring basis | $ | 209,207 |
| $ | 1,596,518 |
| (g) | $ | 69,310 |
| (g) | $ | (1,114,708 | ) | $ | 760,327 |
| $ | 223,943 |
| $ | 1,258,736 |
| | $ | 23,240 |
| | $ | (858,538 | ) | | $ | 647,381 |
|
| Deposits | $ | — |
| $ | 4,369 |
| | $ | 2,255 |
| | $ | — |
| $ | 6,624 |
| $ | — |
| $ | 11,795 |
| | $ | 2,117 |
| | $ | — |
| | $ | 13,912 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | — |
| 5,426 |
| | — |
| | — |
| 5,426 |
| — |
| 687 |
| | — |
| | — |
| | 687 |
|
| Other borrowed funds | — |
| 11,232 |
| | 2,074 |
| | — |
| 13,306 |
| |
| Short-term borrowings | | — |
| 7,971 |
| | 1,134 |
| | — |
| | 9,105 |
|
| Trading liabilities: | | | | | | | | | | | | |
Debt and equity instruments(d) | 61,262 |
| 19,055 |
| | 113 |
| | — |
| 80,430 |
| 68,304 |
| 19,081 |
| | 43 |
| | — |
| | 87,428 |
|
| Derivative payables: | | | | | | | | | | | | |
| Interest rate | 321 |
| 822,014 |
| | 3,019 |
| | (812,071 | ) | 13,283 |
| 539 |
| 569,001 |
| | 1,238 |
| | (559,963 | ) | | 10,815 |
|
| Credit | — |
| 78,731 |
| | 3,671 |
| | (80,121 | ) | 2,281 |
| — |
| 27,375 |
| | 1,291 |
| | (27,255 | ) | | 1,411 |
|
| Foreign exchange | 443 |
| 156,838 |
| | 2,844 |
| | (144,178 | ) | 15,947 |
| 902 |
| 231,815 |
| | 2,254 |
| | (214,463 | ) | | 20,508 |
|
| Equity | — |
| 46,552 |
| | 8,102 |
| | (39,935 | ) | 14,719 |
| — |
| 35,202 |
| | 3,160 |
| | (30,222 | ) | | 8,140 |
|
| Commodity | 398 |
| 36,609 |
| | 607 |
| | (26,530 | ) | 11,084 |
| 173 |
| 20,079 |
| | 210 |
| | (12,105 | ) | | 8,357 |
|
Total derivative payables(e) | 1,162 |
| 1,140,744 |
| | 18,243 |
| | (1,102,835 | ) | 57,314 |
| 1,614 |
| 883,472 |
| | 8,153 |
| | (844,008 | ) | | 49,231 |
|
| Total trading liabilities | 62,424 |
| 1,159,799 |
| | 18,356 |
| | (1,102,835 | ) | 137,744 |
| 69,918 |
| 902,553 |
| | 8,196 |
| | (844,008 | ) | | 136,659 |
|
| Accounts payable and other liabilities | — |
| — |
| | 25 |
| | — |
| 25 |
| 9,107 |
| — |
| | 13 |
| | — |
| | 9,120 |
|
| Beneficial interests issued by consolidated VIEs | — |
| 756 |
| | 1,240 |
| | — |
| 1,996 |
| — |
| 72 |
| | 48 |
| | — |
| | 120 |
|
| Long-term debt | — |
| 18,870 |
| | 10,008 |
| | — |
| 28,878 |
| — |
| 24,836 |
| (h) | 12,850 |
| (h) | — |
| | 37,686 |
|
| Total liabilities measured at fair value on a recurring basis | $ | 62,424 |
| $ | 1,200,452 |
| | $ | 33,958 |
| | $ | (1,102,835 | ) | $ | 193,999 |
| $ | 79,025 |
| $ | 947,914 |
| (h) | $ | 24,358 |
| (h) | $ | (844,008 | ) | | $ | 207,289 |
|
| |
| (a) | At December 31, 20142017 and 2013,2016, included total U.S. government-sponsored enterprise obligations of $84.1$78.0 billion and $91.5$80.6 billion,, respectively, which were predominantly mortgage-related. |
| |
| (b) | At December 31, 20142017 and 2013,2016, included within trading loans were $17.0$11.4 billion and $14.8$16.5 billion,, respectively, of residential first-lien mortgages, and $5.8$4.2 billion and $2.1$3.3 billion,, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government agencies of $7.7$5.7 billion and $6.0$11.0 billion,, respectively, and reverse mortgages of $3.4$836 million and $2.0 billion, and $3.6 billion, respectively. |
|
| | |
186 | | JPMorgan Chase & Co./2014 Annual Report |
| |
| (c) | Physical commodities inventories are generally accounted for at the lower of cost or market. “Market”net realizable value. “Net realizable value” is a term defined in U.S. GAAP as not exceeding fair value less costs to sell (“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, marketnet realizable value approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when market is below cost), the carrying value of physical commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the Firm’s hedge accounting relationships, see Note 6. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented.net |
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 161 |
Notes to consolidated financial statements
realizable value is below cost), the carrying value of physical commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the Firm’s hedge accounting relationships, see Note 5. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented.
| |
| (d) | Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions). |
| |
| (e) | As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances for this netting adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of an asset or liability. Therefore, the balances reported in the fair value hierarchy table are gross of any counterparty netting adjustments. However, if the Firm were to net such balances withinThe level 3 the reduction in the level 3 derivative receivables and payables balances would be $2.5 billion and $7.6 billion at December 31, 2014 and 2013, respectively; this is exclusive ofreduced if netting were applied, including the netting benefit associated with cash collateral, which would further reduce the level 3 balances. collateral. |
| |
| (f) | Private equity instruments represent investments withinReflects the Corporate lineFirm’s adoption of business. The cost basis ofrulebook changes made by two CCPs that require or allow the private equity investment portfolio totaled $6.0 billion and $8.0 billion at December 31, 2014 and 2013, respectively.
Firm to treat certain OTC-cleared derivative transactions as daily settled. For further information, see Note 5. |
| |
| (g) | IncludesCertain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in the fair value hierarchy. At December 31, 2017 and 2016, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other funds, that do not have readily determinable fair values. The Firm uses net asset value per share when measuring the fair value ofwere $779 million and $1.0 billion, respectively. Included in these investments. At balances at December 31, 20142017 and 2013,2016, were trading assets of $54 million and $52 million, respectively, and other assets of $725 million and $977 million, respectively.
|
| |
| (h) | The prior period amounts have been revised to conform with the fair values of these investments were $1.8 billion and $3.2 billion, respectively, of which $337 million and $899 million, respectively were classified in level 2, and $1.4 billion and $2.3 billion, respectively, in level 3.current period presentation. |
Transfers between levels for instruments carried at
fair value on a recurring basis
For the yearyears ended December 31, 20142017 and 2013,2016, there were no significant transfers between levels 1 and 2.
During the year ended December 31, 2014,2017, transfers from level 3 to level 2 included the following:
$4.31.5 billion of trading loans driven by an increase in observability.
$1.2 billion of gross equity derivative payables as a result of an increase in observability and $4.4a decrease in the significance of unobservable inputs.
During the year ended December 31, 2017, transfers from level 2 to level 3 included the following:
$1.0 billion of gross equity derivative receivables and payables, respectively, due to increased observability of certain equity option valuation inputs;
$2.7$2.5 billion of trading loans, $2.6 billiongross equity derivative payables as a result of margin loans, $2.3 billiona decrease in observability and an increase in the significance of private equity investments, $2.0 billion of corporate debt, and $1.3unobservable inputs.
$1.7 billion of long-term debt based on increased liquidity and price transparency.
Transfers from level 2 into level 3 included $1.1 billion of other borrowed funds, $1.1 billion of trading loans and $1.0 billion of long-term debt, based ondriven by a decrease in observability and an increase in the significance of valuationunobservable inputs and price transparency.for certain structured notes.
During the year ended December 31, 2013,2016, transfers from level 3 to level 2 included certain highly rated CLOs, including $27.4 billion held in the Firm’s available-for-sale (“AFS”) securities portfolio and $1.4 billion held in the trading portfolio, based on increased liquidity and price transparency; and $1.3following:
$1.4 billion of long-term debt largelydriven by an increase in observability and a reduction in the significance of unobservable inputs for certain structured notes.
During the year ended December 31, 2016, transfers from level 2 to level 3 included the following:
$1.1 billion of gross equity derivative receivables and $1.0 billion of gross equity derivative payables as a result of an decrease in observability and an increase in the significance of unobservable inputs.
$1.0 billion of trading loans driven by a decrease in observability.
During the year ended December 31, 2015, transfers from level 3 to level 2 included the following:
$3.1 billion of long-term debt and $1.0 billion of deposits driven by an increase in observability on certain structured notes with embedded interest rate and FX derivatives and a reduction in the significance of unobservable inputs for certain structured notes with embedded equity derivatives.
$2.1 billion of gross equity derivatives for both receivables and payables as a result of an increase in observability and a decrease in the significance of unobservable inputs; partially offset by transfers into level 3 resulting in net transfers of approximately $1.2 billion for both receivables and payables.
$2.8 billion of trading loans driven by an increase in observability of certain equity structured notes. Transfers from level 2 to level 3 included $1.4collateralized financing transactions.
$2.4 billion of corporate debt securities in the trading portfolio largely driven by a decrease in the significance of unobservable inputs and an increase in observability for certain credit instruments.structured products.
ForDuring the year ended December 31, 2012, $113.9 billion of settled U.S. government agency mortgage-backed securities were transferred from level 1 to level 2. While the U.S. government agency mortgage-backed securities market remained highly liquid and transparent, the transfer reflected greater market price differentiation between settled securities based on certain underlying loan specific factors. There2015, there were no significant transfers from level 2 to level 1 for the year ended December 31, 2012.
For the year ended December 31, 2012, there were no significant transfers from level 2 into level 3. For the year ended December 31, 2012, transfers from level 3 into level 2 included $1.2 billion of derivative payables based on increased observability of certain structured equity derivatives; and $1.8 billion of long-term debt due to increased observability of certain equity structured notes.
All transfers are assumed to occur at the beginning of the quarterly reporting period in which they occur.
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| | |
| 162 | | JPMorgan Chase & Co./20142017 Annual Report | | 187 |
Notes to consolidated financial statements
Level 3 valuations
The Firm has established well-documentedwell-structured processes for determining fair value, including for instruments where fair value is estimated using significant unobservable inputs (level 3). For further information on the Firm’s valuation process and a detailed discussion of the determination of fair value for individual financial instruments, see pages 181–184155–159 of this Note.
Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available to the Firm. For instruments valued using internally developed valuation models and other valuation techniques that use significant unobservable inputs and are therefore classified within level 3 of the fair value hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.
In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate valuation model or other valuation technique to use. Second, due to the lack of observability of significant inputs, management must assess all relevant empirical data in deriving valuation inputs including but not limited to, transaction details, yield curves, interest rates, prepayment speed, default rates, volatilities, correlations, equity or debt prices, valuations of comparable instruments, foreign exchange rates and credit curves.
The following table presents the Firm’s primary level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, the significant unobservable inputs, the range of values for those inputs and, for certain instruments, the weighted averages of such inputs. While the determination to classify an instrument within level 3 is based on the significance of the unobservable inputs to the overall fair value measurement, level 3 financial instruments typically include observable components (that is, components that are actively quoted and can be validated to external sources) in addition to the unobservable components. The level 1 and/or level 2 inputs are not included in the table. In addition, the Firm manages the risk of the observable components of level 3 financial instruments using securities and derivative
positions that are classified within levels 1 or 2 of the fair value hierarchy.
The range of values presented in the table is representative of the highest and lowest level input used to value the significant groups of instruments within a product/instrument classification. Where provided, the weighted averages of the input values presented in the table are calculated based on the fair value of the instruments that the input is being used to value.
In the Firm’s view, the input range and the weighted average value do not reflect the degree of input uncertainty or an assessment of the reasonableness of the Firm’s estimates and assumptions. Rather, they reflect the characteristics of the various instruments held by the Firm and the relative distribution of instruments within the range of characteristics. For example, two option contracts may have similar levels of market risk exposure and valuation uncertainty, but may have significantly different implied volatility levels because the option contracts have different underlyings, tenors, or strike prices. The input range and weighted average values will therefore vary from period-to-period and parameter to parameterparameter-to-parameter based on the characteristics of the instruments held by the Firm at each balance sheet date.
For the Firm’s derivatives and structured notes positions classified within level 3 the equity andat December 31, 2017, interest rate correlation inputs used in estimating fair value were concentrated attowards the upper end of the range presented, whilerange; equity correlation, equity-FX and equity-IR correlation inputs were concentrated in the middle of the range; commodity correlation inputs were concentrated in the middle of the range; credit correlation inputs were distributed across the range presented and the foreign exchange correlation inputs were concentrated attowards the lower end of the range presented.range; and the interest rate-foreign exchange (“IR-FX”) correlation inputs were concentrated towards the lower end of the range. In addition, the interest rate spread volatility inputs used in estimating fair value were concentrated atdistributed across the upper end of the range presentedrange; equity volatilities and the foreign exchange correlation inputscommodity volatilities were concentrated attowards the lower end of the range presented. The equity volatility is concentrated in the lower half end of the range. Therange; and forward commodity prices used in estimating the fair value of commodity derivatives were concentrated withintowards the lower end of the range presented.range. Recovery rate, yield, prepayment speed, conditional default rate, loss severity and price inputs used in estimating the fair value of credit derivatives were distributed across the range; and credit spreads were concentrated towards the lower end of the range.
|
| | |
188 | | JPMorgan Chase & Co./20142017 Annual Report | | 163 |
Notes to consolidated financial statements
|
| | | | | | | | | | | | |
Level 3 inputs(a) | |
| December 31, 2014 (in millions, except for ratios and basis points) | | | | | |
| Product/Instrument | Fair value | | Principal valuation technique | Unobservable inputs | Range of input values | Weighted average |
| Residential mortgage-backed securities and loans | $ | 8,917 |
| | Discounted cash flows | Yield | 1% |
| - | 25% | 5% |
| | | | Prepayment speed | 0% |
| - | 18% | 6% |
| | | | | Conditional default rate | 0% |
| - | 100% | 22% |
| | | | | Loss severity | 0% |
| - | 90% | 27% |
Commercial mortgage-backed securities and loans(b) | 5,319 |
| | Discounted cash flows | Yield | 2% |
| - | 32% | 5% |
| | | | Conditional default rate | 0% |
| - | 100% | 8% |
| | | | | Loss severity | 0% |
| - | 50% | 29% |
Corporate debt securities, obligations of U.S. states and municipalities, and other(c) | 6,387 |
| | Discounted cash flows | Credit spread | 53 bps |
| - | 270 bps | 140 bps |
| | | | Yield | 1% |
| - | 22% | 7% |
| 6,629 |
| | Market comparables | Price | $ | — |
| - | $131 | $90 |
| Net interest rate derivatives | 626 |
| | Option pricing | Interest rate correlation | (75 | )% | - | 95% | |
| | | | | Interest rate spread volatility | 0% |
| - | 60% | |
Net credit derivatives(b)(c) | 189 |
| | Discounted cash flows | Credit correlation | 47% |
| - | 90% | |
| Net foreign exchange derivatives | (526 | ) | | Option pricing | Foreign exchange correlation | 0% |
| - | 60% | |
| Net equity derivatives | (1,785 | ) | | Option pricing | Equity volatility | 15% |
| - | 65% | |
| Net commodity derivatives | (565 | ) | | Discounted cash flows | Forward commodity price | $ | 50 |
| - | $90 per barrel |
| Collateralized loan obligations | 792 |
| | Discounted cash flows | Credit spread | 260 bps |
| - | 675 bps | 279 bps |
| | | | | Prepayment speed | 20% | 20% |
| | | | | Conditional default rate | 2% | 2% |
| | | | | Loss severity | 40% | 40% |
| | 393 |
| | Market comparables | Price | $ | — |
| - | $146 | $79 |
| Mortgage servicing rights | 7,436 |
| | Discounted cash flows | Refer to Note 17 | |
| Private equity direct investments | 2,054 |
| | Market comparables | EBITDA multiple | 6x |
| - | 12.4x | 9.1x |
| | | | Liquidity adjustment | 0% |
| - | 15% | 7% |
| Private equity fund investments | 421 |
| | Net asset value | Net asset value(e) | | |
Long-term debt, other borrowed funds, and deposits(d) | 15,069 |
| | Option pricing | Interest rate correlation | (75 | )% | - | 95% | |
| | | | Interest rate spread volatility | 0% |
| - | 60% | |
| | | | Foreign exchange correlation | 0% |
| - | 60% | |
| | | | Equity correlation | (55 | )% | - | 85% | |
| | 1,120 |
| | Discounted cash flows | Credit correlation | 47% |
| - | 90% | |
|
| | | | | | | | | | | | |
Level 3 inputs(a) | |
| December 31, 2017 | | | | | |
| Product/Instrument | Fair value (in millions) | | Principal valuation technique | Unobservable inputs(g) | Range of input values | Weighted average |
Residential mortgage-backed securities and loans(b) | $ | 1,418 |
| | Discounted cash flows | Yield | 3 | % | – | 16% | 6% |
| | | | Prepayment speed | 0 | % | – | 13% | 9% |
| | | | | Conditional default rate | 0 | % | – | 5% | 1% |
| | | | | Loss severity | 0 | % | – | 84% | 3% |
Commercial mortgage-backed securities and loans(c) | 714 |
| | Market comparables | Price | $ | 0 |
| – | $100 | $94 |
| Obligations of U.S. states and municipalities | 744 |
| | Market comparables | Price | $ | 59 |
| – | $100 | $98 |
| Corporate debt securities | 312 |
| | Market comparables | Price | $ | 3 |
| – | $111 | $82 |
Loans(d)
| 1,242 |
| | Market comparables | Price | $ | 4 |
| – | $103 | $84 |
| Asset-backed securities | 276 |
| | Discounted cash flows | Credit spread | 204 | bps | – | 205bps | 205bps |
| | | | | Prepayment speed | 20% | 20% |
| | | | | Conditional default rate | 2% | 2% |
| | | | | Loss severity | 30% | 30% |
| | 153 |
| | Market comparables | Price | $ | 2 |
| – | $160 | $79 |
| Net interest rate derivatives | 28 |
| | Option pricing | Interest rate spread volatility | 27 | bps | – | 38bps | |
| | | | | Interest rate correlation | (50 | )% | – | 98% | |
| | | | | IR-FX correlation | 60 | % | – | 70% | |
| | 236 |
| | Discounted cash flows | Prepayment speed | 0 | % | – | 30% | |
| Net credit derivatives | (37 | ) | | Discounted cash flows | Credit correlation | 40 | % | – | 75% | |
| | | | | Credit spread | 6 | bps | – | 1,489bps | |
| | | | | Recovery rate | 20 | % | – | 70% | |
| | | | | Yield | 1 | % | – | 20% | |
| | | | | Prepayment speed | 4 | % | – | 21% | |
| | | | | Conditional default rate | 0 | % | – | 100% | |
| | | | | Loss severity | 4 | % | – | 100% | |
| | 2 |
| | Market comparables | Price | $ | 10 |
|
| $98 | |
| Net foreign exchange derivatives | (200 | ) | | Option pricing | IR-FX correlation | (50 | )% | – | 70% | |
| | (196 | ) | | Discounted cash flows | Prepayment speed | 7% | |
| Net equity derivatives | (3,409 | ) | | Option pricing | Equity volatility | 20 | % | – | 55% | |
| | | | | Equity correlation | 0 | % | –
| 85% | |
| | | | | Equity-FX correlation | (50 | )% | –
| 30% | |
| | | | | Equity-IR correlation | 10 | % | – | 40% | |
| Net commodity derivatives | (674 | ) | | Option pricing | Forward commodity price | $ | 54 |
| – | $68 per barrel |
| | | | | Commodity volatility | 5 | % |
| 46% | |
| | | | | Commodity correlation | (40 | )% | –
| 70% | |
| MSRs | 6,030 |
| | Discounted cash flows | Refer to Note 15 | | | | |
| Other assets | 984 |
| | Discounted cash flows | Credit spread | 40bps | – | 70bps | 55bps |
| | | | | Yield | 8% | –
| 60% | 47% |
| | 971 |
| | Market comparables | EBITDA multiple | 4.7x | –
| 10.6x | 8.9x |
Long-term debt, short-term borrowings, and deposits(e) | 21,932 |
| | Option pricing | Interest rate spread volatility | 27 | bps | – | 38bps | |
| | | | Interest rate correlation | (50 | )% | – | 98% | |
| | | | IR-FX correlation | (50 | )% | – | 70% | |
| | | | Equity correlation | 0 | % | – | 85% | |
| | | | Equity-FX correlation | (50 | )% | – | 30% | |
| | | | Equity-IR correlation | 10 | % | – | 40% | |
Other level 3 assets and liabilities, net(f)
| 283 |
| | | | | | | |
| |
| (a) | The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued using the technique as the characteristics of the instruments can differ. |
|
| | |
| 164 | | JPMorgan Chase & Co./2017 Annual Report |
| |
| (b) | The unobservable inputsIncludes U.S. government agency securities of $297 million, nonagency securities of $61 million and associated input ranges for approximately $491 milliontrading loans of credit derivative receivables and $433 million of credit derivative payables with underlying commercial mortgage risk have been included in the inputs and ranges provided for commercial mortgage-backed securities and loans.$1.1 billion. |
| |
| (c) | The unobservable inputsIncludes U.S. government agency securities of $10 million, nonagency securities of $11 million, trading loans of $417 million and associated input ranges for approximately $795 millionnon-trading loans of credit derivative receivables and $715 million of credit derivative payables with underlying asset-backed securities risk have been included in the inputs and ranges provided for corporate debt securities, obligations of U.S. states and municipalities and other.$276 million. |
| |
| (d) | Includes trading loans of $1.2 billion. |
| |
| (e) | Long-term debt, other borrowed fundsshort-term borrowings and deposits include structured notes issued by the Firm that are predominantly financial instruments containing embedded derivatives. The estimation of the fair value of structured notes is predominantly based onincludes the derivative features embedded within the instruments.instrument. The significant unobservable inputs are broadly consistent with those presented for derivative receivables. |
| |
(e)(f) | The range has not been disclosed due to the wide range of possible values given the diverse nature of the underlying investments.Includes level 3 assets and liabilities that are insignificant both individually and in aggregate. |
|
| | |
JPMorgan Chase & Co./2014 Annual Report(g) | | 189Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on price-based internal valuation techniques. The price input is expressed assuming a par value of $100. |
Notes to consolidated financial statements
Changes in and ranges of unobservable inputs
The following discussion provides a description of the impact on a fair value measurement of a change in each unobservable input in isolation, and the interrelationship between unobservable inputs, where relevant and significant. The impact of changes in inputs may not be independent, as a change in one unobservable input may give rise to a change in another unobservable input; whereinput. Where relationships do exist between two unobservable inputs, those relationships are discussed below. Relationships may also exist between observable and unobservable inputs (for example, as observable interest rates rise, unobservable prepayment rates decline); such relationships have not been included in the discussion below. In addition, for each of the individual relationships described below, the inverse relationship would also generally apply.
In addition, theThe following discussion also provides a description of attributes of the underlying instruments and external market factors that affect the range of inputs used in the valuation of the Firm’s positions.
Yield – The yield of an asset is the interest rate used to discount future cash flows in a discounted cash flow calculation. An increase in the yield, in isolation, would result in a decrease in a fair value measurement.
Credit spread – The credit spread is the amount of additional annualized return over the market interest rate that a market participant would demand for taking exposure to the credit risk of an instrument. The credit spread for an instrument forms part of the discount rate used in a discounted cash flow calculation. Generally, an increase in the credit spread would result in a decrease in a fair value measurement.
The yield and the credit spread of a particular mortgage-backed security primarily reflect the risk inherent in the instrument. The yield is also impacted by the absolute level of the coupon paid by the instrument (which may not correspond directly to the level of inherent risk). Therefore, the range of yield and credit spreads reflects the range of risk inherent in various instruments owned by the Firm. The risk inherent in mortgage-backed securities is driven by the subordination of the security being valued and the characteristics of the underlying mortgages within the collateralized pool, including borrower FICO scores, loan-to-valueLTV ratios for residential mortgages and the nature of the property and/or any tenants for commercial mortgages. For corporate debt securities, obligations of U.S. states and municipalities and other similar instruments, credit spreads reflect the credit quality of the obligor and the tenor of the obligation.
Prepayment speed – The prepayment speed is a measure of the voluntary unscheduled principal repayments of a prepayable obligation in a collateralized pool. Prepayment speeds generally decline as borrower delinquencies rise. An increase in prepayment speeds, in isolation, would result in a decrease in a fair value measurement of assets valued at a premium to par and an increase in a fair value measurement of assets valued at a discount to par.
Prepayment speeds may vary from collateral pool to collateral pool, and are driven by the type and location of the underlying borrower, and the remaining tenor of the obligation as well as the level and type (e.g., fixed or floating) of interest rate being paid by the borrower. Typically collateral pools with higher borrower credit quality have a higher prepayment rate than those with lower borrower credit quality, all other factors being equal.
Conditional default rate – The conditional default rate is a measure of the reduction in the outstanding collateral balance underlying a collateralized obligation as a result of defaults. While there is typically no direct relationship between conditional default rates and prepayment speeds, collateralized obligations for which the underlying collateral has high prepayment speeds will tend to have lower conditional default rates. An increase in conditional default rates would generally be accompanied by an increase in loss severity and an increase in credit spreads. An increase in the conditional default rate, in isolation, would result in a decrease in a fair value measurement. Conditional default rates reflect the quality of the collateral underlying a securitization and the structure of the securitization itself. Based on the types of securities owned in the Firm’s market-making portfolios, conditional default rates are most typically at the lower end of the range presented.
Loss severity – The loss severity (the inverse concept is the recovery rate) is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance. An increase in loss severity is generally accompanied by an increase in conditional default rates. An increase in the loss severity, in isolation, would result in a decrease in a fair value measurement.
The loss severity applied in valuing a mortgage-backed security investment depends on a host of factors relating to the underlying mortgages. This includesmortgages, including the loan-to-valueLTV ratio, the nature of the lender’s lien on the property and various other instrument-specific factors.
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| | |
190 | | JPMorgan Chase & Co./20142017 Annual Report | | 165 |
Notes to consolidated financial statements
Correlation – Correlation is a measure of the relationship between the movements of two variables (e.g., how the change in one variable influences the change in the other). Correlation is a pricing input for a derivative product where the payoff is driven by one or more underlying risks. Correlation inputs are related to the type of derivative (e.g., interest rate, credit, equity and foreign exchange) due to the nature of the underlying risks. When parameters are positively correlated, an increase in one parameter will result in an increase in the other parameter. When parameters are negatively correlated, an increase in one parameter will result in a decrease in the other parameter. An increase in correlation can result in an increase or a decrease in a fair value measurement. Given a short correlation position, an increase in correlation, in isolation, would generally result in a decrease in a fair value measurement. The range of correlation inputs between risks within the same asset class are generally narrower than those between underlying risks across asset classes. In addition, the ranges of credit correlation inputs tend to be narrower than those affecting other asset classes.
The level of correlation used in the valuation of derivatives with multiple underlying risks depends on a number of factors including the nature of those risks. For example, the correlation between two credit risk exposures would be different than that between two interest rate risk exposures. Similarly, the tenor of the transaction may also impact the correlation input, as the relationship between the underlying risks may be different over different time periods. Furthermore, correlation levels are very much dependent on market conditions and could have a relatively wide range of levels within or across asset classes over time, particularly in volatile market conditions.
Volatility – Volatility is a measure of the variability in possible returns for an instrument, parameter or market index given how much the particular instrument, parameter or index changes in value over time. Volatility is a pricing input for options, including equity options, commodity options, and interest rate options. Generally, the higher the volatility of the underlying, the riskier the instrument. Given a long position in an option, an increase in volatility, in isolation, would generally result in an increase in a fair value measurement.
The level of volatility used in the valuation of a particular option-based derivative depends on a number of factors, including the nature of the risk underlying the option (e.g., the volatility of a particular equity security may be significantly different from that of a particular commodity index), the tenor of the derivative as well as the strike price of the option.
EBITDA multiple – EBITDA multiples refer to the input (often derived from the value of a comparable company) that is multiplied by the historic and/or expected earnings before interest, taxes, depreciation and amortization (“EBITDA”) of a company in order to estimate the company’s value. An increase in the EBITDA multiple, in isolation, net of adjustments, would result in an increase in a fair value measurement.
Net asset value – Net asset value is the total value of a fund’s assets less liabilities. An increase in net asset value would result in an increase in a fair value measurement.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated balance sheets amounts (including changes in fair value) for financial instruments classified by the Firm within level 3 of the fair value hierarchy for the years ended December 31, 20142017, 20132016 and 20122015. When a determination is made to classify a financial instrument within level 3, the determination is based on the significance of the unobservable parameters to the overall fair value measurement. However, level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources); accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology. Also, the Firm risk-manages the observable components of level 3 financial instruments using securities and derivative positions that are classified within level 1 or 2 of the fair value hierarchy; as these level 1 and level 2 risk management instruments are not included below, the gains or losses in the following tables do not reflect the effect of the Firm’s risk management activities related to such level 3 instruments.
|
| | |
| 166 | | JPMorgan Chase & Co./2017 Annual Report |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2017 (in millions) | Fair value at January 1, 2017 | Total realized/unrealized gains/(losses) | | | | | Transfers into
level 3(h) | Transfers (out of) level 3(h) | Fair value at Dec. 31, 2017 | | Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2017 |
Purchases(f) | Sales | | Settlements(g) |
| Assets: | | | | | | | | | | | | | |
| Trading assets: | | | | | | | | | | | | | |
| Debt instruments: | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | |
| U.S. government agencies | $ | 392 |
| $ | (11 | ) | | $ | 161 |
| $ | (171 | ) | | $ | (70 | ) | $ | 49 |
| $ | (43 | ) | $ | 307 |
| | $ | (20 | ) | |
| Residential – nonagency | 83 |
| 19 |
| | 53 |
| (30 | ) | | (64 | ) | 132 |
| (133 | ) | 60 |
| | 11 |
| |
| Commercial – nonagency | 17 |
| 9 |
| | 27 |
| (44 | ) | | (13 | ) | 64 |
| (49 | ) | 11 |
| | 1 |
| |
| Total mortgage-backed securities | 492 |
| 17 |
| | 241 |
| (245 | ) | | (147 | ) | 245 |
| (225 | ) | 378 |
| | (8 | ) | |
| U.S. Treasury and government agencies | — |
| — |
| | — |
| — |
| | — |
| 1 |
| — |
| 1 |
| | — |
| |
| Obligations of U.S. states and municipalities | 649 |
| 18 |
| | 152 |
| (70 | ) | | (5 | ) | — |
| — |
| 744 |
| | 15 |
| |
| Non-U.S. government debt securities | 46 |
| — |
| | 559 |
| (518 | ) | | — |
| 62 |
| (71 | ) | 78 |
| | — |
| |
| Corporate debt securities | 576 |
| 11 |
| | 872 |
| (612 | ) | | (497 | ) | 157 |
| (195 | ) | 312 |
| | 18 |
| |
| Loans | 4,837 |
| 333 |
| | 2,389 |
| (2,832 | ) | | (1,323 | ) | 806 |
| (1,491 | ) | 2,719 |
| | 43 |
| |
| Asset-backed securities | 302 |
| 32 |
| | 354 |
| (356 | ) | | (56 | ) | 75 |
| (198 | ) | 153 |
| | — |
| |
| Total debt instruments | 6,902 |
| 411 |
| | 4,567 |
| (4,633 | ) | | (2,028 | ) | 1,346 |
| (2,180 | ) | 4,385 |
| | 68 |
| |
| Equity securities | 231 |
| 39 |
| | 176 |
| (148 | ) | | (4 | ) | 59 |
| (58 | ) | 295 |
| | 21 |
| |
| Other | 761 |
| 100 |
| | 30 |
| (46 | ) | | (162 | ) | 17 |
| (10 | ) | 690 |
| | 39 |
| |
| Total trading assets – debt and equity instruments | 7,894 |
| 550 |
| (c) | 4,773 |
| (4,827 | ) | | (2,194 | ) | 1,422 |
| (2,248 | ) | 5,370 |
| | 128 |
| (c) |
Net derivative receivables:(a) | | | | | | | |
|
| | | | | |
| Interest rate | 1,263 |
| 72 |
| | 60 |
| (82 | ) | | (1,040 | ) | (8 | ) | (1 | ) | 264 |
| | (473 | ) | |
| Credit | 98 |
| (164 | ) | | 1 |
| (6 | ) | | — |
| 77 |
| (41 | ) | (35 | ) | | 32 |
| |
| Foreign exchange | (1,384 | ) | 43 |
| | 13 |
| (10 | ) | | 854 |
| (61 | ) | 149 |
| (396 | ) | | 42 |
| |
| Equity | (2,252 | ) | (417 | ) | | 1,116 |
| (551 | ) | | (245 | ) | (1,482 | ) | 422 |
| (3,409 | ) | | (161 | ) | |
| Commodity | (85 | ) | (149 | ) | | — |
| — |
| | (433 | ) | (6 | ) | (1 | ) | (674 | ) | | (718 | ) | |
| Total net derivative receivables | (2,360 | ) | (615 | ) | (c) | 1,190 |
| (649 | ) | | (864 | ) | (1,480 | ) | 528 |
| (4,250 | ) | | (1,278 | ) | (c) |
| Available-for-sale securities: | | | | | | | |
|
| | | | | |
| Asset-backed securities | 663 |
| 15 |
| | — |
| (50 | ) | | (352 | ) | — |
| — |
| 276 |
| | 14 |
| |
| Other | 1 |
| — |
| | — |
| — |
| | — |
| — |
| — |
| 1 |
| | — |
| |
| Total available-for-sale securities | 664 |
| 15 |
| (d) | — |
| (50 | ) | | (352 | ) | — |
| — |
| 277 |
| | 14 |
| (d) |
| Loans | 570 |
| 35 |
| (c) | — |
| (26 | ) | | (303 | ) | — |
| — |
| 276 |
| | 3 |
| (c) |
| Mortgage servicing rights | 6,096 |
| (232 | ) | (e) | 1,103 |
| (140 | ) | | (797 | ) | — |
| — |
| 6,030 |
| | (232 | ) | (e) |
| Other assets | 2,223 |
| 244 |
| (c) | 66 |
| (177 | ) | | (870 | ) | — |
| (221 | ) | 1,265 |
| | 74 |
| (c) |
| | | | | | | | | | | | | | |
| | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2017
(in millions) | Fair value at January 1, 2017 | Total realized/unrealized (gains)/losses | | | | | | Transfers (out of) level 3(h) | Fair value at Dec. 31, 2017 | | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2017 |
| Purchases | Sales | Issuances | Settlements(g) | Transfers into
level 3(h) |
Liabilities:(b) | | | | | | | | | | | | | |
| Deposits | $ | 2,117 |
| $ | 152 |
| (c)(i) | $ | — |
| $ | — |
| $ | 3,027 |
| $ | (291 | ) | $ | 11 |
| $ | (874 | ) | $ | 4,142 |
| | $ | 198 |
| (c)(i) |
| Federal funds purchased and securities loaned or sold under repurchase agreements | — |
| — |
| | — |
| — |
| — |
| — |
| — |
| — |
| — |
| | — |
| |
| Short-term borrowings | 1,134 |
| 42 |
| (c)(i) | — |
| — |
| 3,289 |
| (2,748 | ) | 150 |
| (202 | ) | 1,665 |
| | 7 |
| (c)(i) |
| Trading liabilities – debt and equity instruments | 43 |
| (3 | ) | (c) | (46 | ) | 48 |
| — |
| 3 |
| 3 |
| (9 | ) | 39 |
| | — |
| (c) |
| Accounts payable and other liabilities | 13 |
| (2 | ) | | (1 | ) | — |
| — |
| 3 |
| — |
| — |
| 13 |
| | (2 | ) | |
| Beneficial interests issued by consolidated VIEs | 48 |
| 2 |
| (c) | (122 | ) | 39 |
| — |
| (6 | ) | 78 |
| — |
| 39 |
| | — |
| (c) |
| Long-term debt | 12,850 |
| 1,067 |
| (c)(i) | — |
| — |
| 12,458 |
| (10,985 | ) | 1,660 |
| (925 | ) | 16,125 |
| | 552 |
| (c)(i) |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 191167 |
Notes to consolidated financial statements
| | | | Fair value measurements using significant unobservable inputs | | | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2014 (in millions) | Fair value at January 1, 2014 | Total realized/unrealized gains/(losses) | | Transfers into and/or out of level 3(h) | Fair value at Dec. 31, 2014 | | Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2014 | |
Purchases(g)(f) | Sales | | Settlements | |
Year ended
December 31, 2016 (in millions) | | Fair value at January 1, 2016 | Total realized/unrealized gains/(losses) | | | | | Transfers (out of) level 3(h) | Fair value at Dec. 31, 2016 | | Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2016 |
| Purchases(g)(f) | Sales | | | Settlements(g) | Transfers into
level 3(h) |
| Assets: | | | | | | | | | | | | | | | | |
| Trading assets: | | | | | | | | | | | | | | | | |
| Debt instruments: | | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | |
| U.S. government agencies | $ | 1,005 |
| $ | (97 | ) | | $ | 351 |
| $ | (186 | ) | | $ | (121 | ) | $ | (30 | ) | $ | 922 |
| | $ | (92 | ) | | $ | 715 |
| | $ | (20 | ) | | $ | 135 |
| $ | (295 | ) | | | $ | (115 | ) | $ | 111 |
| $ | (139 | ) | $ | 392 |
| | $ | (36 | ) | |
| Residential – nonagency | 726 |
| 66 |
| | 827 |
| (761 | ) | | (41 | ) | (154 | ) | 663 |
| | (15 | ) | | 194 |
| | 4 |
| | 252 |
| (319 | ) | | | (20 | ) | 67 |
| (95 | ) | 83 |
| | 5 |
| |
| Commercial – nonagency | 432 |
| 17 |
| | 980 |
| (914 | ) | | (60 | ) | (149 | ) | 306 |
| | (12 | ) | | 115 |
| | (11 | ) | | 69 |
| (29 | ) | | | (3 | ) | 173 |
| (297 | ) | 17 |
| | 3 |
| |
| Total mortgage-backed securities | 2,163 |
| (14 | ) | | 2,158 |
| (1,861 | ) | | (222 | ) | (333 | ) | 1,891 |
| | (119 | ) | | 1,024 |
| | (27 | ) | | 456 |
| (643 | ) | | | (138 | ) | 351 |
| (531 | ) | 492 |
| | (28 | ) | |
| Obligations of U.S. states and municipalities | 1,382 |
| 90 |
| | 298 |
| (358 | ) | | (139 | ) | — |
| 1,273 |
| | (27 | ) | | 651 |
| | 19 |
| | 149 |
| (132 | ) | | | (38 | ) | — |
| — |
| 649 |
| | — |
| |
| Non-U.S. government debt securities | 143 |
| 24 |
| | 719 |
| (617 | ) | | (3 | ) | 36 |
| 302 |
| | 10 |
| | 74 |
| | (4 | ) | | 91 |
| (97 | ) | | | (7 | ) | 19 |
| (30 | ) | 46 |
| | (7 | ) | |
| Corporate debt securities | 5,920 |
| 210 |
| | 5,854 |
| (3,372 | ) | | (4,531 | ) | (1,092 | ) | 2,989 |
| | 379 |
| | 736 |
| | 2 |
| | 445 |
| (359 | ) | | | (189 | ) | 148 |
| (207 | ) | 576 |
| | (22 | ) | |
| Loans | 13,455 |
| 387 |
| | 13,551 |
| (7,917 | ) | | (4,623 | ) | (1,566 | ) | 13,287 |
| | 123 |
| | 6,604 |
| | (343 | ) | | 2,228 |
| (2,598 | ) | | | (1,311 | ) | 1,044 |
| (787 | ) | 4,837 |
| | (169 | ) | |
| Asset-backed securities | 1,272 |
| 19 |
| | 2,240 |
| (2,126 | ) | | (283 | ) | 142 |
| 1,264 |
| | (30 | ) | | 1,832 |
| | 39 |
| | 655 |
| (712 | ) | | | (968 | ) | 288 |
| (832 | ) | 302 |
| | 19 |
| |
| Total debt instruments | 24,335 |
| 716 |
| | 24,820 |
| (16,251 | ) | | (9,801 | ) | (2,813 | ) | 21,006 |
| | 336 |
| | 10,921 |
| | (314 | ) | | 4,024 |
| (4,541 | ) | | | (2,651 | ) | 1,850 |
| (2,387 | ) | 6,902 |
| | (207 | ) | |
| Equity securities | 885 |
| 112 |
| | 248 |
| (272 | ) | | (290 | ) | (252 | ) | 431 |
| | 46 |
| | 265 |
| | — |
| | 90 |
| (108 | ) | | | (40 | ) | 29 |
| (5 | ) | 231 |
| | 7 |
| |
| Physical commodities | 4 |
| (1 | ) | | — |
| — |
| | (1 | ) | — |
| 2 |
| | — |
| | |
| Other | 2,000 |
| 239 |
| | 1,426 |
| (276 | ) | | (201 | ) | (2,138 | ) | 1,050 |
| | 329 |
| | 744 |
| | 79 |
| | 649 |
| (287 | ) | | | (360 | ) | 26 |
| (90 | ) | 761 |
| | 28 |
| |
| Total trading assets – debt and equity instruments | 27,224 |
| 1,066 |
| (c) | 26,494 |
| (16,799 | ) | | (10,293 | ) | (5,203 | ) | 22,489 |
| | 711 |
| (c) | 11,930 |
| | (235 | ) | (c) | 4,763 |
| (4,936 | ) | | | (3,051 | ) | 1,905 |
| (2,482 | ) | 7,894 |
| | (172 | ) | (c) |
Net derivative receivables:(a) | | | | | | | — |
| | | |
|
|
|
| | |
|
|
|
| — |
| — |
| |
|
| |
| Interest rate | 2,379 |
| 184 |
| | 198 |
| (256 | ) | | (1,771 | ) | (108 | ) | 626 |
| | (853 | ) | | 876 |
| | 756 |
| | 193 |
| (57 | ) | | | (713 | ) | (14 | ) | 222 |
| 1,263 |
| | (144 | ) | |
| Credit | 95 |
| (149 | ) | | 272 |
| (47 | ) | | 92 |
| (74 | ) | 189 |
| | (107 | ) | | 549 |
| | (742 | ) | | 10 |
| (2 | ) | | | 211 |
| 36 |
| 36 |
| 98 |
| | (622 | ) | |
| Foreign exchange | (1,200 | ) | (137 | ) | | 139 |
| (27 | ) | | 668 |
| 31 |
| (526 | ) | | (62 | ) | | (725 | ) | | 67 |
| | 64 |
| (124 | ) | | | (649 | ) | (48 | ) | 31 |
| (1,384 | ) | | (350 | ) | |
| Equity | (1,063 | ) | 154 |
| | 2,044 |
| (2,863 | ) | | 10 |
| (67 | ) | (1,785 | ) | | 583 |
| | (1,514 | ) | | (145 | ) | | 277 |
| (852 | ) | | | 213 |
| 94 |
| (325 | ) | (2,252 | ) | | (86 | ) | |
| Commodity | 115 |
| (465 | ) | | 1 |
| (113 | ) | | (109 | ) | 6 |
| (565 | ) | | (186 | ) | | (935 | ) | | 194 |
| | 1 |
| 10 |
| | | 645 |
| 8 |
| (8 | ) | (85 | ) | | (36 | ) | |
| Total net derivative receivables | 326 |
| (413 | ) | (c) | 2,654 |
| (3,306 | ) | | (1,110 | ) | (212 | ) | (2,061 | ) | | (625 | ) | (c) | (1,749 | ) | | 130 |
| (c) | 545 |
| (1,025 | ) | | | (293 | ) | 76 |
| (44 | ) | (2,360 | ) | | (1,238 | ) | (c) |
| Available-for-sale securities: | | | | | | | | | | |
|
|
|
| | |
|
|
|
|
|
|
|
| |
|
| |
| Asset-backed securities | 1,088 |
| (41 | ) | | 275 |
| (2 | ) | | (101 | ) | (311 | ) | 908 |
| | (40 | ) | | 823 |
| | 1 |
| | — |
| — |
| | | (119 | ) | — |
| (42 | ) | 663 |
| | 1 |
| |
| Other | 1,234 |
| (19 | ) | | 122 |
| — |
| | (223 | ) | (985 | ) | 129 |
| | (2 | ) | | 1 |
| | — |
| | — |
| — |
| | | — |
| — |
| — |
| 1 |
| | — |
| |
| Total available-for-sale securities | 2,322 |
| (60 | ) | (d) | 397 |
| (2 | ) | | (324 | ) | (1,296 | ) | 1,037 |
| | (42 | ) | (d) | 824 |
| | 1 |
| (d) | — |
| — |
| | | (119 | ) | — |
| (42 | ) | 664 |
| | 1 |
| (d) |
| Loans | 1,931 |
| (254 | ) | (c) | 3,258 |
| (845 | ) | | (1,549 | ) | — |
| 2,541 |
| | (234 | ) | (c) | 1,518 |
| | (49 | ) | (c) | 259 |
| (7 | ) | | | (838 | ) | — |
| (313 | ) | 570 |
| | — |
| (c) |
| Mortgage servicing rights | 9,614 |
| (1,826 | ) | (e) | 768 |
| (209 | ) | | (911 | ) | — |
| 7,436 |
| | (1,826 | ) | (e) | 6,608 |
| | (163 | ) | (e) | 679 |
| (109 | ) | | | (919 | ) | — |
| — |
| 6,096 |
| | (163 | ) | (e) |
| Other assets: | | | | | | | |
| Private equity investments | 6,474 |
| 443 |
| (c) | 164 |
| (1,967 | ) | | (360 | ) | (2,279 | ) | 2,475 |
| | 26 |
| (c) | |
| All other | 3,176 |
| 33 |
| (f) | 190 |
| (451 | ) | | (577 | ) | — |
| 2,371 |
| | 11 |
| (f) | |
| Other assets | | 2,401 |
| | 130 |
| (c) | 487 |
| (496 | ) | | | (299 | ) | — |
| — |
| 2,223 |
| | 48 |
| (c) |
| | | | | | | | | | | | | | | | | |
| | Fair value measurements using significant unobservable inputs | | | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2014 (in millions) | Fair value at January 1, 2014 | Total realized/unrealized (gains)/losses | | Transfers into and/or out of level 3(h) | Fair value at Dec. 31, 2014 | | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2014 | |
Purchases(g) | Sales | Issuances | Settlements | |
Year ended
December 31, 2016
(in millions) | | Fair value at January 1, 2016 | | Total realized/unrealized (gains)/losses | | | | | Transfers (out of) level 3(h) | Fair value at Dec. 31, 2016 | | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2016 |
| Purchases | Sales | Issuances | | Settlements(g) | Transfers into
level 3(h) |
Liabilities:(b) | | | | | | | | | | | | | | | | |
| Deposits | $ | 2,255 |
| $ | 149 |
| (c) | $ | — |
| $ | — |
| $ | 1,578 |
| $ | (197 | ) | $ | (926 | ) | $ | 2,859 |
| | $ | 130 |
| (c) | $ | 2,950 |
| | $ | (56 | ) | (c) | $ | — |
| $ | — |
| $ | 1,375 |
| | $ | (1,283 | ) | $ | — |
| $ | (869 | ) | $ | 2,117 |
| | $ | 23 |
| (c) |
| Other borrowed funds | 2,074 |
| (596 | ) | (c) | — |
| — |
| 5,377 |
| (6,127 | ) | 725 |
| 1,453 |
| | (415 | ) | (c) | |
| Federal funds purchased and securities loaned or sold under repurchase agreements | | — |
| | — |
| | — |
| — |
| — |
| | (2 | ) | 6 |
| (4 | ) | — |
| | — |
| |
| Short-term borrowings | | 639 |
| | (230 | ) | (c) | — |
| — |
| 1,876 |
| | (1,210 | ) | 114 |
| (55 | ) | 1,134 |
| | (70 | ) | (c) |
| Trading liabilities – debt and equity instruments | 113 |
| (5 | ) | (c) | (305 | ) | 323 |
| — |
| (5 | ) | (49 | ) | 72 |
| | 2 |
| (c) | 63 |
| | (12 | ) | (c) | (15 | ) | 23 |
| — |
| | (22 | ) | 13 |
| (7 | ) | 43 |
| | (18 | ) | (c) |
| Accounts payable and other liabilities | 25 |
| 27 |
| (f) | — |
| — |
| — |
| (16 | ) | — |
| 36 |
| | — |
| (f) | 19 |
| | — |
| | — |
| — |
| — |
| | (6 | ) | — |
| — |
| 13 |
| | — |
| |
| Beneficial interests issued by consolidated VIEs | 1,240 |
| (4 | ) | (c) | — |
| — |
| 775 |
| (763 | ) | (102 | ) | 1,146 |
| | (22 | ) | (c) | 549 |
| | (31 | ) | (c) | — |
| — |
| 143 |
| | (613 | ) | — |
| — |
| 48 |
| | 6 |
| (c) |
| Long-term debt | 10,008 |
| (40 | ) | (c) | — |
| — |
| 7,421 |
| (5,231 | ) | (281 | ) | 11,877 |
| | (9 | ) | (c) | 11,447 |
| (j) | 147 |
| (c)(j) | — |
| — |
| 8,140 |
| (j) | (5,810 | ) | 315 |
| (1,389 | ) | 12,850 |
| (j) | 639 |
| (c)(j) |
|
| | |
192168 | | JPMorgan Chase & Co./20142017 Annual Report |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2013 (in millions) | Fair value at January 1, 2013 | Total realized/unrealized gains/(losses) | | | | | | | Transfers into and/or out of level 3(h) | Fair value at Dec. 31, 2013 | Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2013 |
Purchases(g) | | Sales | | | Settlements |
| Assets: | | | | | | | | | | | | | | |
| Trading assets: | | | | | | | | | | | | | | |
| Debt instruments: | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | |
| U.S. government agencies | $ | 498 |
| $ | 169 |
| | $ | 819 |
| | $ | (381 | ) | | | $ | (100 | ) | $ | — |
| $ | 1,005 |
| | $ | 200 |
| |
| Residential – nonagency | 663 |
| 407 |
| | 780 |
| | (1,028 | ) | | | (91 | ) | (5 | ) | 726 |
| | 205 |
| |
| Commercial – nonagency | 1,207 |
| 114 |
| | 841 |
| | (1,522 | ) | | | (208 | ) | — |
| 432 |
| | (4 | ) | |
| Total mortgage-backed securities | 2,368 |
| 690 |
| | 2,440 |
| | (2,931 | ) | | | (399 | ) | (5 | ) | 2,163 |
| | 401 |
| |
| Obligations of U.S. states and municipalities | 1,436 |
| 71 |
| | 472 |
| | (251 | ) | | | (346 | ) | — |
| 1,382 |
| | 18 |
| |
| Non-U.S. government debt securities | 67 |
| 4 |
| | 1,449 |
| | (1,479 | ) | | | (8 | ) | 110 |
| 143 |
| | (1 | ) | |
| Corporate debt securities | 5,308 |
| 103 |
| | 7,602 |
| | (5,975 | ) | | | (1,882 | ) | 764 |
| 5,920 |
| | 466 |
| |
| Loans | 10,787 |
| 665 |
| | 10,411 |
| | (7,431 | ) | | | (685 | ) | (292 | ) | 13,455 |
| | 315 |
| |
| Asset-backed securities | 3,696 |
| 191 |
| | 1,912 |
| | (2,379 | ) | | | (292 | ) | (1,856 | ) | 1,272 |
| | 105 |
| |
| Total debt instruments | 23,662 |
| 1,724 |
| | 24,286 |
| | (20,446 | ) | | | (3,612 | ) | (1,279 | ) | 24,335 |
| | 1,304 |
| |
| Equity securities | 1,114 |
| (41 | ) | | 328 |
| | (266 | ) | | | (135 | ) | (115 | ) | 885 |
| | 46 |
| |
| Physical Commodities | — |
| (4 | ) | | — |
| | (8 | ) | | | — |
| 16 |
| 4 |
| | (4 | ) | |
| Other | 863 |
| 558 |
| | 659 |
| | (95 | ) | | | (120 | ) | 135 |
| 2,000 |
| | 1,074 |
| |
| Total trading assets – debt and equity instruments | 25,639 |
| 2,237 |
| (c) | 25,273 |
| | (20,815 | ) | | | (3,867 | ) | (1,243 | ) | 27,224 |
| | 2,420 |
| (c) |
Net derivative receivables:(a) | | | | | | | | | | | | | | |
| Interest rate | 3,322 |
| 1,358 |
| | 344 |
| | (220 | ) | | | (2,391 | ) | (34 | ) | 2,379 |
| | 107 |
| |
| Credit | 1,873 |
| (1,697 | ) | | 115 |
| | (12 | ) | | | (357 | ) | 173 |
| 95 |
| | (1,449 | ) | |
| Foreign exchange | (1,750 | ) | (101 | ) | | 3 |
| | (4 | ) | | | 683 |
| (31 | ) | (1,200 | ) | | (110 | ) | |
| Equity | (1,806 | ) | 2,528 |
| (i) | 1,305 |
| (i) | (2,111 | ) | (i) | | (1,353 | ) | 374 |
| (1,063 | ) | | 872 |
| |
| Commodity | 254 |
| 816 |
| | 105 |
| | (3 | ) | | | (1,107 | ) | 50 |
| 115 |
| | 410 |
| |
| Total net derivative receivables | 1,893 |
| 2,904 |
| (c) | 1,872 |
| | (2,350 | ) | | | (4,525 | ) | 532 |
| 326 |
| | (170 | ) | (c) |
| Available-for-sale securities: | | | | | | | | | | | | | | |
| Asset-backed securities | 28,024 |
| 4 |
| | 579 |
| | (57 | ) | | | (57 | ) | (27,405 | ) | 1,088 |
| | 4 |
| |
| Other | 892 |
| 26 |
| | 508 |
| | (216 | ) | | | (6 | ) | 30 |
| 1,234 |
| | 25 |
| |
| Total available-for-sale securities | 28,916 |
| 30 |
| (d) | 1,087 |
| | (273 | ) | | | (63 | ) | (27,375 | ) | 2,322 |
| | 29 |
| (d) |
| Loans | 2,282 |
| 81 |
| (c) | 1,065 |
| | (191 | ) | | | (1,306 | ) | — |
| 1,931 |
| | (21 | ) | (c) |
| Mortgage servicing rights | 7,614 |
| 1,612 |
| (e) | 2,215 |
| | (725 | ) | | | (1,102 | ) | — |
| 9,614 |
| | 1,612 |
| (e) |
| Other assets: | | | | | | | | | | | | | | |
| Private equity investments | 7,181 |
| 645 |
| (c) | 673 |
| | (1,137 | ) | | | (687 | ) | (201 | ) | 6,474 |
| | 262 |
| (c) |
| All other | 4,258 |
| 98 |
| (f) | 272 |
| | (730 | ) | | | (722 | ) | — |
| 3,176 |
| | 53 |
| (f) |
| | | | | | | | | | | | | | | |
| | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2013 (in millions) | Fair value at January 1, 2013 | Total realized/unrealized (gains)/losses | | | | | | | Transfers into and/or out of level 3(h) | Fair value at Dec. 31, 2013 | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2013 |
Purchases(g) | | Sales | | Issuances | Settlements |
Liabilities:(b) | | | | | | | | | | | | | | |
| Deposits | $ | 1,983 |
| $ | (82 | ) | (c) | $ | — |
| | $ | — |
| | $ | 1,248 |
| $ | (222 | ) | $ | (672 | ) | $ | 2,255 |
| | $ | (88 | ) | (c) |
| Other borrowed funds | 1,619 |
| (177 | ) | (c) | — |
| | — |
| | 7,108 |
| (6,845 | ) | 369 |
| 2,074 |
| | 291 |
| (c) |
| Trading liabilities – debt and equity instruments | 205 |
| (83 | ) | (c) | (2,418 | ) | | 2,594 |
| | — |
| (54 | ) | (131 | ) | 113 |
| | (100 | ) | (c) |
| Accounts payable and other liabilities | 36 |
| (2 | ) | (f) | — |
| | — |
| | — |
| (9 | ) | — |
| 25 |
| | (2 | ) | (f) |
| Beneficial interests issued by consolidated VIEs | 925 |
| 174 |
| (c) | — |
| | — |
| | 353 |
| (212 | ) | — |
| 1,240 |
| | 167 |
| (c) |
| Long-term debt | 8,476 |
| (435 | ) | (c) | — |
| | — |
| | 6,830 |
| (4,362 | ) | (501 | ) | 10,008 |
| | (85 | ) | (c) |
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 193 |
Notes to consolidated financial statements
| | | | Fair value measurements using significant unobservable inputs | | | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2012 (in millions) | Fair value at January 1, 2012 | Total realized/unrealized gains/(losses) | | | | | | Transfers into and/or out of level 3(h) | Fair value at Dec. 31, 2012 | Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2012 | |
Purchases(g)(f) | | Sales | | | Settlements | |
Year ended
December 31, 2015 (in millions) | | Fair value at January 1, 2015 | Total realized/unrealized gains/(losses) | | | | | | Transfers (out of) level 3(h) | Fair value at Dec. 31, 2015 | Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2015 |
| Purchases(g)(f) | | Sales | | Settlements(g) | | Transfers into
level 3(h) |
| Assets: | | | | | | | | | | | | | | | | | | | | |
| Trading assets: | | | | | | | | | | | | | | | | | | | | |
| Debt instruments: | | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | |
| U.S. government agencies | $ | 86 |
| $ | (44 | ) | | $ | 575 |
| | $ | (103 | ) | | | $ | (16 | ) | $ | — |
| $ | 498 |
| | $ | (21 | ) | | $ | 922 |
| $ | (28 | ) | | $ | 327 |
| | $ | (303 | ) | | $ | (132 | ) | | $ | 25 |
| $ | (96 | ) | $ | 715 |
| | $ | (27 | ) | |
| Residential – nonagency | 796 |
| 151 |
| | 417 |
| | (533 | ) | | | (145 | ) | (23 | ) | 663 |
| | 74 |
| | 663 |
| 130 |
| | 253 |
| | (611 | ) | | (23 | ) | | 180 |
| (398 | ) | 194 |
| | 4 |
| |
| Commercial – nonagency | 1,758 |
| (159 | ) | | 287 |
| | (475 | ) | | | (104 | ) | (100 | ) | 1,207 |
| | (145 | ) | | 306 |
| (14 | ) | | 246 |
| | (262 | ) | | (22 | ) | | 117 |
| (256 | ) | 115 |
| | (5 | ) | |
| Total mortgage-backed securities | 2,640 |
| (52 | ) | | 1,279 |
| | (1,111 | ) | | | (265 | ) | (123 | ) | 2,368 |
| | (92 | ) | | 1,891 |
| 88 |
| | 826 |
| | (1,176 | ) | | (177 | ) | | 322 |
| (750 | ) | 1,024 |
| | (28 | ) | |
| Obligations of U.S. states and municipalities | 1,619 |
| 37 |
| | 336 |
| | (552 | ) | | | (4 | ) | — |
| 1,436 |
| | (15 | ) | | 1,273 |
| 14 |
| | 352 |
| | (133 | ) | | (27 | ) | | 5 |
| (833 | ) | 651 |
| | (1 | ) | |
| Non-U.S. government debt securities | 104 |
| (6 | ) | | 661 |
| | (668 | ) | | | (24 | ) | — |
| 67 |
| | (5 | ) | | 302 |
| 9 |
| | 205 |
| | (123 | ) | | (64 | ) | | 16 |
| (271 | ) | 74 |
| | (16 | ) | |
| Corporate debt securities | 6,373 |
| 187 |
| | 8,391 |
| | (6,186 | ) | | | (3,045 | ) | (412 | ) | 5,308 |
| | 689 |
| | 2,989 |
| (77 | ) | | 1,171 |
| | (1,038 | ) | | (125 | ) | | 179 |
| (2,363 | ) | 736 |
| | 2 |
| |
| Loans | 12,209 |
| 836 |
| | 5,342 |
| | (3,269 | ) | | | (3,801 | ) | (530 | ) | 10,787 |
| | 411 |
| | 13,287 |
| (174 | ) | | 3,532 |
| | (4,661 | ) | | (3,112 | ) | | 509 |
| (2,777 | ) | 6,604 |
| | (181 | ) | |
| Asset-backed securities | 7,965 |
| 272 |
| | 2,550 |
| | (6,468 | ) | | | (614 | ) | (9 | ) | 3,696 |
| | 184 |
| | 1,264 |
| (41 | ) | | 1,920 |
| | (1,229 | ) | | (35 | ) | | 205 |
| (252 | ) | 1,832 |
| | (32 | ) | |
| Total debt instruments | 30,910 |
| 1,274 |
| | 18,559 |
| | (18,254 | ) | | | (7,753 | ) | (1,074 | ) | 23,662 |
| | 1,172 |
| | 21,006 |
| (181 | ) | | 8,006 |
| | (8,360 | ) | | (3,540 | ) | | 1,236 |
| (7,246 | ) | 10,921 |
| | (256 | ) | |
| Equity securities | 1,177 |
| (209 | ) | | 460 |
| | (379 | ) | | | (12 | ) | 77 |
| 1,114 |
| | (112 | ) | | 431 |
| 96 |
| | 89 |
| | (193 | ) | | (26 | ) | | 51 |
| (183 | ) | 265 |
| | 82 |
| |
| Physical commodities | | 2 |
| (2 | ) | | — |
| | — |
| | — |
| | — |
| — |
| — |
| | — |
| |
| Other | 880 |
| 186 |
| | 68 |
| | (108 | ) | | | (163 | ) | — |
| 863 |
| | 180 |
| | 1,050 |
| 119 |
| | 1,581 |
| | (1,313 | ) | | 192 |
| | 33 |
| (918 | ) | 744 |
| | 85 |
| |
| Total trading assets – debt and equity instruments | 32,967 |
| 1,251 |
| (c) | 19,087 |
| | (18,741 | ) | | | (7,928 | ) | (997 | ) | 25,639 |
| | 1,240 |
| (c) | 22,489 |
| 32 |
| (c) | 9,676 |
| | (9,866 | ) | | (3,374 | ) | | 1,320 |
| (8,347 | ) | 11,930 |
| | (89 | ) | (c) |
Net derivative receivables:(a) | | | | | | | | | | | | |
|
| |
|
| |
|
| |
|
|
|
|
|
| |
|
| |
| Interest rate | 3,561 |
| 6,930 |
| | 406 |
| | (194 | ) | | | (7,071 | ) | (310 | ) | 3,322 |
| | 905 |
| | 626 |
| 962 |
| | 513 |
| | (173 | ) | | (732 | ) | | 6 |
| (326 | ) | 876 |
| | 263 |
| |
| Credit | 7,732 |
| (4,487 | ) | | 124 |
| | (84 | ) | | | (1,416 | ) | 4 |
| 1,873 |
| | (3,271 | ) | | 189 |
| 118 |
| | 129 |
| | (136 | ) | | 165 |
| | 29 |
| 55 |
| 549 |
| | 260 |
| |
| Foreign exchange | (1,263 | ) | (800 | ) | | 112 |
| | (184 | ) | | | 436 |
| (51 | ) | (1,750 | ) | | (957 | ) | | (526 | ) | 657 |
| | 19 |
| | (149 | ) | | (296 | ) | | 36 |
| (466 | ) | (725 | ) | | 49 |
| |
| Equity | (3,105 | ) | 160 |
| (i) | 1,279 |
| (i) | (2,174 | ) | (i) | | 899 |
| 1,135 |
| (1,806 | ) | | 580 |
| | (1,785 | ) | 731 |
| | 890 |
| | (1,262 | ) | | (158 | ) | | 17 |
| 53 |
| (1,514 | ) | | 5 |
| |
| Commodity | (687 | ) | (673 | ) | | 74 |
| | 64 |
| | | 1,278 |
| 198 |
| 254 |
| | (160 | ) | | (565 | ) | (856 | ) | | 1 |
| | (24 | ) | | 512 |
| | (30 | ) | 27 |
| (935 | ) | | (41 | ) | |
| Total net derivative receivables | 6,238 |
| 1,130 |
| (c) | 1,995 |
| | (2,572 | ) | | | (5,874 | ) | 976 |
| 1,893 |
| | (2,903 | ) | (c) | (2,061 | ) | 1,612 |
| (c) | 1,552 |
| | (1,744 | ) | | (509 | ) | | 58 |
| (657 | ) | (1,749 | ) | | 536 |
| (c) |
| Available-for-sale securities: | | | | | | | | | | | — |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
| |
|
| |
| Asset-backed securities | 24,958 |
| 135 |
| | 9,280 |
| | (3,361 | ) | | | (3,104 | ) | 116 |
| 28,024 |
| | 118 |
| | 908 |
| (32 | ) | | 51 |
| | (43 | ) | | (61 | ) | | — |
| — |
| 823 |
| | (28 | ) | |
| Other | 528 |
| 55 |
| | 667 |
| | (113 | ) | | | (245 | ) | — |
| 892 |
| | 59 |
| | 129 |
| — |
| | — |
| | — |
| | (29 | ) | | — |
| (99 | ) | 1 |
| | — |
| |
| Total available-for-sale securities | 25,486 |
| 190 |
| (d) | 9,947 |
| | (3,474 | ) | | | (3,349 | ) | 116 |
| 28,916 |
| | 177 |
| (d) | 1,037 |
| (32 | ) | (d) | 51 |
| | (43 | ) | | (90 | ) | | — |
| (99 | ) | 824 |
| | (28 | ) | (d) |
| Loans | 1,647 |
| 695 |
| (c) | 1,536 |
| | (22 | ) | | | (1,718 | ) | 144 |
| 2,282 |
| | 12 |
| (c) | 2,541 |
| (133 | ) | (c) | 1,290 |
| | (92 | ) | | (1,241 | ) | | — |
| (847 | ) | 1,518 |
| | (32 | ) | (c) |
| Mortgage servicing rights | 7,223 |
| (635 | ) | (e) | 2,833 |
| | (579 | ) | | | (1,228 | ) | — |
| 7,614 |
| | (635 | ) | (e) | 7,436 |
| (405 | ) | (e) | 985 |
| | (486 | ) | | (922 | ) | | — |
| — |
| 6,608 |
| | (405 | ) | (e) |
| Other assets: | | | | | | | | | | | |
| Private equity investments | 6,751 |
| 420 |
| (c) | 1,545 |
| | (512 | ) | | | (977 | ) | (46 | ) | 7,181 |
| | 333 |
| (c) | |
| All other | 4,374 |
| (195 | ) | (f) | 818 |
| | (238 | ) | | | (501 | ) | — |
| 4,258 |
| | (200 | ) | (f) | |
| Other assets | | 3,184 |
| (29 | ) | (c) | 346 |
| | (509 | ) | | (411 | ) | | — |
| (180 | ) | 2,401 |
| | (289 | ) | (c) |
| | | | | | | | | | | | | | | | | | | | | |
| | Fair value measurements using significant unobservable inputs | | | Fair value measurements using significant unobservable inputs | | |
Year ended
December 31, 2012 (in millions) | Fair value at January 1, 2012 | Total realized/unrealized (gains)/losses | | | | | | Transfers into and/or out of level 3(h) | Fair value at Dec. 31, 2012 | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2012 | |
Purchases(g) | | Sales | | Issuances | Settlements | |
Year ended
December 31, 2015 (in millions) | | Fair value at January 1, 2015 | Total realized/unrealized (gains)/losses | | | | | Transfers into level 3(h) | Transfers (out of) level 3(h) | Fair value at Dec. 31, 2015 | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2015 |
| Purchases | | Sales | Issuances | Settlements(g) | |
Liabilities:(b) | | | | | | | | | | | | | | | | | | | | |
| Deposits | $ | 1,418 |
| $ | 212 |
| (c) | $ | — |
| | $ | — |
| | $ | 1,236 |
| $ | (380 | ) | $ | (503 | ) | $ | 1,983 |
| | $ | 185 |
| (c) | $ | 2,859 |
| $ | (39 | ) | (c) | $ | — |
| | $ | — |
| $ | 1,993 |
| $ | (850 | ) | | $ | — |
| $ | (1,013 | ) | $ | 2,950 |
| | $ | (29 | ) | (c) |
| Other borrowed funds | 1,507 |
| 148 |
| (c) | — |
| | — |
| | 1,646 |
| (1,774 | ) | 92 |
| 1,619 |
| | 72 |
| (c) | |
| Short-term borrowings | | 1,453 |
| (697 | ) | (c) | — |
| | — |
| 3,334 |
| (2,963 | ) | | 243 |
| (731 | ) | 639 |
| | (57 | ) | (c) |
| Trading liabilities – debt and equity instruments | 211 |
| (16 | ) | (c) | (2,875 | ) | | 2,940 |
| | — |
| (50 | ) | (5 | ) | 205 |
| | (12 | ) | (c) | 72 |
| 15 |
| (c) | (163 | ) | | 160 |
| — |
| (17 | ) | | 12 |
| (16 | ) | 63 |
| | (4 | ) | (c) |
| Accounts payable and other liabilities | 51 |
| 1 |
| (f) | — |
| | — |
| | — |
| (16 | ) | — |
| 36 |
| | 1 |
| (f) | 26 |
| — |
| (c) | — |
| | — |
| — |
| (7 | ) | | — |
| — |
| 19 |
| | — |
|
|
| Beneficial interests issued by consolidated VIEs | 791 |
| 181 |
| (c) | — |
| | — |
| | 221 |
| (268 | ) | — |
| 925 |
| | 143 |
| (c) | 1,146 |
| (82 | ) | (c) | — |
| | — |
| 286 |
| (574 | ) | | — |
| (227 | ) | 549 |
| | (63 | ) | (c) |
| Long-term debt | 10,310 |
| 328 |
| (c) | — |
| | — |
| | 3,662 |
| (4,511 | ) | (1,313 | ) | 8,476 |
| | (101 | ) | (c) | 11,877 |
| (480 | ) | (c) | (58 | ) | | — |
| 9,359 |
| (6,465 | ) | (j) | 315 |
| (3,101 | ) | 11,447 |
| (j) | 385 |
| (c)(j) |
| |
| (a) | All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty. |
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 169 |
Notes to consolidated financial statements
| |
| (b) | Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 15%, 18%12% and 18%13% at December 31, 2014, 20132017, 2016 and 2012,2015, respectively. |
| |
| (c) | Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments originated with the intent to sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income. |
|
| | |
194 | | JPMorgan Chase & Co./2014 Annual Report |
| |
| (d) | Realized gains/(losses) on AFSsecurities, as well as other-than-temporary impairment (“OTTI”) losses that are recorded in earnings, are reported in securities gains. Unrealized gains/(losses) are reported in Other Comprehensive Income (“OCI”).OCI. Realized gains/(losses) and foreign exchange remeasurementhedge accounting adjustments recorded in income on AFS securities were $(43) million, $17 million,zero, zero, and $145$(7) million for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were $(16)$15 million,, $13 $1 million and $45$(25) million for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. |
| |
| (e) | Changes in fair value for CCB mortgage servicing rightsMSRs are reported in mortgage fees and related income. |
| |
| (f) | Predominantly reportedLoan originations are included in other income.purchases |
| |
| (g) | Loan originations are includedIncludes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, and deconsolidation associated with beneficial interests in purchases.VIEs and other items. |
| |
| (h) | All transfers into and/or out of level 3 are based on changes in the observability of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which they occur. |
| |
| (i) | Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue. Unrealized (gains)/losses are reported in OCI. Unrealized gains were $48 million for the year ended December 31, 2017. There were no realized gains for the year ended December 31, 2017. |
| |
| (j) | The prior period amounts have been revised. The revision had no impact onrevised to conform with the Firm’s Consolidated balance sheets or its results of operations.current period presentation. |
Level 3 analysis
Consolidated balance sheets changes
Level 3 assets (including assets measured at fair value on a nonrecurring basis) were 2.1%0.8% of total Firm assets at December 31, 2014.2017. The following describes significant changes to level 3 assets since December 31, 2013,2016, for those items measured at fair value on a recurring basis. For further information on changes impacting items measured at fair value on a nonrecurring basis, see Assets and liabilities measured at fair value on a nonrecurring basis on page 197.172.
For the year ended December 31, 20142017
Level 3 assets were $50.9$19.2 billion at December 31, 2014,2017, reflecting a decrease of $18.4$4.0 billion from December 31, 2013,2016, largely due to the following:
$6.0 billion decrease in gross derivative receivables due to a $4.5 billion decrease in equity derivative receivables due to expirations and a transfer from level 3 into level 2 as a result of an increase in observability of certain equity option valuation inputs; and a
$1.2 billion decrease in interest rate derivatives due to market movements;
$4.72.5 billion decrease in trading assets -— debt and equity instruments iswas predominantly driven by a decrease of $2.1 billion in trading loans largely due to settlements, and a decrease of $2.9$1.0 billion in corporate debt securities. The decrease in corporate debt securities is driven byother assets due to settlements and transfers from level 3 to level 2 as a result of an increaseincreased observability in observability of certain valuation inputs as well as net sales and maturities;
$4.0 billion decrease in private equity investments predominantly driven by $2.0 billion in sales and $2.3 billion of transfers into level 2 based on an increase in observability and price transparency;
$2.2 billion decrease in MSRs. For further discussion of the change, refer to Note 17.
Gains and losses
The following describes significant components of total realized/unrealized gains/(losses) for instruments measured at fair value on a recurring basis for the years ended December 31, 2014, 20132017, 2016 and 2012.2015. For further information on these instruments, see Changes in level 3 recurring fair value measurements rollforward tables on pages 191–195.166–170.
20142017
$1.8 billion of losses on MSRs. For further discussion of the change, refer to Note 17;
$1.11.3 billion of net gainslosses on trading assets - debt and equity instruments,liabilities largely driven by market movements and client-driven financing transactions.
in long-term debt20132016
There were no individually significant movements for the year ended December 31, 2016.
2015
$2.9 billion of net gains on derivatives, largely driven by $2.5 billion of gains on equity derivatives, primarily related to client-driven market-making activity and a rise in equity markets; and $1.4 billion of gains, predominantly on interest rate lock and mortgage loan purchase commitments; partially offset by $1.7 billion of losses on credit derivatives from the impact of tightening reference entity credit spreads;
$2.2 billion of net gains on trading assets - debt and equity instruments, largely driven by market making and credit spread tightening in nonagency mortgage-backed securities and trading loans, and the impact of market movements on client-driven financing transactions;
$1.6 billion of net gains in interest rate, foreign exchange and equity derivative receivables largely due to market movements; partially offset by losses on MSRs. For further discussion of the change, refercommodity derivatives due to Note 17.
2012market movements
$1.3 billion of net gains on trading assets - debt and equity instruments, largely driven by tightening of credit spreads and fluctuation in foreign exchange rates;
• $1.1 billion of net gains on derivatives, driven by
$6.9 billion of net gains predominantly on interest rate lock commitmentsliabilities due to increased volumes and lower interest rates, partially offset by $4.5 billion of net losses on credit derivatives largely as a result of tightening of reference entity credit spreads.market movements
|
| | |
| 170 | | JPMorgan Chase & Co./20142017 Annual Report | | 195 |
Notes to consolidated financial statements
Credit and funding adjustments – derivatives
When determining the fair value of an instrument, it may be necessary to record adjustments to the Firm’s estimates of fair value in order to reflect counterparty credit quality, the Firm’s own creditworthiness, and the impact of funding:
Credit valuation adjustments (“CVA”)Derivatives are taken to reflect the credit quality of a counterparty in the valuation of derivatives. CVA are necessary when the market price (or parameter) is not indicative of the credit quality of the counterparty. As few classes of derivative contracts are listed on an exchange, derivative positions are predominantlygenerally valued using models that use as their basis observable market parameters. AnThese market parameters generally do not consider factors such as counterparty nonperformance risk, the Firm’s own credit quality, and funding costs. Therefore, it is generally necessary to make adjustments to the base estimate of fair value to reflect these factors.
CVA represents the adjustment, therefore may berelative to the relevant benchmark interest rate, necessary to reflect the credit quality of each derivative counterparty to arrive at fair value.
nonperformance risk. The Firm estimates derivatives CVA using a scenario analysis to estimate the expected positive credit exposure across all of the Firm’s existing positions with each counterparty, and then estimates losses based on the probability of default and estimated recovery rate as a result of a counterparty credit event. The key inputs to this methodology are (i) the expected positive exposure to each counterparty based on a simulation that assumes the current population of existing derivatives with each counterparty remains unchanged and considersevent considering contractual factors designed to mitigate the Firm’s credit exposure, such as collateral and legal rights of offset; (ii)offset. The key inputs to this methodology are (i) the probability of a default event occurring for each counterparty, as derived from observed or estimated CDS spreads; and (iii)(ii) estimated recovery rates implied by CDS spreads, adjusted to consider the differences in recovery rates as a derivative creditor relative to those reflected in CDS spreads, which generally reflect senior unsecured creditor risk. As such,
FVA represents the Firm estimates derivatives CVA relativeadjustment to the relevant benchmark interest rate.
DVA is taken to reflect the credit quality of the Firm in the valuation of liabilities measured at fair value. The DVA calculation methodology is generally consistent with the CVA methodology described above and incorporates JPMorgan Chase’s credit spread as observed through the CDS market to estimate the probability of default and loss given default as a result of a systemic event affecting the Firm. Structured notes DVA is estimated using the current fair value of the structured note as the exposure amount, and is otherwise consistent with the derivative DVA methodology.
The Firm incorporates the impact of funding in its valuation estimatesand is recognized where there is evidence that a market participant in the principal market would incorporate it in a transfer of the instrument. As a result, the fair value of collateralized derivatives is estimated by discounting expected future cash flows at the relevant overnight indexed swap (“OIS”) rate given the underlying collateral agreement with the counterparty. Effective in 2013, the Firm implemented aThe Firm’s FVA framework, applied to incorporate the impact of funding into its
valuation estimates for uncollateralized (including partially collateralized) over-the-counter (“OTC”) derivatives and structured notes. The Firm’s FVA framework leverages its existing CVA and DVA calculation methodologies, and considers the fact that the Firm’s own credit risk is a significant component of funding costs. Theincorporates key inputs are:such as: (i) the expected funding requirements arising from the Firm’s positions with each counterparty and collateral arrangements; and (ii) for assets, the estimated market funding cost in the principal market; and (iii)market which, for derivative liabilities, the hypothetical market funding cost for a transfer to a market participant with a similar credit standing as the Firm.
Upon the implementation of the FVA framework in 2013, the Firm recorded a one time $1.5 billion loss in principal transactions revenue that was recorded in the CIB. While the FVA framework applies to both assets and liabilities, the loss on implementation largely related to uncollateralized derivative receivables given that the impact ofconsiders the Firm’s own credit risk which(DVA). For collateralized derivatives, the fair value is estimated by discounting expected future cash flows at the relevant overnight indexed swap rate given the underlying collateral agreement with the counterparty, and therefore a significant component of funding costs, was already incorporated in the valuation of liabilities through the application of DVA.
The following table provides the credit and funding adjustments, excluding the effect of any associated hedging activities, reflected within the Consolidated balance sheets as of the dates indicated.
separate FVA is not necessary.
|
| | | | | | | |
| December 31, (in millions) | 2014 | | 2013 |
Derivative receivables balance(a) | $ | 78,975 |
| | $ | 65,759 |
|
Derivative payables balance(a) | 71,116 |
| | 57,314 |
|
Derivatives CVA(b) | (2,674 | ) | | (2,352 | ) |
Derivatives DVA and FVA(b)(c) | (380 | ) | | (322 | ) |
Structured notes balance (a)(d) | 53,772 |
| | 48,808 |
|
Structured notes DVA and FVA(b)(e) | 1,152 |
| | 952 |
|
| |
(a) | Balances are presented net of applicable CVA and DVA/FVA. |
| |
(b) | Positive CVA and DVA/FVA represent amounts that increased receivable balances or decreased payable balances; negative CVA and DVA/FVA represent amounts that decreased receivable balances or increased payable balances. |
| |
(c) | At December 31, 2014 and 2013, included derivatives DVA of $714 million and $715 million, respectively. |
| |
(d) | Structured notes are predominantly financial instruments containing embedded derivatives that are measured at fair value based on the Firm’s election under the fair value option. At December 31, 2014 and 2013, included $943 million and $1.1 billion, respectively, of financial instruments with no embedded derivative for which the fair value option has also been elected. For further information on these elections, see Note 4.
|
| |
(e) | At December 31, 2014 and 2013, included structured notes DVA of $1.4 billion and $1.4 billion, respectively. |
|
| | |
196 | | JPMorgan Chase & Co./2014 Annual Report |
The following table provides the impact of credit and funding adjustments on Principalprincipal transactions revenue in the respective periods, excluding the effect of any associated hedging activities. The FVA reported below include the impact of the Firm’s own credit quality on the inception value of liabilities as well as the impact of changes in the Firm’s own credit quality over time.
|
| | | | | | | | | | | |
Year ended December 31, (in millions) | 2014 | | 2013 | | 2012 |
| Credit adjustments: | | | | | |
| Derivatives CVA | $ | (322 | ) | | $ | 1,886 |
| | $ | 2,698 |
|
Derivatives DVA and FVA(a) | (58 | ) | | (1,152 | ) | | (590 | ) |
Structured notes DVA and FVA(b) | 200 |
| | (760 | ) | | (340 | ) |
|
| | | | | | | | | | | |
Year ended December 31,
(in millions) | 2017 | | 2016 | | 2015 |
| Credit and funding adjustments: | | | | | |
| Derivatives CVA | $ | 802 |
| | $ | (84 | ) | | $ | 620 |
|
| Derivatives FVA | (295 | ) | | 7 |
| | 73 |
|
Valuation adjustments on fair value option elected liabilities
The valuation of the Firm’s liabilities for which the fair value option has been elected requires consideration of the Firm’s own credit risk. DVA on fair value option elected liabilities reflects changes (subsequent to the issuance of the liability) in the Firm’s probability of default and LGD, which are estimated based on changes in the Firm’s credit spread observed in the bond market. Effective January 1, 2016, the effect of DVA on fair value option elected liabilities is recognized in OCI. See Note 23 for further information.
|
| | |
(a)JPMorgan Chase & Co./2017 Annual Report | Included derivatives DVA of $(1) million, $(115) million and $(590) million for the years ended December 31, 2014, 2013 and 2012, respectively. | 171 |
| |
(b) | Included structured notes DVA of $20 million, $(337) million and $(340) million for the years ended December 31, 2014, 2013 and 2012, respectively. |
Notes to consolidated financial statements
Assets and liabilities measured at fair value on a nonrecurring basis
At December 31, 2014 and 2013,The following tables present the assets measured at fair valuereported on a nonrecurring basis were $4.5 billion and $6.2 billion, respectively, comprised predominantly of loans that had fair value adjustments for the year ended December 31, 2014. At December 31, 2014, $1.3 billion and $3.2 billion of these assets were classified in levels 2 and 3 of the fair value hierarchy, respectively. At December 31, 2013, $339 million and $5.8 billion of these assets were classified in levels 2 and 3 of the fair value hierarchy, respectively. Liabilities measured at fair value on a nonrecurring basis were not significant atas of December 31, 20142017 and 2013. For the years ended December 31, 2014, 20132016, by major product category and 2012, there were no significant transfers between levels 1, 2fair value hierarchy.
|
| | | | | | | | | | | | | | |
| | Fair value hierarchy | | Total fair value |
| December 31, 2017 (in millions) | Level 1 |
| Level 2 |
| | Level 3 |
| |
| Loans | $ | — |
| $ | 238 |
| | $ | 596 |
| (a) | $ | 834 |
|
| Other assets | — |
| 283 |
| | 183 |
| | 466 |
|
| Total assets measured at fair value on a nonrecurring basis | $ | — |
| $ | 521 |
| | $ | 779 |
| (a) | $ | 1,300 |
|
|
| | | | | | | | | | | | | | |
| | Fair value hierarchy | | Total fair value |
| December 31, 2016 (in millions) | Level 1 |
| Level 2 |
| | Level 3 |
| |
| Loans | $ | — |
| $ | 730 |
| | $ | 590 |
| | $ | 1,320 |
|
| Other assets | — |
| 5 |
| | 232 |
| | 237 |
|
| Total assets measured at fair value on a nonrecurring basis | $ | — |
| $ | 735 |
| | $ | 822 |
| | $ | 1,557 |
|
(a) Of the $3.2 billion of the$779 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2014:
$1.6 billion related to consumer loans that were reclassified to held-for-sale during the fourth quarter of 2014 subject to a lower of cost or fair value adjustment. These loans were classified as level 3, as they are valued based on the Firm’s internal valuation methodology;
$8092017, $442 million related to residential real estate loans carried at the net realizable value of the underlying collateral (i.e.(e.g., collateral-dependent loans and other loans charged off in accordance with regulatory guidance). These amounts are classified as level 3 as they are valued using a broker’s price opinion and discounted based upon the Firm’s experience with actual liquidation values. These discounts to the broker price opinions ranged from 8%13% to 66%,48% with a weighted average of 26%27%.
There were no material liabilities measured at fair value on a nonrecurring basis at December 31, 2017 and 2016.
Nonrecurring fair value changes
The following table presents the total change in the recorded value of assets and liabilities for which a fair value adjustment has been included in the Consolidated statements of incomerecognized for the years ended December 31, 2014, 20132017 2016 and 2012,2015, related to financial instruments held at those dates were losses of $992 million, $789 million and $1.6 billion, respectively; these reductions were predominantly associated with loans.dates.
|
| | | | | | | | | | | |
| December 31, (in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Loans | $ | (159 | ) | | $ | (209 | ) | | $ | (226 | ) |
| Other Assets | (148 | ) | | 37 |
| | (60 | ) |
| Accounts payable and other liabilities | (1 | ) | | — |
| | (8 | ) |
| Total nonrecurring fair value gains/(losses) | $ | (308 | ) | | $ | (172 | ) | | $ | (294 | ) |
For further information about the measurement of impaired collateral-dependent loans, and other loans where the carrying value is based on the fair value of the underlying collateral (e.g., residential mortgage loans charged off in accordance with regulatory guidance), see Note 14.12.
Additional disclosures about the fair value of financial instruments that are not carried on the Consolidated balance sheets at fair value
U.S. GAAP requires disclosure of the estimated fair value of certain financial instruments, and the methods and significant assumptions used to estimate their fair value. Financial instruments within the scope of these disclosure requirements are included in the following table. However, certain financial instruments and all nonfinancial instruments are excluded from the scope of these disclosure requirements. Accordingly, the fair value disclosures provided in the following table include only a partial estimate of the fair value of JPMorgan Chase’s assets and liabilities. For example, the Firm has developed long-term relationships with its customers through its deposit base and credit card accounts, commonly referred to as core
deposit intangibles and credit card relationships. In the opinion of management, these items, in the aggregate, add significant value to JPMorgan Chase, but their fair value is not disclosed in this Note.
Financial instruments for which carrying value approximates fair value
Certain financial instruments that are not carried at fair value on the Consolidated balance sheets are carried at amounts that approximate fair value, due to their short-term nature and generally negligible credit risk. These instruments include cash and due from banks;banks, deposits with banks;banks, federal funds sold;sold, securities purchased under resale agreements and securities borrowed, with short-dated maturities; short-term receivables and accrued interest receivable; commercial paper;receivable, short-term borrowings, federal funds purchased;purchased, securities loaned and sold under repurchase agreements, with short-dated maturities; other borrowed funds; accounts payable;payable, and accrued liabilities. In addition, U.S. GAAP requires that the fair value of deposit liabilities with no stated maturity (i.e., demand, savings and certain money market deposits) be equal to their carrying value; recognition of the inherent funding value of these instruments is not permitted.
|
| | |
| 172 | | JPMorgan Chase & Co./20142017 Annual Report | | 197 |
Notes to consolidated financial statements
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at December 31, 20142017 and 20132016, of financial assets and liabilities, excluding financial instruments whichthat are carried at fair value on a recurring basis.basis, and their classification within the fair value hierarchy. For additional information regarding the financial instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value, see pages 181–184156–159 of this Note.
| | | | December 31, 2014 | | December 31, 2013 | December 31, 2017 | | December 31, 2016 |
| | | Estimated fair value hierarchy | | | | Estimated fair value hierarchy | | | Estimated fair value hierarchy | | | | Estimated fair value hierarchy | |
| (in billions) | Carrying value | Level 1 | Level 2 | Level 3 | Total estimated fair value | | Carrying value | Level 1 | Level 2 | Level 3 | Total estimated fair value | Carrying value | Level 1 | Level 2 | Level 3 | Total estimated fair value | | Carrying value | Level 1 | Level 2 | Level 3 | Total estimated fair value |
| Financial assets | | | | | | |
| Cash and due from banks | $ | 27.8 |
| $ | 27.8 |
| $ | — |
| $ | — |
| $ | 27.8 |
| | $ | 39.8 |
| $ | 39.8 |
| $ | — |
| $ | — |
| $ | 39.8 |
| $ | 25.8 |
| $ | 25.8 |
| $ | — |
| $ | — |
| $ | 25.8 |
| | $ | 23.9 |
| $ | 23.9 |
| $ | — |
| $ | — |
| $ | 23.9 |
|
| Deposits with banks | 484.5 |
| 480.4 |
| 4.1 |
| — |
| 484.5 |
| | 316.1 |
| 309.7 |
| 6.4 |
| — |
| 316.1 |
| 404.3 |
| 401.8 |
| 2.5 |
| — |
| 404.3 |
| | 365.8 |
| 362.0 |
| 3.8 |
| — |
| 365.8 |
|
| Accrued interest and accounts receivable | 70.1 |
| — |
| 70.0 |
| 0.1 |
| 70.1 |
| | 65.2 |
| — |
| 64.9 |
| 0.3 |
| 65.2 |
| 67.0 |
| — |
| 67.0 |
| — |
| 67.0 |
| | 52.3 |
| — |
| 52.2 |
| 0.1 |
| 52.3 |
|
| Federal funds sold and securities purchased under resale agreements | 187.2 |
| — |
| 187.2 |
| — |
| 187.2 |
| | 223.0 |
| — |
| 223.0 |
| — |
| 223.0 |
| 183.7 |
| — |
| 183.7 |
| — |
| 183.7 |
| | 208.5 |
| — |
| 208.3 |
| 0.2 |
| 208.5 |
|
| Securities borrowed | 109.4 |
| — |
| 109.4 |
| — |
| 109.4 |
| | 107.7 |
| — |
| 107.7 |
| — |
| 107.7 |
| 102.1 |
| — |
| 102.1 |
| — |
| 102.1 |
| | 96.4 |
| — |
| 96.4 |
| — |
| 96.4 |
|
Securities, held-to-maturity(a) | 49.3 |
| — |
| 51.2 |
| — |
| 51.2 |
| | 24.0 |
| — |
| 23.7 |
| — |
| 23.7 |
| 47.7 |
| — |
| 48.7 |
| — |
| 48.7 |
| | 50.2 |
| — |
| 50.9 |
| — |
| 50.9 |
|
Loans, net of allowance for loan losses(b) | 740.5 |
| — |
| 21.8 |
| 723.1 |
| 744.9 |
| | 720.1 |
| — |
| 23.0 |
| 697.2 |
| 720.2 |
| |
Loans, net of allowance for loan losses(a)(b) | | 914.6 |
| — |
| 213.2 |
| 707.1 |
| 920.3 |
| | 878.8 |
| — |
| 24.1 |
| 851.0 |
| 875.1 |
|
Other(c) | 58.1 |
| — |
| 55.7 |
| 7.1 |
| 62.8 |
| | 58.2 |
| — |
| 54.5 |
| 7.4 |
| 61.9 |
| 62.9 |
| — |
| 52.9 |
| 16.5 |
| 69.4 |
| | 71.4 |
| 0.1 |
| 60.8 |
| 14.3 |
| 75.2 |
|
| Financial liabilities | | | | | | |
| Deposits | $ | 1,354.6 |
| $ | — |
| $ | 1,353.6 |
| $ | 1.2 |
| $ | 1,354.8 |
| | $ | 1,281.1 |
| $ | — |
| $ | 1,280.3 |
| $ | 1.2 |
| $ | 1,281.5 |
| $ | 1,422.7 |
| $ | — |
| $ | 1,422.7 |
| $ | — |
| $ | 1,422.7 |
| | $ | 1,361.3 |
| $ | — |
| $ | 1,361.3 |
| $ | — |
| $ | 1,361.3 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | 189.1 |
| — |
| 189.1 |
| — |
| 189.1 |
| | 175.7 |
| — |
| 175.7 |
| — |
| 175.7 |
| 158.2 |
| — |
| 158.2 |
| — |
| 158.2 |
| | 165.0 |
| — |
| 165.0 |
| — |
| 165.0 |
|
| Commercial paper | 66.3 |
| — |
| 66.3 |
| — |
| 66.3 |
| | 57.8 |
| — |
| 57.8 |
| — |
| 57.8 |
| |
| Other borrowed funds | 15.5 |
|
|
| 15.5 |
| — |
| 15.5 |
| | 14.7 |
| — |
| 14.7 |
| — |
| 14.7 |
| |
| Short-term borrowings | | 42.6 |
| — |
| 42.4 |
| 0.2 |
| 42.6 |
| | 25.3 |
| — |
| 25.3 |
| — |
| 25.3 |
|
| Accounts payable and other liabilities | 176.7 |
| — |
| 173.7 |
| 2.8 |
| 176.5 |
| | 160.2 |
| — |
| 158.2 |
| 1.8 |
| 160.0 |
| 152.0 |
| — |
| 148.9 |
| 2.9 |
| 151.8 |
| | 148.0 |
| — |
| 144.8 |
| 3.4 |
| 148.2 |
|
| Beneficial interests issued by consolidated VIEs | 50.2 |
| — |
| 48.2 |
| 2.0 |
| 50.2 |
| | 47.6 |
| — |
| 44.3 |
| 3.2 |
| 47.5 |
| 26.0 |
| — |
| 26.0 |
| — |
| 26.0 |
| | 38.9 |
| — |
| 38.9 |
| — |
| 38.9 |
|
Long-term debt and junior subordinated deferrable interest debentures(d) | 246.6 |
| — |
| 251.6 |
| 3.8 |
| 255.4 |
| | 239.0 |
| — |
| 240.8 |
| 6.0 |
| 246.8 |
| |
| Long-term debt and junior subordinated deferrable interest debentures | | 236.6 |
| — |
| 240.3 |
| 3.2 |
| 243.5 |
| | 257.5 |
| — |
| 260.0 |
| 2.0 |
| 262.0 |
|
| |
| (a) | Carrying value includes unamortized discount or premium. |
| |
(b) | Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The difference between the estimated fair value and carrying value of a financial asset or liability is the result of the different methodologies used to determine fair value as compared with carrying value. For example, credit losses are estimated for a financial asset’s remaining life in a fair value calculation but are estimated for a loss emergence period in the allowance for loan loss calculation; future loan income (interest and fees) is incorporated in a fair value calculation but is generally not considered in the allowance for loan losses. For a further discussion of the Firm’s methodologies for estimating the fair value of loans and lending-related commitments, see Valuation hierarchy on pages 181–184. 156–159. |
| |
(c)(b) | Current period amounts have been updatedFor the year ended December 31, 2017, the Firm transferred certain residential mortgage loans from Level 3 to include certain nonmarketable equity securities. Prior period amounts have been revised to conform to the current presentation.Level 2 as a result of an increase in observability. |
| |
(d) | Carrying value includes unamortized original issue discount and other valuation adjustments. |
|
| | |
198 | | JPMorgan Chase & Co./2014 Annual Report |
The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidated balance sheets, nor are they actively traded.sheets. The carrying value of the wholesale allowance for lending-related commitments and the estimated fair value of the Firm’sthese wholesale lending-related commitments were as follows for the periods indicated.
| | | | December 31, 2014 | | December 31, 2013 | December 31, 2017 | | December 31, 2016 |
| | | Estimated fair value hierarchy | | | | Estimated fair value hierarchy | | | Estimated fair value hierarchy | | | | Estimated fair value hierarchy | |
| (in billions) | Carrying value(a) | Level 1 | Level 2 | Level 3 | Total estimated fair value | | Carrying value(a) | Level 1 | Level 2 | Level 3 | Total estimated fair value | Carrying value(a) | Level 1 | Level 2 | Level 3 | Total estimated fair value | | Carrying value(a) | Level 1 | Level 2 | Level 3 | Total estimated fair value |
| Wholesale lending-related commitments | $ | 0.6 |
| $ | — |
| $ | — |
| $ | 1.6 |
| $ | 1.6 |
| | $ | 0.7 |
| $ | — |
| $ | — |
| $ | 1.0 |
| $ | 1.0 |
| $ | 1.1 |
| $ | — |
| $ | — |
| $ | 1.6 |
| $ | 1.6 |
| | $ | 1.1 |
| $ | — |
| $ | — |
| $ | 2.1 |
| $ | 2.1 |
|
| |
| (a) | Represents the allowance for wholesale lending-related commitments. Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which areis recognized at fair value at the inception of the guarantees. |
The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce or cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. For a further discussion of the valuation of lending-related commitments, see page 182157 of this Note.
Trading assets and liabilities
Trading assets include debt and equity instruments owned by JPMorgan Chase (“long” positions) that are held for client market-making and client-driven activities, as well as for certain risk management activities, certain loans managed on a fair value basis and for which the Firm has elected the fair value option, and physical commodities
inventories that are generally accounted for at the lower of cost or market (market approximates fair value). Trading liabilities include debt and equity instruments that the Firm has sold to other parties but does not own (“short” positions). The Firm is obligated to purchase instruments at a future date to cover the short positions. Included in trading assets and trading liabilities are the reported receivables (unrealized gains) and payables (unrealized losses) related to derivatives. Trading assets and liabilities are carried at fair value on the Consolidated balance sheets. Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
Trading assets and liabilities – average balances
Average trading assets and liabilities were as follows for the periods indicated.
|
| | | | | | | | | | | | |
| Year ended December 31, (in millions) | | 2014 | | 2013 | | 2012 |
| Trading assets – debt and equity instruments | | $ | 327,259 |
| | $ | 340,449 |
| | $ | 349,337 |
|
| Trading assets – derivative receivables | | 67,123 |
| | 72,629 |
| | 85,744 |
|
Trading liabilities – debt and equity instruments(a) | | 84,707 |
| | 77,706 |
| | 69,001 |
|
| Trading liabilities – derivative payables | | 54,758 |
| | 64,553 |
| | 76,162 |
|
|
| | |
(a)JPMorgan Chase & Co./2017 Annual Report | Primarily represent securities sold, not yet purchased. | 173 |
Notes to consolidated financial statements
Note 43 – Fair value option
The fair value option provides an option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments not previously carried at fair value.commitments.
The Firm has elected to measure certain instruments at fair value in order to:
Mitigatefor several reasons including to mitigate income statement volatility caused by the differences inbetween the measurement basis of elected instruments (for example,(e.g., certain instruments elected were previously accounted for on an accrual basis) whileand the associated risk management arrangements that are accounted for on a fair value basis;
Eliminate the complexities of applying certain accounting models (e.g., hedge accounting or bifurcation accounting for hybrid instruments); and/or
Betterbasis, as well as tobetter reflect those instruments that are managed on a fair value basis.
The Firm has elected to measureFirm’s election of fair value includes the following instruments at fair value:instruments:
Loans purchased or originated as part of securitization warehousing activity, subject to bifurcation accounting, or managed on a fair value basis.basis, including lending-related commitments
SecuritiesCertain securities financing arrangements with an embedded derivative and/or a maturity of greater than one year.year
Owned beneficial interests in securitized financial assets that contain embedded credit derivatives, which would otherwise be required to be separately accounted for as a derivative instrument.instrument
Certain investments that receive tax credits and other equity investments acquired as part of the Washington Mutual transaction.
Structured notes, issued as part of CIB’s client-driven activities. (Structured noteswhich are predominantly financial instruments that contain embedded derivatives.)derivatives, that are issued as part of CIB’s client-driven activities
Long-termCertain long-term beneficial interests issued by CIB’s consolidated securitization trusts where the underlying assets are carried at fair value.value
|
| | |
| 174 | | JPMorgan Chase & Co./20142017 Annual Report | | 199 |
Notes to consolidated financial statements
Changes in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, for items for which the fair value option was elected. The profit and loss information presented below only includes the financial instruments that were elected to be measured at fair value; related risk management instruments, which are required to be measured at fair value, are not included in the table.
| | | | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 |
| December 31, (in millions) | Principal transactions | All other income | Total changes in fair value recorded | | Principal transactions | All other income | Total changes in fair value recorded | | Principal transactions | All other income | Total changes in fair value recorded | Principal transactions | All other income | Total changes in fair value recorded | | Principal transactions | All other income | Total changes in fair value recorded | | Principal transactions | All other income | Total changes in fair value recorded |
| Federal funds sold and securities purchased under resale agreements | $ | (15 | ) | $ | — |
| | $ | (15 | ) | | $ | (454 | ) | $ | — |
| | $ | (454 | ) | | $ | 161 |
| $ | — |
| | $ | 161 |
| $ | (97 | ) | $ | — |
| | $ | (97 | ) | | $ | (76 | ) | $ | — |
| | $ | (76 | ) | | $ | (38 | ) | $ | — |
| | $ | (38 | ) |
| Securities borrowed | (10 | ) | — |
| | (10 | ) | | 10 |
| — |
| | 10 |
| | 10 |
| — |
| | 10 |
| 50 |
| — |
| | 50 |
| | 1 |
| — |
| | 1 |
| | (6 | ) | — |
| | (6 | ) |
| Trading assets: | | | | | | | — |
| | | | — |
| | | | | | |
|
| | | |
|
|
| Debt and equity instruments, excluding loans | 639 |
| — |
| | 639 |
| | 582 |
| 7 |
| | 589 |
| | 513 |
| 7 |
| | 520 |
| 1,943 |
| 2 |
| (c) | 1,945 |
| | 120 |
| (1 | ) | (c) | 119 |
| | 756 |
| (10 | ) | (c) | 746 |
|
| Loans reported as trading assets: | | | | | | |
|
| | | |
|
| | | | | | |
|
| | | |
|
|
| Changes in instrument-specific credit risk | 885 |
| 29 |
| (c) | 914 |
| | 1,161 |
| 23 |
| (c) | 1,184 |
| | 1,489 |
| 81 |
| (c) | 1,570 |
| 330 |
| 14 |
| (c) | 344 |
| | 461 |
| 43 |
| (c) | 504 |
| | 138 |
| 41 |
| (c) | 179 |
|
| Other changes in fair value | 352 |
| 1,353 |
| (c) | 1,705 |
| | (133 | ) | 1,833 |
| (c) | 1,700 |
| | (183 | ) | 7,670 |
| (c) | 7,487 |
| 217 |
| 747 |
| (c) | 964 |
| | 79 |
| 684 |
| (c) | 763 |
| | 232 |
| 818 |
| (c) | 1,050 |
|
| Loans: | | | | | | |
|
| | | |
|
| | | | | | |
|
| | | |
|
|
| Changes in instrument-specific credit risk | 40 |
| — |
| | 40 |
| | 36 |
| — |
| | 36 |
| | (14 | ) | — |
| | (14 | ) | (1 | ) | — |
| | (1 | ) | | 13 |
| — |
| | 13 |
| | 35 |
| — |
| | 35 |
|
| Other changes in fair value | 34 |
| — |
| | 34 |
| | 17 |
| — |
| | 17 |
| | 676 |
| — |
| | 676 |
| (12 | ) | 3 |
| (c) | (9 | ) | | (7 | ) | — |
| | (7 | ) | | 4 |
| — |
| | 4 |
|
| Other assets | 24 |
| (122 | ) | (d) | (98 | ) | | 32 |
| (29 | ) | (d) | 3 |
| | — |
| (339 | ) | (d) | (339 | ) | 11 |
| (55 | ) | (d) | (44 | ) | | 20 |
| 62 |
| (d) | 82 |
| | 79 |
| (1 | ) | (d) | 78 |
|
Deposits(a) | (287 | ) | — |
| | (287 | ) | | 260 |
| — |
| | 260 |
| | (188 | ) | — |
| | (188 | ) | (533 | ) | — |
| | (533 | ) | | (134 | ) | — |
| | (134 | ) | | 93 |
| — |
| | 93 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | (33 | ) | — |
| | (33 | ) | | 73 |
| — |
| | 73 |
| | (25 | ) | — |
| | (25 | ) | 11 |
| — |
| | 11 |
| | 19 |
| — |
| | 19 |
| | 8 |
| — |
| | 8 |
|
Other borrowed funds(a) | (891 | ) | — |
| | (891 | ) | | (399 | ) | — |
| | (399 | ) | | 494 |
| — |
| | 494 |
| |
Short-term borrowings(a) | | (747 | ) | — |
| | (747 | ) | | (236 | ) | — |
| | (236 | ) | | 1,996 |
| — |
| | 1,996 |
|
| Trading liabilities | (17 | ) | — |
| | (17 | ) | | (46 | ) | — |
| | (46 | ) | | (41 | ) | — |
| | (41 | ) | (1 | ) | — |
| | (1 | ) | | 6 |
| — |
| | 6 |
| | (20 | ) | — |
| | (20 | ) |
| Beneficial interests issued by consolidated VIEs | (233 | ) | — |
| | (233 | ) | | (278 | ) | — |
| | (278 | ) | | (166 | ) | — |
| | (166 | ) | — |
| — |
| | — |
| | 23 |
| — |
| | 23 |
| | 49 |
| — |
| | 49 |
|
| Other liabilities | (27 | ) | — |
| | (27 | ) | | — |
| 2 |
| | 2 |
| | — |
| — |
| | — |
| |
| Long-term debt: | | | | | | |
|
| | | |
|
| |
Changes in instrument-specific credit risk(a) | 101 |
| — |
| | 101 |
| | (271 | ) | — |
| | (271 | ) | | (835 | ) | — |
| | (835 | ) | |
Other changes in fair value(b) | (615 | ) | — |
| | (615 | ) | | 1,280 |
| — |
| | 1,280 |
| | (1,025 | ) | — |
| | (1,025 | ) | |
Long-term debt(a)(b) | | (2,022 | ) | — |
| | (2,022 | ) | | (773 | ) | — |
| | (773 | ) | | 1,388 |
| — |
| | 1,388 |
|
| |
| (a) | Total changes inUnrealized gains/(losses) due to instrument-specific credit risk (DVA) relatedfor liabilities for which the fair value option has been elected is recorded in OCI, while realized gains/(losses) are recorded in principal transactions revenue. DVA for 2015 was included in principal transactions revenue, and includes the impact of the Firm’s own credit quality on the inception value of liabilities as well as the impact of changes in the Firm’s own credit quality subsequent to structured notesissuance. See Notes 2 and 23 for further information. Realized gains/(losses) due to instrument-specific credit risk recorded in principal transaction revenue were $20 million, $(337) million and $(340) millionnot material for the years ended December 31, 2014, 20132017 and 2012, respectively. These totals include such changes for structured notes classified within deposits and other borrowed funds, as well as long-term debt.2016. |
| |
| (b) | Structured notes areLong-term debt measured at fair value predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk.relates to structured notes. Although the risk associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such risk. |
| |
| (c) | Reported in mortgage fees and related income. |
| |
| (d) | Reported in other income. |
Determination of instrument-specific credit risk for items for which a fair value election was made
The following describes how the gains and losses included in earnings that are attributable to changes in instrument-specific credit risk, were determined.
Loans and lending-related commitments: For floating-rate instruments, all changes in value are attributed to instrument-specific credit risk. For fixed-rate instruments, an allocation of the changes in value for the period is made between those changes in value that are interest rate-related and changes in value that are credit-related. Allocations are generally based on an analysis of borrower-specific credit spread and recovery
information, where available, or benchmarking to similar entities or industries.
Long-term debt: Changes in value attributable to instrument-specific credit risk were derived principally from observable changes in the Firm’s credit spread.spread.
Resale and repurchase agreements, securities borrowed agreements and securities lending agreements: Generally, for these types of agreements, there is a requirement that collateral be maintained with a market value equal to or in excess of the principal amount loaned; as a result, there would be no adjustment or an immaterial adjustment for instrument-specific credit risk related to these agreements.
|
| | |
200 | | JPMorgan Chase & Co./20142017 Annual Report | | 175 |
Notes to consolidated financial statements
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of December 31, 20142017 and 20132016, for loans, long-term debt and long-term beneficial interests for which the fair value option has been elected.
| | | | 2014 | | 2013 | 2017 | | 2016 |
| December 31, (in millions) | Contractual principal outstanding | | Fair value | Fair value over/(under) contractual principal outstanding | | Contractual principal outstanding | | Fair value | Fair value over/(under) contractual principal outstanding | Contractual principal outstanding | | Fair value | Fair value over/(under) contractual principal outstanding | | Contractual principal outstanding | | Fair value | Fair value over/(under) contractual principal outstanding |
Loans(a) | | | | | | | | | | | | | | |
| Nonaccrual loans | | | | | | | | | | | | | | |
| Loans reported as trading assets | $ | 3,847 |
| | $ | 905 |
| $ | (2,942 | ) | | $ | 5,156 |
| | $ | 1,491 |
| $ | (3,665 | ) | $ | 4,219 |
| | $ | 1,371 |
| $ | (2,848 | ) | | $ | 3,338 |
| | $ | 748 |
| $ | (2,590 | ) |
| Loans | 7 |
| | 7 |
| — |
| | 209 |
| | 154 |
| (55 | ) | 39 |
| | — |
| (39 | ) | | — |
| | — |
| — |
|
| Subtotal | 3,854 |
| | 912 |
| (2,942 | ) | | 5,365 |
| | 1,645 |
| (3,720 | ) | 4,258 |
| | 1,371 |
| (2,887 | ) | | 3,338 |
| | 748 |
| (2,590 | ) |
| All other performing loans | | | | | | | | | | | | | | |
| Loans reported as trading assets | 37,608 |
| | 35,462 |
| (2,146 | ) | | 33,069 |
| | 29,295 |
| (3,774 | ) | 38,157 |
| | 36,590 |
| (1,567 | ) | | 35,477 |
| | 33,054 |
| (2,423 | ) |
| Loans | 2,397 |
| | 2,389 |
| (8 | ) | | 1,618 |
| | 1,563 |
| (55 | ) | 2,539 |
| | 2,508 |
| (31 | ) | | 2,259 |
| | 2,228 |
| (31 | ) |
| Total loans | $ | 43,859 |
| | $ | 38,763 |
| $ | (5,096 | ) | | $ | 40,052 |
| | $ | 32,503 |
| $ | (7,549 | ) | $ | 44,954 |
| | $ | 40,469 |
| $ | (4,485 | ) | | $ | 41,074 |
| | $ | 36,030 |
| $ | (5,044 | ) |
| Long-term debt | | | | | | | | | | | | | | |
| Principal-protected debt | $ | 14,660 |
| (c) | $ | 15,484 |
| $ | 824 |
| | $ | 15,797 |
| (c) | $ | 15,909 |
| $ | 112 |
| $ | 26,297 |
| (c) | $ | 23,848 |
| $ | (2,449 | ) | | $ | 21,602 |
| (c) | $ | 19,195 |
| $ | (2,407 | ) |
Nonprincipal-protected debt(b) | NA |
| | 14,742 |
| NA |
| | NA |
| | 12,969 |
| NA |
| NA |
| | 23,671 |
| NA |
| | NA |
| | 18,491 |
| NA |
|
| Total long-term debt | NA |
| | $ | 30,226 |
| NA |
| | NA |
| | $ | 28,878 |
| NA |
| NA |
| | $ | 47,519 |
| NA |
| | NA |
| | $ | 37,686 |
| NA |
|
| Long-term beneficial interests | | | | | | | | | | | | | | |
Nonprincipal-protected debt(b) | NA |
| | $ | 2,162 |
| NA |
| | NA |
| | $ | 1,996 |
| NA |
| |
| Nonprincipal-protected debt | | NA |
| | $ | 45 |
| NA |
| | NA |
| | $ | 120 |
| NA |
|
| Total long-term beneficial interests | NA |
|
| $ | 2,162 |
| NA |
| | NA |
| | $ | 1,996 |
| NA |
| NA |
|
| $ | 45 |
| NA |
| | NA |
| | $ | 120 |
| NA |
|
| |
| (a) | There were no performing loans that were ninety days or more past due as of December 31, 20142017 and 20132016, respectively.. |
| |
| (b) | Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes. |
| |
| (c) | Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflected asreflects the remaining contractual principal is the final principal payment at maturity.maturity or, if applicable, the contractual principal payment at the Firm’s next call date. |
At December 31, 20142017 and 20132016, the contractual amount of letters of creditlending-related commitments for which the fair value option was elected was $4.57.4 billion and $4.5$4.6 billion, respectively, with a corresponding fair value of $(147)(76) million and $(99)(118) million, respectively. For further information regarding off-balance sheet lending-related financial instruments, see Note 29.27.
|
| | |
| 176 | | JPMorgan Chase & Co./2017 Annual Report |
Structured note products by balance sheet classification and risk component
The following table below presents the fair value of the structured notes issued by the Firm, by balance sheet classification and the primary risk to which the structured notes’ embedded derivative relates.type.
| | | | December 31, 2014 | | December 31, 2013 | December 31, 2017 | | December 31, 2016 |
| (in millions) | Long-term debt | Other borrowed funds | Deposits | Total | | Long-term debt | Other borrowed funds | Deposits | Total | Long-term debt | Short-term borrowings | Deposits | Total | | Long-term debt | Short-term borrowings | Deposits | Total |
| Risk exposure | | | | | | |
| Interest rate | $ | 10,858 |
| $ | 460 |
| $ | 2,119 |
| $ | 13,437 |
| | $ | 9,516 |
| $ | 615 |
| $ | 1,270 |
| $ | 11,401 |
| $ | 22,056 |
| $ | 69 |
| $ | 8,058 |
| $ | 30,183 |
| | $ | 16,296 |
| $ | 184 |
| $ | 4,296 |
| $ | 20,776 |
|
| Credit | 4,023 |
| 450 |
| — |
| 4,473 |
| | 4,248 |
| 13 |
| — |
| 4,261 |
| 4,329 |
| 1,312 |
| — |
| 5,641 |
| | 3,267 |
| 225 |
| — |
| 3,492 |
|
| Foreign exchange | 2,150 |
| 211 |
| 17 |
| 2,378 |
| | 2,321 |
| 194 |
| 27 |
| 2,542 |
| 2,841 |
| 147 |
| 38 |
| 3,026 |
| | 2,365 |
| 135 |
| 6 |
| 2,506 |
|
| Equity | 12,348 |
| 12,412 |
| 4,415 |
| 29,175 |
| | 11,082 |
| 11,936 |
| 3,736 |
| 26,754 |
| 17,581 |
| 7,106 |
| 6,548 |
| 31,235 |
| | 14,831 |
| 8,234 |
| 5,481 |
| 28,546 |
|
| Commodity | 710 |
| 644 |
| 2,012 |
| 3,366 |
| | 1,260 |
| 310 |
| 1,133 |
| 2,703 |
| 230 |
| 15 |
| 4,468 |
| 4,713 |
| | 488 |
| 37 |
| 1,811 |
| 2,336 |
|
| Total structured notes | $ | 30,089 |
| $ | 14,177 |
| $ | 8,563 |
| $ | 52,829 |
| | $ | 28,427 |
| $ | 13,068 |
| $ | 6,166 |
| $ | 47,661 |
| $ | 47,037 |
| $ | 8,649 |
| $ | 19,112 |
| $ | 74,798 |
| | $ | 37,247 |
| $ | 8,815 |
| $ | 11,594 |
| $ | 57,656 |
|
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 201 |
Notes to consolidated financial statements
Note 54 – Credit risk concentrations
Concentrations of credit risk arise when a number of clients, counterparties or customers are engaged in similar business activities or activities in the same geographic region, or when they have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions.
JPMorgan Chase regularly monitors various segments of its credit portfolios to assess potential concentration riskscredit risk concentrations and to obtain additional collateral when deemed necessary.necessary and permitted under the Firm’s agreements. Senior management is significantly involved in the credit approval and review process, and risk levels are adjusted as needed to reflect the Firm’s risk appetite.
In the Firm’s consumer portfolio, concentrations are evaluated primarily by product and by U.S. geographic region, with a key focus on trends and concentrations at the portfolio level, where potential credit risk concentrations can be remedied through changes in underwriting policies and portfolio guidelines. In the wholesale portfolio, credit risk
concentrations are evaluated primarily by industry and monitored regularly on both an aggregate portfolio level and on an individual customerclient or counterparty basis. The Firm’s wholesale exposure is managed through loan syndications and participations, loan sales, securitizations, credit derivatives, master netting agreements, and collateral and other risk-reduction techniques. For additional information on loans, see Note 14.12.
The Firm does not believe that its exposure to any particular loan product (e.g., option adjustable rate mortgages (“ARMs”))ARMs), or industry segment (e.g., commercial real estate), or its exposure to residential real estate loans with high loan-to-valueLTV ratios, results in a significant concentration of credit risk.
Terms of loan products and collateral coverage are included in the Firm’s assessment when extending credit and establishing its allowance for loan losses.
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 177 |
Notes to consolidated financial statements
The table below presents both on–balance sheet and off–balance sheet consumer and wholesale-related credit exposure by the Firm’s three credit portfolio segments as of December 31, 20142017 and 2013.2016.
In 2017 the Firm revised its methodology for the assignment of industry classifications, to better monitor and manage concentrations. This largely resulted in the re-assignment of holding companies from Other to the industry of risk category based on the primary business activity of the holding company's underlying entities. In the tables and industry discussions below, the prior period amounts have been revised to conform with the current period presentation.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 |
| | Credit exposure | On-balance sheet | Off-balance sheet(d) | | Credit exposure | On-balance sheet | Off-balance sheet(d) |
| December 31, (in millions) | Loans | Derivatives | | Loans | Derivatives |
| Total consumer, excluding credit card | $ | 353,635 |
| $ | 295,374 |
| $ | — |
| $ | 58,153 |
| | $ | 345,259 |
| $ | 289,063 |
| $ | — |
| $ | 56,057 |
|
| Total credit card | 657,011 |
| 131,048 |
| — |
| 525,963 |
| | 657,174 |
| 127,791 |
| — |
| 529,383 |
|
| Total consumer | 1,010,646 |
| 426,422 |
| — |
| 584,116 |
| | 1,002,433 |
| 416,854 |
| — |
| 585,440 |
|
| Wholesale-related | | | | | | | | | |
| Real Estate | 107,386 |
| 79,113 |
| 333 |
| 27,940 |
| | 87,102 |
| 69,151 |
| 460 |
| 17,491 |
|
| Banks & Finance Cos | 68,203 |
| 24,244 |
| 22,057 |
| 21,902 |
| | 66,881 |
| 25,482 |
| 18,888 |
| 22,511 |
|
| Healthcare | 57,707 |
| 13,793 |
| 4,630 |
| 39,284 |
| | 46,934 |
| 14,383 |
| 2,203 |
| 30,348 |
|
| Oil & Gas | 48,315 |
| 15,616 |
| 1,872 |
| 30,827 |
| | 45,910 |
| 13,319 |
| 3,202 |
| 29,389 |
|
| Consumer Products | 37,818 |
| 10,646 |
| 593 |
| 26,579 |
| | 35,666 |
| 8,708 |
| 3,319 |
| 23,639 |
|
| Asset Managers | 36,374 |
| 8,043 |
| 9,569 |
| 18,762 |
| | 34,145 |
| 9,099 |
| 715 |
| 24,331 |
|
| State & Municipal Govt | 31,858 |
| 7,593 |
| 4,079 |
| 20,186 |
| | 33,506 |
| 5,656 |
| 7,175 |
| 20,675 |
|
| Retail & Consumer Services | 28,258 |
| 7,752 |
| 361 |
| 20,145 |
| | 28,983 |
| 5,582 |
| 2,248 |
| 21,153 |
|
| Utilities | 28,060 |
| 4,843 |
| 2,317 |
| 20,900 |
| | 25,068 |
| 7,504 |
| 273 |
| 17,291 |
|
| Central Govt | 21,081 |
| 1,081 |
| 11,819 |
| 8,181 |
| | 21,403 |
| 4,426 |
| 1,392 |
| 15,585 |
|
| Technology | 20,977 |
| 4,727 |
| 1,341 |
| 14,909 |
| | 21,049 |
| 1,754 |
| 9,998 |
| 9,297 |
|
| Machinery & Equipment Mfg | 20,573 |
| 6,537 |
| 553 |
| 13,483 |
| | 19,078 |
| 5,969 |
| 476 |
| 12,633 |
|
| Transportation | 16,365 |
| 9,107 |
| 699 |
| 6,559 |
| | 17,434 |
| 5,825 |
| 560 |
| 11,049 |
|
| Business Services | 16,201 |
| 4,867 |
| 456 |
| 10,878 |
| | 14,601 |
| 4,497 |
| 594 |
| 9,510 |
|
| Metals/Mining | 15,911 |
| 5,628 |
| 601 |
| 9,682 |
| | 13,975 |
| 6,845 |
| 621 |
| 6,509 |
|
All other(a) | 320,446 |
| 120,912 |
| 17,695 |
| 181,839 |
| | 308,519 |
| 120,063 |
| 13,635 |
| 174,821 |
|
| Subtotal | 875,533 |
| 324,502 |
| 78,975 |
| 472,056 |
| | 820,254 |
| 308,263 |
| 65,759 |
| 446,232 |
|
| Loans held-for-sale and loans at fair value | 6,412 |
| 6,412 |
| — |
| — |
| | 13,301 |
| 13,301 |
| — |
| — |
|
Receivables from customers and other(b) | 28,972 |
| — |
| — |
| — |
| | 26,744 |
| — |
| — |
| — |
|
| Total wholesale-related | 910,917 |
| 330,914 |
| 78,975 |
| 472,056 |
| | 860,299 |
| 321,564 |
| 65,759 |
| 446,232 |
|
Total exposure(c) | $ | 1,921,563 |
| $ | 757,336 |
| $ | 78,975 |
| $ | 1,056,172 |
| | $ | 1,862,732 |
| $ | 738,418 |
| $ | 65,759 |
| $ | 1,031,672 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | |
| | Credit exposure(f) | On-balance sheet | Off-balance sheet(g) | | Credit exposure | On-balance sheet | Off-balance sheet(g) | |
| December 31, (in millions) | Loans | Derivatives | | Loans | Derivatives | |
| Consumer, excluding credit card | $ | 421,234 |
| $ | 372,681 |
| $ | — |
| $ | 48,553 |
| | $ | 417,891 |
| $ | 364,644 |
| $ | — |
| $ | 53,247 |
| (h) |
Receivables from customers(a) | 133 |
| — |
| — |
| — |
| | 120 |
| — |
| — |
| — |
| |
| Total Consumer, excluding credit card | 421,367 |
| 372,681 |
| — |
| 48,553 |
| | 418,011 |
| 364,644 |
| — |
| 53,247 |
| (h) |
| Credit Card | 722,342 |
| 149,511 |
| — |
| 572,831 |
| | 695,707 |
| 141,816 |
| — |
| 553,891 |
| |
| Total consumer-related | 1,143,709 |
| 522,192 |
| — |
| 621,384 |
| | 1,113,718 |
| 506,460 |
| — |
| 607,138 |
| (h) |
Wholesale-related(b) | | | | | | | | | | |
| Real Estate | 139,409 |
| 113,648 |
| 153 |
| 25,608 |
| | 134,287 |
| 105,802 |
| 207 |
| 28,278 |
| |
| Consumer & Retail | 87,679 |
| 31,044 |
| 1,114 |
| 55,521 |
| | 84,804 |
| 29,929 |
| 1,082 |
| 53,793 |
| |
| Technology, Media & Telecommunications | 59,274 |
| 13,665 |
| 2,265 |
| 43,344 |
| | 63,324 |
| 14,063 |
| 1,293 |
| 47,968 |
| |
| Healthcare | 55,997 |
| 16,273 |
| 2,191 |
| 37,533 |
| | 49,445 |
| 15,545 |
| 2,280 |
| 31,620 |
| |
| Industrials | 55,272 |
| 18,161 |
| 1,163 |
| 35,948 |
| | 55,733 |
| 17,295 |
| 1,658 |
| 36,780 |
| |
| Banks & Finance Cos | 49,037 |
| 25,879 |
| 6,816 |
| 16,342 |
| | 48,393 |
| 22,714 |
| 12,257 |
| 13,422 |
| |
| Oil & Gas | 41,317 |
| 12,621 |
| 1,727 |
| 26,969 |
| | 40,367 |
| 13,253 |
| 1,878 |
| 25,236 |
| |
| Asset Managers | 32,531 |
| 11,480 |
| 7,998 |
| 13,053 |
| | 33,201 |
| 10,339 |
| 10,820 |
| 12,042 |
| |
| Utilities | 29,317 |
| 6,187 |
| 2,084 |
| 21,046 |
| | 29,672 |
| 7,208 |
| 888 |
| 21,576 |
| |
State & Municipal Govt(c) | 28,633 |
| 12,134 |
| 2,888 |
| 13,611 |
| | 28,263 |
| 12,416 |
| 2,096 |
| 13,751 |
| |
| Central Govt | 19,182 |
| 3,375 |
| 13,937 |
| 1,870 |
| | 20,408 |
| 3,964 |
| 14,235 |
| 2,209 |
| |
| Chemicals & Plastics | 15,945 |
| 5,654 |
| 208 |
| 10,083 |
| | 15,043 |
| 5,292 |
| 271 |
| 9,480 |
| |
| Transportation | 15,797 |
| 6,733 |
| 977 |
| 8,087 |
| | 19,096 |
| 8,996 |
| 751 |
| 9,349 |
| |
| Automotive | 14,820 |
| 4,903 |
| 342 |
| 9,575 |
| | 16,736 |
| 4,964 |
| 1,196 |
| 10,576 |
| |
| Metals & Mining | 14,171 |
| 4,728 |
| 702 |
| 8,741 |
| | 13,419 |
| 4,350 |
| 439 |
| 8,630 |
| |
| Insurance | 14,089 |
| 1,411 |
| 2,804 |
| 9,874 |
| | 13,510 |
| 1,119 |
| 3,382 |
| 9,009 |
| |
| Financial Markets Infrastructure | 5,036 |
| 351 |
| 3,499 |
| 1,186 |
| | 8,732 |
| 347 |
| 3,884 |
| 4,501 |
| |
| Securities Firms | 4,113 |
| 952 |
| 1,692 |
| 1,469 |
| | 4,211 |
| 1,059 |
| 1,913 |
| 1,239 |
| |
All other(d) | 147,900 |
| 113,699 |
| 3,963 |
| 30,238 |
| | 137,238 |
| 105,135 |
| 3,548 |
| 28,555 |
| |
| Subtotal | 829,519 |
| 402,898 |
| 56,523 |
| 370,098 |
| | 815,882 |
| 383,790 |
| 64,078 |
| 368,014 |
| |
| Loans held-for-sale and loans at fair value | 5,607 |
| 5,607 |
| — |
| — |
| | 4,515 |
| 4,515 |
| — |
| — |
| |
Receivables from customers and other(a) | 26,139 |
| — |
| — |
| — |
| | 17,440 |
| — |
| — |
| — |
| |
| Total wholesale-related | 861,265 |
| 408,505 |
| 56,523 |
| 370,098 |
| | 837,837 |
| 388,305 |
| 64,078 |
| 368,014 |
| |
Total exposure(e)(f) | $ | 2,004,974 |
| $ | 930,697 |
| $ | 56,523 |
| $ | 991,482 |
| | $ | 1,951,555 |
| $ | 894,765 |
| $ | 64,078 |
| $ | 975,152 |
| (h) |
| |
| (a) | For more informationReceivables from customers primarily represent held-for-investment margin loans to brokerage customers (Prime Services in CIB, AWM and CCB) that are collateralized through assets maintained in the clients' brokerage accounts, as such no allowance is held against these receivables. These receivables are reported within accrued interest and accounts receivable on exposures to SPEs included within All other, see Note 16.the Firm's Consolidated balance sheets. |
| |
| (b) | Primarily consistsThe industry rankings presented in the table as of margin loans to prime brokerage customers thatDecember 31, 2016, are generally over-collateralized through a pledge of assets maintained in clients’ brokerage accounts and are subject to daily minimum collateral requirements. As a resultbased on the industry rankings of the Firm’s credit risk mitigation practices, the Firm didcorresponding exposures at December 31, 2017, not hold any reserves for credit impairment on these receivables.actual rankings of such exposures at December 31, 2016. |
| |
| (c) | In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2017 and 2016, noted above, the Firm held: $9.8 billion and $9.1 billion, respectively, of trading securities; $32.3 billion and $31.6 billion, respectively, of AFS securities; and $14.4 billion and $14.5 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, regarding on–balance sheet credit concentrations by major product and/or geography, see Note 62 and Note 14. For information regarding concentrations of off–balance sheet lending-related financial instruments by major product, see Note 29.10. |
| |
| (d) | All other includes: individuals; SPEs; and private education and civic organizations. For more information on exposures to SPEs, see Note 14. |
| |
| (e) | Excludes cash placed with banks of $421.0 billion and $380.2 billion, at December 31, 2017 and 2016, respectively, which is predominantly placed with various central banks, primarily Federal Reserve Banks. |
| |
| (f) | Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables. |
| |
| (g) | Represents lending-related financial instruments. |
| |
| (h) | The prior period amounts have been revised to conform with the current period presentation. |
|
| | |
202178 | | JPMorgan Chase & Co./20142017 Annual Report |
Note 65 – Derivative instruments
Derivative instruments enable end-userscontracts derive their value from underlying asset prices, indices, reference rates, other inputs or a combination of these factors and may expose counterparties to modify or mitigate exposure to credit or market risks. Counterparties to a derivative contract seek to obtain risks and rewards similar to those that could be obtained from purchasingof an underlying asset or selling a related cash instrumentliability without having to initially invest in, own or exchange upfront the full purchaseasset or sales price.liability. JPMorgan Chase makes markets in derivatives for customersclients and also uses derivatives to hedge or manage its own risk exposures. Predominantly all of the Firm’s derivatives are entered into for market-making or risk management purposes.
Market-making derivatives
The majority of the Firm’s derivatives are entered into for market-making purposes. CustomersClients use derivatives to mitigate or modify interest rate, credit, foreign exchange, equity and commodity risks. The Firm actively manages the risks from its exposure to these derivatives by entering into other derivative transactions or by purchasing or selling other financial instruments that partially or fully offset the exposure from client derivatives. The Firm also seeks to earn a spread between the client derivatives and offsetting positions, and from the remaining open risk positions.
Risk management derivatives
The Firm manages itscertain market and credit risk exposures using various derivative instruments.instruments, including derivatives in hedge accounting relationships and other derivatives that are used to manage risks associated with specified assets and liabilities.
Interest rate contracts are used to minimize fluctuations in earnings that are caused by changes in interest rates. Fixed-rate assets and liabilities appreciate or depreciate in market value as interest rates change. Similarly, interest income and expense increases or decreases as a result of variable-rate assets and liabilities resetting to current market rates, and as a result of the repayment and subsequent origination or issuance of fixed-rate assets and liabilities at current market rates. Gains or losses on the derivative instruments that are related to such assets and liabilities are expected to substantially offset this variability in earnings. The Firm generally uses interest rate swaps, forwards and futures to manage the impact of interest rate fluctuations on earnings.
Foreign currency forward contracts are used to manage the foreign exchange risk associated with certain foreign currency–denominated (i.e., non-U.S. dollar) assets and liabilities and forecasted transactions, as well as the Firm’s net investments in certain non-U.S. subsidiaries or branches whose functional currencies are not the U.S. dollar. As a result of fluctuations in foreign currencies, the U.S. dollar–equivalent values of the foreign currency–denominated assets and liabilities or the forecasted revenuerevenues or expenseexpenses increase or decrease. Gains or losses on the derivative instruments related to these foreign currency–denominated assets or liabilities, or forecasted transactions, are expected to substantially offset this variability.
Commodities contracts are used to manage the price risk of certain commodities inventories. Gains or losses on these derivative instruments are expected to substantially offset the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty credit risk associated with loans and lending-related commitments. Credit derivatives compensate the purchaser when the entity referenced in the contract experiences a credit event, such as bankruptcy or a failure to pay an obligation when due. Credit derivatives primarily consist of credit default swaps.CDS. For a further discussion of credit derivatives, see the discussion in the Credit derivatives section on pages 213–215189–191 of this Note.
For more information about risk management derivatives, see the risk management derivatives gains and losses table on page 213189 of this Note, and the hedge accounting gains and losses tables on pages 211–213187–189 of this Note.
Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiated and settled bilaterally with the derivative counterparty. The Firm also enters into, as principal, certain exchange-traded derivatives (“ETD”)ETD such as futures and options, and “cleared” over-the-counter (“OTC-cleared”)OTC-cleared derivative contracts with central counterparties (“CCPs”).CCPs. ETD contracts are generally standardized contracts traded on an exchange and cleared by the CCP, which is the Firm’s counterparty from the inception of the transactions. OTC-cleared derivatives are traded on a bilateral basis and then novated to the CCP for clearing.
Derivative Clearing Servicesclearing services
The Firm provides clearing services for clients wherein which the Firm acts as a clearing member with respect toat certain derivative exchanges and clearinghouses.clearing houses. The Firm does not reflect the clients’ derivative contracts in its Consolidated Financial Statements. For further information on the Firm’s clearing services, see Note 29.27.
Accounting for derivatives
All free-standing derivatives that the Firm executes for its own account are required to be recorded on the Consolidated balance sheets at fair value.
As permitted under U.S. GAAP, the Firm nets derivative assets and liabilities, and the related cash collateral receivables and payables, when a legally enforceable master netting agreement exists between the Firm and the derivative counterparty. For further discussion of the offsetting of assets and liabilities, see Note 1. The accounting for changes in value of a derivative depends on whether or not the transaction has been designated and qualifies for hedge accounting. Derivatives that are not designated as hedges are reported and measured at fair value through earnings. The tabular disclosures on pages 207–213183–189 of this Note provide additional information on the amount of, and reporting for, derivative assets, liabilities, gains and losses. For further discussion of derivatives embedded in structured notes, see Notes 32 and 4.3.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 203179 |
Notes to consolidated financial statements
Derivatives designated as hedges
The Firm applies hedge accounting to certain derivatives executed for risk management purposes – generally interest rate, foreign exchange and commodity derivatives. However, JPMorgan Chase does not seek to apply hedge accounting to all of the derivatives involved in the Firm’s risk management activities. For example, the Firm does not apply hedge accounting to purchased credit default swapsCDS used to manage the credit risk of loans and lending-related commitments, because of the difficulties in qualifying such contracts as hedges. For the same reason, the Firm does not apply hedge accounting to certain interest rate, foreign exchange, and commodity derivatives used for risk management purposes.
To qualify for hedge accounting, a derivative must be highly effective at reducing the risk associated with the exposure being hedged. In addition, for a derivative to be designated as a hedge, the risk management objective and strategy must be documented. Hedge documentation must identify the derivative hedging instrument, the asset or liability or forecasted transaction and type of risk to be hedged, and how the effectiveness of the derivative is assessed prospectively and retrospectively. To assess effectiveness, the Firm uses statistical methods such as regression analysis, as well as nonstatistical methods including dollar-value comparisons of the change in the fair value of the derivative to the change in the fair value or cash flows of the hedged item. The extent to which a derivative has been, and is expected to continue to be, effective at offsetting changes in the fair value or cash flows of the hedged item must be assessed and documented at least quarterly. Any hedge ineffectiveness (i.e., the amount by which the gain or loss on the designated derivative instrument does not exactly offset the change in the hedged item attributable to the hedged risk) must be reported in current-period earnings. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued.
There are three types of hedge accounting designations: fair value hedges, cash flow hedges and net investment hedges. JPMorgan Chase uses fair value hedges primarily to hedge fixed-rate long-term debt, AFS securities and certain commodities inventories. For qualifying fair value hedges, the changes in the fair value of the derivative, and in the value of the hedged item for the risk being hedged, are recognized in earnings. If the hedge relationship is terminated, then the adjustment to the hedged item continues to be reported as part of the basis of the hedged item, and for interest-bearing instrumentsbenchmark interest rate hedges, is amortized to earnings as a yield adjustment. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item – primarily net interest income and principal transactions revenue.
JPMorgan Chase uses cash flow hedges primarily to hedge the exposure to variability in forecasted cash flows from floating-rate assets and liabilities and foreign currency–denominated revenue and expense. For qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative is recorded in OCI and recognized in the Consolidated statements of income when the hedged cash flows affect earnings. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item – primarily interest income, interest expense, noninterest revenue and compensation expense. The ineffective portions of cash flow hedges are immediately recognized in earnings. If the hedge relationship is terminated, then the value of the derivative recorded in accumulated other comprehensive income/(loss) (“AOCI”)AOCI is recognized in earnings when the cash flows that were hedged affect earnings. For hedge relationships that are discontinued because a forecasted transaction is not expected to occur according to the original hedge forecast, any related derivative values recorded in AOCI are immediately recognized in earnings.
JPMorgan Chase uses foreign currencynet investment hedges to protect the value of the Firm’s net investments in certain non-U.S. subsidiaries or branches whose functional currencies are not the U.S. dollar. For foreign currency qualifying net investment hedges, changes in the fair value of the derivatives are recorded in the translation adjustments account within AOCI.
|
| | |
204180 | | JPMorgan Chase & Co./20142017 Annual Report |
The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure category. |
| | | | |
| Type of Derivative | Use of Derivative | Designation and disclosure | Affected segment or unit | Page reference |
| Manage specifically identified risk exposures in qualifying hedge accounting relationships: | | | |
◦ | Hedge fixed rate assets and liabilities | Fair value hedge | Corporate | 211187 |
◦ | Hedge floating ratefloating-rate assets and liabilities | Cash flow hedge | Corporate | 212188 |
| Hedge foreign currency-denominated assets and liabilities | Fair value hedge | Corporate | 211187 |
| Hedge foreign currency-denominated forecasted revenue and expense | Cash flow hedge | Corporate | 212188 |
| Hedge the value of the Firm’s investments in non-U.S. subsidiariesdollar functional currency entities | Net investment hedge | Corporate | 213189 |
| Hedge commodity inventory | Fair value hedge | CIB | 211187 |
| Manage specifically identified risk exposures not designated in qualifying hedge accounting relationships: | | | |
| Manage the risk of the mortgage pipeline, warehouse loans and MSRs | Specified risk management | CCB | 213189 |
| Manage the credit risk of wholesale lending exposures | Specified risk management | CIB | 213189 |
| Manage the risk of certain commodities-related contracts and investments | Specified risk management | CIB | 213189 |
foreign exchange | Manage the risk of certain other specified assets and liabilities | Specified risk management | Corporate | 213189 |
| Market-making derivatives and other activities: | | | |
| Market-making and related risk management | Market-making and other | CIB | 213189 |
| Other derivatives(a) | Market-making and other | CIB, Corporate | 213189 |
| |
(a) | Other derivatives included the synthetic credit portfolio. The synthetic credit portfolio was a portfolio of index credit derivatives, including short and long positions, that was originally held by CIO. On July 2, 2012, CIO transferred the synthetic credit portfolio, other than a portion that aggregated to a notional amount of approximately $12 billion, to CIB; these retained positions were effectively closed out during the third quarter of 2012. CIB effectively sold the positions that had been transferred to it by the end of 2014. The results of the synthetic credit portfolio, including the portion transferred to CIB, have been included in the gains and losses on derivatives related to market-making activities and other derivatives category discussed on page 213 of this Note. |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 205181 |
Notes to consolidated financial statements
Notional amount of derivative contracts
The following table summarizes the notional amount of derivative contracts outstanding as of December 31, 20142017 and 2013.2016.
| | | | Notional amounts(c) | Notional amounts(b) |
| December 31, (in billions) | 2014 |
| 2013 |
| 2017 | | 2016 |
| Interest rate contracts | | | | |
| Swaps | $ | 29,734 |
| $ | 35,221 |
| $ | 21,043 |
| | $ | 22,000 |
|
Futures and forwards(a) | 10,189 |
| 11,238 |
| |
Written options(a) | 3,903 |
| 4,059 |
| |
| Futures and forwards | | 4,904 |
| | 5,289 |
|
| Written options | | 3,576 |
| | 3,091 |
|
| Purchased options | 4,259 |
| 4,187 |
| 3,987 |
| | 3,482 |
|
| Total interest rate contracts | 48,085 |
| 54,705 |
| 33,510 |
| | 33,862 |
|
Credit derivatives(b)(a) | 4,249 |
| 5,331 |
| 1,522 |
| | 2,032 |
|
| Foreign exchange contracts | | |
| | | |
|
| Cross-currency swaps | 3,346 |
| 3,488 |
| 3,953 |
| | 3,359 |
|
| Spot, futures and forwards | 4,669 |
| 3,773 |
| 5,923 |
| | 5,341 |
|
| Written options | 790 |
| 659 |
| 786 |
| | 734 |
|
| Purchased options | 780 |
| 652 |
| 776 |
| | 721 |
|
| Total foreign exchange contracts | 9,585 |
| 8,572 |
| 11,438 |
| | 10,155 |
|
| Equity contracts | | | | |
Swaps(a) | 206 |
| 187 |
| |
Futures and forwards(a) | 50 |
| 50 |
| |
| Swaps | | 367 |
| | 258 |
|
| Futures and forwards | | 90 |
| | 59 |
|
| Written options | 432 |
| 425 |
| 531 |
| | 417 |
|
| Purchased options | 375 |
| 380 |
| 453 |
| | 345 |
|
| Total equity contracts | 1,063 |
| 1,042 |
| 1,441 |
| | 1,079 |
|
| Commodity contracts | | |
| | | |
|
| Swaps | 126 |
| 124 |
| 116 |
| | 102 |
|
| Spot, futures and forwards | 193 |
| 234 |
| 168 |
| | 130 |
|
| Written options | 181 |
| 202 |
| 98 |
| | 83 |
|
| Purchased options | 180 |
| 203 |
| 93 |
| | 94 |
|
| Total commodity contracts | 680 |
| 763 |
| 475 |
| | 409 |
|
| Total derivative notional amounts | $ | 63,662 |
| $ | 70,413 |
| $ | 48,386 |
| | $ | 47,537 |
|
| |
| (a) | The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated balance sheets or its results of operations. |
| |
(b) | For more information on volumes and types of credit derivative contracts, see the Credit derivatives discussion on pages 213–215 of this Note. 189–191. |
| |
(c)(b) | Represents the sum of gross long and gross short third-party notional derivative contracts. |
While the notional amounts disclosed above give an indication of the volume of the Firm’s derivatives activity, the notional amounts significantly exceed, in the Firm’s view, the possible losses that could arise from such transactions. For most derivative transactions, the notional amount is not exchanged; it is used simply as a reference to calculate payments.
|
| | |
206182 | | JPMorgan Chase & Co./20142017 Annual Report |
Impact of derivatives on the Consolidated balance sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that are reflected on the Firm’s Consolidated balance sheets as of December 31, 20142017 and 20132016, by accounting designation (e.g., whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Gross derivative balances as of December 31, 2017, reflect the Firm’s adoption of rulebook changes made by two CCPs, that require or allow the Firm to treat certain OTC-cleared derivative transactions with that CCP as settled each day. If such rulebook changes had been in effect as of December 31, 2016, the impact would have been a reduction in gross derivative receivables and payables of $227.1 billion and $224.7 billion, respectively, and a corresponding decrease in amounts netted, with no impact to the Consolidated balance sheets. | | Free-standing derivative receivables and payables(a) | Free-standing derivative receivables and payables(a) | | | | | | | Free-standing derivative receivables and payables(a) | | | | | | | | |
| | Gross derivative receivables | | | | Gross derivative payables | | | Gross derivative receivables | | | | Gross derivative payables | | |
December 31, 2014 (in millions) | Not designated as hedges | Designated as hedges | Total derivative receivables | | Net derivative receivables(b) | | Not designated as hedges | Designated as hedges | Total derivative payables | | Net derivative payables(b) | |
December 31, 2017
(in millions) | | Not designated as hedges | | Designated as hedges | Total derivative receivables | | Net derivative receivables(b) | | Not designated as hedges | | Designated as hedges | Total derivative payables | | Net derivative payables(b) |
| Trading assets and liabilities | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate | $ | 951,151 |
| $ | 5,372 |
| | $ | 956,523 |
| | $ | 33,725 |
| | $ | 921,634 |
| $ | 3,011 |
| $ | 924,645 |
| | $ | 17,745 |
| $ | 313,276 |
| | $ | 2,716 |
| | $ | 315,992 |
| | $ | 24,673 |
| | $ | 283,092 |
| | $ | 1,344 |
| $ | 284,436 |
| | $ | 7,129 |
|
| Credit | 76,842 |
| — |
| | 76,842 |
| | 1,838 |
| | 75,895 |
| — |
| 75,895 |
| | 1,593 |
| 23,205 |
| | — |
| | 23,205 |
| | 869 |
| | 23,252 |
| | — |
| 23,252 |
| | 1,299 |
|
| Foreign exchange | 205,271 |
| 3,650 |
| | 208,921 |
| | 21,253 |
| | 217,722 |
| 626 |
| 218,348 |
| | 22,970 |
| 159,740 |
| | 491 |
| | 160,231 |
| | 16,151 |
| | 154,601 |
| | 1,221 |
| 155,822 |
| | 12,473 |
|
| Equity | 46,792 |
| — |
| | 46,792 |
| | 8,177 |
| | 50,565 |
| — |
| 50,565 |
| | 11,740 |
| 40,040 |
| | — |
| | 40,040 |
| | 7,882 |
| | 45,395 |
| | — |
| 45,395 |
| | 9,192 |
|
| Commodity | 43,151 |
| 502 |
| | 43,653 |
| | 13,982 |
| | 45,455 |
| 168 |
| 45,623 |
| | 17,068 |
| 20,066 |
| | 19 |
| | 20,085 |
| | 6,948 |
| | 21,498 |
| | 403 |
| 21,901 |
| | 7,684 |
|
| Total fair value of trading assets and liabilities | $ | 1,323,207 |
| $ | 9,524 |
| | $ | 1,332,731 |
| | $ | 78,975 |
| | $ | 1,311,271 |
| $ | 3,805 |
| $ | 1,315,076 |
| | $ | 71,116 |
| $ | 556,327 |
| | $ | 3,226 |
| | $ | 559,553 |
| | $ | 56,523 |
| | $ | 527,838 |
| | $ | 2,968 |
| $ | 530,806 |
| | $ | 37,777 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Gross derivative receivables | | | | Gross derivative payables | | | Gross derivative receivables | | | | Gross derivative payables | | |
December 31, 2013 (in millions) | Not designated as hedges | Designated as hedges | Total derivative receivables | | Net derivative receivables(b) | | Not designated as hedges | Designated as hedges | Total derivative payables | | Net derivative payables(b) | |
December 31, 2016
(in millions) | | Not designated as hedges | | Designated as hedges | Total derivative receivables | | Net derivative receivables(b) | | Not designated as hedges | | Designated as hedges | Total derivative payables | | Net derivative payables(b) |
| Trading assets and liabilities | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate | $ | 851,189 |
| $ | 3,490 |
| | $ | 854,679 |
| | $ | 25,782 |
| | $ | 820,811 |
| $ | 4,543 |
| $ | 825,354 |
| | $ | 13,283 |
| $ | 601,557 |
| | $ | 4,406 |
| | $ | 605,963 |
| | $ | 28,302 |
| | $ | 567,894 |
| | $ | 2,884 |
| $ | 570,778 |
| | $ | 10,815 |
|
| Credit | 83,520 |
| — |
| | 83,520 |
| | 1,516 |
| | 82,402 |
| — |
| 82,402 |
| | 2,281 |
| 29,645 |
| | — |
| | 29,645 |
| | 1,294 |
| | 28,666 |
| | — |
| 28,666 |
| | 1,411 |
|
| Foreign exchange | 152,240 |
| 1,359 |
| | 153,599 |
| | 16,790 |
| | 158,728 |
| 1,397 |
| 160,125 |
| | 15,947 |
| 232,137 |
| | 1,289 |
| | 233,426 |
| | 23,271 |
| | 233,823 |
| | 1,148 |
| 234,971 |
| | 20,508 |
|
| Equity | 52,931 |
| — |
| | 52,931 |
| | 12,227 |
| | 54,654 |
| — |
| 54,654 |
| | 14,719 |
| 34,940 |
| | — |
| | 34,940 |
| | 4,939 |
| | 38,362 |
| | — |
| 38,362 |
| | 8,140 |
|
| Commodity | 34,344 |
| 1,394 |
| | 35,738 |
| | 9,444 |
| | 37,605 |
| 9 |
| 37,614 |
| | 11,084 |
| 18,505 |
| | 137 |
| | 18,642 |
| | 6,272 |
| | 20,283 |
| | 179 |
| 20,462 |
| | 8,357 |
|
| Total fair value of trading assets and liabilities | $ | 1,174,224 |
| $ | 6,243 |
| | $ | 1,180,467 |
| | $ | 65,759 |
| | $ | 1,154,200 |
| $ | 5,949 |
| $ | 1,160,149 |
| | $ | 57,314 |
| $ | 916,784 |
| | $ | 5,832 |
| | $ | 922,616 |
| | $ | 64,078 |
| | $ | 889,028 |
| | $ | 4,211 |
| $ | 893,239 |
| | $ | 49,231 |
|
| |
| (a) | Balances exclude structured notes for which the fair value option has been elected. See Note 43 for further information. |
| |
| (b) | As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and payables when a legally enforceable master netting agreement exists. |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 207183 |
Notes to consolidated financial statements
Derivatives netting
The following table presents,tables present, as of December 31, 20142017 and 2013, the2016, gross and net derivative receivables and payables by contract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same counterparty, have been netted on the Consolidated balance sheets against derivative payables and cash collateral payables to the same counterparty with respect to derivative contracts for whichwhere the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, the receivablesamounts are not eligible under U.S. GAAP for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown separately in the tabletables below.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 |
| December 31, (in millions) | Gross derivative receivables | Amounts netted on the Consolidated balance sheets | Net derivative receivables | | Gross derivative receivables | Amounts netted on the Consolidated balance sheets | Net derivative receivables |
| U.S. GAAP nettable derivative receivables | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | |
| OTC | $ | 548,373 |
| $ | (521,180 | ) | | $ | 27,193 |
| | $ | 486,449 |
| $ | (466,493 | ) | | $ | 19,956 |
|
| OTC–cleared | 401,656 |
| (401,618 | ) | | 38 |
| | 362,426 |
| (362,404 | ) | | 22 |
|
Exchange-traded(a) | — |
| — |
| | — |
| | — |
| — |
| | — |
|
| Total interest rate contracts | 950,029 |
| (922,798 | ) | | 27,231 |
| | 848,875 |
| (828,897 | ) | | 19,978 |
|
| Credit contracts: | | | | | | | | | |
| OTC | 66,636 |
| (65,720 | ) | | 916 |
| | 66,269 |
| (65,725 | ) | | 544 |
|
| OTC–cleared | 9,320 |
| (9,284 | ) | | 36 |
| | 16,841 |
| (16,279 | ) | | 562 |
|
| Total credit contracts | 75,956 |
| (75,004 | ) | | 952 |
| | 83,110 |
| (82,004 | ) | | 1,106 |
|
| Foreign exchange contracts: | | | | | | | | | |
| OTC | 202,537 |
| (187,634 | ) | | 14,903 |
| | 148,953 |
| (136,763 | ) | | 12,190 |
|
| OTC–cleared | 36 |
| (34 | ) | | 2 |
| | 46 |
| (46 | ) | | — |
|
Exchange-traded(a) | — |
| — |
| | — |
| | — |
| — |
| | — |
|
| Total foreign exchange contracts | 202,573 |
| (187,668 | ) | | 14,905 |
| | 148,999 |
| (136,809 | ) | | 12,190 |
|
| Equity contracts: | | | | | | | | | |
| OTC | 23,258 |
| (22,826 | ) | | 432 |
| | 31,870 |
| (29,289 | ) | | 2,581 |
|
| OTC–cleared | — |
| — |
| | — |
| | — |
| — |
| | — |
|
Exchange-traded(a) | 18,143 |
| (15,789 | ) | | 2,354 |
| | 17,732 |
| (11,415 | ) | | 6,317 |
|
| Total equity contracts | 41,401 |
| (38,615 | ) | | 2,786 |
| | 49,602 |
| (40,704 | ) | | 8,898 |
|
| Commodity contracts: | | | | | | | | | |
| OTC | 22,555 |
| (14,327 | ) | | 8,228 |
| | 21,619 |
| (15,082 | ) | | 6,537 |
|
| OTC–cleared | — |
| — |
| | — |
| | — |
| — |
| | — |
|
Exchange-traded(a) | 19,500 |
| (15,344 | ) | | 4,156 |
| | 12,528 |
| (11,212 | ) | | 1,316 |
|
| Total commodity contracts | 42,055 |
| (29,671 | ) | | 12,384 |
| | 34,147 |
| (26,294 | ) | | 7,853 |
|
| Derivative receivables with appropriate legal opinion | $ | 1,312,014 |
| $ | (1,253,756 | ) | (b) | $ | 58,258 |
| | $ | 1,164,733 |
| $ | (1,114,708 | ) | (b) | $ | 50,025 |
|
| Derivative receivables where an appropriate legal opinion has not been either sought or obtained | 20,717 |
| | | 20,717 |
| | 15,734 |
| | | 15,734 |
|
| Total derivative receivables recognized on the Consolidated balance sheets | $ | 1,332,731 |
| | | $ | 78,975 |
| | $ | 1,180,467 |
| | | $ | 65,759 |
|
| |
(a) | Exchange-traded derivative amounts that relate to futures contracts are settled daily. |
| |
(b) | Included cash collateral netted of $74.0 billion and $63.9 billion at December 31, 2014, and 2013, respectively. |
|
| | |
208 | | JPMorgan Chase & Co./2014 Annual Report |
The following table presents, as of December 31, 2014 and 2013, the gross and net derivative payables by contract and settlement type. Derivative payables have been netted on the Consolidated balance sheets against derivative receivables and cash collateral receivables from the same counterparty with respect to derivative contracts for which the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, the payables are not eligible under U.S. GAAP for netting on the Consolidated balance sheets, and are shown separately in the table below.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 |
| December 31, (in millions) | Gross derivative payables | Amounts netted on the Consolidated balance sheets | Net derivative payables | | Gross derivative payables | Amounts netted on the Consolidated balance sheets | Net derivative payables |
| U.S. GAAP nettable derivative payables | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | |
| OTC | $ | 522,170 |
| $ | (509,650 | ) | | $ | 12,520 |
| | $ | 467,850 |
| $ | (458,081 | ) | | $ | 9,769 |
|
| OTC–cleared | 398,518 |
| (397,250 | ) | | 1,268 |
| | 354,698 |
| (353,990 | ) | | 708 |
|
Exchange-traded(a) | — |
| — |
| | — |
| | — |
| — |
| | — |
|
| Total interest rate contracts | 920,688 |
| (906,900 | ) | | 13,788 |
| | 822,548 |
| (812,071 | ) | | 10,477 |
|
| Credit contracts: | | | | | | | | | |
| OTC | 65,432 |
| (64,904 | ) | | 528 |
| | 65,223 |
| (63,671 | ) | | 1,552 |
|
| OTC–cleared | 9,398 |
| (9,398 | ) | | — |
| | 16,506 |
| (16,450 | ) | | 56 |
|
| Total credit contracts | 74,830 |
| (74,302 | ) | | 528 |
| | 81,729 |
| (80,121 | ) | | 1,608 |
|
| Foreign exchange contracts: | | | | | | | | | |
| OTC | 211,732 |
| (195,312 | ) | | 16,420 |
| | 155,110 |
| (144,119 | ) | | 10,991 |
|
| OTC–cleared | 66 |
| (66 | ) | | — |
| | 61 |
| (59 | ) | | 2 |
|
Exchange-traded(a) | — |
| — |
| | — |
| | — |
| — |
| | — |
|
| Total foreign exchange contracts | 211,798 |
| (195,378 | ) | | 16,420 |
| | 155,171 |
| (144,178 | ) | | 10,993 |
|
| Equity contracts: | | | | | | | | | |
| OTC | 27,908 |
| (23,036 | ) | | 4,872 |
| | 33,295 |
| (28,520 | ) | | 4,775 |
|
| OTC–cleared | — |
| — |
| | — |
| | — |
| — |
| | — |
|
Exchange-traded(a) | 17,167 |
| (15,789 | ) | | 1,378 |
| | 17,349 |
| (11,415 | ) | | 5,934 |
|
| Total equity contracts | 45,075 |
| (38,825 | ) | | 6,250 |
| | 50,644 |
| (39,935 | ) | | 10,709 |
|
| Commodity contracts: | | | | | | | | | |
| OTC | 25,129 |
| (13,211 | ) | | 11,918 |
| | 21,993 |
| (15,318 | ) | | 6,675 |
|
| OTC–cleared | — |
| — |
| | — |
| | — |
| — |
| | — |
|
Exchange-traded(a) | 18,486 |
| (15,344 | ) | | 3,142 |
| | 12,367 |
| (11,212 | ) | | 1,155 |
|
| Total commodity contracts | 43,615 |
| (28,555 | ) | | 15,060 |
| | 34,360 |
| (26,530 | ) | | 7,830 |
|
| Derivative payables with appropriate legal opinions | $ | 1,296,006 |
| $ | (1,243,960 | ) | (b) | $ | 52,046 |
| | $ | 1,144,452 |
| $ | (1,102,835 | ) | (b) | $ | 41,617 |
|
| Derivative payables where an appropriate legal opinion has not been either sought or obtained | 19,070 |
| | | 19,070 |
| | 15,697 |
| | | 15,697 |
|
| Total derivative payables recognized on the Consolidated balance sheets | $ | 1,315,076 |
| | | $ | 71,116 |
| | $ | 1,160,149 |
| | | $ | 57,314 |
|
| |
(a) | Exchange-traded derivative balances that relate to futures contracts are settled daily. |
| |
(b) | Included cash collateral netted of $64.2 billion and $52.1 billion related to OTC and OTC-cleared derivatives at December 31, 2014, and 2013, respectively. |
In addition to the cash collateral received and transferred that is presented on a net basis with net derivative receivables and payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate counterparty credit risk associated with the Firm’s derivative instruments, but are not eligible for net presentation, because (a) the collateral is comprised of
presentation:
collateral that consists of non-cash financial instruments (generally U.S. government and agency securities and other G7 government bonds), (b) securities) and cash collateral held at third party custodians, which are shown separately as “Collateral not nettable on the Consolidated balance sheets” in the tables below, up to the fair value exposure amount.
the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of the date presented, which is excluded from the tables below; and
collateral held or (c) the collateraltransferred that relates to derivative receivables or payables where an appropriate legal opinion has not been either sought or obtained.obtained with respect to the master netting agreement, which is excluded from the tables below.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| December 31, (in millions) | Gross derivative receivables | Amounts netted on the Consolidated balance sheets | Net derivative receivables | | Gross derivative receivables | | Amounts netted on the Consolidated balance sheets | Net derivative receivables |
| U.S. GAAP nettable derivative receivables | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | |
| Over-the-counter (“OTC”) | $ | 305,569 |
| $ | (284,917 | ) | | $ | 20,652 |
| | $ | 365,227 |
| | $ | (342,173 | ) | | $ | 23,054 |
|
| OTC–cleared | 6,531 |
| (6,318 | ) | | 213 |
| | 235,399 |
| | (235,261 | ) | | 138 |
|
Exchange-traded(a) | 185 |
| (84 | ) | | 101 |
| | 241 |
| | (227 | ) | | 14 |
|
| Total interest rate contracts | 312,285 |
| (291,319 | ) | | 20,966 |
| | 600,867 |
| | (577,661 | ) | | 23,206 |
|
| Credit contracts: | | | | | | | | | | |
| OTC | 15,390 |
| (15,165 | ) | | 225 |
| | 23,130 |
| | (22,612 | ) | | 518 |
|
| OTC–cleared | 7,225 |
| (7,170 | ) | | 55 |
| | 5,746 |
| | (5,739 | ) | | 7 |
|
| Total credit contracts | 22,615 |
| (22,335 | ) | | 280 |
| | 28,876 |
| | (28,351 | ) | | 525 |
|
| Foreign exchange contracts: | | | | | | | | | | |
| OTC | 155,289 |
| (142,420 | ) | | 12,869 |
| | 226,271 |
| | (208,962 | ) | | 17,309 |
|
| OTC–cleared | 1,696 |
| (1,654 | ) | | 42 |
| | 1,238 |
| | (1,165 | ) | | 73 |
|
Exchange-traded(a) | 141 |
| (7 | ) | | 134 |
| | 104 |
| | (27 | ) | | 77 |
|
| Total foreign exchange contracts | 157,126 |
| (144,081 | ) | | 13,045 |
| | 227,613 |
| | (210,154 | ) | | 17,459 |
|
| Equity contracts: | | | | | | | | | | |
| OTC | 22,024 |
| (19,917 | ) | | 2,107 |
| | 20,868 |
| | (20,570 | ) | | 298 |
|
Exchange-traded(a) | 14,188 |
| (12,241 | ) | | 1,947 |
| | 11,439 |
| | (9,431 | ) | | 2,008 |
|
| Total equity contracts | 36,212 |
| (32,158 | ) | | 4,054 |
| | 32,307 |
| | (30,001 | ) | | 2,306 |
|
| Commodity contracts: | | | | | | | | | | |
| OTC | 10,903 |
| (4,436 | ) | | 6,467 |
| | 11,571 |
| | (5,605 | ) | | 5,966 |
|
Exchange-traded(a) | 8,854 |
| (8,701 | ) | | 153 |
| | 6,794 |
| | (6,766 | ) | | 28 |
|
| Total commodity contracts | 19,757 |
| (13,137 | ) | | 6,620 |
| | 18,365 |
| | (12,371 | ) | | 5,994 |
|
| Derivative receivables with appropriate legal opinion | 547,995 |
| (503,030 | ) | (b) | 44,965 |
| | 908,028 |
| | (858,538 | ) | (b) | 49,490 |
|
| Derivative receivables where an appropriate legal opinion has not been either sought or obtained | 11,558 |
| | | 11,558 |
| | 14,588 |
| | | | 14,588 |
|
| Total derivative receivables recognized on the Consolidated balance sheets | $ | 559,553 |
| | | $ | 56,523 |
| | $ | 922,616 |
| | | | $ | 64,078 |
|
Collateral not nettable on the Consolidated balance sheets(c)(d) | | | | (13,363 | ) | | | | | | (18,638 | ) |
| Net amounts | | | | $ | 43,160 |
| | | | | | $ | 45,440 |
|
|
| | |
| 184 | | JPMorgan Chase & Co./20142017 Annual Report | | 209 |
Notes to consolidated financial statements
The following tables present information regarding certain financial instrument collateral received and transferred as of December 31, 2014 and 2013, that is not eligible for net presentation under U.S. GAAP. The collateral included in these tables relates only to the derivative instruments for which appropriate legal opinions have been obtained; excluded are (i) additional collateral that exceeds the fair value exposure and (ii) all collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained. |
| | | | | | | | | | | | | | | | | | | | | |
| Derivative receivable collateral | | | | | |
| | 2014 | | 2013 |
| December 31, (in millions) | Net derivative receivables | Collateral not nettable on the Consolidated balance sheets | | Net exposure | | Net derivative receivables | Collateral not nettable on the Consolidated balance sheets | | Net exposure |
| Derivative receivables with appropriate legal opinions | $ | 58,258 |
| $ | (16,194 | ) | (a) | $ | 42,064 |
| | $ | 50,025 |
| $ | (12,414 | ) | (a) | $ | 37,611 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
Derivative payable collateral(b) | | | | | |
| | 2014 | | 2013 |
| December 31, (in millions) | Net derivative payables | Collateral not nettable on the Consolidated balance sheets | | Net amount(c) | | Net derivative payables | Collateral not nettable on the Consolidated balance sheets | | Net amount(c) |
| Derivative payables with appropriate legal opinions | $ | 52,046 |
| $ | (10,505 | ) | (a) | $ | 41,541 |
| | $ | 41,617 |
| $ | (6,873 | ) | (a) | $ | 34,744 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| December 31, (in millions) | Gross derivative payables | Amounts netted on the Consolidated balance sheets | Net derivative payables | | Gross derivative payables | | Amounts netted on the Consolidated balance sheets | Net derivative payables |
| U.S. GAAP nettable derivative payables | | | | | | | | | | |
| Interest rate contracts: | | | | | | | | | | |
| OTC | $ | 276,960 |
| $ | (271,294 | ) | | $ | 5,666 |
| | $ | 338,502 |
| | $ | (329,325 | ) | | $ | 9,177 |
|
| OTC–cleared | 6,004 |
| (5,928 | ) | | 76 |
| | 230,464 |
| | (230,463 | ) | | 1 |
|
Exchange-traded(a) | 127 |
| (84 | ) | | 43 |
| | 196 |
| | (175 | ) | | 21 |
|
| Total interest rate contracts | 283,091 |
| (277,306 | ) | | 5,785 |
| | 569,162 |
| | (559,963 | ) | | 9,199 |
|
| Credit contracts: | | | | | | | | | | |
| OTC | 16,194 |
| (15,170 | ) | | 1,024 |
| | 22,366 |
| | (21,614 | ) | | 752 |
|
| OTC–cleared | 6,801 |
| (6,784 | ) | | 17 |
| | 5,641 |
| | (5,641 | ) | | — |
|
| Total credit contracts | 22,995 |
| (21,954 | ) | | 1,041 |
| | 28,007 |
| | (27,255 | ) | | 752 |
|
| Foreign exchange contracts: | | | | | | | | | | |
| OTC | 150,966 |
| (141,789 | ) | | 9,177 |
| | 228,300 |
| | (213,296 | ) | | 15,004 |
|
| OTC–cleared | 1,555 |
| (1,553 | ) | | 2 |
| | 1,158 |
| | (1,158 | ) | | — |
|
Exchange-traded(a) | 98 |
| (7 | ) | | 91 |
| | 328 |
| | (9 | ) | | 319 |
|
| Total foreign exchange contracts | 152,619 |
| (143,349 | ) | | 9,270 |
| | 229,786 |
| | (214,463 | ) | | 15,323 |
|
| Equity contracts: | | | | | | | | | | |
| OTC | 28,193 |
| (23,969 | ) | | 4,224 |
| | 24,688 |
| | (20,808 | ) | | 3,880 |
|
Exchange-traded(a) | 12,720 |
| (12,234 | ) | | 486 |
| | 10,004 |
| | (9,414 | ) | | 590 |
|
| Total equity contracts | 40,913 |
| (36,203 | ) | | 4,710 |
| | 34,692 |
| | (30,222 | ) | | 4,470 |
|
| Commodity contracts: | | | | | | | | | | |
| OTC | 12,645 |
| (5,508 | ) | | 7,137 |
| | 12,885 |
| | (5,252 | ) | | 7,633 |
|
Exchange-traded(a) | 8,870 |
| (8,709 | ) | | 161 |
| | 7,099 |
| | (6,853 | ) | | 246 |
|
| Total commodity contracts | 21,515 |
| (14,217 | ) | | 7,298 |
| | 19,984 |
| | (12,105 | ) | | 7,879 |
|
| Derivative payables with appropriate legal opinion | 521,133 |
| (493,029 | ) | (b) | 28,104 |
| | 881,631 |
| | (844,008 | ) | (b) | 37,623 |
|
| Derivative payables where an appropriate legal opinion has not been either sought or obtained | 9,673 |
| | | 9,673 |
| | 11,608 |
| | | | 11,608 |
|
| Total derivative payables recognized on the Consolidated balance sheets | $ | 530,806 |
| | | $ | 37,777 |
| | $ | 893,239 |
| | | | $ | 49,231 |
|
Collateral not nettable on the Consolidated balance sheets(c)(d) | | | | (4,180 | ) | | | | | | (8,925 | ) |
| Net amounts | | | | $ | 33,597 |
| | | | | | $ | 40,306 |
|
| |
| (a) | Exchange-traded derivative balances that relate to futures contracts are settled daily. |
| |
| (b) | Net derivatives receivable included cash collateral netted of $55.5 billion and $71.9 billion at December 31, 2017 and 2016, respectively. Net derivatives payable included cash collateral netted of $45.5 billion and $57.3 billion related to OTC and OTC-cleared derivatives at December 31, 2017 and 2016, respectively. |
| |
| (c) | Represents liquid security collateral as well as cash collateral held at third party custodians.third-party custodians related to derivative instruments where an appropriate legal opinion has been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with that counterparty. |
| |
(b)(d) | Derivative payable collateral relates only to OTC and OTC-cleared derivative instruments. Amounts exclude collateral transferred related to exchange-traded derivative instruments. |
|
| | |
(c)JPMorgan Chase & Co./2017 Annual Report | Net amount represents exposure of counterparties to the Firm. | 185 |
Notes to consolidated financial statements
Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each derivative contract type, derivatives expose JPMorgan Chase to credit risk — the risk that derivative counterparties may fail to meet their payment obligations under the derivative contracts and the collateral, if any, held by the Firm proves to be of insufficient value to cover the payment obligation. It is the policy of JPMorgan Chase to actively pursue, where possible, the use of legally enforceable master netting arrangements and collateral agreements to mitigate derivative counterparty credit risk. The amount of derivative receivables reported on the Consolidated balance sheets is the fair value of the derivative contracts after giving effect to legally enforceable master netting agreements and cash collateral held by the Firm.
While derivative receivables expose the Firm to credit risk, derivative payables expose the Firm to liquidity risk, as the derivative contracts typically require the Firm to post cash or securities collateral with counterparties as the fair value
of the contracts moves in the counterparties’ favor or upon specified downgrades in the Firm’s and its subsidiaries’ respective credit ratings. Certain derivative contracts also provide for termination of the contract, generally upon a downgrade of either the Firm or the counterparty, at the fair value of the derivative contracts. The following table shows the aggregate fair value of net derivative payables related to OTC and OTC-cleared derivatives that contain contingent collateral or termination features that may be triggered upon a ratings downgrade, and the associated collateral the Firm has posted in the normal course of business, at December 31, 20142017 and 2013.2016.
|
| | | | | | |
| OTC and OTC-cleared derivative payables containing downgrade triggers |
| December 31, (in millions) | 2017 | 2016 |
| Aggregate fair value of net derivative payables | $ | 11,916 |
| $ | 21,550 |
|
| Collateral posted | 9,973 |
| 19,383 |
|
|
| | | | | | |
| OTC and OTC-cleared derivative payables containing downgrade triggers |
| December 31, (in millions) | 2014 | 2013 |
| Aggregate fair value of net derivative payables | $ | 32,303 |
| $ | 24,631 |
|
| Collateral posted | 27,585 |
| 20,346 |
|
The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), at December 31, 20142017 and 2013,2016, related to OTC and OTC-cleared derivative contracts with contingent collateral or termination features that may be triggered upon a ratings downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the predefined threshold rating is breached. A downgrade by a single rating agency that does not result in a rating lower than a preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral except(except in certain instances in which additional initial margin may be required upon a ratings downgrade, ordowngrade), nor in termination paymentpayments requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating of the rating agencies referred to in the derivative contract.
|
| | |
210 | | JPMorgan Chase & Co./2014 Annual Report |
| | Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives | | | | Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives |
| | 2014 | | 2013 | 2017 | | 2016 |
| December 31, (in millions) | Single-notch downgrade | Two-notch downgrade | | Single-notch downgrade | Two-notch downgrade | Single-notch downgrade | Two-notch downgrade | | Single-notch downgrade | Two-notch downgrade |
Amount of additional collateral to be posted upon downgrade(a) | $ | 1,046 |
| $ | 3,331 |
| | $ | 952 |
| $ | 3,244 |
| $ | 79 |
| $ | 1,989 |
| | $ | 560 |
| $ | 2,497 |
|
Amount required to settle contracts with termination triggers upon downgrade(b) | 366 |
| 1,388 |
| | 540 |
| 876 |
| 320 |
| 650 |
| | 606 |
| 1,049 |
|
| |
| (a) | Includes the additional collateral to be posted for initial margin. |
| |
| (b) | Amounts represent fair valuevalues of derivative payables, and do not reflect collateral posted. |
Derivatives executed in contemplation of a sale of the underlying financial asset
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The Firm generally accounts for such transfers as collateralized financing transactions as described in Note 11, but in limited circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. There were no such transfers accounted for as a sale where the associated derivative was outstanding at December 31, 2017, and such transfers at December 31, 2016 were not material.
|
| | |
| 186 | | JPMorgan Chase & Co./2017 Annual Report |
Impact of derivatives on the Consolidated statements of income
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
Fair value hedge gains and losses
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well as pretaxpre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 20142017, 20132016 and 20122015, respectively. The Firm includes gains/(losses) on the hedging derivative and the related hedged item in the same line item in the Consolidated statements of income.
|
| | | | | | | | | | | | | | | | | | | |
| | Gains/(losses) recorded in income | | Income statement impact due to: |
| Year ended December 31, 2014 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(d) | Excluded components(e) |
| Contract type | | | | | | | | | |
Interest rate(a) | $ | 2,106 |
| | $ | (801 | ) | | $ | 1,305 |
| | $ | 131 |
| | $ | 1,174 |
|
Foreign exchange(b) | 8,279 |
| | (8,532 | ) | | (253 | ) | | — |
| | (253 | ) |
Commodity(c) | 49 |
| | 145 |
| | 194 |
| | 42 |
| | 152 |
|
| Total | $ | 10,434 |
| | $ | (9,188 | ) | | $ | 1,246 |
| | $ | 173 |
| | $ | 1,073 |
|
| | | | | | | | | | |
| | Gains/(losses) recorded in income | | Income statement impact due to: |
| Year ended December 31, 2013 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(d) | Excluded components(e) |
| Contract type | | | | | | | | | |
Interest rate(a) | $ | (3,469 | ) | | $ | 4,851 |
| | $ | 1,382 |
| | $ | (132 | ) | | $ | 1,514 |
|
Foreign exchange(b) | (1,096 | ) | | 864 |
| | (232 | ) | | — |
| | (232 | ) |
Commodity(c) | 485 |
| | (1,304 | ) | | (819 | ) | | 38 |
| | (857 | ) |
| Total | $ | (4,080 | ) | | $ | 4,411 |
| | $ | 331 |
| | $ | (94 | ) | | $ | 425 |
|
| | | | | | | | | | |
| | Gains/(losses) recorded in income | | Income statement impact due to: |
| Year ended December 31, 2012 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(d) | Excluded components(e) |
| Contract type | | | | | | | | | |
Interest rate(a) | $ | (1,238 | ) | | $ | 1,879 |
| | $ | 641 |
| | $ | (28 | ) | | $ | 669 |
|
Foreign exchange(b) | (3,027 | ) | | 2,925 |
| | (102 | ) | | — |
| | (102 | ) |
Commodity(c) | (2,530 | ) | | 1,131 |
| | (1,399 | ) | | 107 |
| | (1,506 | ) |
| Total | $ | (6,795 | ) | | $ | 5,935 |
| | $ | (860 | ) | | $ | 79 |
| | $ | (939 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | Gains/(losses) recorded in income | | Income statement impact due to: |
| Year ended December 31, 2017 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(e) | Excluded components(f) |
| Contract type | | | | | | | | | |
Interest rate(a)(b) | $ | (481 | ) | | $ | 1,359 |
| | $ | 878 |
| | $ | (18 | ) | | $ | 896 |
|
Foreign exchange(c) | (3,509 | ) | | 3,507 |
| | (2 | ) | | — |
| | (2 | ) |
Commodity(d) | (1,275 | ) | | 1,348 |
| | 73 |
| | 29 |
| | 44 |
|
| Total | $ | (5,265 | ) | | $ | 6,214 |
| | $ | 949 |
| | $ | 11 |
| | $ | 938 |
|
| | | | | | | | | | |
| | Gains/(losses) recorded in income | | Income statement impact due to: |
| Year ended December 31, 2016 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(e) | Excluded components(f) |
| Contract type | | | | | | | | | |
Interest rate(a)(b) | $ | (482 | ) | | $ | 1,338 |
| | $ | 856 |
| | $ | 6 |
| | $ | 850 |
|
Foreign exchange(c) | 2,435 |
| | (2,261 | ) | | 174 |
| | — |
| | 174 |
|
Commodity(d) | (536 | ) | | 586 |
| | 50 |
| | (9 | ) | | 59 |
|
| Total | $ | 1,417 |
| | $ | (337 | ) | | $ | 1,080 |
| | $ | (3 | ) | | $ | 1,083 |
|
| | | | | | | | | | |
| | Gains/(losses) recorded in income | | Income statement impact due to: |
| Year ended December 31, 2015 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(e) | Excluded components(f) |
| Contract type | | | | | | | | | |
Interest rate(a)(b) | $ | 38 |
| | $ | 911 |
| | $ | 949 |
| | $ | 3 |
| | $ | 946 |
|
Foreign exchange(c) | 6,030 |
| | (6,006 | ) | | 24 |
| | — |
| | 24 |
|
Commodity(d) | 1,153 |
| | (1,142 | ) | | 11 |
| | (13 | ) | | 24 |
|
| Total | $ | 7,221 |
| | $ | (6,237 | ) | | $ | 984 |
| | $ | (10 | ) | | $ | 994 |
|
| |
| (a) | Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS securities. Gains and losses were recorded in net interest income. The current presentation excludes accrued interest. |
| |
| (b) | Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net interest income and substantially offsets the income statement impact of the excluded components. |
| |
| (c) | Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses related to the derivatives and the hedged items, due to changes in foreign currency rates, were recorded primarily in principal transactions revenue and net interest income. |
| |
(c)(d) | Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or market (marketnet realizable value (net realizable value approximates fair value). Gains and losses were recorded in principal transactions revenue. |
| |
(d)(e) | Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the hedged item attributable to the hedged risk. |
| |
(e)(f) | The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward points on foreign exchange forward contracts and time values. |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 211187 |
Notes to consolidated financial statements
Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and the pretaxpre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 20142017, 20132016 and 20122015, respectively. The Firm includes the gain/(loss) on the hedging derivative and the change in cash flows on the hedged item in the same line item in the Consolidated statements of income.
| | | | | Gains/(losses) recorded in income and other comprehensive income/(loss)(c) | | | Gains/(losses) recorded in income and other comprehensive income/(loss) |
Year ended December 31, 2014 (in millions) | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(d) | Total income statement impact | Derivatives – effective portion recorded in OCI | Total change in OCI for period | |
Year ended December 31, 2017 (in millions) | | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(c) | Total income statement impact | Derivatives – effective portion recorded in OCI | | Total change in OCI for period |
| Contract type | | | | | | | | | | | | | | | | | | | | | |
Interest rate(a) | | $ | (54 | ) | | $ | — |
| | $ | (54 | ) | | $ | 189 |
| | $ | 243 |
| | | $ | (17 | ) | | $ | — |
| | $ | (17 | ) | | $ | 12 |
| | $ | 29 |
|
Foreign exchange(b) | | 78 |
| | — |
| | 78 |
| | (91 | ) | | (169 | ) | | | (117 | ) | | — |
| | (117 | ) | | 135 |
| | 252 |
|
| Total | | $ | 24 |
| | $ | — |
| | $ | 24 |
| | $ | 98 |
| | $ | 74 |
| | | $ | (134 | ) | | $ | — |
| | $ | (134 | ) | | $ | 147 |
| | $ | 281 |
|
| | | | | Gains/(losses) recorded in income and other comprehensive income/(loss)(c) | | | Gains/(losses) recorded in income and other comprehensive income/(loss) |
Year ended December 31, 2013 (in millions) | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(d) | Total income statement impact | Derivatives – effective portion recorded in OCI | Total change
in OCI
for period | |
Year ended December 31, 2016 (in millions) | | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(c) | Total income statement impact | Derivatives – effective portion recorded in OCI | | Total change
in OCI
for period |
| Contract type | | | | | | | | | | | | | | | | | | | | | |
Interest rate(a) | | $ | (108 | ) | | $ | — |
| | $ | (108 | ) | | $ | (565 | ) | | $ | (457 | ) | | | $ | (74 | ) | | $ | — |
| | $ | (74 | ) | | $ | (55 | ) | | $ | 19 |
|
Foreign exchange(b) | | 7 |
| | — |
| | 7 |
| | 40 |
| | 33 |
| | | (286 | ) | | — |
| | (286 | ) | | (395 | ) | | (109 | ) |
| Total | | $ | (101 | ) | | $ | — |
| | $ | (101 | ) | | $ | (525 | ) | | $ | (424 | ) | | | $ | (360 | ) | | $ | — |
| | $ | (360 | ) | | $ | (450 | ) | | $ | (90 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Gains/(losses) recorded in income and other comprehensive income/(loss)(c) | | | Gains/(losses) recorded in income and other comprehensive income/(loss) |
Year ended December 31, 2012 (in millions) | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(d) | Total income statement impact | Derivatives – effective portion recorded in OCI | | Total change
in OCI
for period | | |
Year ended December 31, 2015 (in millions) | | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(c) | Total income statement impact | Derivatives – effective portion recorded in OCI | | Total change
in OCI
for period |
| Contract type | | | | | | | | | | | | | | | | | | | | | |
Interest rate(a) | | $ | (3 | ) | | $ | 5 |
| | $ | 2 |
| | $ | 13 |
| | $ | 16 |
| | | $ | (99 | ) | | $ | — |
| | $ | (99 | ) | | $ | (44 | ) | | $ | 55 |
|
Foreign exchange(b) | | 31 |
| | — |
| | 31 |
| | 128 |
| | 97 |
| | | (81 | ) | | — |
| | (81 | ) | | (53 | ) | | 28 |
|
| Total | | $ | 28 |
| | $ | 5 |
| | $ | 33 |
| | $ | 141 |
| | $ | 113 |
| | | $ | (180 | ) | | $ | — |
| | $ | (180 | ) | | $ | (97 | ) | | $ | 83 |
|
| |
| (a) | Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in net interest income. |
| |
| (b) | Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains and losses follows the hedged item – primarily noninterest revenue and compensation expense. |
| |
| (c) | The Firm did not experience any forecasted transactions that failed to occur for the years ended December 31, 2014, 2013 or 2012.
|
| |
(d) | Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to the hedged risk. |
The Firm did not experience any forecasted transactions that failed to occur for the years ended 2017 and 2016. In 2015, the Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it was probable that the forecasted interest payment cash flows would not occur as a result of the planned reduction in wholesale non-operating deposits.
Over the next 12 months, the Firm expects that $33approximately $96 million (after-tax) of net lossesgains recorded in AOCI at December 31, 2014,2017, related to cash flow hedges will be recognized in income. TheFor terminated cash flow hedges, the maximum length of time over which forecasted transactions are remaining is approximately five years. For open cash flow hedges, the maximum length of time over which forecasted transactions are hedged is 9 years, and suchapproximately seven years. The Firm’s longer-dated forecasted transactions primarily relate to core lending and borrowing activities.
|
| | |
212188 | | JPMorgan Chase & Co./20142017 Annual Report |
Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting relationships, and the pretaxpre-tax gains/(losses) recorded on such instruments for the years ended December 31, 20142017, 20132016 and 20122015.
| | | | Gains/(losses) recorded in income and other comprehensive income/(loss) | Gains/(losses) recorded in income and other comprehensive income/(loss) |
| | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 |
Year ended December 31, (in millions) | Excluded components recorded directly in income(a) | Effective portion recorded in OCI | | Excluded components recorded directly in income(a) | Effective portion recorded in OCI | | Excluded components recorded directly in income(a) | Effective portion recorded in OCI | Excluded components recorded directly in income(a) | Effective portion recorded in OCI | | Excluded components recorded directly in income(a) | Effective portion recorded in OCI | | Excluded components recorded directly in income(a) | Effective portion recorded in OCI |
| Foreign exchange derivatives | $(448) | $1,698 | | $(383) | $773 | | $(306) | $(82) | $(172) | $(1,294) | | $(282) | $262 | | $(379) | $1,885 |
| |
| (a) | Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign exchange forward contracts. Amounts related to excluded components are recorded in current-periodother income. The Firm measures the ineffectiveness of net investment hedge accounting relationships based on changes in spot foreign currency rates and, therefore, there was no significant ineffectiveness for net investment hedge accounting relationships during 2014, 20132017, 2016 and 2012.2015. |
Gains and losses on derivatives used for specified risk management purposes
The following table presents pretaxpre-tax gains/(losses) recorded on a limited number of derivatives, not designated in hedge accounting relationships, that are used to manage risks associated with certain specified assets and liabilities, including certain risks arising from the mortgage pipeline, warehouse loans, MSRs, wholesale lending exposures, AFS securities, foreign currency-denominatedcurrency denominated assets and liabilities, and commodities-related contracts and investments.
| | | | Derivatives gains/(losses) recorded in income | Derivatives gains/(losses) recorded in income |
Year ended December 31, (in millions) | 2014 |
| 2013 |
| 2012 |
| 2017 |
| 2016 |
| 2015 |
|
| Contract type | | |
Interest rate(a) | $ | 2,308 |
| $ | 617 |
| $ | 5,353 |
| $ | 331 |
| $ | 1,174 |
| $ | 853 |
|
Credit(b) | (58 | ) | (142 | ) | (175 | ) | (74 | ) | (282 | ) | 70 |
|
Foreign exchange(c) | (7 | ) | 1 |
| 47 |
| (33 | ) | 27 |
| 25 |
|
Commodity(d) | 156 |
| 178 |
| 94 |
| — |
| — |
| (12 | ) |
| Total | $ | 2,399 |
| $ | 654 |
| $ | 5,319 |
| $ | 224 |
| $ | 919 |
| $ | 936 |
|
| |
| (a) | Primarily represents interest rate derivatives used to hedge the interest rate risk inherent in the mortgage pipeline, warehouse loans and MSRs, as well as written commitments to originate warehouse loans. Gains and losses were recorded predominantly in mortgage fees and related income. |
| |
| (b) | Relates to credit derivatives used to mitigate credit risk associated with lending exposures in the Firm’s wholesale businesses. These derivatives do not include credit derivatives used to mitigate counterparty credit risk arising from derivative receivables, which is included in gains and losses on derivatives related to market-making activities and other derivatives. Gains and losses were recorded in principal transactions revenue. |
| |
| (c) | Primarily relates to hedges of thederivatives used to mitigate foreign exchange risk of specified foreign currency-denominated assets and liabilities. Gains and losses were recorded in principal transactions revenue. |
| |
| (d) | Primarily relates to commodity derivatives used to mitigate energy price risk associated with energy-related contracts and investments. |
price risk associated with energy-related contracts and investments.
Gains and losses were recorded in principal transactions revenue.
Gains and losses on derivatives related to market-making activities and other derivatives
The Firm makes markets in derivatives in order to meet the needs of customers and uses derivatives to manage certain risks associated with net open risk positions from the Firm’sits market-making activities, including the counterparty credit risk arising from derivative receivables. All derivatives not included in the hedge accounting or specified risk management categories above are included in this category. Gains and losses on these derivatives are primarily recorded in principal transactions revenue. See Note 76 for information on principal transactions revenue.
Credit derivatives
Credit derivatives are financial instruments whose value is derived from the credit risk associated with the debt of a third-party issuer (the reference entity) and which allow one party (the protection purchaser) to transfer that risk to another party (the protection seller). Credit derivatives expose the protection purchaser to the creditworthiness of the protection seller, as the protection seller is required to make payments under the contract when the reference entity experiences a credit event, such as a bankruptcy, a failure to pay its obligation or a restructuring. The seller of credit protection receives a premium for providing protection but has the risk that the underlying instrument referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in the credit derivatives market and uses these derivatives for two primary purposes. First, in its capacity as a market-maker, the Firm actively manages a portfolio of credit derivatives by purchasing and selling credit protection, predominantly on corporate debt obligations, to meet the needs of customers. Second, as an end-user, the Firm uses credit derivatives to manage credit risk associated with lending exposures (loans and unfunded commitments) and derivatives counterparty exposures in the Firm’s wholesale businesses, and to manage the credit risk arising from certain financial instruments in the Firm’s market-making businesses. Following is a summary of various types of credit derivatives.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 213189 |
Notes to consolidated financial statements
Credit default swaps
Credit derivatives may reference the credit of either a single reference entity (“single-name”) or a broad-based index. The Firm purchases and sells protection on both single- name and index-reference obligations. Single-name CDS and index CDS contracts are typicallyeither OTC or OTC-cleared derivative contracts. Single-name CDS are used to manage the default risk of a single reference entity, while index CDS contracts are used to manage the credit risk associated with the broader credit markets or credit market segments. Like the S&P 500 and other market indices, a CDS index comprisesconsists of a portfolio of CDS across many reference entities. New series of CDS indices are periodically established with a new underlying portfolio of reference entities to reflect changes in the credit markets. If one of the reference entities in the index experiences a credit event, then the reference entity that defaulted is removed from the index. CDS can also be referenced against specific portfolios of reference names or against customized exposure levels based on specific client demands: for example, to provide protection against the first $1 million of realized credit losses in a $10 million portfolio of exposure. Such structures are commonly known as tranche CDS.
For both single-name CDS contracts and index CDS contracts, upon the occurrence of a credit event, under the terms of a CDS contract neither party to the CDS contract has recourse to the reference entity. The protection purchaser has recourse to the protection seller for the difference between the face value of the CDS contract and the fair value of the reference obligation at settlement of the credit derivative contract, also known as the recovery value. The protection purchaser does not need to hold the debt instrument of the underlying reference entity in order to receive amounts due under the CDS contract when a credit event occurs.
Credit-related notes
A credit-related note is a funded credit derivative where the issuer of the credit-related note purchases from the note investor credit protection on a reference entity or an index. Under the contract, the investor pays the issuer the par value of the note at the inception of the transaction, and in return, the issuer pays periodic payments to the investor, based on the credit risk of the referenced entity. The issuer also repays the investor the par value of the note at maturity unless the reference entity experiences a specified credit event (or one of the entities that makes up a reference index). experiences a specified credit event. If a credit event occurs, the issuer is not obligated to repay the par value of the note, but rather, the issuer pays the investor the difference between the par value of the note and the fair value of the defaulted reference obligation at the time of settlement. Neither party to the credit-related note has recourse to the defaulting reference entity. For a further discussion of credit-related notes, see Note 16.
The following tables present a summary of the notional amounts of credit derivatives and credit-related notes the Firm sold and purchased as of December 31, 20142017 and 2013.2016. Upon a credit event, the Firm as a seller of protection would typically pay out only a percentage of the full notional amount of net protection sold, as the amount actually required to be paid on the contracts takes into account the recovery value of the reference obligation at the time of settlement. The Firm manages the credit risk on contracts to sell protection by purchasing protection with identical or similar underlying reference entities. Other purchased protection referenced in the following tables includes credit derivatives bought on related, but not identical, reference positions (including indices, portfolio coverage and other reference points) as well as protection purchased through credit-related notes.
|
| | |
214190 | | JPMorgan Chase & Co./20142017 Annual Report |
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives, because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm’s view, the risks associated with such derivatives.
Total credit derivatives and credit-related notes
| | | | Maximum payout/Notional amount | | Maximum payout/Notional amount |
| | Protection sold | | Protection purchased with identical underlyings(c) | Net protection (sold)/purchased(d) | Other protection purchased(e) | | Protection sold | | Protection purchased with identical underlyings(b) | Net protection (sold)/purchased(c) | Other protection purchased(d) |
December 31, 2014 (in millions) | |
December 31, 2017 (in millions) | | Protection sold | | Protection purchased with identical underlyings(b) | Net protection (sold)/purchased(c) | Other protection purchased(d) |
| Credit derivatives | | | | | | |
| Credit default swaps | $ | (2,056,982 | ) | | $ | 2,078,096 |
| | $ | 21,114 |
| $ | 18,631 |
| | $ | (690,224 | ) | | $ | 702,098 |
| | $ | 11,874 |
| $ | 5,045 |
|
Other credit derivatives(a) | (43,281 | ) | | 32,048 |
| | (11,233 | ) | 19,475 |
| | (54,157 | ) | | 59,158 |
| | 5,001 |
| 11,747 |
|
| Total credit derivatives | (2,100,263 | ) | | 2,110,144 |
| | 9,881 |
| 38,106 |
| | (744,381 | ) | | 761,256 |
| | 16,875 |
| 16,792 |
|
| Credit-related notes | (40 | ) | | — |
| | (40 | ) | 3,704 |
| | (18 | ) | | — |
| | (18 | ) | 7,915 |
|
| Total | $ | (2,100,303 | ) | | $ | 2,110,144 |
| | $ | 9,841 |
| $ | 41,810 |
| | $ | (744,399 | ) | | $ | 761,256 |
| | $ | 16,857 |
| $ | 24,707 |
|
| | | | | | | | | | | | |
| | Maximum payout/Notional amount | | Maximum payout/Notional amount |
| | Protection sold | | Protection purchased with identical underlyings(c) | Net protection (sold)/purchased(d) | Other protection purchased(e) | | Protection sold | | Protection purchased with identical underlyings(b) | Net protection (sold)/purchased(c) | Other protection purchased(d) |
| December 31, 2013 (in millions) | |
| December 31, 2016 (in millions) | | Protection sold | | Protection purchased with identical underlyings(b) | Net protection (sold)/purchased(c) | Other protection purchased(d) |
| Credit derivatives | | | | | | |
| Credit default swaps | $ | (2,601,581 | ) | | $ | 2,610,198 |
| | $ | 8,617 |
| $ | 8,722 |
| | $ | (961,003 | ) | | $ | 974,252 |
| | $ | 13,249 |
| $ | 7,935 |
|
Other credit derivatives(a) | (44,137 | ) | (b) | | 45,921 |
| | 1,784 |
| 20,480 |
| (b) | (36,829 | ) | | 31,859 |
| | (4,970 | ) | 19,991 |
|
| Total credit derivatives | (2,645,718 | ) | | 2,656,119 |
| | 10,401 |
| 29,202 |
| | (997,832 | ) | | 1,006,111 |
| | 8,279 |
| 27,926 |
|
| Credit-related notes | (130 | ) | | — |
| | (130 | ) | 2,720 |
| | (41 | ) | | — |
| | (41 | ) | 4,505 |
|
| Total | $ | (2,645,848 | ) | | $ | 2,656,119 |
| | $ | 10,271 |
| $ | 31,922 |
| | $ | (997,873 | ) | | $ | 1,006,111 |
| | $ | 8,238 |
| $ | 32,431 |
|
| |
| (a) | Other credit derivatives predominantlylargely consists of credit swap options. |
| |
| (b) | The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated balance sheets or its results of operations. |
| |
(c) | Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold. |
| |
(d)(c) | Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the buyer of protection in determining settlement value. |
| |
(e)(d) | Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference instrument. |
The following tables summarize the notional amounts by the ratings, and maturity profile, and the total fair value, of credit derivatives and credit-related notes as of December 31, 20142017 and 20132016, where JPMorgan Chase is the seller of protection. The maturity profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below.
| | Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile | Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile | | | | | | Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile | | | | |
December 31, 2014 (in millions) | <1 year | | 1–5 years | | >5 years | | Total notional amount | | Fair value of receivables(c) | | Fair value of payables(c) | | Net fair value | | |
December 31, 2017 (in millions) | | <1 year | | 1–5 years | | >5 years | | Total notional amount | | Fair value of receivables(b) | | Fair value of payables(b) | | Net fair value |
| Risk rating of reference entity | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment-grade | $ | (323,398 | ) | | $ | (1,118,293 | ) | | $ | (79,486 | ) | | $ | (1,521,177 | ) | | $ | 25,767 |
| | $ | (6,314 | ) | | $ | 19,453 |
| | $ | (159,286 | ) | | $ | (319,726 | ) | | $ | (39,429 | ) | | $ | (518,441 | ) | | $ | 8,516 |
| | $ | (1,134 | ) | | $ | 7,382 |
|
| Noninvestment-grade | (157,281 | ) | | (396,798 | ) | | (25,047 | ) | | (579,126 | ) | | 20,677 |
| | (22,455 | ) | | (1,778 | ) | | (73,394 | ) | | (134,125 | ) | | (18,439 | ) | | (225,958 | ) | | 7,407 |
| | (5,313 | ) | | 2,094 |
|
| Total | $ | (480,679 | ) | | $ | (1,515,091 | ) | | $ | (104,533 | ) | | $ | (2,100,303 | ) | | $ | 46,444 |
| | $ | (28,769 | ) | | $ | 17,675 |
| | $ | (232,680 | ) | | $ | (453,851 | ) | | $ | (57,868 | ) | | $ | (744,399 | ) | | $ | 15,923 |
| | $ | (6,447 | ) | | $ | 9,476 |
|
| | December 31, 2013 (in millions) | <1 year | | 1–5 years | | >5 years | | Total notional amount | | Fair value of receivables(c) | | Fair value of payables(c) | | Net fair value | | |
December 31, 2016 (in millions) | | <1 year | | 1–5 years | | >5 years | | Total notional amount | | Fair value of receivables(b) | | Fair value of payables(b) | | Net fair value |
| Risk rating of reference entity | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment-grade | $ | (368,712 | ) | (b) | $ | (1,469,773 | ) | (b) | $ | (93,209 | ) | (b) | $ | (1,931,694 | ) | (b) | $ | 31,730 |
| (b) | $ | (5,664 | ) | (b) | $ | 26,066 |
| (b) | $ | (273,688 | ) | | $ | (383,586 | ) | | $ | (39,281 | ) | | $ | (696,555 | ) | | $ | 7,841 |
| | $ | (3,055 | ) | | $ | 4,786 |
|
| Noninvestment-grade | (140,540 | ) | | (544,671 | ) | | (28,943 | ) | | (714,154 | ) | | 27,426 |
| | (16,674 | ) | | 10,752 |
| | (107,955 | ) | | (170,046 | ) | | (23,317 | ) | | (301,318 | ) | | 8,184 |
| | (8,570 | ) | | (386 | ) |
| Total | $ | (509,252 | ) | | $ | (2,014,444 | ) | | $ | (122,152 | ) | | $ | (2,645,848 | ) | | $ | 59,156 |
| | $ | (22,338 | ) | | $ | 36,818 |
| | $ | (381,643 | ) | | $ | (553,632 | ) | | $ | (62,598 | ) | | $ | (997,873 | ) | | $ | 16,025 |
| | $ | (11,625 | ) | | $ | 4,400 |
|
| |
| (a) | The ratings scale is primarily based on external credit ratings defined by S&P and Moody’s. |
| |
| (b) | The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated balance sheets or its results of operations. |
| |
(c) | Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm. |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 215191 |
Notes to consolidated financial statements
Note 76 – Noninterest revenue and noninterest expense
Investment banking fees
This revenue category includes equitydebt and debtequity underwriting and advisory fees. As an underwriter, the Firm helps clients raise capital via public offering and private placement of various types of debt instruments and equity securities. Underwriting fees are primarily based on the issuance price and quantity of the underlying instruments, and are recognized as revenue whentypically upon execution of the client’s transaction. The Firm has rendered all services to the issueralso manages and is entitled to collect the fee from the issuer, as long as there are no other contingencies associated with the fee. Underwriting fees are net of syndicate expense; the Firm recognizes creditsyndicates loan arrangements. Credit arrangement and syndication fees, included within debt underwriting fees, are recorded as revenue after satisfying certain retention, timing and yield criteria.
The Firm also provides advisory services, assisting its clients with mergers and acquisitions, divestitures, restructuring and other complex transactions. Advisory fees are recognized as revenue whentypically upon execution of the related services have been performed and the fee has been earned.
The following table presents the components of investment banking fees.
| | Year ended December 31, (in millions) | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 |
| Underwriting | | | | | | | | | | |
| Equity | $ | 1,571 |
| | $ | 1,499 |
| | $ | 1,026 |
| $ | 1,394 |
| | $ | 1,146 |
| | $ | 1,408 |
|
| Debt | 3,340 |
| | 3,537 |
| | 3,290 |
| 3,710 |
| | 3,207 |
| | 3,232 |
|
| Total underwriting | 4,911 |
| | 5,036 |
| | 4,316 |
| 5,104 |
| | 4,353 |
| | 4,640 |
|
| Advisory | 1,631 |
| | 1,318 |
| | 1,492 |
| 2,144 |
| | 2,095 |
| | 2,111 |
|
| Total investment banking fees | $ | 6,542 |
| | $ | 6,354 |
| | $ | 5,808 |
| $ | 7,248 |
| | $ | 6,448 |
| | $ | 6,751 |
|
Investment banking fees are earned primarily by CIB. See Note 31 for segment results.
Principal transactions
Principal transactions revenue is driven by many factors, including the bid-offer spread, which is the difference between the price at which the Firm is willing to buy a financial or other instrument and the price at which the Firm is willing to sell that instrument. It also consists of the realized (as a result of the sale of instruments, closing out or termination of transactions, or interim cash payments) and unrealized (as a result of changes in valuation) gains and losses on derivativesfinancial and other instruments (including those accounted for under the fair value option) primarily used in client-driven market-making activities and on private equity investments. In connection with its client-driven market-making activities, the Firm transacts in debt and equity instruments, derivatives and commodities (including physical commodities inventories and financial instruments that reference commodities).
Principal transactions revenue also includes certain realized and unrealized gains and losses related to hedge accounting and specified risk-management activities, including: (a) certain derivatives designated in qualifying hedge accounting relationships (primarily fair value hedges of commodity and foreign exchange risk), (b) certain derivatives used for specific risk management purposes, primarily to mitigate credit risk, foreign exchange risk and commodity risk, and (c) other derivatives, including the synthetic credit portfolio.derivatives. For further information on the income statement classification of gains and losses from derivatives activities, see Note 6.5.
In the financial commodity markets, the Firm transacts in OTC derivatives (e.g., swaps, forwards, options) and exchange-traded derivativesETD that reference a wide range of underlying commodities. In the physical commodity markets, the Firm primarily purchases and sells precious and base metals and may hold other commodities inventories under financing and other arrangements with clients. Prior to the 2014 sale of certain parts of its physical commodity business, the Firm also engaged in the
purchase, sale, transport and storage of power, gas, liquefied natural gas, coal, crude oil and refined products.
Physical commodities inventories are generally carried at the lower of cost or market (market approximates fair value) subject to any applicable fair value hedge accounting adjustments, with realized gains and losses and unrealized losses recorded in principal transactions revenue.
The following table presents all realized and unrealized gains and losses recorded in principal transactions revenue. This table excludes interest income and interest expense on trading assets and liabilities, which are an integral part of the overall performance of the Firm’s client-driven market-making activities. See Note 87 for further information on interest income and interest expense. Trading revenue is presented primarily by instrument type. The Firm’s client-driven market-making businesses generally utilize a variety of instrument types in connection with their market-making and related risk-management activities; accordingly, the trading revenue presented in the table below is not representative of the total revenue of any individual line of business.
|
| | | | | | | | | | | |
Year ended December 31, (in millions) | 2014 | | 2013 | | 2012 |
Trading revenue by instrument type (a) | | | | | |
Interest rate(b) | $ | 1,362 |
| | $ | 284 |
| | $ | 4,002 |
|
Credit(c) | 1,880 |
| | 2,654 |
| | (4,975 | ) |
| Foreign exchange | 1,556 |
| | 1,801 |
| | 918 |
|
| Equity | 2,563 |
| | 2,517 |
| | 2,455 |
|
Commodity(d) | 1,663 |
| | 2,083 |
| | 2,365 |
|
Total trading revenue(e) | 9,024 |
| | 9,339 |
| | 4,765 |
|
Private equity gains(f) | 1,507 |
| | 802 |
| | 771 |
|
| Principal transactions | $ | 10,531 |
| | $ | 10,141 |
| | $ | 5,536 |
|
| |
(a) | Prior to the second quarter of 2014, trading revenue was presented by major underlying type of risk exposure, generally determined based upon the business primarily responsible for managing that risk exposure. Prior period amounts have been revised to conform with the current period presentation. This revision had no impact on the Firm’s Consolidated balance sheets or results of operations. |
| |
(b) | Includes a pretax gain of $665 million for the year ended December 31, 2012, reflecting the recovery on a Bear Stearns-related subordinated loan. |
| |
(c) | Includes $5.8 billion of losses incurred by CIO from the synthetic credit portfolio for the six months ended June 30, 2012, and $449 million of losses incurred by CIO from the retained index credit derivative positions for the three months ended September 30, 2012; and losses incurred by CIB from the synthetic credit portfolio. |
| |
(d) | Commodity derivatives are frequently used to manage the Firm’s risk exposure to its physical commodities inventories. For gains/(losses) related to commodity fair value hedges, see Note 6. |
| |
(e) | During 2013, the Firm implemented a FVA framework in order to incorporate the impact of funding into its valuation estimates for OTC derivatives and structured notes. As a result, the Firm recorded a $1.5 billion loss in principal transactions revenue in 2013, reported in the CIB. This reflected an industry migration towards incorporating the cost of unsecured funding in the valuation of such instruments. |
| |
(f) | Includes revenue on private equity investments held in the Private Equity business within Corporate, as well as those held in other business segments. |
|
| | | | | | | | | | | |
Year ended December 31,
(in millions) | 2017 | | 2016 | | 2015 |
| Trading revenue by instrument type | | | | | |
| Interest rate | $ | 2,479 |
| | $ | 2,325 |
| | $ | 1,933 |
|
| Credit | 1,329 |
| | 2,096 |
| | 1,735 |
|
| Foreign exchange | 2,746 |
| | 2,827 |
| | 2,557 |
|
| Equity | 3,873 |
| | 2,994 |
| | 2,990 |
|
| Commodity | 661 |
| | 1,067 |
| | 842 |
|
| Total trading revenue | 11,088 |
| | 11,309 |
| | 10,057 |
|
| Private equity gains | 259 |
| | 257 |
| | 351 |
|
| Principal transactions | $ | 11,347 |
| | $ | 11,566 |
| | $ | 10,408 |
|
|
| | |
216 | | JPMorgan Chase & Co./2014 Annual Report |
Principal transactions revenue is earned primarily by CIB. See Note 31 for segment results.
Lending- and deposit-related fees
This revenue category includesLending-related fees include fees earned from loan commitments, standby letters of credit, financial guarantees, deposit-relatedand other loan-servicing activities. Deposit-related fees include fees earned in lieu of compensating balances, and fees earned from performing cash management-relatedmanagement activities or transactions, deposit accounts and other loan-servicing activities. Thesedeposit account services. Lending- and deposit-related fees in this revenue category are recognized over the period in which the related service is provided. |
| | | | | | | | | | | |
| Year ended December 31, (in millions) | 2017 | | 2016 | | 2015 |
| Lending-related fees | $ | 1,110 |
| | $ | 1,114 |
| | $ | 1,148 |
|
| Deposit-related fees | 4,823 |
| | 4,660 |
| | 4,546 |
|
| Total lending- and deposit-related fees | $ | 5,933 |
| | $ | 5,774 |
| | $ | 5,694 |
|
Lending- and deposit-related fees are earned by CCB, CIB, CB, and AWM. See Note 31 for segment results.
|
| | |
| 192 | | JPMorgan Chase & Co./2017 Annual Report |
Asset management, administration and commissions
This revenue category includes fees from investment management and related services, custody, brokerage services insurance premiums and commissions, and other products. TheseThe Firm manages assets on behalf of its clients, including investors in Firm-sponsored funds and owners of separately managed investment accounts. Management fees are typically based on the value of assets under management and are collected and recognized overat the end of each period inover which the related servicemanagement services are provided and the value of the managed assets is provided. Performance-basedknown. The Firm also receives performance-based management fees, which are earned based on exceeding certain benchmarks or other performance targets and are accrued and recognized when the probability of reversal is remote, typically at the end of the performance period in which the target is met.related billing period. The Firm has contractual arrangements with third parties to provide certaindistribution and other services in connection with its asset management activities. Amounts paid to third-party service providers are predominantly expensed, such that asset management fees are recorded gross of payments made to third parties.
The following table presents components of asset management, administrationin professional and
commissions.outside services expense. |
| | | | | | | | | | | |
Year ended December 31, (in millions) | 2017 | | 2016 | | 2015 |
| Asset management fees | | | | | |
| Investment management fees | $ | 9,526 |
| | $ | 8,865 |
| | $ | 9,403 |
|
All other asset management fees(a) | 294 |
| | 336 |
| | 352 |
|
| Total asset management fees | 9,820 |
| | 9,201 |
| | 9,755 |
|
| | | | | | |
Total administration fees(b) | 2,029 |
| | 1,915 |
| | 2,015 |
|
| | | | | | |
| Commissions and other fees | | | | | |
Brokerage commissions(c) | 2,239 |
| | 2,151 |
| | 2,304 |
|
| All other commissions and fees | 1,289 |
| | 1,324 |
| | 1,435 |
|
| Total commissions and fees | 3,528 |
| | 3,475 |
| | 3,739 |
|
| Total asset management, administration and commissions | $ | 15,377 |
| | $ | 14,591 |
| | $ | 15,509 |
|
|
| | | | | | | | | | | |
Year ended December 31, (in millions) | 2014 | | 2013 | | 2012 |
| Asset management fees | | | | | |
Investment management fees(a) | $ | 9,169 |
| | $ | 8,044 |
| | $ | 6,744 |
|
All other asset management fees(b) | 477 |
| | 505 |
| �� | 357 |
|
| Total asset management fees | 9,646 |
| | 8,549 |
| | 7,101 |
|
| | | | | | |
Total administration fees(c) | 2,179 |
| | 2,101 |
| | 2,135 |
|
| | | | | | |
| Commissions and other fees | | | | | |
| Brokerage commissions | 2,270 |
| | 2,321 |
| | 2,331 |
|
| All other commissions and fees | 1,836 |
| | 2,135 |
| | 2,301 |
|
| Total commissions and fees | 4,106 |
| | 4,456 |
| | 4,632 |
|
| Total asset management, administration and commissions | $ | 15,931 |
| | $ | 15,106 |
| | $ | 13,868 |
|
| |
| (a) | Represents fees earned from managing assets on behalf ofThe Firm clients, including investors in Firm-sponsored funds and owners of separately managed investment accounts. |
| |
(b) | Representsreceives other asset management fees for services that are ancillary to investment management services, such asincluding commissions earned on the sales or distribution of mutual funds to clients. These fees are recorded as revenue at the time the service is rendered or, in the case of certain distribution fees based on the underlying fund’s asset value and/or investor redemption, recorded over time as the investor remains in the fund or upon investor redemption. |
| |
| (b) | The Firm receives administrative fees predominantly from custody, securities lending, fund services and securities clearance fees. These fees are recorded as revenue over the period in which the related service is provided. |
| |
| (c) | Predominantly includes fees for custody,The Firm acts as a broker, facilitating its clients’ purchase and sale of securities lending, funds services and securities clearance.other financial instruments. It collects and recognizes brokerage commissions as revenue upon occurrence of the client transaction. The Firm reports certain costs paid to third-party clearing houses and exchanges net against commission revenue. |
Asset management, administration and commissions are earned primarily by AWM, CIB, CCB, and CB. See Note 31 for segment results.
Mortgage fees and related income
This revenue category primarily reflects CCB’s Mortgage ProductionHome Lending production and Mortgage Servicingservicing revenue, including fees and income derived from mortgages originated with the intent to sell; mortgage sales and servicing including losses related to the repurchase of previously sold loans; the impact of risk-management activities associated with the mortgage pipeline, warehouse loans and MSRs; and revenue related to any residual interests held from mortgage securitizations. This revenue category also includes gains and losses on sales and lower of cost or fair value adjustments for mortgage loans held-for-sale, as well as changes in fair value for mortgage loans originated with the intent to sell and measured at fair value under the fair value option. Changes in the fair value of CCB MSRs are reported in mortgage fees and related income. For a further discussion of MSRs, see Note 15. Net interest income from mortgage loans is recorded in interest income. For a further discussion of MSRs, see Note 17.
Card income
This revenue category includes interchange income from credit and debit cards and net fees earned from processing credit card transactions for merchants.merchants, both of which are recognized when purchases are made by a cardholder. Card income is recognized as earned. Cost related to rewards programs is recorded when the rewards are earned by the customeralso includes annual and presented as a reduction to interchange income. Annualother lending fees and direct loan origination costs, which are deferred and recognized on a straight-line basis over a 12-month period.
Certain Chase credit card products offer the cardholder the ability to earn points based on account activity, which the cardholder can choose to redeem for cash and non-cash rewards. The cost to the Firm related to these proprietary rewards programs varies based on multiple factors including the terms and conditions of the rewards programs, cardholder activity, cardholder reward redemption rates and cardholder reward selections. The Firm maintains a liability for its obligations under its rewards programs and reports the current-period cost as a reduction of card income.
Credit card revenue sharing agreements
The Firm has contractual agreements with numerous co-brand partners and affinity organizations (collectively, “partners”), whichthat grant the Firm exclusive rights to issue co-branded credit card products and market them to the customers or members of such partners. These partners endorse the co-brand credit card programs and provide their customer andor member lists to the Firm, and theyFirm. The partners may also conduct marketing activities and provide awardsrewards redeemable under their own loyalty programs that the variousFirm will grant to co-brand credit card programs. cardholders based on account activity.The terms of these agreements generally range from threefive to ten years.
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 193 |
Notes to consolidated financial statements
The Firm typically makes incentive payments to the co-brand credit card partners based on the cost of partners' marketing activities and loyalty program rewards provided to credit cardholders, new account originations charge volumes and the cost of the partners’ marketing activities and awards. Payments based on new account originations are accounted for as direct loan origination costs.sales volumes. Payments to partners based on sales volumes are deducted from interchange income as the related revenue is earned. Payments based on marketing efforts undertaken by the partners are expensed by the Firm as incurred and reported as noninterest expense. Payments for partner rewards are reported as a reduction of card income when incurred. Payments to partners based on new credit card account originations are accounted for as direct loan origination costs and are deferred and recognized as a reduction of card income on a straight-line basis over a 12-month period. Payments to partners based on sales volumes are reported as a reduction of card income when the related interchange income is earned.
Card income is earned primarily by CCB and CB. See Note 31 for segment results.
Other income
Other income on the Firm’s Consolidated statements of income included the following:
|
| | | | | | | | | | | |
| Year ended December 31, (in millions) | 2017 | | 2016 | | 2015 |
| Operating lease income | $ | 3,613 |
| | $ | 2,724 |
| | $ | 2,081 |
|
Included in otherOperating lease income is operatingrecognized on a straight–line basis over the lease term.
Noninterest expense
Other expense
Other expense on the Firm’s Consolidated statements of income of $1.7 billion, $1.5 billion and $1.3 billion forincluded the years ended following:December 31, 2014, 2013 and 2012, respectively. Additionally, included in other income for the year ended December 31, 2013, is a net pretax gain of approximately $1.3 billion, from the sale of Visa B Shares.
|
| | | | | | | | | | | |
Year ended December 31,
(in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Legal expense/(benefit) | $ | (35 | ) | | $ | (317 | ) | | $ | 2,969 |
|
| FDIC-related expense | 1,492 |
| | 1,296 |
| | 1,227 |
|
|
| | |
| 194 | | JPMorgan Chase & Co./20142017 Annual Report | | 217 |
Notes to consolidated financial statements
Note 87 – Interest income and Interest expense
Interest income and interest expense are recorded in the Consolidated statements of income and classified based on the nature of the underlying asset or liability.
The following table presents the components of interest income and interest expense:
|
| | | | | | | | | |
Year ended December 31, (in millions) | 2017 | 2016 | 2015 |
| Interest Income | | | |
| Loans | $ | 41,008 |
| $ | 36,634 |
| $ | 33,134 |
|
| Taxable securities | 5,535 |
| 5,538 |
| 6,550 |
|
Non-taxable securities(a) | 1,847 |
| 1,766 |
| 1,706 |
|
| Total securities | 7,382 |
| 7,304 |
| 8,256 |
|
| Trading assets | 7,610 |
| 7,292 |
| 6,621 |
|
| Federal funds sold and securities purchased under resale agreements | 2,327 |
| 2,265 |
| 1,592 |
|
Securities borrowed(b) | (37 | ) | (332 | ) | (532 | ) |
| Deposits with banks | 4,219 |
| 1,863 |
| 1,250 |
|
All other interest-earning assets(c) | 1,863 |
| 875 |
| 652 |
|
| Total interest income | $ | 64,372 |
| $ | 55,901 |
| $ | 50,973 |
|
| Interest expense | | | |
| Interest bearing deposits | $ | 2,857 |
| $ | 1,356 |
| $ | 1,252 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements | 1,611 |
| 1,089 |
| 609 |
|
Short-term borrowings(d) | 481 |
| 203 |
| 175 |
|
Trading liabilities - debt and all other interest-bearing liabilities(e) | 2,070 |
| 1,102 |
| 557 |
|
| Long-term debt | 6,753 |
| 5,564 |
| 4,435 |
|
| Beneficial interest issued by consolidated VIEs | 503 |
| 504 |
| 435 |
|
| Total interest expense | $ | 14,275 |
| $ | 9,818 |
| $ | 7,463 |
|
| Net interest income | $ | 50,097 |
| $ | 46,083 |
| $ | 43,510 |
|
| Provision for credit losses | 5,290 |
| 5,361 |
| 3,827 |
|
| Net interest income after provision for credit losses | $ | 44,807 |
| $ | 40,722 |
| $ | 39,683 |
|
| |
| (a) | Represents securities that are tax-exempt for U.S. federal income tax purposes. |
| |
| (b) | Negative interest income is related to client-driven demand for certain securities combined with the impact of low interest rates. This is matched book activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense. |
| |
| (c) | Includes held-for-investment margin loans, which are classified in accrued interest and accounts receivable, and all other interest-earning assets included in other assets. |
| |
| (d) | Includes commercial paper. |
| |
| (e) | Other interest-bearing liabilities include brokerage customer payables. |
Interest income and interest expense includes the current-period interest accruals for financial instruments measured at fair value, except for derivatives and financial instruments containing embedded derivatives that would be separately accounted for in accordance with U.S. GAAP, absent the fair value option election; for those instruments, all changes in fair value including any interest elements, are reported in principal transactions revenue. For financial instruments that are not measured at fair value, the related interest is included within interest income or interest expense, as applicable. For further information on
Details of
accounting for interest income and interest expense were as follows.related to loans, securities, securities financing (i.e. securities purchased or sold under resale or repurchase agreements; securities borrowed; and securities loaned) and long-term debt, see Notes 12, 10, 11 and 19, respectively.
|
| | | | | | | | | | | | |
Year ended December 31, (in millions) | 2014 | | 2013 | | 2012 | |
| Interest income | | | | | | |
| Loans | $ | 32,218 |
| | $ | 33,489 |
| | $ | 35,832 |
| |
| Taxable securities | 7,617 |
| | 6,916 |
| | 7,231 |
| |
Non-taxable securities(a) | 1,423 |
| | 896 |
| | 708 |
| |
| Total securities | 9,040 |
| | 7,812 |
| | 7,939 |
| |
Trading assets(b) | 7,312 |
| | 8,099 |
| | 8,929 |
| |
| Federal funds sold and securities purchased under resale agreements | 1,642 |
| | 1,940 |
| | 2,442 |
| |
Securities borrowed (c) | (501 | ) | | (127 | ) | | (3 | ) | |
| Deposits with banks | 1,157 |
| | 918 |
| | 555 |
| |
Other assets(d) | 663 |
| | 538 |
| | 259 |
| |
Total interest income(b) | 51,531 |
| | 52,669 |
| | 55,953 |
| |
| Interest expense | | | | | | |
| Interest-bearing deposits | 1,633 |
| | 2,067 |
| | 2,655 |
| |
Short-term and other liabilities(b)(e) | 1,450 |
| | 1,798 |
| | 1,678 |
| |
| Long-term debt | 4,409 |
| | 5,007 |
| | 6,062 |
| |
| Beneficial interests issued by consolidated VIEs | 405 |
| | 478 |
| | 648 |
| |
Total interest expense(b) | 7,897 |
| | 9,350 |
| | 11,043 |
| |
| Net interest income | 43,634 |
| | 43,319 |
| | 44,910 |
| |
| Provision for credit losses | 3,139 |
| | 225 |
| | 3,385 |
| |
| Net interest income after provision for credit losses | $ | 40,495 |
| | $ | 43,094 |
| | $ | 41,525 |
| |
| |
(a) | Represents securities which are tax exempt for U.S. Federal Income Tax purposes. |
| |
(b) | Prior period amounts have been reclassified to conform with the current period presentation. |
| |
(c) | Negative interest income for the years ended December 31, 2014, 2013 and 2012, is a result of increased client-driven demand for certain securities combined with the impact of low interest rates; the offset of this matched book activity is reflected as lower net interest expense reported within short-term and other liabilities. |
| |
(e) | Includes brokerage customer payables. |
Note 98 – Pension and other postretirement employee benefit plans
The Firm’sFirm has various defined benefit pension plans and OPEB plans that provide benefits to its other postretirement employee benefit (“OPEB”) plans are accounted for in accordance with U.S. GAAP for retirement benefits.
Defined benefit pension plans
employees. The Firm has a qualified noncontributory U.S. defined benefit pension plan that provides benefits to substantially all U.S. employees. The U.S. plan employs a cash balance formula in the form of pay and interest credits to determine the benefits to be provided at retirement, based on years of service and eligible compensation (generally base pay capped at $100,000 annually; effective January 1, 2015, in addition to base pay, eligible compensation will include certain other types of variable incentive compensation capped at $100,000 annually). Employees begin to accrue plan benefits after completing one year of service, and benefits generally vest after three years of service. The Firm also offers benefits throughhas defined benefit pension plans to qualifying employeesthat are offered in certain non-U.S. locations based on factors such as eligible compensation, age and/or years of service.
It is the Firm’s policy to fund the pension plans in amounts sufficient to meet the requirements under applicable laws. The Firm does notnot anticipate at this time any contribution to the U.S. defined benefit pension plan in 2015.2018. The 20152018 contributions to the non-U.S. defined benefit pension plans are expected to be $47$46 million of which $31$30 million are contractually required.
JPMorgan ChaseThe Firm also has a number of nonqualified noncontributory defined benefit pension plans that are not subjectunfunded. These plans provide supplemental defined pension benefits to Title IV of the Employee Retirement Income Security Act. certain employees.
The most significant of these plans is the Excess Retirement Plan, pursuant to which certain employees previously earned pay credits on compensation amounts above the maximum stipulated by law under a qualified plan; no further pay credits are allocated under this plan. The Excess Retirement Plan had an unfunded projected benefit obligation (“PBO”) in the amount of $257 million and $245 million, at December 31, 2014 and 2013, respectively.
Defined contribution plans
JPMorgan ChaseFirm currently provides two qualified defined contribution plans in the U.S. and maintains other similar arrangements in certain non-U.S. locations, all of which are administered in accordance with applicable local laws and regulations. The most significant of these plans is The JPMorgan Chase 401(k) Savings Plan (the “401(k) Savings Plan”), which covers substantially all U.S. employees. Employees can contribute to the 401(k) Savings Plan on a pretax and/or Roth 401(k) after-tax basis. The JPMorgan Chase Common Stock Fund, which is an investment option under the 401(k) Savings Plan, is a nonleveraged employee stock ownership plan.
|
| | |
218 | | JPMorgan Chase & Co./2014 Annual Report |
The Firm matches eligible employee contributions up to 5% of eligible compensation (generally base pay; effective January 1, 2015, in addition to base pay, eligible compensation will include certain other types of variable incentive compensation) on an annual basis. Employees begin to receive matching contributions after completing a one-year-of-service requirement. Employees with total annual cash compensation of $250,000 or more are not eligible for matching contributions. Matching contributions vest after three years of service for employees hired on or after May 1, 2009. The 401(k) Savings Plan also permits discretionary profit-sharing contributions by participating companies for certain employees, subject to a specified vesting schedule.
OPEB plans
JPMorgan Chase offers postretirement medical and life insurance benefits to certain U.S. retirees and postretirement medical benefits to qualifying U.S. and U.K. employees. These benefits vary with
The Firm defrays the lengthcost of service and the date of hire and provide for limits on the Firm’s share of covered medical benefits. The medical and life insurance benefits are both contributory. Postretirement medical benefits also are offered to qualifying United Kingdom (“U.K.”) employees.
JPMorgan Chase’sits U.S. OPEB obligation is funded withthrough corporate-owned life insurance (“COLI”) purchased on the lives of eligible employees and retirees. While the Firm owns the COLI policies, COLI proceeds (death benefits, withdrawals and other distributions) may be used only to reimburse the Firm for its net postretirement benefit claim payments and related administrative expense. The Firm has generally funded its postretirement benefit obligations through contributions to the relevant trust on a pay-as-you go basis. On December 21, 2017, the Firm contributed $600 million of cash to the trust as a prefunding of a portion of its postretirement benefit obligations. The U.K. OPEB plan is unfunded.
The following table presentsPension and OPEB accounting generally requires that the difference between plan assets at fair value and the benefit obligation be measured and recorded on the balance sheet. Plans that are overfunded (excess of plan assets over benefit obligation) are recorded in other assets and plans that are underfunded (excess benefit obligation over plan assets) are recorded within other liabilities. Gains or losses resulting from changes in the benefit obligations,obligation and the value of plan assets are recorded in other comprehensive income (“OCI”) and funded status amounts reported onrecognized as part of the Consolidated balance sheets for the Firm’s U.S. and non-U.S. defined benefit pension and OPEB plans.net periodic
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Defined benefit pension plans | | |
| As of or for the year ended December 31, | U.S. | | Non-U.S. | | OPEB plans(d) |
| (in millions) | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
| Change in benefit obligation | | | | | | | | | | | |
| Benefit obligation, beginning of year | $ | (10,776 | ) | | $ | (11,478 | ) | | $ | (3,433 | ) | | $ | (3,243 | ) | | $ | (826 | ) | | $ | (990 | ) |
| Benefits earned during the year | (281 | ) | | (314 | ) | | (33 | ) | | (34 | ) | | — |
| | (1 | ) |
| Interest cost on benefit obligations | (534 | ) | | (447 | ) | | (137 | ) | | (125 | ) | | (38 | ) | | (35 | ) |
| Plan amendments | (53 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Special termination benefits | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
|
| Curtailments | — |
| | — |
| | — |
| | — |
| | (3 | ) | | — |
|
| Employee contributions | NA |
| | NA |
| | (7 | ) | | (7 | ) | | (62 | ) | | (72 | ) |
| Net gain/(loss) | (1,669 | ) | | 794 |
| | (408 | ) | | (62 | ) | | (58 | ) | | 138 |
|
| Benefits paid | 777 |
| | 669 |
| | 119 |
| | 106 |
| | 145 |
| | 144 |
|
| Expected Medicare Part D subsidy receipts | NA |
| | NA |
| | NA |
| | NA |
| | (2 | ) | | (10 | ) |
| Foreign exchange impact and other | — |
| | — |
| | 260 |
| | (68 | ) | | 2 |
| | — |
|
| Benefit obligation, end of year | $ | (12,536 | ) | | $ | (10,776 | ) | | $ | (3,640 | ) | | $ | (3,433 | ) | | $ | (842 | ) | | $ | (826 | ) |
| Change in plan assets | | | | | | | | | | | |
| Fair value of plan assets, beginning of year | $ | 14,354 |
| | $ | 13,012 |
| | $ | 3,532 |
| | $ | 3,330 |
| | $ | 1,757 |
| | $ | 1,563 |
|
| Actual return on plan assets | 1,010 |
| | 1,979 |
| | 518 |
| | 187 |
| | 159 |
| | 211 |
|
| Firm contributions | 36 |
| | 32 |
| | 46 |
| | 45 |
| | 3 |
| | 2 |
|
| Employee contributions | — |
| | — |
| | 7 |
| | 7 |
| | — |
| | — |
|
| Benefits paid | (777 | ) | | (669 | ) | | (119 | ) | | (106 | ) | | (16 | ) | | (19 | ) |
| Foreign exchange impact and other | — |
| | — |
| | (266 | ) | | 69 |
| | — |
| | — |
|
| Fair value of plan assets, end of year | $ | 14,623 |
| | $ | 14,354 |
| (b)(c) | $ | 3,718 |
| | $ | 3,532 |
| | $ | 1,903 |
| | $ | 1,757 |
|
Net funded status(a) | $ | 2,087 |
| | $ | 3,578 |
| | $ | 78 |
| | $ | 99 |
| | $ | 1,061 |
| | $ | 931 |
|
| Accumulated benefit obligation, end of year | $ | (12,375 | ) | | $ | (10,685 | ) | | $ | (3,615 | ) | | $ | (3,406 | ) | | NA |
| | NA |
|
| |
(a) | Represents plans with an aggregate overfunded balance of $3.9 billion and $5.1 billion at December 31, 2014 and 2013, respectively, and plans with an aggregate underfunded balance of $708 million and $540 million at December 31, 2014 and 2013, respectively.
|
| |
(b) | At December 31, 2014 and 2013, approximately $336 million and $429 million, respectively, of U.S. plan assets included participation rights under participating annuity contracts.
|
| |
(c) | At December 31, 2014 and 2013, defined benefit pension plan amounts not measured at fair value included $106 million and $96 million, respectively, of accrued receivables, and $257 million and $104 million, respectively, of accrued liabilities, for U.S. plans.
|
| |
(d) | Includes an unfunded accumulated postretirement benefit obligation of $37 million and $34 million at December 31, 2014 and 2013, respectively, for the U.K. plan.
|
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 219195 |
Notes to consolidated financial statements
benefit cost over subsequent periods as discussed in the Gains and losses section of this Note. Additionally, service cost, interest cost, and investment returns that would
otherwise be classified separately are aggregated and reported net within compensation expense.
The following table presents the changes in benefit obligations, plan assets, the net funded status, and the pretax pension and OPEB amounts recorded in AOCI on the Consolidated balance sheets for the Firm’s defined benefit pension and OPEB plans, and the weighted-average actuarial annualized assumptions for the projected and accumulated postretirement benefit obligations.
|
| | | | | | | | | | | | | | | |
| As of or for the year ended December 31, | Defined benefit
pension plans | OPEB plans(f) |
| (in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Change in benefit obligation | | | | | | | |
| Benefit obligation, beginning of year | $ | (15,594 | ) | | $ | (15,259 | ) | | $ | (708 | ) | | $ | (744 | ) |
| Benefits earned during the year | (330 | ) | | (332 | ) | | — |
| | — |
|
| Interest cost on benefit obligations | (598 | ) | | (629 | ) | | (28 | ) | | (31 | ) |
| Employee contributions | (7 | ) | | (7 | ) | | (16 | ) | | (19 | ) |
| Net gain/(loss) | (721 | ) | | (743 | ) | | (4 | ) | | 4 |
|
| Benefits paid | 841 |
| | 851 |
| | 76 |
| | 76 |
|
| Plan settlements | 30 |
| | 21 |
| | — |
| | — |
|
| Expected Medicare Part D subsidy receipts | NA |
| | NA |
| | (1 | ) | | — |
|
| Foreign exchange impact and other | (321 | ) | | 504 |
| | (3 | ) | | 6 |
|
Benefit obligation, end of year(a) | $ | (16,700 | ) | | $ | (15,594 | ) | | $ | (684 | ) | | $ | (708 | ) |
| Change in plan assets | | | | | | | |
| Fair value of plan assets, beginning of year | $ | 17,703 |
| | $ | 17,636 |
| | $ | 1,956 |
| | $ | 1,855 |
|
| Actual return on plan assets | 2,356 |
| | 1,375 |
| | 233 |
| | 131 |
|
| Firm contributions | 78 |
| | 86 |
| | 602 |
| | 2 |
|
| Employee contributions | 7 |
| | 7 |
| | — |
| | — |
|
| Benefits paid | (841 | ) | | (851 | ) | | (34 | ) | | (32 | ) |
| Plan settlements | (30 | ) | | (21 | ) | | — |
| | — |
|
| Foreign exchange impact and other | 330 |
| | (529 | ) | | — |
| | — |
|
Fair value of plan assets, end of year (a)(b)(c) | $ | 19,603 |
| | $ | 17,703 |
| | $ | 2,757 |
| | $ | 1,956 |
|
Net funded status (d) | $ | 2,903 |
|
| $ | 2,109 |
| | $ | 2,073 |
| | $ | 1,248 |
|
| Accumulated benefit obligation, end of year | $ | (16,530 | ) | | $ | (15,421 | ) | | NA |
| | NA |
|
| Pretax pension and OPEB amounts recorded in AOCI |
| Net gain/(loss) | $ | (2,800 | ) |
| $ | (3,667 | ) | | $ | 271 |
|
| $ | 138 |
|
| Prior service credit/(loss) | 6 |
|
| 42 |
| | — |
|
| — |
|
| Accumulated other comprehensive income/(loss), pretax, end of year | $ | (2,794 | ) |
| $ | (3,625 | ) | | $ | 271 |
|
| $ | 138 |
|
| Weighted-average actuarial assumptions used to determine benefit obligations |
Discount Rate (e) | 0.60 - 3.70% |
| | 0.60 - 4.30% |
| | 3.70 | % | | 4.20 | % |
Rate of compensation increase (e) | 2.25 – 3.00 |
| | 2.25 – 3.00 |
| | NA |
| | NA |
| Health care cost trend rate: |
| Assumed for next year | NA |
| | NA |
| | 5.00 |
| | 5.00 |
|
| Ultimate | NA |
| | NA |
| | 5.00 |
| | 5.00 |
|
| Year when rate will reach ultimate | NA |
| | NA |
| | 2018 | | 2017 |
| |
| (a) | At December 31, 2017 and 2016, included non-U.S. benefit obligations of $(3.8) billion and $(3.4) billion, and plan assets of $3.9 billion and $3.4 billion, respectively, predominantly in the U.K. |
| |
| (b) | At December 31, 2017 and 2016, approximately $302 million and $390 million, respectively, of U.S. defined benefit pension plan assets included participation rights under participating annuity contracts. |
| |
| (c) | At December 31, 2017 and 2016, defined benefit pension plan amounts that were not measured at fair value included $377 million and $130 million, respectively, of accrued receivables, and $587 million and $224 million, respectively, of accrued liabilities, for U.S. plans. |
| |
| (d) | Represents plans with an aggregate overfunded balance of $5.6 billion and $4.0 billion at December 31, 2017 and 2016, respectively, and plans with an aggregate underfunded balance of $612 million and $639 million at December 31, 2017 and 2016, respectively. |
| |
| (e) | For the U.S. defined benefit pension plans, the discount rate assumption is 3.70% and 4.30%, and the rate of compensation increase is 2.30% and 2.30%, for 2017 and 2016 respectively. |
| |
| (f) | Includes an unfunded postretirement benefit obligation of $32 million and $35 million at December 31, 2017 and 2016, respectively, for the U.K. plan. |
|
| | |
| 196 | | JPMorgan Chase & Co./2017 Annual Report |
Gains and losses
For the Firm’s defined benefit pension plans, fair value is used to determine the expected return on plan assets. Amortization of net gains and losses is included in annual net periodic benefit cost if, as of the beginning of the year, the net gain or loss exceeds 10% of the greater of the PBO or the fair value of the plan assets. Any excess is amortized over the average future service period of defined benefit pension plan participants, which for the U.S. defined benefit pension plan is currently seven years.eight years and for the non-U.S. defined benefit pension plans is the period appropriate for the affected plan. In addition, prior service costs are amortized over the average remaining service period of active employees expected to receive benefits under the plan when the prior service cost is first recognized. The average remaining amortization period for the U.S. defined benefit pension plan for current prior service costs is five years.three years.
For the Firm’s OPEB plans, a calculated value that recognizes changes in fair value over a five-yearfive-year period is used to determine the expected return on plan assets. This value is referred to as the market relatedmarket-related value of assets. Amortization of net gains and losses, adjusted for gains and losses not yet recognized, is included in annual net periodic benefit cost if, as of the beginning of the year, the net gain or loss exceeds 10% of the greater of the accumulated postretirement benefit obligation or the market relatedmarket-related value of assets. Any excess net gain or loss is amortized over the average expected lifetime of retired participants, which is currently twelve years;eleven years; however, prior service costs resulting from plan changes are amortized over the average years of service remaining to full eligibility age, which is currently two years.years.
The following table presents pretax pension and OPEB amounts recorded in AOCI.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Defined benefit pension plans | | |
| December 31, | U.S. | | Non-U.S. | | OPEB plans |
| (in millions) | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
| Net gain/(loss) | $ | (3,346 | ) | | $ | (1,726 | ) | | $ | (628 | ) | | $ | (658 | ) | | $ | 130 |
| | $ | 125 |
|
| Prior service credit/(cost) | 102 |
| | 196 |
| | 11 |
| | 14 |
| | — |
| | 1 |
|
| Accumulated other comprehensive income/(loss), pretax, end of year | $ | (3,244 | ) | | $ | (1,530 | ) | | $ | (617 | ) | | $ | (644 | ) | | $ | 130 |
| | $ | 126 |
|
The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income and other comprehensive income for the Firm’s U.S. and non-U.S. defined benefit pension, defined contribution and OPEB plans.plans, and in other comprehensive income for the defined benefit pension and OPEB plans, and the weighted-average annualized actuarial assumptions for the net periodic benefit cost.
| | | | Pension plans | | | | | | | | | | | | | | | | | | | | | |
| | U.S. | | Non-U.S. | | OPEB plans | Pension plans | | OPEB plans |
| Year ended December 31, (in millions) | 2014 |
| 2013 |
| 2012 |
| | 2014 |
| | 2013 |
| | 2012 |
| | 2014 |
| 2013 |
| 2012 |
| 2017 |
| 2016 |
| 2015 |
| | 2017 |
| 2016 |
| 2015 |
|
| Components of net periodic benefit cost | | | | | | | | | | | | |
| Benefits earned during the year | $ | 281 |
| $ | 314 |
| $ | 272 |
| | $ | 33 |
| | $ | 34 |
| | $ | 41 |
| | $ | — |
| $ | 1 |
| $ | 1 |
| $ | 330 |
| $ | 332 |
| $ | 377 |
| | $ | — |
| $ | — |
| $ | 1 |
|
| Interest cost on benefit obligations | 534 |
| 447 |
| 466 |
| | 137 |
| | 125 |
| | 126 |
| | 38 |
| 35 |
| 44 |
| 598 |
| 629 |
| 610 |
| | 28 |
| 31 |
| 31 |
|
| Expected return on plan assets | (985 | ) | (956 | ) | (861 | ) | | (172 | ) | | (142 | ) | | (137 | ) | | (101 | ) | (92 | ) | (90 | ) | (968 | ) | (1,030 | ) | (1,079 | ) | | (97 | ) | (105 | ) | (106 | ) |
| Amortization: | | | | | | | | | | | | |
| Net (gain)/loss | 25 |
| 271 |
| 289 |
| | 47 |
| | 49 |
| | 36 |
| | — |
| 1 |
| (1 | ) | 250 |
| 257 |
| 282 |
| | — |
| — |
| — |
|
| Prior service cost/(credit) | (41 | ) | (41 | ) | (41 | ) | | (2 | ) | | (2 | ) | | — |
| | (1 | ) | — |
| — |
| (36 | ) | (36 | ) | (36 | ) | | — |
| — |
| — |
|
| Special termination benefits | | — |
| — |
| 1 |
| | — |
| — |
| — |
|
| Settlement loss | | 2 |
| 4 |
| — |
| | — |
|
|
| Net periodic defined benefit cost | (186 | ) | 35 |
| 125 |
| | 43 |
| | 64 |
| | 66 |
| | (64 | ) | (55 | ) | (46 | ) | $ | 176 |
| $ | 156 |
| $ | 155 |
| | $ | (69 | ) | $ | (74 | ) | $ | (74 | ) |
Other defined benefit pension plans(a) | 14 |
| 15 |
| 15 |
| | 6 |
| | 14 |
| | 8 |
| | NA |
| NA |
| NA |
| 24 |
| 25 |
| 24 |
| | NA |
| NA |
| NA |
|
| Total defined benefit plans | (172 | ) | 50 |
| 140 |
| | 49 |
| | 78 |
| | 74 |
| | (64 | ) | (55 | ) | (46 | ) | $ | 200 |
| $ | 181 |
| $ | 179 |
| | $ | (69 | ) | $ | (74 | ) | $ | (74 | ) |
| Total defined contribution plans | 438 |
| 447 |
| 409 |
| | 329 |
| | 321 |
| | 302 |
| | NA |
| NA |
| NA |
| 814 |
| 789 |
| 769 |
| | NA |
| NA |
| NA |
|
| Total pension and OPEB cost included in compensation expense | $ | 266 |
| $ | 497 |
| $ | 549 |
| | $ | 378 |
| | $ | 399 |
| | $ | 376 |
| | $ | (64 | ) | $ | (55 | ) | $ | (46 | ) | $ | 1,014 |
| $ | 970 |
| $ | 948 |
| | $ | (69 | ) | $ | (74 | ) | $ | (74 | ) |
| Changes in plan assets and benefit obligations recognized in other comprehensive income | | | | | | | | | | Changes in plan assets and benefit obligations recognized in other comprehensive income | | |
| Net (gain)/loss arising during the year | $ | 1,645 |
| $ | (1,817 | ) | $ | 434 |
| | $ | 57 |
| | $ | 19 |
| | $ | 146 |
| | $ | (5 | ) | $ | (257 | ) | $ | (43 | ) | $ | (669 | ) | $ | 395 |
| $ | (50 | ) | | $ | (133 | ) | $ | (29 | ) | $ | 21 |
|
| Prior service credit arising during the year | 53 |
| — |
| — |
| | — |
| | — |
| | (6 | ) | | — |
| — |
| — |
| |
| Amortization of net loss | (25 | ) | (271 | ) | (289 | ) | | (47 | ) | | (49 | ) | | (36 | ) | | — |
| (1 | ) | 1 |
| (250 | ) | (257 | ) | (282 | ) | | — |
| — |
| — |
|
| Amortization of prior service (cost)/credit | 41 |
| 41 |
| 41 |
| | 2 |
| | 2 |
| | — |
| | 1 |
| — |
| — |
| 36 |
| 36 |
| 36 |
| | — |
| — |
| — |
|
| Settlement loss | | (2 | ) | (4 | ) | — |
| | — |
| — |
| — |
|
| Foreign exchange impact and other | — |
| — |
| — |
| | (39 | ) | (a) | 14 |
| (a) | 22 |
| (a) | — |
| — |
| (1 | ) | 54 |
| (77 | ) | (33 | ) | | — |
| — |
| — |
|
| Total recognized in other comprehensive income | $ | 1,714 |
| $ | (2,047 | ) | $ | 186 |
| | $ | (27 | ) | | $ | (14 | ) | | $ | 126 |
| | $ | (4 | ) | $ | (258 | ) | $ | (43 | ) | $ | (831 | ) | $ | 93 |
| $ | (329 | ) | | $ | (133 | ) | $ | (29 | ) | $ | 21 |
|
| Total recognized in net periodic benefit cost and other comprehensive income | $ | 1,528 |
| $ | (2,012 | ) | $ | 311 |
| | $ | 16 |
| | $ | 50 |
| | $ | 192 |
| | $ | (68 | ) | $ | (313 | ) | $ | (89 | ) | $ | (655 | ) | $ | 249 |
| $ | (174 | ) | | $ | (202 | ) | $ | (103 | ) | $ | (53 | ) |
| Weighted-average assumptions used to determine net periodic benefit costs | | Weighted-average assumptions used to determine net periodic benefit costs | | |
Discount rate(b) | | 0.60 - 4.30 % |
| 0.90 – 4.50% |
| 1.00 – 4.00% |
| | 4.20 | % | 4.40 | % | 4.10 | % |
Expected long-term rate of return on plan assets (b) | | 0.70 - 6.00 | 0.80 – 6.50 | 0.90 – 6.50 | | 5.00 |
| 5.75 |
| 6.00 |
|
Rate of compensation increase (b) | | 2.25 - 3.00 | 2.25 – 4.30 | 2.75 – 4.20 | | NA |
| NA |
| NA |
|
| Health care cost trend rate | | | | |
| Assumed for next year | | NA |
| NA |
| NA |
| | 5.00 |
| 5.50 |
| 6.00 |
|
| Ultimate | | NA |
| NA |
| NA |
| | 5.00 |
| 5.00 |
| 5.00 |
|
| Year when rate will reach ultimate | | NA |
| NA |
| NA |
| | 2017 | 2017 |
| |
| (a) | Includes various defined benefit pension plans which are individually immaterial. |
| |
| (b) | The rate assumptions for the U.S. defined benefit pension plans are at the upper end of the range, except for the rate of compensation increase, which is 2.30% for 2017 and 3.50% for 2016 and 2015, respectively. |
|
| | |
220 | | JPMorgan Chase & Co./20142017 Annual Report | | 197 |
Notes to consolidated financial statements
The estimated pretax amounts that will be amortized from AOCI into net periodic benefit cost in 20152018 are as follows.
| | | | | Defined benefit pension plans | | OPEB plans | | | | |
| (in millions) | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | Defined benefit pension plans |
| Net loss/(gain) | | $ | 257 |
| | $ | 37 |
| | $ | — |
| | $ | — |
| | $ | 106 |
| |
| Prior service cost/(credit) | | (34 | ) | | (2 | ) | | — |
| | — |
| | $ | (25 | ) | |
| Total | | $ | 223 |
| | $ | 35 |
| | $ | — |
| | $ | — |
| | $ | 81 |
| |
The following table presents the actual rate of return on plan assets for the U.S. and non-U.S. defined benefit pension and OPEB plans.
|
| | | | | | | | | | | | | | |
| | U.S. | | Non-U.S. |
| Year ended December 31, | 2014 |
| | 2013 |
| | 2012 |
| | 2014 | | 2013 | | 2012 |
| Actual rate of return: | | | | | | | | | | | |
| Defined benefit pension plans | 7.29 | % | | 15.95 | % | | 12.66 | % | | 5.62 - 17.69% | | 3.74 - 23.80% | | 7.21 - 11.72% |
| OPEB plans | 9.84 |
| | 13.88 |
| | 10.10 |
| | NA | | NA | | NA |
Plan assumptions
JPMorgan Chase’s expected long-term rate of return for U.S. defined benefit pension and OPEB plan assets is a blended weighted average, by asset allocation of the investment advisor’s projected long-term (10 years or more) returns for the various asset classes, weighted bytaking into consideration local market conditions and the asset allocation.specific allocation of plan assets. Returns on asset classes are developed using a forward-looking approach and are not strictly based on historical returns. Equity returns are generally developed as the sum of inflation, expected real earnings growth and expected long-term dividend yield. Bond returns are generally developed as the sum of inflation, real bond yield and risk spread (as appropriate), adjusted for the expected effect on returns from changing yields. Other asset-class returns are derived from their relationship to the equity and bond markets. Consideration is also given to current market conditions and the short-term portfolio mix of each plan.
For the U.K. defined benefit pension plans, which represent the most significant of the non-U.S. defined benefit pension plans, procedures similar to those in the U.S. are used to develop the expected long-term rate of return on plan assets, taking into consideration local market conditions and the specific allocation of plan assets. The expected long-term rate of return on U.K. plan assets is an average of projected long-term returns for each asset class. The return on equities has been selected by reference to the yield on long-term U.K. government bonds plus an equity risk premium above the risk-free rate. The expected return on “AA” rated long-term corporate bonds is based on an implied yield for similar bonds.
The discount rate used in determining the benefit obligation under the U.S. defined benefit pension and OPEB plans was provided by the Firm’s actuaries. This rate was selected by reference to the yields on portfolios of bonds with maturity dates and coupons that closely match each of the plan’s projected cash flows; such portfolios are derived from a broad-based universe of high-quality corporate bonds as of the measurement date. In years in which these hypothetical bond portfolios generate excess cash, such excess is assumed to be reinvested at the one-year forward
rates implied by the Citigroup Pension Discount Curve published as of the measurement date.flows. The discount rate for the U.K. defined benefit pension plan represents a rate of appropriate duration from the analysis of yield curves provided by ourthe Firm’s actuaries.
In 2014, the Society of Actuaries (“SOA”) completed a comprehensive review of mortality experience of uninsured private retirement plans in the U.S. In October 2014, the SOA published new mortality tables and a new mortality improvement scale that reflects improved life expectancies and an expectation that this trend will continue. The Firm has adopted the SOA’s tables and projection scale, resulting in an estimated increase in PBO of $533 million.
At December 31, 2014,2017, the Firm decreased the discount rates used to determine its benefit obligations for the U.S. defined benefit pension and OPEB plans in light of current market interest rates, which will resultincrease expense by approximately $66 million in an increase in expense of approximately $139 million for 2015.2018. The 20152018 expected long-term rate of return on U.S. defined benefit pension plan assets and U.S. OPEB plan assets are 6.50%5.50% and 6.00%4.00%, respectively. For 2015, the initial health care benefit obligation trend assumption has been set at 6.00%, and the ultimate health care trend assumption and the year to reach the ultimate rate remains at 5.00% and 2017, respectively, unchanged from 2014. As of December 31, 2014,2017, the interest crediting rate assumption and the assumed rate of compensation increase remained at 5.00% and 3.50%, respectively..
The following tables present the weighted-average annualized actuarial assumptions for the projected and accumulated postretirement benefit obligations, and the componentsAs of net periodic benefit costs, for the Firm’s significant U.S. and non-U.S. defined benefit pension and OPEB plans, as of and for the periods indicated.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 221 |
Notes to consolidated financial statements
|
| | | | | | | | | | | |
| Weighted-average assumptions used to determine benefit obligations | | | | | | |
| | U.S. | | Non-U.S. |
| December 31, | 2014 |
| | 2013 |
| | 2014 |
| | 2013 |
|
| Discount rate: | | | | | | | |
| Defined benefit pension plans | 4.00 | % | | 5.00 | % | | 1.00 - 3.60% |
| | 1.10 - 4.40% |
|
| OPEB plans | 4.10 |
| | 4.90 |
| | — |
| | — |
|
| Rate of compensation increase | 3.50 |
| | 3.50 |
| | 2.75 - 4.20 |
| | 2.75 - 4.60 |
|
| Health care cost trend rate: | | | | | | | |
| Assumed for next year | 6.00 |
| | 6.50 |
| | — |
| | — |
|
| Ultimate | 5.00 |
| | 5.00 |
| | — |
| | — |
|
| Year when rate will reach ultimate | 2017 |
| | 2017 |
| | — |
| | — |
|
|
| | | | | | | | | | | | | | | | | |
| Weighted-average assumptions used to determine net periodic benefit costs | | | | | | |
| | U.S. | | Non-U.S. |
| Year ended December 31, | 2014 |
| | 2013 |
| | 2012 |
| | 2014 |
| | 2013 |
| | 2012 |
|
| Discount rate: | | | | | | | | | | | |
| Defined benefit pension plans | 5.00 | % | | 3.90 | % | | 4.60 | % | | 1.10 - 4.40% |
| | 1.40 - 4.40% |
| | 1.50 - 4.80% |
|
| OPEB plans | 4.90 |
| | 3.90 |
| | 4.70 |
| | — |
| | — |
| | — |
|
| Expected long-term rate of return on plan assets: | | | | | | | |
| | | | |
| Defined benefit pension plans | 7.00 |
| | 7.50 |
| | 7.50 |
| | 1.20 - 5.30 |
| | 2.40 - 4.90 |
| | 2.50 - 4.60 |
|
| OPEB plans | 6.25 |
| | 6.25 |
| | 6.25 |
| | NA |
| | NA |
| | NA |
|
| Rate of compensation increase | 3.50 |
| | 4.00 |
| | 4.00 |
| | 2.75 - 4.60 |
| | 2.75 - 4.10 |
| | 2.75 - 4.20 |
|
| Health care cost trend rate: | | | | | | | |
| | | | |
| Assumed for next year | 6.50 |
| | 7.00 |
| | 7.00 |
| | — |
| | — |
| | — |
|
| Ultimate | 5.00 |
| | 5.00 |
| | 5.00 |
| | — |
| | — |
| | — |
|
| Year when rate will reach ultimate | 2017 |
| | 2017 |
| | 2017 |
| | — |
| | — |
| | — |
|
The following table presentsDecember 31, 2017, the effect of a one-percentage-point changeincrease or decrease in the assumed health care cost trend rate on JPMorgan Chase’sis not material to the accumulated postretirement benefit obligation. As of December 31, 2014, there was no material effect onobligation or total service and interest cost.
|
| | | | | | | |
Year ended December 31, 2014 (in millions) | 1-Percentage point increase | | 1-Percentage point decrease |
| Effect on accumulated postretirement benefit obligation | $ | 9 |
| | $ | (8 | ) |
JPMorgan Chase’s U.S.The following table represents the effect of a 25-basis point decline in the three listed rates below on estimated 2018 defined benefit pension and OPEB plan expense, is sensitive toas well as the expected long-term rate of returneffect on plan assets and the discount rate. With all other assumptions held constant, a 25-basis point decline in the expected long-term rate of return on U.S. plan assets would result in an aggregate increase of approximately $40 million in 2015 U.S. definedpostretirement benefit pension and OPEB plan expense. A 25-basis point decline in the discount rate for the U.S. plans would result in an increase in obligations.2015 U.S. defined benefit pension and OPEB plan expense of approximately an aggregate $36 million and an increase in the related benefit obligations of approximately an aggregate $333 million. A 25-basis point decrease in the interest crediting rate for the U.S. defined benefit pension plan would result in a decrease in 2015 U.S. defined benefit pension expense of approximately $36 million and a decrease in the related PBO of approximately $148 million. A 25-basis point decline in the discount rates for the non-U.S. plans would result in an increase in the 2015 non-U.S. defined benefit pension plan expense of approximately $19 million.
|
| | | | | | | |
(in millions) | Defined benefit pension and OPEB plan expense | | Benefit obligation |
| Expected long-term rate of return | $ | 54 |
| | NA |
|
| Discount rate | $ | 59 |
| | $ | 583 |
|
| Interest crediting rate for U.S. plans | $ | (41 | ) | | $ | (193 | ) |
|
| | |
222 | | JPMorgan Chase & Co./2014 Annual Report |
Investment strategy and asset allocation
The assets of the Firm’s U.S. defined benefit pension plan assetsplans are held in trustvarious trusts and are invested in a well-diversified portfolioportfolios of equity and fixed income securities, cash and cash equivalents, and alternative investments (e.g., hedge funds, private equity, real estate and real assets). Non-U.S. defined benefit pension planThe trust-owned assets are held in various trusts and are also invested in well-diversified portfolios of equity, fixed income and other securities. Assets of the Firm’s COLI policies, which are used to partially fund theFirm's U.S. OPEB plan are heldinvested in cash and cash equivalents. COLI policies used to defray the cost of the Firm's U.S. OPEB plan are invested in separate accounts of an insurance company and are allocated to investments intended to replicate equity and fixed income indices.
The investment policypolicies for the assets of the Firm’s U.S. defined benefit pension plan assets isplans are to optimize the risk-return relationship as appropriate to the needs and goals of the eachplan using a global portfolio of various asset classes diversified by market segment, economic sector, and issuer. Assets are managed by a combination of internal and external investment managers. Periodically the Firm performs a comprehensive analysis on the U.S. defined benefit pension plan asset allocations, incorporating projected asset and liability data, which focuses on the short- and long-term impact of the asset allocation on cumulative pension expense, economic cost, present value of contributions and funded status. As the U.S. defined benefit pension plan is overfunded, the investment strategy for this plan was adjusted in 2013 to provide for greater liquidity.Currently, approved asset allocation ranges are: U.S. equity 0% to 45%, international equity 0% to 40%, debt securities 0% to 80%, hedge funds 0% to 5%, real estate 0% to 10%, real assets 0% to 10% and private equity 0% to 20%. Asset allocations are not managed to a specific target but seek to shift asset class allocations within these stated ranges. Investment strategies incorporate the economic outlook and the anticipated implications of the
macroeconomic environment on the various asset classes while maintaining an appropriate level of liquidity for the plan. The Firm regularly reviews the asset allocations and asset managers, as well as other factors that impact the portfolio,portfolios, which isare rebalanced when deemed necessary.
For the U.K. defined benefit pension plans, which represent the most significant of the non-U.S. defined benefit pension plans, the assets are invested to maximize returns subject to an appropriate level of risk relative to the plans’ liabilities. In order to reduce the volatility in returns relative to the plans’ liability profiles, the U.K. defined benefit pension plans’ largest asset allocations are to debt securities of appropriate durations. Other assets, mainly equity securities, are then invested for capital appreciation, to provide long-term investment growth. Similar to the U.S. defined benefit pension plan, asset allocations and asset managers for the U.K. plans are reviewed regularly and the portfolio is rebalanced when deemed necessary.
Investments held by the Plansplans include financial instruments which are exposed to various risks such as interest rate, market and credit risks. Exposure to a concentration of credit risk is mitigated by the broad diversification of both U.S. and non-U.S. investment instruments. Additionally, the investments in each of the common/collective trust funds andand/or registered investment companies are further diversified into various financial instruments. As of December 31, 2014,2017, assets held by the Firm’s U.S. and non-U.S.Firm's defined benefit pension and OPEB plans do not include JPMorgan Chase common stock, except through indirect exposures through investments in third-party stock-index funds. The plans hold investments in funds that are sponsored or managed by affiliates of JPMorgan Chase in the amount of $3.7 billionand$2.9 billion for U.S. plans and $1.4$6.0 billion and $242 million for non-U.S. plans,$4.6 billion, as of December 31, 20142017 and 2013,2016, respectively.
|
| | |
| 198 | | JPMorgan Chase & Co./2017 Annual Report |
The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 for the years indicated, as well as the respective approved range/targetasset allocation ranges by asset category, for the Firm’s U.S. and non-U.S. defined benefit pension and OPEB plans.class.
| | | | Defined benefit pension plans | | | |
| | U.S. | | Non-U.S. | | OPEB plans(c) | |
| Defined benefit pension plans | | Defined benefit pension plans | OPEB plan(c) |
| | Target | | % of plan assets | | Target | | % of plan assets | | Target | | % of plan assets | Asset | | % of plan assets | | Asset | | % of plan assets |
| December 31, | Allocation | | 2014 |
| | 2013 |
| | Allocation | | 2014 |
| | 2013 |
| | Allocation | | 2014 |
| | 2013 |
| Allocation | | 2017 | | 2016 | | Allocation | | 2017(d) | | 2016 |
| Asset category | | | | | | | | | | | | | | | | | | |
| Asset class | | Asset class | | | | | | | | | | |
Debt securities(a) | 0-80% | | 31 | % | | 25 | % | | 62 | % | | 61 | % | | 63 | % | | 30-70% |
| | 50 | % | | 50 | % | 0-80% |
| | 42 | % | | 35 | % | | 30-70% |
| | 61 | % | | 50 | % |
| Equity securities | 0-85 | | 46 |
| | 48 |
| | 37 |
| | 38 |
| | 36 |
| | 30-70 |
| | 50 |
| | 50 |
| 0-85 |
| | 42 |
| | 47 |
| | 30-70 |
| | 39 |
| | 50 |
|
| Real estate | 0-10 | | 4 |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| 0-10 |
| | 3 |
| | 4 |
| | — |
| | — |
| | — |
|
Alternatives(b) | 0-35 | | 19 |
| | 23 |
| | 1 |
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
| 0-35 |
| | 13 |
| | 14 |
| | — |
| | — |
| | — |
|
| Total | 100% | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| |
| (a) | Debt securities primarily include cash, corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed securities. |
| |
| (b) | Alternatives primarily include limited partnerships. |
| |
| (c) | Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded. |
|
| | |
JPMorgan Chase & Co./2014 Annual Report(d) | | 223Change in percentage of plan assets due to the contribution to the U.S. OPEB plan. |
Notes to consolidated financial statements
Fair value measurement of the plans’ assets and liabilities
For information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value hierarchy and the valuation methods employed by the Firm, see Note 3.2.
Pension and OPEB plan assets and liabilities measured at fair value
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension and OPEB plan assets and liabilities measured at fair value | | | | | | |
| | U.S. defined benefit pension plans | | Non-U.S. defined benefit pension plans(i) |
December 31, 2014 (in millions) | Level 1 | | Level 2 | | Level 3 | | Total fair value | | Level 1 | | Level 2 | | Total fair value |
| Cash and cash equivalents | $ | 87 |
| | $ | — |
| | $ | — |
| | $ | 87 |
| | $ | 128 |
| | $ | 1 |
| | $ | 129 |
|
| Equity securities: | | | | | | | | | | | | | |
| Capital equipment | 1,249 |
| | — |
| | — |
| | 1,249 |
| | 96 |
| | 24 |
| | 120 |
|
| Consumer goods | 1,198 |
| | 8 |
| | — |
| | 1,206 |
| | 250 |
| | 32 |
| | 282 |
|
| Banks and finance companies | 778 |
| | 7 |
| | — |
| | 785 |
| | 279 |
| | 31 |
| | 310 |
|
| Business services | 458 |
| | — |
| | — |
| | 458 |
| | 277 |
| | 18 |
| | 295 |
|
| Energy | 267 |
| | — |
| | — |
| | 267 |
| | 50 |
| | 15 |
| | 65 |
|
| Materials | 319 |
| | 1 |
| | — |
| | 320 |
| | 40 |
| | 9 |
| | 49 |
|
| Real Estate | 46 |
| | — |
| | — |
| | 46 |
| | 1 |
| | — |
| | 1 |
|
| Other | 971 |
| | 4 |
| | 4 |
| | 979 |
| | 26 |
| | 40 |
| | 66 |
|
| Total equity securities | 5,286 |
| | 20 |
| | 4 |
| | 5,310 |
| | 1,019 |
| | 169 |
| | 1,188 |
|
Common/collective trust funds(a) | 345 |
| | 1,277 |
| | 8 |
| | 1,630 |
| | 112 |
| | 251 |
| | 363 |
|
Limited partnerships:(b) | | | | | | | | | | | | | |
| Hedge funds | — |
| | 26 |
| | 77 |
| | 103 |
| | — |
| | — |
| | — |
|
| Private equity | — |
| | — |
| | 2,208 |
| | 2,208 |
| | — |
| | — |
| | — |
|
| Real estate | — |
| | — |
| | 533 |
| | 533 |
| | — |
| | — |
| | — |
|
Real assets(c) | 70 |
| | — |
| | 202 |
| | 272 |
| | — |
| | — |
| | — |
|
| Total limited partnerships | 70 |
| | 26 |
| | 3,020 |
| | 3,116 |
| | — |
| | — |
| | — |
|
Corporate debt securities(d) | — |
| | 1,454 |
| | 9 |
| | 1,463 |
| | — |
| | 724 |
| | 724 |
|
| U.S. federal, state, local and non-U.S. government debt securities | 446 |
| | 161 |
| | — |
| | 607 |
| | 235 |
| | 540 |
| | 775 |
|
| Mortgage-backed securities | 1 |
| | 73 |
| | 1 |
| | 75 |
| | 2 |
| | 77 |
| | 79 |
|
| Derivative receivables | — |
| | 114 |
| | — |
| | 114 |
| | — |
| | 258 |
| | 258 |
|
Other(e) | 2,031 |
| | 27 |
| | 337 |
| | 2,395 |
| | 283 |
| | 58 |
| | 341 |
|
Total assets measured at fair value(f) | $ | 8,266 |
| | $ | 3,152 |
| | $ | 3,379 |
| | $ | 14,797 |
| (g) | $ | 1,779 |
| | $ | 2,078 |
| | $ | 3,857 |
|
| Derivative payables | $ | — |
| | $ | (23 | ) | | $ | — |
| | $ | (23 | ) | | $ | — |
| | $ | (139 | ) | | $ | (139 | ) |
| Total liabilities measured at fair value | $ | — |
| | $ | (23 | ) | | $ | — |
| | $ | (23 | ) | (h) | $ | — |
| | $ | (139 | ) | | $ | (139 | ) |
|
| | |
224 | | JPMorgan Chase & Co./2014 Annual Report |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. defined benefit pension plans | | Non-U.S. defined benefit pension plans(i) |
December 31, 2013 (in millions) | Level 1 | | Level 2 | | Level 3 | | Total fair value | | Level 1 | | Level 2 | | Total fair value |
| Cash and cash equivalents | $ | 62 |
| | $ | — |
| | $ | — |
| | $ | 62 |
| | $ | 221 |
| | $ | 3 |
| | $ | 224 |
|
| Equity securities: | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Capital equipment | 1,084 |
| | — |
| | — |
| | 1,084 |
| | 86 |
| | 17 |
| | 103 |
|
| Consumer goods | 1,085 |
| | — |
| | — |
| | 1,085 |
| | 225 |
| | 50 |
| | 275 |
|
| Banks and finance companies | 737 |
| | — |
| | — |
| | 737 |
| | 233 |
| | 29 |
| | 262 |
|
| Business services | 510 |
| | — |
| | — |
| | 510 |
| | 209 |
| | 14 |
| | 223 |
|
| Energy | 292 |
| | — |
| | — |
| | 292 |
| | 64 |
| | 20 |
| | 84 |
|
| Materials | 344 |
| | — |
| | — |
| | 344 |
| | 36 |
| | 9 |
| | 45 |
|
| Real estate | 38 |
| | — |
| | — |
| | 38 |
| | — |
| | 1 |
| | 1 |
|
| Other | 1,337 |
| | 18 |
| | 4 |
| | 1,359 |
| | 25 |
| | 103 |
| | 128 |
|
| Total equity securities | 5,427 |
| | 18 |
| | 4 |
| | 5,449 |
| | 878 |
| | 243 |
| | 1,121 |
|
Common/collective trust funds(a) | — |
| | 1,308 |
| | 4 |
| | 1,312 |
| | 98 |
| | 248 |
| | 346 |
|
Limited partnerships:(b) | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Hedge funds | — |
| | 355 |
| | 718 |
| | 1,073 |
| | — |
| | — |
| | — |
|
| Private equity | — |
| | — |
| | 1,969 |
| | 1,969 |
| | — |
| | — |
| | — |
|
| Real estate | — |
| | — |
| | 558 |
| | 558 |
| | — |
| | — |
| | — |
|
Real assets(c) | — |
| | — |
| | 271 |
| | 271 |
| | — |
| | — |
| | — |
|
| Total limited partnerships | — |
| | 355 |
| | 3,516 |
| | 3,871 |
| | — |
| | — |
| | — |
|
Corporate debt securities(d) | — |
| | 1,223 |
| | 7 |
| | 1,230 |
| | — |
| | 787 |
| | 787 |
|
| U.S. federal, state, local and non-U.S. government debt securities | 343 |
| | 299 |
| | — |
| | 642 |
| | — |
| | 777 |
| | 777 |
|
| Mortgage-backed securities | 37 |
| | 50 |
| | — |
| | 87 |
| | 73 |
| | — |
| | 73 |
|
| Derivative receivables | — |
| | 30 |
| | — |
| | 30 |
| | — |
| | 302 |
| | 302 |
|
Other(e) | 1,214 |
| | 41 |
| | 430 |
| | 1,685 |
| | 148 |
| | 52 |
| | 200 |
|
Total assets measured at fair value(f) | $ | 7,083 |
| | $ | 3,324 |
| | $ | 3,961 |
| | $ | 14,368 |
| (g) | $ | 1,418 |
| | $ | 2,412 |
| | $ | 3,830 |
|
| Derivative payables | $ | — |
| | $ | (6 | ) | | $ | — |
| | $ | (6 | ) | | $ | — |
| | $ | (298 | ) | | $ | (298 | ) |
| Total liabilities measured at fair value | $ | — |
| | $ | (6 | ) | | $ | — |
| | $ | (6 | ) | (h) | $ | — |
| | $ | (298 | ) | | $ | (298 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Defined benefit pension plans |
| | 2017 | | 2016 |
December 31, (in millions) | Level 1 | | Level 2 | | Level 3 | | Total fair value | | Level 1 | | Level 2 | | Level 3 | | Total fair value |
| Cash and cash equivalents | $ | 173 |
| | $ | 1 |
| | $ | — |
| | $ | 174 |
| | $ | 196 |
| | $ | 2 |
| | $ | — |
| | $ | 198 |
|
| Equity securities | 6,407 |
| | 194 |
| | 2 |
| | 6,603 |
| | 6,158 |
| | 166 |
| | 2 |
| | 6,326 |
|
| Mutual funds | 325 |
| | — |
| | — |
| | 325 |
| | — |
| | — |
| | — |
| | — |
|
Common/collective trust funds(a) | 778 |
| | — |
| | — |
| | 778 |
| | 384 |
| | — |
| | — |
| | 384 |
|
Limited partnerships(b) | 60 |
| | — |
| | — |
| | 60 |
| | 62 |
| | — |
| | — |
| | 62 |
|
Corporate debt securities(c) | — |
| | 2,644 |
| | 4 |
| | 2,648 |
| | — |
| | 2,506 |
| | 4 |
| | 2,510 |
|
| U.S. federal, state, local and non-U.S. government debt securities | 1,096 |
| | 784 |
| | — |
| | 1,880 |
| | 1,139 |
| | 804 |
| | — |
| | 1,943 |
|
| Mortgage-backed securities | 92 |
| | 100 |
| | 2 |
| | 194 |
| | 42 |
| | 75 |
| | — |
| | 117 |
|
| Derivative receivables | — |
| | 203 |
| | — |
| | 203 |
| | — |
| | 243 |
| | — |
| | 243 |
|
Other(d) | 2,353 |
| | 60 |
| | 302 |
| | 2,715 |
| | 1,497 |
| | 53 |
| | 390 |
| | 1,940 |
|
Total assets measured at fair value(e) | $ | 11,284 |
| | $ | 3,986 |
| | $ | 310 |
| | $ | 15,580 |
| | $ | 9,478 |
| | $ | 3,849 |
| | $ | 396 |
| | $ | 13,723 |
|
| Derivative payables | $ | — |
| | $ | (141 | ) | | $ | — |
| | $ | (141 | ) | | $ | — |
| | $ | (208 | ) | | $ | — |
| | $ | (208 | ) |
Total liabilities measured at fair value(e) | $ | — |
| | $ | (141 | ) | | $ | — |
| | $ | (141 | ) | | $ | — |
| | $ | (208 | ) | | $ | — |
| | $ | (208 | ) |
| |
| (a) | At December 31, 20142017 and 2013,2016, common/collective trust funds primarily included a mix of short-term investment funds, domestic and international equity investments (including index) and real estate funds. |
| |
| (b) | Unfunded commitments to purchase limited partnership investments for the plans were $1.2 billion$605 million and $1.6 billion$735 million for 20142017 and 2013,2016, respectively. |
| |
| (c) | Real assets include investments in productive assets such as agriculture, energy rights, mining and timber properties and exclude raw land to be developed for real estate purposes. |
| |
(d) | Corporate debt securities include debt securities of U.S. and non-U.S. corporations. |
| |
(e)(d) | Other consists primarily of money markets, exchange-tradedmarket funds and participating and non-participating annuity contracts. Money markets and exchange-tradedmarket funds are primarily classified within level 1 of the fair value hierarchy given they are valued using market observable prices. Participating and non-participating annuity contracts are classified within level 3 of the fair value hierarchy due to a lack of market mechanisms for transferring each policy and surrender restrictions. |
| |
(f)(e) | At December 31, 20142017 and 2013,2016, excludes $4.4 billion and $4.2 billion of certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient, which are not required to be classified in the fair value of investments valued at NAV were $2.1 billion and $2.7 billion, respectively, which were classified within the valuation hierarchy, as follows: $500$377 million and $100$130 million in level 1, $1.6 billion and $1.9 billion in level 2, zero and $700 million in level 3. |
| |
(g) | At December 31, 2014 and 2013, excluded U.S.of defined benefit pension plan receivables for investments sold and dividends and interest receivables, of $106$561 million and $96$203 million respectively. |
| |
(h) | At December 31, 2014 and 2013, excluded $241 million and $102 million, respectively, of U.S. defined benefit pension plan payables for investments purchased;purchased, and $16$26 million and $2$21 million respectively, of other liabilities. |
| |
(i) | There were no assets or liabilities, classified as level 3 for the non-U.S. defined benefit pension plans as of December 31, 2014 and 2013.
respectively. |
The Firm’sassets of the U.S. OPEB plan was partially funded withconsisted of $600 million and $0 million in cash and cash equivalents classified in level 1 of the valuation hierarchy and $2.2 billion and $2.0 billion of COLI policies of $1.9 billion and $1.7 billion at December 31, 2014 and 2013, respectively, which were classified in level 3 of the valuation hierarchy.hierarchy at December 31, 2017 and 2016, respectively.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 225199 |
Notes to consolidated financial statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Changes in level 3 fair value measurements using significant unobservable inputs | | | | |
Year ended December 31, 2014 (in millions) | | Fair value, January 1, 2014 | | Actual return on plan assets | | Purchases, sales and settlements, net | | Transfers in and/or out of level 3 | | Fair value, December 31, 2014 |
| Realized gains/(losses) | | Unrealized gains/(losses) |
| U.S. defined benefit pension plans | | | | | | | | | | | | |
| Equities | | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4 |
|
| Common/collective trust funds | | 4 |
| | — |
| | 1 |
| | 3 |
| | — |
| | 8 |
|
| Limited partnerships: | | | | | | | | | | | | |
| Hedge funds | | 718 |
| | 193 |
| | (180 | ) | | (662 | ) | | 8 |
| | 77 |
|
| Private equity | | 1,969 |
| | 192 |
| | 173 |
| | (126 | ) | | — |
| | 2,208 |
|
| Real estate | | 558 |
| | 29 |
| | 36 |
| | (90 | ) | | — |
| | 533 |
|
| Real assets | | 271 |
| | 27 |
| | (6 | ) | | (90 | ) | | — |
| | 202 |
|
| Total limited partnerships | | 3,516 |
| | 441 |
| | 23 |
| | (968 | ) | | 8 |
| | 3,020 |
|
| Corporate debt securities | | 7 |
| | (2 | ) | | 2 |
| | 4 |
| | (2 | ) | | 9 |
|
| Mortgage-backed securities | | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| Other | | 430 |
| | — |
| | (93 | ) | | — |
| | — |
| | 337 |
|
| Total U.S. defined benefit pension plans | | $ | 3,961 |
| | $ | 439 |
| | $ | (67 | ) | | $ | (960 | ) | | $ | 6 |
| | $ | 3,379 |
|
| OPEB plans | | | | | | | | | | | | |
| COLI | | $ | 1,749 |
| | $ | — |
| | $ | 154 |
| | $ | — |
| | $ | — |
| | $ | 1,903 |
|
| Total OPEB plans | | $ | 1,749 |
| | $ | — |
| | $ | 154 |
| | $ | — |
| | $ | — |
| | $ | 1,903 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2013 (in millions) | | Fair value, January 1, 2013 | | Actual return on plan assets | | Purchases, sales and settlements, net | | Transfers in and/or out of level 3 | | Fair value, December 31, 2013 |
| Realized gains/(losses) | | Unrealized gains/(losses) |
| U.S. defined benefit pension plans | | | | | | | | | | | | |
| Equities | | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4 |
|
| Common/collective trust funds | | 199 |
| | 59 |
| | (32 | ) | | (222 | ) | | — |
| | 4 |
|
| Limited partnerships: | | | | | | | | | | | | |
| Hedge funds | | 1,166 |
| | 137 |
| | 14 |
| | (593 | ) | | (6 | ) | | 718 |
|
| Private equity | | 1,743 |
| | 108 |
| | 170 |
| | (4 | ) | | (48 | ) | | 1,969 |
|
| Real estate | | 467 |
| | 21 |
| | 44 |
| | 26 |
| | — |
| | 558 |
|
| Real assets | | 311 |
| | 4 |
| | 12 |
| | (98 | ) | | 42 |
| | 271 |
|
| Total limited partnerships | | 3,687 |
| | 270 |
| | 240 |
| | (669 | ) | | (12 | ) | | 3,516 |
|
| Corporate debt securities | | 1 |
| | — |
| | — |
| | — |
| | 6 |
| | 7 |
|
| Mortgage-backed securities | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other | | 420 |
| | — |
| | 10 |
| | — |
| | — |
| | 430 |
|
| Total U.S. defined benefit pension plans | | $ | 4,311 |
| | $ | 329 |
| | $ | 218 |
| | $ | (891 | ) | | $ | (6 | ) | | $ | 3,961 |
|
| OPEB plans | | | | | | | | | | | | |
| COLI | | $ | 1,554 |
| | $ | — |
| | $ | 195 |
| | $ | — |
| | $ | — |
| | $ | 1,749 |
|
| Total OPEB plans | | $ | 1,554 |
| | $ | — |
| | $ | 195 |
| | $ | — |
| | $ | — |
| | $ | 1,749 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Changes in level 3 fair value measurements using significant unobservable inputs | | | | |
(in millions) | | Fair value, Beginning balance | | Actual return on plan assets | | Purchases, sales and settlements, net | | Transfers in and/or out of level 3 | | Fair value, Ending balance |
| Realized gains/(losses) | | Unrealized gains/(losses) |
Year ended December 31, 2017 U.S. defined benefit pension plan Annuity contracts and other (a) | | $ | 396 |
| | $ | — |
| | $ | 1 |
| | $ | (87 | ) | | $ | — |
| | $ | 310 |
|
U.S. OPEB plan COLI policies | | $ | 1,957 |
| | $ | — |
| | $ | 200 |
| | $ | — |
| | $ | — |
| | $ | 2,157 |
|
Year ended December 31, 2016 U.S. defined benefit pension plan Annuity contracts and other (a) | | $ | 539 |
| | $ | — |
| | $ | (157 | ) | | $ | — |
| | $ | 14 |
| | $ | 396 |
|
U.S. OPEB plan COLI policies | | $ | 1,855 |
| | $ | — |
| | $ | 102 |
| | $ | — |
| | $ | — |
| | $ | 1,957 |
|
|
| | |
226(a) | | JPMorgan Chase & Co./2014 Annual ReportSubstantially all are participating and non-participating annuity contracts. |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2012 (in millions) | | Fair value, January 1, 2012 | | Actual return on plan assets | | Purchases, sales and settlements, net | | Transfers in and/or out of level 3 | | Fair value, December 31, 2012 |
| Realized gains/(losses) | | Unrealized gains/(losses) |
| U.S. defined benefit pension plans | | | | | | | | | | | | |
| Equities | | $ | 1 |
| | $ | — |
| | $ | (1 | ) | | $ | — |
| | $ | 4 |
| | $ | 4 |
|
| Common/collective trust funds | | 202 |
| | 2 |
| | 22 |
| | (27 | ) | | — |
| | 199 |
|
| Limited partnerships: | | | | | | | | | | | | |
| Hedge funds | | 1,039 |
| | 1 |
| | 71 |
| | 55 |
| | — |
| | 1,166 |
|
| Private equity | | 1,367 |
| | 59 |
| | 54 |
| | 263 |
| | — |
| | 1,743 |
|
| Real estate | | 306 |
| | 16 |
| | 1 |
| | 144 |
| | — |
| | 467 |
|
| Real assets | | 264 |
| | — |
| | 10 |
| | 37 |
| | — |
| | 311 |
|
| Total limited partnerships | | 2,976 |
| | 76 |
| | 136 |
| | 499 |
| | — |
| | 3,687 |
|
| Corporate debt securities | | 2 |
| | — |
| | — |
| | (1 | ) | | — |
| | 1 |
|
| Mortgage-backed securities | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other | | 427 |
| | — |
| | (7 | ) | | — |
| | — |
| | 420 |
|
| Total U.S. defined benefit pension plans | | $ | 3,608 |
| | $ | 78 |
| | $ | 150 |
| | $ | 471 |
| | $ | 4 |
| | $ | 4,311 |
|
| OPEB plans | | | | | | | | | | | | |
| COLI | | $ | 1,427 |
| | $ | — |
| | $ | 127 |
| | $ | — |
| | $ | — |
| | $ | 1,554 |
|
| Total OPEB plans | | $ | 1,427 |
| | $ | — |
| | $ | 127 |
| | $ | — |
| | $ | — |
| | $ | 1,554 |
|
Estimated future benefit payments
The following table presents benefit payments expected to be paid, which include the effect of expected future service, for the years indicated. The OPEB medical and life insurance payments are net of expected retiree contributions.
|
| | | | | | | | | | | | | | | | |
Year ended December 31, (in millions) | | U.S. defined benefit pension plans | | Non-U.S. defined benefit pension plans | | OPEB before Medicare Part D subsidy | | Medicare Part D subsidy |
| 2015 | | $ | 712 |
| | $ | 110 |
| | $ | 73 |
| | $ | 1 |
|
| 2016 | | 765 |
| | 113 |
| | 71 |
| | 1 |
|
| 2017 | | 899 |
| | 118 |
| | 70 |
| | 1 |
|
| 2018 | | 926 |
| | 128 |
| | 68 |
| | 1 |
|
| 2019 | | 966 |
| | 132 |
| | 66 |
| | 1 |
|
| Years 2020–2024 | | 4,357 |
| | 746 |
| | 293 |
| | 5 |
|
|
| | | | | | | | | | | | | |
Year ended December 31, (in millions) | | Defined benefit pension plans | | | OPEB before Medicare Part D subsidy | | Medicare Part D subsidy |
| 2018 | | $ | 926 |
| | | $ | 65 |
| | $ | 1 |
|
| 2019 | | 922 |
| | | 63 |
| | 1 |
|
| 2020 | | 927 |
| | | 60 |
| | 1 |
|
| 2021 | | 944 |
| | | 57 |
| | — |
|
| 2022 | | 960 |
| | | 55 |
| | — |
|
| Years 2023–2027 | | 4,925 |
| | | 235 |
| | 2 |
|
|
| | |
| 200 | | JPMorgan Chase & Co./20142017 Annual Report | | 227 |
Notes to consolidated financial statements
Note 109 – Employee stock-basedshare-based incentives
Employee stock-basedshare-based awards
In 20142017, 20132016 and 20122015, JPMorgan Chase granted long-term stock-basedshare-based awards to certain employees under its Long-Term Incentive Plan, which was lastLTIP, as amended inand restated effective May 2011 (“LTIP”).19, 2015. Under the terms of the LTIP, as of December 31, 20142017, 26667 million shares of common stock were available for issuance through May 2015.2019. The LTIP is the only active plan under which the Firm is currently granting stock-basedshare-based incentive awards. In the following discussion, the LTIP, plus prior Firm plans and plans assumed as the result of acquisitions, are referred to collectively as the “LTI Plans,” and such plans constitute the Firm’s stock-basedshare-based incentive plans.
Restricted stock units (“RSUs”)RSUs are awarded at no cost to the recipient upon their grant. Generally, RSUs are granted annually and vest at a rate of 50% after two years and 50% after three years and are converted into shares of common stock as of the vesting date. In addition, RSUs typically include full-career eligibility provisions, which allow employees to continue to vest upon voluntary termination based on age or service-related requirements, subject to post-employment and other restrictions based on age or service-related requirements.restrictions. All RSUsRSU awards are subject to forfeiture until vested and contain clawback provisions that may result in cancellation under certain specified circumstances. Generally, RSUs entitle the recipient to receive cash payments equivalent to any dividends paid on the underlying common stock during the period the RSUs are outstanding and, as such, are considered participating securities as discussed in Note 24.22.
In January 2017 and 2016, the Firm’s Board of Directors approved the grant of performance share units (“PSUs”) to members of the Firm’s Operating Committee under the variable compensation program for performance years 2016 and 2015. PSUs are subject to the Firm’s achievement of specified performance criteria over a three-year period. The number of awards that vest can range from zero to 150% of the grant amount. The awards vest and are converted into shares of common stock in the quarter after the end of the performance period, which is generally three years. In addition, dividends are notionally reinvested in the Firm’s common stock and will be delivered only in respect of any earned shares.
Once the PSUs have vested, the shares of common stock that are delivered, after applicable tax withholding, must be held for an additional two-year period, typically for a total combined vesting and holding period of five years from the grant date.
Under the LTI Plans, stock options and stock appreciation rights (“SARs”) have generally been granted with an exercise price equal to the fair value of JPMorgan Chase’s common stock on the grant date. The Firm periodically grants employee stock options to individual employees. There were no material grants of stock options or SARs
in 2014. Grants of SARs in 2013 and 2012 become exercisable ratably over five years (i.e., 20% per year)
and contain clawback provisions similar to RSUs. The
2013 and 2012 grants of SARs contain full-career
eligibility provisions.in 2017, 2016 and 2015. SARs generally expire ten years
after the grant date.
The Firm separately recognizes compensation expense for each tranche of each award, net of estimated forfeitures, as if it were a separate award with its own vesting date. Generally, for each tranche granted, compensation expense is recognized on a straight-line basis from the grant date until the vesting date of the respective tranche, provided that the employees will not become full-career eligible during the vesting period. For awards with full-career eligibility provisions and awards granted with no future substantive service requirement, the Firm accrues the estimated value of awards expected to be awarded to employees as of the grant date without giving consideration to the impact of post-employment restrictions. For each tranche granted to employees who will become full-career eligible during the vesting period, compensation expense is recognized on a straight-line basis from the grant date until the earlier of the employee’s full-career eligibility date or the vesting date of the respective tranche.
The Firm’s policy for issuing shares upon settlement of employee stock-basedshare-based incentive awards is to issue either new shares of common stock or treasury shares. During 20142017, 20132016 and 20122015, the Firm settled all of its employee stock-basedshare-based awards by issuing treasury shares.
In January 2008, the Firm awarded to its Chairman and Chief Executive Officer up to 2 million SARs. The terms of this award are distinct from, and more restrictive than, other equity grants regularly awarded by the Firm. On July 15, 2014, the Compensation & Management Development Committee and Board of Directors determined that all requirements for the vesting of the 2 million SAR awards had been met and thus, the awards became exercisable. The SARs, which will expire inhad an expiration date of January 2018, have anwere exercised by Mr. Dimon in October 2017 at the exercise price of $39.83$39.83 per share (the price of JPMorgan Chase common stock on the date of grant). The expense related to this award was dependent on changes in fair value of the SARs through July 15, 2014 (the date when the vested number of SARs were determined), and the cumulative expense was recognized ratably over the service period, which was initially assumed to be five years but, effective in the first quarter of 2013, had been extended to six and one-half years. The Firm recognized $3 million, $14 million and $5 million in compensation expense in 2014, 2013 and 2012, respectively, for this award.
|
| | |
228 | | JPMorgan Chase & Co./20142017 Annual Report | | 201 |
Notes to consolidated financial statements
RSUs, PSUs, employee stock options and SARs activity
CompensationGenerally, compensation expense for RSUs and PSUs is measured based on the number of sharesunits granted multiplied by the stock price at the grant date, and for employee stock options and SARs, is measured at the grant date using the Black-Scholes valuation model. Compensation expense for these awards is recognized in net income as described previously. The following table summarizes JPMorgan Chase’sChase’s RSUs, PSUs, employee stock options and SARs activity for 2014.2017. | | | | | RSUs | | Options/SARs | | RSUs/PSUs | | Options/SARs |
| Year ended December 31, 2014 | | Number of shares | Weighted-average grant date fair value | | Number of awards | | Weighted-average exercise price | | Weighted-average remaining contractual life (in years) | Aggregate intrinsic value | |
| Year ended December 31, 2017 | | | Number of units | Weighted-average grant date fair value | | Number of awards | | Weighted-average exercise price | | Weighted-average remaining contractual life (in years) | Aggregate intrinsic value |
| (in thousands, except weighted-average data, and where otherwise stated) | | Number of shares | Weighted-average grant date fair value | | Number of awards | | Weighted-average exercise price | | Weighted-average remaining contractual life (in years) | Aggregate intrinsic value | |
| Outstanding, January 1 | | | | 81,707 |
| $ | 57.15 |
| | 30,267 |
| | $ | 40.65 |
| | | |
| Granted | | 37,817 |
| 57.88 |
| | 101 |
| | 59.18 |
| | | | 26,017 |
| 84.30 |
| | 109 |
| | 90.94 |
| | |
| Exercised or vested | | (54,265 | ) | 40.67 |
| | (24,950 | ) | | 36.59 |
| | | | (32,961 | ) | 57.80 |
| | (12,816 | ) | | 40.50 |
| | |
| Forfeited | | (4,225 | ) | 47.32 |
| | (2,059 | ) | | 41.90 |
| | | | (2,030 | ) | 63.34 |
| | (54 | ) | | 55.82 |
| | |
| Canceled | | NA |
| NA |
| | (972 | ) | | 200.86 |
| | | | NA |
| NA |
| | (13 | ) | | 405.47 |
| | |
| Outstanding, December 31 | | 100,568 |
| $ | 47.81 |
| | 59,195 |
| | $ | 45.00 |
| | 5.2 | $ | 1,313,939 |
| | 72,733 |
| $ | 66.36 |
| | 17,493 |
| | $ | 40.76 |
| | 3.4 | $ | 1,169,470 |
|
| Exercisable, December 31 | | NA |
| NA |
| | 37,171 |
| | 46.46 |
| | 4.3 | 862,374 |
| | NA |
| NA |
| | 15,828 |
| | 40.00 |
| | 3.3 | 1,070,212 |
|
The total fair value of RSUs that vested during the years ended December 31, 2014, 20132017, 2016 and 2012,2015, was$3.2 billion, $2.9 billion, $2.2 billion and $2.8$2.8 billion,, respectively. There were no material grants of stock options or SARs in 2014. The weighted-average grant date per share fair value of stock options and SARs granted during the years ended December 31, 2013 and 2012, was $9.58 and $8.89, respectively. The total intrinsic value of options exercised during the years ended December 31, 2014, 20132017, 2016 and 2012,2015, was $539$651 million,, $507 $338 million and $283$335 million, respectively.
Compensation expense
The Firm recognized the following noncash compensation expense related to its various employee stock-basedshare-based incentive plans in its Consolidated statements of income.
|
| | | | | | | | | | | | |
| Year ended December 31, (in millions) | | 2014 |
| | 2013 |
| | 2012 |
|
| Cost of prior grants of RSUs and SARs that are amortized over their applicable vesting periods | | $ | 1,371 |
| | $ | 1,440 |
| | $ | 1,810 |
|
| Accrual of estimated costs of stock-based awards to be granted in future periods including those to full-career eligible employees | | 819 |
| | 779 |
| | 735 |
|
| Total noncash compensation expense related to employee stock-based incentive plans | | $ | 2,190 |
| | $ | 2,219 |
| | $ | 2,545 |
|
|
| | | | | | | | | | | | |
| Year ended December 31, (in millions) | | 2017 |
| | 2016 |
| | 2015 |
|
| Cost of prior grants of RSUs, PSUs and SARs that are amortized over their applicable vesting periods | | $ | 1,125 |
| | $ | 1,046 |
| | $ | 1,109 |
|
| Accrual of estimated costs of share-based awards to be granted in future periods including those to full-career eligible employees | | 945 |
| | 894 |
| | 878 |
|
| Total noncash compensation expense related to employee share-based incentive plans | | $ | 2,070 |
| | $ | 1,940 |
| | $ | 1,987 |
|
At December 31, 2014,2017, approximately $758$704 million (pretax) of compensation costexpense related to unvested awards had not yet been charged to net income. That cost is expected to be amortized into compensation expense over a weighted-average period of 1.01 year. The Firm does not capitalize any compensation costexpense related to share-based compensation awards to employees.
Cash flows and tax benefits
Effective January 1, 2016, the Firm adopted new accounting guidance related to employee share-based payments. As a result of the adoption of this new guidance, all excess tax benefits (including tax benefits from dividends or dividend equivalents) on share-based payment awards are recognized within income tax expense in the Consolidated statements of income. In prior years these tax benefits were recorded as increases to additional paid-in capital. Income tax benefits related to stock-basedshare-based incentive arrangements recognized in the Firm’s Consolidated statements of income for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, were $854 million, $865$1.0 billion, $916 million and $1.0 billion,$746 million, respectively.
The following table sets forth the cash received from the exercise of stock options under all stock-basedshare-based incentive arrangements, and the actual income tax benefit realized related to tax deductions from the exercise of the stock options.
|
| | | | | | | | | | | | |
| Year ended December 31, (in millions) | | 2014 |
| | 2013 |
| | 2012 |
|
| Cash received for options exercised | | $ | 63 |
| | $ | 166 |
| | $ | 333 |
|
Tax benefit realized(a) | | 104 |
| | 42 |
| | 53 |
|
| |
(a) | The tax benefit realized from dividends or dividend equivalents paid on equity-classified share-based payment awards that are charged to retained earnings are recorded as an increase to additional paid-in capital and included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. |
Valuation assumptions
The following table presents the assumptions used to value employee stock options and SARs granted during the years ended December 31, 2013 and 2012, under the Black-Scholes valuation model. There were no material grants of stock options or SARs for the year ended December 31, 2014.
|
| | | | | | |
| Year ended December 31, | | 2013 |
| | 2012 |
|
| Weighted-average annualized valuation assumptions | | | | |
| Risk-free interest rate | | 1.18 | % | | 1.19 | % |
| Expected dividend yield | | 2.66 |
| | 3.15 |
|
| Expected common stock price volatility | | 28 |
| | 35 |
|
| Expected life (in years) | | 6.6 | | 6.6 |
|
| | | | | | | | | | | | |
| Year ended December 31, (in millions) | | 2017 |
| | 2016 |
| | 2015 |
|
| Cash received for options exercised | | $ | 18 |
| | $ | 26 |
| | $ | 20 |
|
| Tax benefit | | 190 |
| | 70 |
| | 64 |
|
The expected dividend yield is determined using forward-looking assumptions. The expected volatility assumption is derived from the implied volatility of JPMorgan Chase’s stock options. The expected life assumption is an estimate of the length of time that an employee might hold an option or SAR before it is exercised or canceled, and the assumption is based on the Firm’s historical experience.
|
| | |
| 202 | | JPMorgan Chase & Co./20142017 Annual Report | | 229 |
Notes to consolidated financial statements
Note 11 – Noninterest expense
The following table presents the components of noninterest expense.
|
| | | | | | | | | | | |
Year ended December 31, (in millions) | 2014 |
| | 2013 |
| | 2012 |
|
| Compensation expense | $ | 30,160 |
| | $ | 30,810 |
| | $ | 30,585 |
|
| Noncompensation expense: | | | | | |
| Occupancy | 3,909 |
| | 3,693 |
| | 3,925 |
|
| Technology, communications and equipment | 5,804 |
| | 5,425 |
| | 5,224 |
|
| Professional and outside services | 7,705 |
| | 7,641 |
| | 7,429 |
|
| Marketing | 2,550 |
| | 2,500 |
| | 2,577 |
|
Other(a)(b) | 11,146 |
| | 20,398 |
| | 14,989 |
|
| Total noncompensation expense | 31,114 |
| | 39,657 |
| | 34,144 |
|
| Total noninterest expense | $ | 61,274 |
| | $ | 70,467 |
| | $ | 64,729 |
|
| |
(a) | Included firmwide legal expense of $2.9 billion, $11.1 billion and $5.0 billion and for the years ended December 31, 2014, 2013 and 2012, respectively. |
| |
(b) | Included FDIC-related expense of $1.0 billion, $1.5 billion and $1.7 billion for the years ended December 31, 2014, 2013 and 2012, respectively. |
Note 1210 – Securities
Securities are classified as trading, AFS or held-to-maturity (“HTM”).HTM. Securities classified as trading assets are discussed in Note 3.2. Predominantly all of the Firm’s AFS and HTM investment securities (the “investment securities portfolio”) are held by Treasury and CIO in connection with its asset-liability management objectives.activities. At December 31, 2014, the average credit rating of the debt securities comprising2017, the investment securities portfolio was consisted of debt securities with an average credit rating ofAA+ (based upon external ratings where available, and where not available, based primarily upon internal ratings which correspond to ratings as defined by S&P and Moody’s). AFS securities are carried at fair value on the Consolidated balance sheets. Unrealized
gains and losses, after any applicable hedge accounting adjustments, are reported as net increases or decreases to accumulated other comprehensive income/(loss).AOCI. The specific identification method is used to determine realized gains and losses on AFS securities, which are included in securities gains/(losses) on the Consolidated statements of income. HTM debt securities, which management has the intent and ability to hold until maturity, are carried at amortized cost on the Consolidated balance sheets. For both AFS and HTM debt securities, purchase discounts or premiums are generally amortized into interest income over the contractual life of the security.
During the first quarter of 2014, the Firm transferred U.S. government agency mortgage-backed securities
The amortized cost and obligations of U.S. states and municipalities with aestimated fair value of $19.3 billion from AFSthe investment securities portfolio were as follows for the dates indicated.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| December 31, (in millions) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value |
| Available-for-sale debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
U.S. government agencies(a) | $ | 69,879 |
| $ | 736 |
| $ | 335 |
| | $ | 70,280 |
| | $ | 63,367 |
| $ | 1,112 |
| $ | 474 |
| | $ | 64,005 |
|
| Residential: | | | | | | | | | | | |
U.S(b) | 8,193 |
| 185 |
| 14 |
| | 8,364 |
| | 8,171 |
| 100 |
| 28 |
| | 8,243 |
|
| Non-U.S. | 2,882 |
| 122 |
| 1 |
| | 3,003 |
| | 6,049 |
| 158 |
| 7 |
| | 6,200 |
|
| Commercial | 4,932 |
| 98 |
| 5 |
| | 5,025 |
| | 9,002 |
| 122 |
| 20 |
| | 9,104 |
|
| Total mortgage-backed securities | 85,886 |
| 1,141 |
| 355 |
| | 86,672 |
| | 86,589 |
| 1,492 |
| 529 |
| | 87,552 |
|
U.S. Treasury and government agencies(a) | 22,510 |
| 266 |
| 31 |
| | 22,745 |
| | 44,822 |
| 75 |
| 796 |
| | 44,101 |
|
| Obligations of U.S. states and municipalities | 30,490 |
| 1,881 |
| 33 |
| | 32,338 |
| | 30,284 |
| 1,492 |
| 184 |
| | 31,592 |
|
| Certificates of deposit | 59 |
| — |
| — |
| | 59 |
| | 106 |
| — |
| — |
| | 106 |
|
| Non-U.S. government debt securities | 26,900 |
| 426 |
| 32 |
| | 27,294 |
| | 34,497 |
| 836 |
| 45 |
| | 35,288 |
|
| Corporate debt securities | 2,657 |
| 101 |
| 1 |
| | 2,757 |
| | 4,916 |
| 64 |
| 22 |
| | 4,958 |
|
| Asset-backed securities: | | | | | | | | | | | |
| Collateralized loan obligations | 20,928 |
| 69 |
| 1 |
| | 20,996 |
| | 27,352 |
| 75 |
| 26 |
| | 27,401 |
|
| Other | 8,764 |
| 77 |
| 24 |
| | 8,817 |
| | 6,950 |
| 62 |
| 45 |
| | 6,967 |
|
| Total available-for-sale debt securities | 198,194 |
| 3,961 |
| 477 |
| | 201,678 |
| | 235,516 |
| 4,096 |
| 1,647 |
| | 237,965 |
|
| Available-for-sale equity securities | 547 |
| — |
| — |
| | 547 |
| | 914 |
| 12 |
| — |
| | 926 |
|
| Total available-for-sale securities | 198,741 |
| 3,961 |
| 477 |
| | 202,225 |
| | 236,430 |
| 4,108 |
| 1,647 |
| | 238,891 |
|
| Held-to-maturity debt securities | | | | | | | | | | | |
| Mortgage-backed securities | | | | | | | | | | | |
U.S. government agencies(c) | 27,577 |
| 558 |
| 40 |
| | 28,095 |
| | 29,910 |
| 638 |
| 37 |
| | 30,511 |
|
| Commercial | 5,783 |
| 1 |
| 74 |
| | 5,710 |
| | 5,783 |
| — |
| 129 |
| | 5,654 |
|
| Total mortgage-backed securities | 33,360 |
| 559 |
| 114 |
| | 33,805 |
| | 35,693 |
| 638 |
| 166 |
| | 36,165 |
|
| Obligations of U.S. states and municipalities | 14,373 |
| 554 |
| 80 |
| | 14,847 |
| | 14,475 |
| 374 |
| 125 |
| | 14,724 |
|
| Total held-to-maturity debt securities | 47,733 |
| 1,113 |
| 194 |
| | 48,652 |
| | 50,168 |
| 1,012 |
| 291 |
| | 50,889 |
|
| Total securities | $ | 246,474 |
| $ | 5,074 |
| $ | 671 |
| | $ | 250,877 |
| | $ | 286,598 |
| $ | 5,120 |
| $ | 1,938 |
| | $ | 289,780 |
|
| |
| (a) | Includes total U.S. government-sponsored enterprise obligations with a fair value of $45.8 billion for the years ended December 31, 2017 and 2016, which were predominantly mortgage-related. |
| |
| (b) | Prior period amounts have been revised to conform with the current period presentation. |
| |
| (c) | Included total U.S. government-sponsored enterprise obligations with amortized cost of $22.0 billion and $25.6 billion at December 31, 2017 and 2016, respectively, which were mortgage-related. |
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 203 |
Notes to HTM. These securities were transferred atconsolidated financial statements
Securities impairment
The following tables present the fair value and the transfer was a non-cash transaction. AOCI included net pretaxgross unrealized losses for the investment securities portfolio by aging category at December 31, 2017 and 2016.
|
| | | | | | | | | | | | | | | | | | | |
| | Securities with gross unrealized losses |
| | Less than 12 months | | 12 months or more | | |
| December 31, 2017 (in millions) | Fair value | Gross unrealized losses | | Fair value | Gross unrealized losses | Total fair value | Total gross unrealized losses |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
| U.S. government agencies | $ | 36,037 |
| $ | 139 |
| | $ | 7,711 |
| $ | 196 |
| $ | 43,748 |
| $ | 335 |
|
| Residential: | | | | | | | |
| U.S | 1,112 |
| 5 |
| | 596 |
| 9 |
| 1,708 |
| 14 |
|
| Non-U.S. | — |
| — |
| | 266 |
| 1 |
| 266 |
| 1 |
|
| Commercial | 528 |
| 4 |
| | 335 |
| 1 |
| 863 |
| 5 |
|
| Total mortgage-backed securities | 37,677 |
| 148 |
| | 8,908 |
| 207 |
| 46,585 |
| 355 |
|
| U.S. Treasury and government agencies | 1,834 |
| 11 |
| | 373 |
| 20 |
| 2,207 |
| 31 |
|
| Obligations of U.S. states and municipalities | 949 |
| 7 |
| | 1,652 |
| 26 |
| 2,601 |
| 33 |
|
| Certificates of deposit | — |
| — |
| | — |
| — |
| — |
| — |
|
| Non-U.S. government debt securities | 6,500 |
| 15 |
| | 811 |
| 17 |
| 7,311 |
| 32 |
|
| Corporate debt securities | — |
| — |
| | 52 |
| 1 |
| 52 |
| 1 |
|
| Asset-backed securities: | | | | | | | |
| Collateralized loan obligations | — |
| — |
| | 276 |
| 1 |
| 276 |
| 1 |
|
| Other | 3,521 |
| 20 |
| | 720 |
| 4 |
| 4,241 |
| 24 |
|
| Total available-for-sale debt securities | 50,481 |
| 201 |
| | 12,792 |
| 276 |
| 63,273 |
| 477 |
|
| Available-for-sale equity securities | — |
| — |
| | — |
| — |
| — |
| — |
|
| Held-to-maturity securities | | | | | | | |
| Mortgage-backed securities | | | | | | | |
| U.S. government securities | 4,070 |
| 38 |
| | 205 |
| 2 |
| 4,275 |
| 40 |
|
| Commercial | 3,706 |
| 41 |
| | 1,882 |
| 33 |
| 5,588 |
| 74 |
|
| Total mortgage-backed securities | 7,776 |
| 79 |
| | 2,087 |
| 35 |
| 9,863 |
| 114 |
|
| Obligations of U.S. states and municipalities | 584 |
| 9 |
| | 2,131 |
| 71 |
| 2,715 |
| 80 |
|
| Total held-to-maturity securities | 8,360 |
| 88 |
| | 4,218 |
| 106 |
| 12,578 |
| 194 |
|
| Total securities with gross unrealized losses | $ | 58,841 |
| $ | 289 |
| | $ | 17,010 |
| $ | 382 |
| $ | 75,851 |
| $ | 671 |
|
|
| | |
| 204 | | JPMorgan Chase & Co./2017 Annual Report |
|
| | | | | | | | | | | | | | | | | | | |
| | Securities with gross unrealized losses |
| | Less than 12 months | | 12 months or more | | |
| December 31, 2016 (in millions) | Fair value | Gross unrealized losses | | Fair value | Gross unrealized losses | Total fair value | Total gross unrealized losses |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
| U.S. government agencies | $ | 29,856 |
| $ | 463 |
| | $ | 506 |
| $ | 11 |
| $ | 30,362 |
| $ | 474 |
|
| Residential: | | | | | | | |
U.S.(a) | 1,373 |
| 6 |
| | 1,073 |
| 22 |
| 2,446 |
| 28 |
|
| Non-U.S. | — |
| — |
| | 886 |
| 7 |
| 886 |
| 7 |
|
| Commercial | 2,328 |
| 17 |
| | 1,078 |
| 3 |
| 3,406 |
| 20 |
|
| Total mortgage-backed securities | 33,557 |
| 486 |
| | 3,543 |
| 43 |
| 37,100 |
| 529 |
|
| U.S. Treasury and government agencies | 23,543 |
| 796 |
| | — |
| — |
| 23,543 |
| 796 |
|
| Obligations of U.S. states and municipalities | 7,215 |
| 181 |
| | 55 |
| 3 |
| 7,270 |
| 184 |
|
| Certificates of deposit | — |
| — |
| | — |
| — |
| — |
| — |
|
| Non-U.S. government debt securities | 4,436 |
| 36 |
| | 421 |
| 9 |
| 4,857 |
| 45 |
|
| Corporate debt securities | 797 |
| 2 |
| | 829 |
| 20 |
| 1,626 |
| 22 |
|
| Asset-backed securities: | | | | | | | |
| Collateralized loan obligations | 766 |
| 2 |
| | 5,263 |
| 24 |
| 6,029 |
| 26 |
|
| Other | 739 |
| 6 |
| | 1,992 |
| 39 |
| 2,731 |
| 45 |
|
| Total available-for-sale debt securities | 71,053 |
| 1,509 |
| | 12,103 |
| 138 |
| 83,156 |
| 1,647 |
|
| Available-for-sale equity securities | — |
| — |
| | — |
| — |
| — |
| — |
|
| Held-to-maturity debt securities | | | | | | | |
| Mortgage-backed securities | | | | | | | |
| U.S. government agencies | 3,129 |
| 37 |
| | — |
| — |
| 3,129 |
| 37 |
|
| Commercial | 5,163 |
| 114 |
| | 441 |
| 15 |
| 5,604 |
| 129 |
|
| Total mortgage-backed securities | 8,292 |
| 151 |
| | 441 |
| 15 |
| 8,733 |
| 166 |
|
| Obligations of U.S. states and municipalities | 4,702 |
| 125 |
| | — |
| — |
| 4,702 |
| 125 |
|
| Total held-to-maturity securities | 12,994 |
| 276 |
| | 441 |
| 15 |
| 13,435 |
| 291 |
|
| Total securities with gross unrealized losses | $ | 84,047 |
| $ | 1,785 |
| | $ | 12,544 |
| $ | 153 |
| $ | 96,591 |
| $ | 1,938 |
|
| |
| (a) | Prior period amounts have been revised to conform with the current period presentation. |
Gross unrealized losses
The Firm has recognized unrealized losses on securities that it intends to sell as OTTI. The Firm does not intend to sell any of $9 million onthe remaining securities with an unrealized loss in AOCI as of December 31, 2017, and it is not likely that the Firm will be required to sell these securities before recovery of their amortized cost basis. Except for the securities atfor which credit losses have been recognized in income, the date of transfer. The transfer reflected the Firm’s intent to holdFirm believes that the securities to maturitywith an unrealized loss in order to reduce the impactAOCI are not other-than-temporarily impaired as of price volatility on AOCI and certain capital measures under Basel III.
December 31, 2017.Other-than-temporary impairment
AFS debt and equity securities and HTM debt securities in unrealized loss positions are analyzed as part of the Firm’s ongoing assessment of other-than-temporary impairment (“OTTI”).OTTI. For most types of debt securities, the Firm considers a decline in fair value to be other-than-temporary when the Firm does not expect to recover the entire amortized cost basis of the security. For beneficial interests in securitizations that are rated below “AA” at their acquisition, or that can be contractually prepaid or otherwise settled in such a way that the Firm would not recover substantially all of its recorded investment, the Firm considers an OTTIimpairment to have occurredbe other-
than-temporary when there is an adverse change in expected cash flows. For AFS equity securities, the Firm considers a decline in fair value to be other-than-temporary if it is probable that the Firm will not recover its cost basis.
Potential OTTI is considered using a variety of factors, including the length of time and extent to which the market value has been less than cost; adverse conditions specifically related to the industry, geographic area or financial condition of the issuer or underlying collateral of a security; payment structure of the security; changes to the rating of the security by a rating agency; the volatility of the fair value changes; and the Firm’s intent and ability to hold the security until recovery.
For AFS debt securities, the Firm recognizes OTTI losses in earnings if the Firm has the intent to sell the debt security, or if it is more likely than not that the Firm will be required to sell the debt security before recovery of its amortized cost basis. In these circumstances the impairment loss is equal to the full difference between the amortized cost basis and the fair value of the securities. For debt securities in an unrealized loss position that the Firm has the intent and ability to hold, the expected cash flows to be received
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 205 |
Notes to consolidated financial statements
from the securities are evaluated to determine if a credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in income. Amounts relating to factors other than credit losses are recorded in OCI.
The Firm’s cash flow evaluations take into account the factors noted above and expectations of relevant market and economic data as of the end of the reporting period. For securities issued in a securitization, the Firm estimates cash flows considering underlying loan-level data and structural features of the securitization, such as subordination, excess spread, overcollateralization or other forms of credit enhancement, and compares the losses projected for the underlying collateral (“pool losses”) against the level of credit enhancement in the securitization structure to determine whether these features are sufficient to absorb the pool losses, or whether a credit loss exists. The Firm also performs other analyses to support its cash flow projections, such as first-loss analyses or stress scenarios.
|
| | |
230 | | JPMorgan Chase & Co./2014 Annual Report |
For equity securities, OTTI losses are recognized in earnings if the Firm intends to sell the security. In other cases the Firm considers the relevant factors noted above, as well as the Firm’s intent and ability to retain its investment for a period of time sufficient to allow for any anticipated recovery in market value, and whether evidence exists to support a realizable value equal to or greater than the cost basis. Any impairment loss on an equity security is equal to the full difference between the cost basis and the fair value of the security.
RealizedSecurities gains and losses
The following table presents realized gains and losses and credit lossesOTTI from AFS securities that were recognized in income from AFS securities.income.
| | Year ended December 31, (in millions) | 2014 |
| | 2013 |
| | 2012 |
| 2017 |
| | 2016 |
| | 2015 |
|
| Realized gains | $ | 314 |
| | $ | 1,302 |
| | $ | 2,610 |
| $ | 1,013 |
| | $ | 401 |
| | $ | 351 |
|
| Realized losses | (233 | ) | | (614 | ) | | (457 | ) | (1,072 | ) | | (232 | ) | | (127 | ) |
| Net realized gains | 81 |
| | 688 |
| | 2,153 |
| |
OTTI losses(a) | | (7 | ) | | (28 | ) | | (22 | ) |
| Net securities gains/(losses) | | (66 | ) | | 141 |
| | 202 |
|
| | | | | | | |
| OTTI losses |
|
| |
|
| |
|
| | | | | |
| Credit-related | (2 | ) | | (1 | ) | | (28 | ) | |
| Credit losses recognized in income | | — |
| | (1 | ) | | (1 | ) |
Securities the Firm intends to sell(a) | (2 | ) | | (20 | ) | | (15 | ) | (7 | ) | | (27 | ) | | (21 | ) |
| Total OTTI losses recognized in income | (4 | ) | | (21 | ) | | (43 | ) | $ | (7 | ) | | $ | (28 | ) | | $ | (22 | ) |
| Net securities gains | $ | 77 |
| | $ | 667 |
| | $ | 2,110 |
| |
| |
| (a) | Excludes realized losses on securities sold of $3 million, $12 million and $24 million for the years ended December 31, 2014, 2013 and 2012, respectively that had been previously reported as an OTTI loss due to the intention to sell the securities.
|
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 |
| December 31, (in millions) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value |
| Available-for-sale debt securities | | | | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | | | | |
U.S. government agencies(a) | $ | 63,089 |
| $ | 2,302 |
| $ | 72 |
| | $ | 65,319 |
| | $ | 76,428 |
| $ | 2,364 |
| $ | 977 |
| | $ | 77,815 |
|
| Residential: | | | | | | | | | | | |
| Prime and Alt-A | 5,595 |
| 78 |
| 29 |
| | 5,644 |
| | 2,744 |
| 61 |
| 27 |
| | 2,778 |
|
| Subprime | 677 |
| 14 |
| — |
| | 691 |
| | 908 |
| 23 |
| 1 |
| | 930 |
|
| Non-U.S. | 43,550 |
| 1,010 |
| — |
| | 44,560 |
| | 57,448 |
| 1,314 |
| 1 |
| | 58,761 |
|
| Commercial | 20,687 |
| 438 |
| 17 |
| | 21,108 |
| | 15,891 |
| 560 |
| 26 |
| | 16,425 |
|
| Total mortgage-backed securities | 133,598 |
| 3,842 |
| 118 |
| | 137,322 |
| | 153,419 |
| 4,322 |
| 1,032 |
| | 156,709 |
|
U.S. Treasury and government agencies(a) | 13,603 |
| 56 |
| 14 |
| | 13,645 |
| | 21,310 |
| 385 |
| 306 |
| | 21,389 |
|
| Obligations of U.S. states and municipalities | 27,841 |
| 2,243 |
| 16 |
| | 30,068 |
| | 29,741 |
| 707 |
| 987 |
| | 29,461 |
|
| Certificates of deposit | 1,103 |
| 1 |
| 1 |
| | 1,103 |
| | 1,041 |
| 1 |
| 1 |
| | 1,041 |
|
| Non-U.S. government debt securities | 51,492 |
| 1,272 |
| 21 |
| | 52,743 |
| | 55,507 |
| 863 |
| 122 |
| | 56,248 |
|
| Corporate debt securities | 18,158 |
| 398 |
| 24 |
| | 18,532 |
| | 21,043 |
| 498 |
| 29 |
| | 21,512 |
|
| Asset-backed securities: | | | | | | | | | | | |
| Collateralized loan obligations | 30,229 |
| 147 |
| 182 |
| | 30,194 |
| | 28,130 |
| 236 |
| 136 |
| | 28,230 |
|
| Other | 12,442 |
| 184 |
| 11 |
| | 12,615 |
| | 12,062 |
| 186 |
| 3 |
| | 12,245 |
|
| Total available-for-sale debt securities | 288,466 |
| 8,143 |
| 387 |
| | 296,222 |
| | 322,253 |
| 7,198 |
| 2,616 |
| | 326,835 |
|
| Available-for-sale equity securities | 2,513 |
| 17 |
| — |
| | 2,530 |
| | 3,125 |
| 17 |
| — |
| | 3,142 |
|
| Total available-for-sale securities | $ | 290,979 |
| $ | 8,160 |
| $ | 387 |
| | $ | 298,752 |
| | $ | 325,378 |
| $ | 7,215 |
| $ | 2,616 |
| | $ | 329,977 |
|
Total held-to-maturity securities(b) | $ | 49,252 |
| $ | 1,902 |
| $ | — |
| | $ | 51,154 |
| | $ | 24,026 |
| $ | 22 |
| $ | 317 |
| | $ | 23,731 |
|
| |
(a) | Includes total U.S. government-sponsored enterprise obligations with fair values of $59.3 billion and $67.0 billion at December 31, 2014 and 2013, respectively, which were predominantly mortgage-related. |
| |
(b) | As of December 31, 2014, consists of MBS issued by U.S. government-sponsored enterprises with an amortized cost of $35.3 billion, MBS issued by U.S. government agencies with an amortized cost of $3.7 billion and obligations of U.S. states and municipalities with an amortized cost of $10.2 billion. As of December 31, 2013, consists of MBS issued by U.S. government-sponsored enterprises with an amortized cost of $23.1 billion and obligations of U.S. states and municipalities with an amortized cost of $920 million. |
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 231 |
Notes to consolidated financial statements
Securities impairment
The following tables present the fair value and gross unrealized losses for the investment securities portfolio by aging category at December 31, 2014 and 2013.
|
| | | | | | | | | | | | | | | | | | | |
| | Securities with gross unrealized losses |
| | Less than 12 months | | 12 months or more | | |
| December 31, 2014 (in millions) | Fair value | Gross unrealized losses | | Fair value | Gross unrealized losses | Total fair value | Total gross unrealized losses |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
| U.S. government agencies | $ | 1,118 |
| $ | 5 |
| | $ | 4,989 |
| $ | 67 |
| $ | 6,107 |
| $ | 72 |
|
| Residential: | | | | | | | |
| Prime and Alt-A | 1,840 |
| 10 |
| | 405 |
| 19 |
| 2,245 |
| 29 |
|
| Subprime | — |
| — |
| | — |
| — |
| — |
| — |
|
| Non-U.S. | — |
| — |
| | — |
| — |
| — |
| — |
|
| Commercial | 4,803 |
| 15 |
| | 92 |
| 2 |
| 4,895 |
| 17 |
|
| Total mortgage-backed securities | 7,761 |
| 30 |
| | 5,486 |
| 88 |
| 13,247 |
| 118 |
|
| U.S. Treasury and government agencies | 8,412 |
| 14 |
| | — |
| — |
| 8,412 |
| 14 |
|
| Obligations of U.S. states and municipalities | 1,405 |
| 15 |
| | 130 |
| 1 |
| 1,535 |
| 16 |
|
| Certificates of deposit | 1,050 |
| 1 |
| | — |
| — |
| 1,050 |
| 1 |
|
| Non-U.S. government debt securities | 4,433 |
| 4 |
| | 906 |
| 17 |
| 5,339 |
| 21 |
|
| Corporate debt securities | 2,492 |
| 22 |
| | 80 |
| 2 |
| 2,572 |
| 24 |
|
| Asset-backed securities: | | | | | | | |
| Collateralized loan obligations | 13,909 |
| 76 |
| | 9,012 |
| 106 |
| 22,921 |
| 182 |
|
| Other | 2,258 |
| 11 |
| | — |
| — |
| 2,258 |
| 11 |
|
| Total available-for-sale debt securities | 41,720 |
| 173 |
| | 15,614 |
| 214 |
| 57,334 |
| 387 |
|
| Available-for-sale equity securities | — |
| — |
| | — |
| — |
| — |
| — |
|
| Held-to-maturity securities | — |
| — |
| | — |
| — |
| — |
| — |
|
| Total securities with gross unrealized losses | $ | 41,720 |
| $ | 173 |
| | $ | 15,614 |
| $ | 214 |
| $ | 57,334 |
| $ | 387 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Securities with gross unrealized losses |
| | Less than 12 months | | 12 months or more | | |
| December 31, 2013 (in millions) | Fair value | Gross unrealized losses | | Fair value | Gross unrealized losses | Total fair value | Total gross unrealized losses |
| Available-for-sale debt securities | | | | | | | |
| Mortgage-backed securities: | | | | | | | |
| U.S. government agencies | $ | 20,293 |
| $ | 895 |
| | $ | 1,150 |
| $ | 82 |
| $ | 21,443 |
| $ | 977 |
|
| Residential: | | | | | | | |
| Prime and Alt-A | 1,061 |
| 27 |
| | — |
| — |
| 1,061 |
| 27 |
|
| Subprime | 152 |
| 1 |
| | — |
| — |
| 152 |
| 1 |
|
| Non-U.S. | — |
| — |
| | 158 |
| 1 |
| 158 |
| 1 |
|
| Commercial | 3,980 |
| 26 |
| | — |
| — |
| 3,980 |
| 26 |
|
| Total mortgage-backed securities | 25,486 |
| 949 |
| | 1,308 |
| 83 |
| 26,794 |
| 1,032 |
|
| U.S. Treasury and government agencies | 6,293 |
| 250 |
| | 237 |
| 56 |
| 6,530 |
| 306 |
|
| Obligations of U.S. states and municipalities | 15,387 |
| 975 |
| | 55 |
| 12 |
| 15,442 |
| 987 |
|
| Certificates of deposit | 988 |
| 1 |
| | — |
| — |
| 988 |
| 1 |
|
| Non-U.S. government debt securities | 11,286 |
| 110 |
| | 821 |
| 12 |
| 12,107 |
| 122 |
|
| Corporate debt securities | 1,580 |
| 21 |
| | 505 |
| 8 |
| 2,085 |
| 29 |
|
| Asset-backed securities: | | | | | | | |
| Collateralized loan obligations | 18,369 |
| 129 |
| | 393 |
| 7 |
| 18,762 |
| 136 |
|
| Other | 1,114 |
| 3 |
| | — |
| — |
| 1,114 |
| 3 |
|
| Total available-for-sale debt securities | 80,503 |
| 2,438 |
| | 3,319 |
| 178 |
| 83,822 |
| 2,616 |
|
| Available-for-sale equity securities | — |
| — |
| | — |
| — |
| — |
| — |
|
| Held-to-maturity securities | 20,745 |
| 317 |
| | — |
| — |
| 20,745 |
| 317 |
|
| Total securities with gross unrealized losses | $ | 101,248 |
| $ | 2,755 |
| | $ | 3,319 |
| $ | 178 |
| $ | 104,567 |
| $ | 2,933 |
|
|
| | |
232 | | JPMorgan Chase & Co./2014 Annual Report |
Other-than-temporary impairment
The following table presents OTTI losses that are included in the securities gains and losses table above.
|
| | | | | | | | | | | | | |
Year ended December 31, (in millions) | | 2014 |
| | 2013 |
| | 2012 |
| |
| Debt securities the Firm does not intend to sell that have credit losses | | | | | | | |
Total OTTI(a) | | $ | (2 | ) | | $ | (1 | ) | | $ | (113 | ) | |
| Losses recorded in/(reclassified from) AOCI | | — |
| | — |
| | 85 |
| |
| Total credit losses recognized in income | | (2 | ) | | (1 | ) | | (28 | ) | |
Securities the Firm intends to sell(b) | | (2 | ) | | (20 | ) | | (15 | ) | |
| Total OTTI losses recognized in income | | $ | (4 | ) | | $ | (21 | ) | | $ | (43 | ) | |
| |
(a) | For initial OTTI, represents the excess of the amortized cost over the fair value of AFS debt securities. For subsequent impairments of the same security, represents additional declines in fair value subsequent to previously recorded OTTI, if applicable. |
| |
(b) | Excludes realized losses on securities sold of $3$6 million, $12$24 million and $24$5 million for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively that had been previously reported as an OTTI loss due to the intention to sell the securities. |
Changes in the credit loss component of credit-impaired debt securities
The following table presents a rollforward for the years ended December 31, 2014, 2013 and 2012, of thecumulative credit loss component, including any changes therein, of OTTI losses that have been recognized in income related to AFS debt securities thatwas not material as of and during the Firm does not intend to sell.
|
| | | | | | | | | |
| Year ended December 31, (in millions) | 2014 |
| 2013 |
| 2012 |
|
| Balance, beginning of period | $ | 1 |
| $ | 522 |
| $ | 708 |
|
| Additions: | | | |
| Newly credit-impaired securities | 2 |
| 1 |
| 21 |
|
| Losses reclassified from other comprehensive income on previously credit-impaired securities | — |
| — |
| 7 |
|
| Reductions: | | | |
| Sales and redemptions of credit-impaired securities | — |
| (522 | ) | (214 | ) |
| Balance, end of period | $ | 3 |
| $ | 1 |
| $ | 522 |
|
Gross unrealized losses
Gross unrealized losses have generally decreased sinceyears ended December 31, 2013. Though losses on securities that have been in an unrealized loss position for 12 months or more have increased, the increase is not material. The Firm has recognized the unrealized losses on securities it intends to sell. As of December 31, 2014, the Firm does not intend to sell any securities with a loss position in AOCI,2017, 2016 and it is not likely that the Firm will be required to sell these securities before recovery of their amortized cost basis. Except for the securities reported in the table above, for which credit losses have been recognized in income, the Firm believes that the securities with an unrealized loss in AOCI are not other-than-temporarily impaired as of December 31, 2014.2015.
|
| | |
| 206 | | JPMorgan Chase & Co./20142017 Annual Report | | 233 |
Notes to consolidated financial statements
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2014,2017, of JPMorgan Chase’sChase’s investment securities portfolio by contractual maturity.
| | By remaining maturity December 31, 2014 (in millions) | Due in one year or less | Due after one year through five years | Due after five years through 10 years | Due after 10 years(c) | Total | |
By remaining maturity December 31, 2017 (in millions) | | Due in one year or less | | Due after one year through five years | | Due after five years through 10 years | | Due after 10 years(c) | | Total |
| Available-for-sale debt securities | | | | | | | | | | |
Mortgage-backed securities(a) | | | | | | | | | | |
| Amortized cost | $ | 996 |
| $ | 14,132 |
| $ | 5,768 |
| $ | 112,702 |
| $ | 133,598 |
| $ | 3 |
| | $ | 698 |
| | $ | 6,134 |
| | $ | 79,051 |
| | $ | 85,886 |
|
| Fair value | 1,003 |
| 14,467 |
| 5,974 |
| 115,878 |
| 137,322 |
| 3 |
| | 708 |
| | 6,294 |
| | 79,667 |
| | 86,672 |
|
Average yield(b) | 2.65 | % | 1.85 | % | 3.12 | % | 2.93 | % | 2.82 | % | 4.76 | % | | 2.10 | % | | 3.10 | % | | 3.35 | % | | 3.32 | % |
U.S. Treasury and government agencies(a) | | | | | | | | | | |
| Amortized cost | $ | 2,209 |
| $ | — |
| $ | 10,284 |
| $ | 1,110 |
| $ | 13,603 |
| $ | 60 |
| | $ | — |
| | $ | 17,437 |
| | $ | 5,013 |
| | $ | 22,510 |
|
| Fair value | 2,215 |
| — |
| 10,275 |
| 1,155 |
| 13,645 |
| 60 |
| | — |
| | 17,542 |
| | 5,143 |
| | 22,745 |
|
Average yield(b) | 0.80 | % | — | % | 0.62 | % | 0.35 | % | 0.63 | % | 1.72 | % | | — | % | | 1.96 | % | | 1.76 | % | | 1.91 | % |
| Obligations of U.S. states and municipalities | | | | | | | | | | |
| Amortized cost | $ | 65 |
| $ | 498 |
| $ | 1,432 |
| $ | 25,846 |
| $ | 27,841 |
| $ | 73 |
| | $ | 750 |
| | $ | 1,265 |
| | $ | 28,402 |
| | $ | 30,490 |
|
| Fair value | 66 |
| 515 |
| 1,508 |
| 27,979 |
| 30,068 |
| 72 |
| | 765 |
| | 1,324 |
| | 30,177 |
| | 32,338 |
|
Average yield(b) | 2.13 | % | 4.00 | % | 4.93 | % | 6.78 | % | 6.63 | % | 1.78 | % | | 3.28 | % | | 5.40 | % | | 5.50 | % | | 5.43 | % |
| Certificates of deposit | | | | | | | | | | |
| Amortized cost | $ | 1,052 |
| $ | 51 |
| $ | — |
| $ | — |
| $ | 1,103 |
| $ | 59 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 59 |
|
| Fair value | 1,050 |
| 53 |
| — |
| — |
| 1,103 |
| 59 |
| | — |
| | — |
| | — |
| | 59 |
|
Average yield(b) | 0.84 | % | 3.28 | % | — | % | — | % | 0.95 | % | 0.50 | % | | — | % | | — | % | | — | % | | 0.50 | % |
| Non-U.S. government debt securities | | | | | | | | | | |
| Amortized cost | $ | 13,559 |
| $ | 14,276 |
| $ | 21,220 |
| $ | 2,437 |
| $ | 51,492 |
| $ | 5,020 |
| | $ | 13,665 |
| | $ | 8,215 |
| | $ | — |
| | $ | 26,900 |
|
| Fair value | 13,588 |
| 14,610 |
| 21,957 |
| 2,588 |
| 52,743 |
| 5,022 |
| | 13,845 |
| | 8,427 |
| | — |
| | 27,294 |
|
Average yield(b) | 3.31 | % | 2.04 | % | 1.04 | % | 1.19 | % | 1.90 | % | 3.09 | % | | 1.55 | % | | 1.19 | % | | — | % | | 1.73 | % |
| Corporate debt securities | | | | | | | | | | |
| Amortized cost | $ | 3,830 |
| $ | 9,619 |
| $ | 4,523 |
| $ | 186 |
| $ | 18,158 |
| $ | 150 |
| | $ | 1,159 |
| | $ | 1,203 |
| | $ | 145 |
| | $ | 2,657 |
|
| Fair value | 3,845 |
| 9,852 |
| 4,651 |
| 184 |
| 18,532 |
| 151 |
| | 1,197 |
| | 1,255 |
| | 154 |
| | 2,757 |
|
Average yield(b) | 2.39 | % | 2.40 | % | 2.56 | % | 3.43 | % | 2.45 | % | 3.07 | % | | 3.60 | % | | 3.58 | % | | 3.22 | % | | 3.54 | % |
| Asset-backed securities | | | | | | | | | | |
| Amortized cost | $ | — |
| $ | 2,240 |
| $ | 17,439 |
| $ | 22,992 |
| $ | 42,671 |
| $ | — |
| | $ | 3,372 |
| | $ | 13,046 |
| | $ | 13,274 |
| | $ | 29,692 |
|
| Fair value | — |
| 2,254 |
| 17,541 |
| 23,014 |
| 42,809 |
| — |
| | 3,353 |
| | 13,080 |
| | 13,380 |
| | 29,813 |
|
Average yield(b) | — | % | 1.66 | % | 1.75 | % | 1.73 | % | 1.73 | % | — | % | | 2.14 | % | | 2.58 | % | | 2.36 | % | | 2.43 | % |
| Total available-for-sale debt securities | | | | | | | | | | |
| Amortized cost | $ | 21,711 |
| $ | 40,816 |
| $ | 60,666 |
| $ | 165,273 |
| $ | 288,466 |
| $ | 5,365 |
| | $ | 19,644 |
| | $ | 47,300 |
| | $ | 125,885 |
| | $ | 198,194 |
|
| Fair value | 21,767 |
| 41,751 |
| 61,906 |
| 170,798 |
| 296,222 |
| 5,367 |
| | 19,868 |
| | 47,922 |
| | 128,521 |
| | 201,678 |
|
Average yield(b) | 2.74 | % | 2.06 | % | 1.58 | % | 3.32 | % | 2.73 | % | 3.03 | % | | 1.86 | % | | 2.28 | % | | 3.66 | % | | 3.14 | % |
| Available-for-sale equity securities | | | | | | | | | | |
| Amortized cost | $ | — |
| $ | — |
| $ | — |
| $ | 2,513 |
| $ | 2,513 |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | 547 |
| | $ | 547 |
|
| Fair value | — |
| — |
| — |
| 2,530 |
| 2,530 |
| — |
| | — |
| | — |
| | 547 |
| | 547 |
|
Average yield(b) | — | % | — | % | — | % | 0.25 | % | 0.25 | % | — | % | | — | % | | — | % | | 0.71 | % | | 0.71 | % |
| Total available-for-sale securities | | | | | | | | | | |
| Amortized cost | $ | 21,711 |
| $ | 40,816 |
| $ | 60,666 |
| $ | 167,786 |
| $ | 290,979 |
| $ | 5,365 |
| | $ | 19,644 |
| | $ | 47,300 |
| | $ | 126,432 |
| | $ | 198,741 |
|
| Fair value | 21,767 |
| 41,751 |
| 61,906 |
| 173,328 |
| 298,752 |
| 5,367 |
| | 19,868 |
| | 47,922 |
| | 129,068 |
| | 202,225 |
|
Average yield(b) | 2.74 | % | 2.06 | % | 1.58 | % | 3.28 | % | 2.71 | % | 3.03 | % | | 1.86 | % | | 2.28 | % | | 3.65 | % | | 3.13 | % |
| Held-to-maturity debt securities | | | | | | | | | | |
Mortgage-backed securities(a) | | | | | | | | | | |
| Amortized Cost | | $ | — |
| | $ | — |
| | $ | 49 |
| | $ | 33,311 |
| | $ | 33,360 |
|
| Fair value | | — |
| | — |
| | 49 |
| | 33,756 |
| | 33,805 |
|
Average yield(b) | | — | % | | — | % | | 2.88 | % | | 3.27 | % | | 3.27 | % |
| Obligations of U.S. states and municipalities | | | | | | | | | | |
| Amortized cost | | $ | — |
| | $ | 66 |
| | $ | 2,019 |
| | $ | 12,288 |
| | $ | 14,373 |
|
| Fair value | | — |
| | 65 |
| | 2,067 |
| | 12,715 |
| | 14,847 |
|
Average yield(b) | | — | % | | 4.74 | % | | 4.30 | % | | 4.72 | % | | 4.66 | % |
| Total held-to-maturity securities | | | | | | | | | | |
| Amortized cost | $ | — |
| $ | 54 |
| $ | 487 |
| $ | 48,711 |
| $ | 49,252 |
| $ | — |
| | $ | 66 |
| | $ | 2,068 |
| | $ | 45,599 |
| | $ | 47,733 |
|
| Fair value | — |
| 54 |
| 512 |
| 50,588 |
| 51,154 |
| — |
| | 65 |
| | 2,116 |
| | 46,471 |
| | 48,652 |
|
Average yield(b) | — | % | 4.33 | % | 4.81 | % | 3.98 | % | 3.98 | % | — | % | | 4.75 | % | | 4.26 | % | | 3.66 | % | | 3.69 | % |
| |
| (a) | U.S. government-sponsored enterprises were the only issuers whoseAs of December 31, 2017, mortgage-backed securities issued by Fannie Mae exceeded 10% of JPMorgan Chase’sChase’s total stockholders’ equity at December 31, 2014equity; the amortized cost and fair value of such securities was $55.1 billion and $56.0 billion, respectively.
|
| |
| (b) | Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly, actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid. |
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 207 |
Notes to consolidated financial statements
where applicable and reflect the estimated impact of the enactment of the Tax Cuts and Jobs Act (“TCJA”). The effective yield excludes unscheduled principal prepayments; and accordingly, actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid.
| |
| (c) | Includes securities with no stated maturity. Substantially all of the Firm’s U.S. residential mortgage-backed securitiesMBS and collateralized mortgage obligations are due in 10 years or more, based on contractual maturity. The estimated duration,weighted-average life, which reflects anticipated future prepayments, is approximately fivesix years for agency residential mortgage-backed securities, MBS, three years for agency residential collateralized mortgage obligations and fourthree years for nonagency residential collateralized mortgage obligations. |
|
| | |
234 | | JPMorgan Chase & Co./2014 Annual Report |
Note 1311 – Securities financing activities
JPMorgan Chase enters into resale agreements, repurchase agreements, securities borrowed transactions and securities loaned transactions (collectively, “securities financing agreements”) primarily to finance the Firm’s inventory positions, acquire securities to cover short positions, accommodate customers’ financing needs, and settle other securities obligations.
Securities financing agreements are treated as collateralized financings on the Firm’s Consolidated balance sheets. Resale and repurchase agreements are generally carried at the amounts at which the securities will be subsequently sold or repurchased. Securities borrowed and securities loaned transactions are generally carried at the amount of cash collateral advanced or received. Where appropriate under applicable accounting guidance, resale and repurchase agreements with the same counterparty are reported on a net basis. For further discussion of the offsetting of assets and liabilities, see Note 1. Fees received
and paid in connection with securities financing agreements are recorded in interest income and interest expense on the Consolidated statements of income.
The Firm has elected the fair value option for certain securities financing agreements. For further information regarding the fair value option, see Note 4.3. The securities financing agreements for which the fair value option has been elected are reported within securities purchased under resale agreements;agreements, securities loaned or sold under repurchase agreements;agreements, and securities borrowed on the Consolidated balance sheets. Generally, for agreements carried at fair value, current-period interest accruals are recorded within interest income and interest expense, with changes in fair value reported in principal transactions revenue. However, for financial instruments containing embedded derivatives that would be separately accounted for in accordance with accounting guidance for hybrid instruments, all changes in fair value, including any interest elements, are reported in principal transactions revenue.
The following table presents as of December 31, 2014 and 2013, the gross and net securities purchased under resale agreements and securities borrowed. Securities purchased under resale agreements have been presented on the Consolidated balance sheets net of securities sold under repurchase agreements wherefinancing transactions expose the Firm has obtained an appropriate legal opinion with respectprimarily to the master netting agreement,credit and whereliquidity risk. To manage these risks, the other relevant criteria have been met. Where such a legal opinion has not been either sought or obtained, the securities purchased under resale agreements are not eligible for netting and are shown separately in the table below. Securities borrowed are presented on a gross basis on the Consolidated balance sheets.
|
| | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | | 2013 | |
| December 31, (in millions) | Gross asset balance | Amounts netted on the Consolidated balance sheets | Net asset balance | | | Gross asset balance | Amounts netted on the Consolidated balance sheets | Net asset balance | |
| Securities purchased under resale agreements | | | | | | | | | |
| Securities purchased under resale agreements with an appropriate legal opinion | $ | 341,989 |
| $ | (142,719 | ) | $ | 199,270 |
| | | $ | 354,814 |
| $ | (115,408 | ) | $ | 239,406 |
| |
| Securities purchased under resale agreements where an appropriate legal opinion has not been either sought or obtained | 15,751 |
| | 15,751 |
| | | 8,279 |
| | 8,279 |
| |
| Total securities purchased under resale agreements | $ | 357,740 |
| $ | (142,719 | ) | $ | 215,021 |
| (a) | | $ | 363,093 |
| $ | (115,408 | ) | $ | 247,685 |
| (a) |
| Securities borrowed | $ | 110,435 |
| N/A |
| $ | 110,435 |
| (b)(c) | | $ | 111,465 |
| N/A |
| $ | 111,465 |
| (b)(c) |
| |
(a) | At December 31, 2014 and 2013, included securities purchased under resale agreements of $28.6 billion and $25.1 billion, respectively, accounted for at fair value. |
| |
(b) | At December 31, 2014 and 2013, included securities borrowed of $992 million and $3.7 billion, respectively, accounted for at fair value. |
| |
(c) | Included $28.0 billion and $26.9 billion at December 31, 2014 and 2013, respectively, of securities borrowed where an appropriate legal opinion has not been either sought or obtained with respect to the master netting agreement. |
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 235 |
Notes to consolidated financial statements
The following table presents information as of December 31, 2014 and 2013, regarding the securities purchased under resale agreements and securities borrowed for which an appropriate legal opinion has been obtained with respect to the master netting agreement. The below table excludes information related to resale agreements and securities borrowed where such a legal opinion has not been either sought or obtained.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 |
| | | | Amounts not nettable on the Consolidated balance sheets(a) | | | | | Amounts not nettable on the Consolidated balance sheets(a) | |
| December 31, (in millions) | Net asset balance | | Financial instruments(b) | Cash collateral | Net exposure | | Net asset balance | | Financial instruments(b) | Cash collateral | Net exposure |
| Securities purchased under resale agreements with an appropriate legal opinion | $ | 199,270 |
| | $ | (196,136 | ) | $ | (232 | ) | $ | 2,902 |
| | $ | 239,406 |
| | $ | (234,495 | ) | $ | (98 | ) | $ | 4,813 |
|
| Securities borrowed | $ | 82,464 |
| | $ | (80,267 | ) | $ | — |
| $ | 2,197 |
| | $ | 84,531 |
| | $ | (81,127 | ) | $ | — |
| $ | 3,404 |
|
| |
(a) | For some counterparties, the sum of the financial instruments and cash collateral not nettable on the Consolidated balance sheets may exceed the net asset balance. Where this is the case the total amounts reported in these two columns are limited to the balance of the net reverse repurchase agreement or securities borrowed asset with that counterparty. As a result a net exposure amount is reported even though the Firm, on an aggregate basis for its securities purchased under resale agreements and securities borrowed, has received securities collateral with a total fair value that is greater than the funds provided to counterparties. |
| |
(b) | Includes financial instrument collateral received, repurchase liabilities and securities loaned liabilities with an appropriate legal opinion with respect to the master netting agreement; these amounts are not presented net on the Consolidated balance sheets because other U.S. GAAP netting criteria are not met. |
The following table presents as of December 31, 2014 and 2013, the gross and net securities sold under repurchase agreements and securities loaned. Securities sold under repurchase agreements have been presented on the Consolidated balance sheets net of securities purchased under resale agreements where the Firm has obtained an appropriate legal opinion with respect to the master netting agreement, and where the other relevant criteria have been met. Where such a legal opinion has not been either sought or obtained, the securities sold under repurchase agreements are not eligible for netting and are shown separately in the table below. Securities loaned are presented on a gross basis on the Consolidated balance sheets.
|
| | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 | |
| December 31, (in millions) | Gross liability balance | Amounts netted on the Consolidated balance sheets | Net liability balance | | Gross liability balance | | Amounts netted on the Consolidated balance sheets | Net liability balance | |
| Securities sold under repurchase agreements | | | | | | | | | |
| Securities sold under repurchase agreements with an appropriate legal opinion | $ | 289,619 |
| $ | (142,719 | ) | $ | 146,900 |
| | $ | 257,630 |
| (f) | $ | (115,408 | ) | $ | 142,222 |
| (f) |
Securities sold under repurchase agreements where an appropriate legal opinion has not been either sought or obtained(a) | 22,906 |
| | 22,906 |
| | 18,143 |
| (f) | | 18,143 |
| (f) |
| Total securities sold under repurchase agreements | $ | 312,525 |
| $ | (142,719 | ) | $ | 169,806 |
| (c) | $ | 275,773 |
| | $ | (115,408 | ) | $ | 160,365 |
| (c) |
Securities loaned(b) | $ | 25,927 |
| N/A |
| $ | 25,927 |
| (d)(e) | $ | 25,769 |
| | N/A |
| $ | 25,769 |
| (d)(e) |
| |
(a) | Includes repurchase agreements that are not subject to a master netting agreement but do provide rights to collateral. |
| |
(b) | Included securities-for-securities borrow vs. pledge transactions of $4.1 billion and $5.8 billion at December 31, 2014 and 2013, respectively, when acting as lender and as presented within other liabilities in the Consolidated balance sheets. |
| |
(c) | At December 31, 2014 and 2013, included securities sold under repurchase agreements of $3.0 billion and $4.9 billion, respectively, accounted for at fair value. |
| |
(d) | At December 31, 2013, included securities loaned of $483 million accounted for at fair value; there were no securities loaned accounted for at fair value at December 31, 2014. |
| |
(e) | Included $537 million and $397 million at December 31, 2014 and 2013, respectively, of securities loaned where an appropriate legal opinion has not been either sought or obtained with respect to the master netting agreement. |
| |
(f) | The prior period amounts have been revised with a corresponding impact in the table below. This revision had no impact on the Firm’s Consolidated balance sheets or its results of operations. |
|
| | |
236 | | JPMorgan Chase & Co./2014 Annual Report |
The following table presents information as of December 31, 2014 and 2013, regarding the securities sold under repurchase agreements and securities loaned for which an appropriate legal opinion has been obtained with respect to the master netting agreement. The below table excludes information related to repurchase agreements and securities loaned where such a legal opinion has not been either sought or obtained.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 |
| | | | Amounts not nettable on the Consolidated balance sheets(a) | | | | | Amounts not nettable on the Consolidated balance sheets(a) | |
| December 31, (in millions) | Net liability balance | | Financial instruments(b) | Cash collateral | Net amount(c) | | Net liability balance | | Financial instruments(b) | | Cash collateral | Net amount(c) |
| Securities sold under repurchase agreements with an appropriate legal opinion | $ | 146,900 |
| | $ | (143,985 | ) | $ | (363 | ) | $ | 2,552 |
| | $ | 142,222 |
| (d) | $ | (139,051 | ) | (d) | $ | (450 | ) | $ | 2,721 |
|
| Securities loaned | $ | 25,390 |
| | $ | (25,040 | ) | $ | — |
| $ | 350 |
| | $ | 25,372 |
| | $ | (25,125 | ) | | $ | — |
| $ | 247 |
|
| |
(a) | For some counterparties the sum of the financial instruments and cash collateral not nettable on the Consolidated balance sheets may exceed the net liability balance. Where this is the case the total amounts reported in these two columns are limited to the balance of the net repurchase agreement or securities loaned liability with that counterparty. |
| |
(b) | Includes financial instrument collateral transferred, reverse repurchase assets and securities borrowed assets with an appropriate legal opinion with respect to the master netting agreement; these amounts are not presented net on the Consolidated balance sheets because other U.S. GAAP netting criteria are not met. |
| |
(c) | Net amount represents exposure of counterparties to the Firm. |
| |
(d) | The prior period amounts have been revised with a corresponding impact in the table above. This revision had no impact on the Firm’s Consolidated balance sheets or its results of operations. |
JPMorgan Chase’s policy is to take possession, where possible, of securities purchased under resale agreements and of securities borrowed. The Firm monitors the value of the underlying securities (primarily G7 government(predominantly high-quality securities U.S. agency securitiescollateral, including government-issued debt and agency MBS, and equities)MBS) that it has received from or provided to its counterparties compared to the value of cash proceeds and exchanged collateral, and either requests additional collateral or returns a portion of thesecurities or collateral when appropriate in light of the market value of the underlying securities.appropriate. Margin levels are initially established initially based upon the counterparty, andthe type of underlying securities, and the permissible collateral, and are monitored on an ongoing basisbasis.
In resale agreements and securities borrowed transactions, the Firm is exposed to protect against declines incredit risk to the extent that the value of the securities received is less than initial cash principal advanced and any collateral amounts exchanged. In repurchase agreements and securities loaned transactions, credit risk exposure arises to the extent that the value inof underlying securities exceeds the eventvalue of default. JPMorgan Chasethe initial cash principal advanced, and any collateral amounts exchanged.
Additionally, the Firm typically enters into master netting agreements and other collateralsimilar arrangements with its resale agreement and securities borrowed counterparties, which provide for the right to liquidate the purchased or borrowedunderlying securities and any collateral amounts exchanged in the event of a customercounterparty default. It is also the Firm’s policy to take possession, where possible, of the securities underlying resale agreements and securities borrowed transactions. For further information regarding assets pledged and collateral received in securities financing agreements, see Note 28.
As a result of the Firm’s credit risk mitigation practices with respect to resale and securities borrowed agreements as described above, the Firm did not hold any reserves for credit impairment with respect to these agreements as of December 31, 20142017 and 2013.2016.
|
| | |
| 208 | | JPMorgan Chase & Co./2017 Annual Report |
The table below summarizes the gross and net amounts of the Firm’s securities financing agreements, as of December 31, 2017, and 2016. When the Firm has obtained an appropriate legal opinion with respect to the master netting agreement with a counterparty and where other relevant netting criteria under U.S. GAAP are met, the Firm nets, on the Consolidated balance sheets, the balances outstanding under its securities financing agreements with the same counterparty. In addition, the Firm exchanges securities and/or cash collateral with its counterparties; this collateral also reduces the economic exposure withthe counterparty. Such collateral, along with securities financing balances that do not meet all these relevant netting criteria under U.S. GAAP, is presented as “Amounts not nettable on the Consolidated balance sheets,” and reduces the “Net amounts” presented below, if the Firm has an appropriate legal opinion with respect to the master netting agreement with the counterparty. Where a legal opinion has not been either sought or obtained, the securities financing balances are presented gross in the “Net amounts” below, and related collateral does not reduce the amounts presented.
For further information regarding |
| | | | | | | | | | | | | | | |
| | 2017 |
| December 31, (in millions) | Gross amounts | Amounts netted on the Consolidated balance sheets | Amounts presented on the Consolidated balance sheets(b) | Amounts not nettable on the Consolidated balance sheets(c) | Net amounts(d) |
| Assets | | | | | |
| Securities purchased under resale agreements | $ | 448,608 |
| $ | (250,505 | ) | $ | 198,103 |
| $ | (188,502 | ) | $ | 9,601 |
|
| Securities borrowed | 113,926 |
| (8,814 | ) | 105,112 |
| (76,805 | ) | 28,307 |
|
| Liabilities | | | | | |
| Securities sold under repurchase agreements | $ | 398,218 |
| $ | (250,505 | ) | $ | 147,713 |
| $ | (129,178 | ) | $ | 18,535 |
|
Securities loaned and other(a) | 27,228 |
| (8,814 | ) | 18,414 |
| (18,151 | ) | 263 |
|
|
| | | | | | | | | | | | | | | |
| | 2016 |
| December 31, (in millions) | Gross amounts | Amounts netted on the Consolidated balance sheets | Amounts presented on the Consolidated balance sheets(b) | Amounts not nettable on the Consolidated balance sheets(c) | Net amounts(d) |
| Assets | | | | | |
| Securities purchased under resale agreements | $ | 480,735 |
| $ | (250,832 | ) | $ | 229,903 |
| $ | (222,413 | ) | $ | 7,490 |
|
| Securities borrowed | 96,409 |
| — |
| 96,409 |
| (66,822 | ) | 29,587 |
|
| Liabilities | | | | | |
| Securities sold under repurchase agreements | $ | 402,465 |
| $ | (250,832 | ) | $ | 151,633 |
| $ | (133,300 | ) | $ | 18,333 |
|
Securities loaned and other(a) | 22,451 |
| — |
| 22,451 |
| (22,177 | ) | 274 |
|
| |
| (a) | Includes securities-for-securities lending transactions of $9.2 billion and $9.1 billion at December 31, 2017 and 2016, respectively, accounted for at fair value, where the Firm is acting as lender. These amounts are presented within accounts payable and other liabilities in the Consolidated balance sheets. |
| |
| (b) | Includes securities financing agreements accounted for at fair value. At December 31, 2017 and 2016, included securities purchased under resale agreements of $14.7 billion and $21.5 billion, respectively, and securities sold under agreements to repurchase of $697 million and $687 million, respectively. There were $3.0 billion of securities borrowed at December 31, 2017 and there were no securities borrowed at December 31, 2016. There were no securities loaned accounted for at fair value in either period. |
| |
| (c) | In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts reported in this column are limited to the related asset or liability with that counterparty. |
| |
| (d) | Includes securities financing agreements that provide collateral rights, but where an appropriate legal opinion with respect to the master netting agreement has not been either sought or obtained. At December 31, 2017 and 2016, included $7.5 billion and $4.8 billion, respectively, of securities purchased under resale agreements; $25.5 billion and $27.1 billion, respectively, of securities borrowed; $16.5 billion and $15.9 billion, respectively, of securities sold under agreements to repurchase; and $29 million and $90 million, respectively, of securities loaned and other. |
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 209 |
Notes to consolidated financial statements
The tables below present as of December 31, 2017 and 2016 the types of financial assets pledged and collateral received in securities financing agreements see Note 30.and the remaining contractual maturity of the securities financing agreements.
|
| | | | | | | | | | | | | |
| | Gross liability balance |
| | 2017 | | 2016 |
| December 31, (in millions) | Securities sold under repurchase agreements | Securities loaned and other(b) | | Securities sold under repurchase agreements | Securities loaned and other(b) |
| Mortgage-backed securities: | | | | | |
U.S. government agencies(a) | $ | 13,100 |
| $ | — |
| | $ | 14,034 |
| $ | — |
|
| Residential - nonagency | 2,972 |
| — |
| | 6,224 |
| — |
|
| Commercial - nonagency | 1,594 |
| — |
| | 4,173 |
| — |
|
U.S. Treasury and government agencies(a) | 177,581 |
| 14 |
| | 185,145 |
| — |
|
| Obligations of U.S. states and municipalities | 1,557 |
| — |
| | 2,491 |
| — |
|
| Non-U.S. government debt | 170,196 |
| 2,485 |
| | 149,008 |
| 1,279 |
|
| Corporate debt securities | 14,231 |
| 287 |
| | 18,140 |
| 108 |
|
| Asset-backed securities | 3,508 |
| — |
| | 7,721 |
| — |
|
| Equity securities | 13,479 |
| 24,442 |
| | 15,529 |
| 21,064 |
|
| Total | $ | 398,218 |
| $ | 27,228 |
| | $ | 402,465 |
| $ | 22,451 |
|
|
| | | | | | | | | | | | | | | |
| | Remaining contractual maturity of the agreements |
| | Overnight and continuous | | | Greater than 90 days | |
2017 (in millions) | Up to 30 days | 30 – 90 days | Total |
| Total securities sold under repurchase agreements | $ | 166,425 |
| $ | 156,434 |
| $ | 41,611 |
| $ | 33,748 |
| $ | 398,218 |
|
Total securities loaned and other(b) | 22,876 |
| 375 |
| 2,328 |
| 1,649 |
| 27,228 |
|
|
| | | | | | | | | | | | | | | |
| | Remaining contractual maturity of the agreements |
| | Overnight and continuous | | | Greater than 90 days | |
| 2016 (in millions) | Up to 30 days | 30 – 90 days | Total |
| Total securities sold under repurchase agreements | $ | 140,318 |
| $ | 157,860 |
| $ | 55,621 |
| $ | 48,666 |
| $ | 402,465 |
|
Total securities loaned and other(b) | 13,586 |
| 1,371 |
| 2,877 |
| 4,617 |
| 22,451 |
|
| |
| (a) | Prior period amounts were revised to conform with the current period presentation. |
| |
| (b) | Includes securities-for-securities lending transactions of $9.2 billion and $9.1 billion at December 31, 2017 and 2016, respectively, accounted for at fair value, where the Firm is acting as lender. These amounts are presented within accounts payable and other liabilities on the Consolidated balance sheets. |
Transfers not qualifying for sale accounting
In addition, at At December 31, 20142017 and 2013,2016, the Firm held $13.8$1.5 billion and $14.6$5.9 billion,, respectively, of financial assets for which the rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP. These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading assets other assets and loans, and the corresponding liabilities are recorded predominantly recorded in other borrowed fundsshort-term borrowings on the Consolidated balance sheets.
|
| | |
| 210 | | JPMorgan Chase & Co./20142017 Annual Report | | 237 |
Notes to consolidated financial statements
Note 1412 – Loans
Loan accounting framework
The accounting for a loan depends on management’s strategy for the loan, and on whether the loan was credit-impaired at the date of acquisition. The Firm accounts for loans based on the following categories:
Originated or purchased loans held-for-investment (i.e., “retained”), other than purchased credit-impaired (“PCI”)PCI loans
Loans held-for-sale
Loans at fair value
PCI loans held-for-investment
The following provides a detailed accounting discussion of these loan categories:
Loans held-for-investment (other than PCI loans)
Originated or purchased loans held-for-investment, other than PCI loans, are measuredrecorded at the principal amount outstanding, net of the following: allowance for loan losses; net charge-offs; interest applied to principal (for loans accounted for on the cost recovery method); unamortized discounts and premiums; and net deferred loan fees or costs. Credit card loans also include billed finance charges and fees net of an allowance for uncollectible amounts.
Interest income
Interest income on performing loans held-for-investment, other than PCI loans, is accrued and recognized as interest income at the contractual rate of interest. Purchase price discounts or premiums, as well as net deferred loan fees or costs, are amortized into interest income over the contractual life of the loan to produce a level rate of return.
Nonaccrual loans
Nonaccrual loans are those on which the accrual of interest has been suspended. Loans (other than credit card loans and certain consumer loans insured by U.S. government agencies) are placed on nonaccrual status and considered nonperforming when full payment of principal and interest is in doubt,not expected, regardless of delinquency status, or when principal and interest has been in default for a period of 90 days or more, unless the loan is both well-secured and in the process of collection. A loan is determined to be past due when the minimum payment is not received from the borrower by the contractually specified due date or for certain loans (e.g., residential real estate loans), when a monthly payment is due and unpaid for 30 days or more. Finally, collateral-dependent loans are typically maintained on nonaccrual status.
On the date a loan is placed on nonaccrual status, all interest accrued but not collected is reversed against interest income. In addition, the amortization of deferred amounts is suspended. Interest income on nonaccrual loans may be recognized as cash interest payments are received (i.e., on a cash basis) if the recorded loan balance is deemed fully collectible; however, if there is doubt regarding the ultimate collectibility of the recorded loan balance, all interest cash receipts are applied to reduce the
carrying value of the loan (the cost recovery method). For consumer loans, application of this policy typically results in the Firm recognizing interest income on nonaccrual consumer loans on a cash basis.
A loan may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or, if applicable, the terms of the restructured loan.
As permitted by regulatory guidance, credit card loans are generally exempt from being placed on nonaccrual status; accordingly, interest and fees related to credit card loans continue to accrue until the loan is charged off or paid in full. However, the Firm separately establishes an allowance, which is offset against loans and charged to interest income, for the estimated uncollectible portion of accrued and billed interest and fee income on credit card loans. The allowance is established with a charge to interest income and is reported as an offset to loans.
Allowance for loan losses
The allowance for loan losses represents the estimated probable credit losses inherent in the held-for-investment loan portfolio at the balance sheet date.date and is recognized on the balance sheet as a contra asset, which brings the recorded investment to the net carrying value. Changes in the allowance for loan losses are recorded in the provision for credit losses on the Firm’s Consolidated statements of income. See Note 1513 for further information on the Firm’s accounting policies for the allowance for loan losses.
Charge-offs
Consumer loans, other than risk-rated business banking risk-ratedand auto loans, and PCI loans, are generally charged off or charged down to the net realizable value of the underlying collateral (i.e., fair value less costs to sell), with an offset to the allowance for loan losses, upon reaching specified stages of delinquency in accordance with standards established by the Federal Financial Institutions Examination Council (“FFIEC”).FFIEC. Residential real estate loans and non-modified credit card loans and scored business banking loans are generally charged off at 180 days past due. In the second quarter of 2013, the Firm revised its policy to charge-off modified credit card loans that do not comply with their modified payment terms at 120 days past due ratherno later than 180 days past due. AutoScored auto, student and studentmodified credit card loans are charged off no later than 120 days past due.
|
| | |
238 | | JPMorgan Chase & Co./2014 Annual Report |
Certain consumer loans will be charged off or charged down to their net realizable value earlier than the FFIEC charge-off standards in certain circumstances as follows:
A charge-off is recognized when a loan isLoans modified in a TDR if the loan isthat are determined to be collateral-dependent. A loan is considered to be collateral-dependent when repayment of the loan is expected to be provided solely by the underlying collateral, rather than by cash flows from the borrower’s operations, income or other resources.
Loans to borrowers who have experienced an event (e.g., bankruptcy) that suggests a loss is either known or highly certain are subject to accelerated charge-off standards. Residentialstandards (e.g., residential real estate and auto loans are charged off when the loan becomes 60 days past due, or sooner if the loan is determined to be collateral-dependent. Credit card and scored business banking loans are charged off within 60 days of receiving notification of thea bankruptcy filing or other event. Student loans are generally charged off when the loan becomes 60 days past due after receiving notification of a bankruptcy.filing).
Auto loans are written down to net realizable value upon repossession of the automobile and after a redemption period (i.e., the period during which a borrower may cure the loan) has passed.automobile.
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 211 |
Notes to consolidated financial statements
Other than in certain limited circumstances, the Firm typically does not recognize charge-offs on government-guaranteed loans.
Wholesale loans, risk-rated business banking loans and risk-rated auto loans are charged off when it is highly certain that a loss has been realized, including situations where a loan is determined to be both impaired and collateral-dependent. The determination of whether to recognize a charge-off includes many factors, including the prioritization of the Firm’s claim in bankruptcy, expectations of the workout/restructuring of the loan and valuation of the borrower’s equity or the loan collateral.
When a loan is charged down to the estimated net realizable value, the determination of the fair value of the collateral depends on the type of collateral (e.g., securities, real estate). In cases where the collateral is in the form of liquid securities, the fair value is based on quoted market prices or broker quotes. For illiquid securities or other financial assets, the fair value of the collateral is estimated using a discounted cash flow model.
For residential real estate loans, collateral values are based upon external valuation sources. When it becomes likely that a borrower is either unable or unwilling to pay, the Firm obtains a broker’s price opinion of the home based on an exterior-only valuation (“exterior opinions”), which is then updated at least every six months thereafter. As soon as practicable after the Firm receives the property in satisfaction of a debt (e.g., by taking legal title or physical possession), generally, either through foreclosure or upon the execution of a deed in lieu of foreclosure transaction with the borrower, the Firm generally obtains an appraisal based on an inspection that includes the interior of the home (“interior appraisals��appraisals”). Exterior opinions and interior appraisals are discounted based upon the Firm’s experience with actual liquidation values as compared towith the estimated values provided by exterior opinions and interior appraisals, considering state- and product-specificstate-specific factors.
For commercial real estate loans, collateral values are generally based on appraisals from internal and external valuation sources. Collateral values are typically updated every six to twelve months, either by obtaining a new appraisal or by performing an internal analysis, in accordance with the Firm’s policies. The Firm also considers both borrower- and market-specific factors, which may result in obtaining appraisal updates or broker price opinions at more frequent intervals.
Loans held-for-sale
Held-for-sale loans are measured at the lower of cost or fair value, with valuation changes recorded in noninterest revenue. For consumer loans, the valuation is performed on a portfolio basis. For wholesale loans, the valuation is performed on an individual loan basis.
Interest income on loans held-for-sale is accrued and recognized based on the contractual rate of interest.
Loan origination fees or costs and purchase price discounts or premiums are deferred in a contra loan account until the related loan is sold. The deferred fees or costs and discounts or premiums are an adjustment to the basis of the loan and therefore are included in the periodic determination of the lower of cost or fair value adjustments and/or the gain or loss recognized at the time of sale.
Held-for-sale loans are subject to the nonaccrual policies described above.
Because held-for-sale loans are recognized at the lower of cost or fair value, the Firm’s allowance for loan losses and charge-off policies do not apply to these loans.
|
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JPMorgan Chase & Co./2014 Annual Report | | 239 |
Notes to consolidated financial statements
Loans at fair value
Loans used in a market-making strategy or risk managed on a fair value basis are measured at fair value, with changes in fair value recorded in noninterest revenue.
ForInterest income on these loans is accrued and recognized based on the earned current contractual interest payment is recognized in interest income.rate of interest. Changes in fair value are recognized in noninterest revenue. Loan origination fees are recognized upfront in noninterest revenue. Loan origination costs are recognized in the associated expense category as incurred.
Because these loans are recognized at fair value, the Firm’s nonaccrual, allowance for loan losses and charge-off policies do not apply to these loans.
See Note 43 for further information on the Firm’s elections of fair value accounting under the fair value option. See Note 32 and Note 43 for further information on loans carried at fair value and classified as trading assets.
PCI loans
PCI loans held-for-investment are initially measured at fair value. PCI loans have evidence of credit deterioration since the loan’s origination date and therefore it is probable, at acquisition, that all contractually required payments will not be collected. Because PCI loans are initially measured at fair value, which includes an estimate of future credit losses, no allowance for loan losses related to PCI loans is recorded at the acquisition date. See page 251223 of this Note for information on accounting for PCI loans subsequent to their acquisition.
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| 212 | | JPMorgan Chase & Co./2017 Annual Report |
Loan classification changes
Loans in the held-for-investment portfolio that management decides to sell are transferred to the held-for-sale portfolio at the lower of cost or fair value on the date of transfer. Credit-related losses are charged against the allowance for loan losses; non-credit related losses such as those due to changes in interest rates or foreign currency exchange rates are recognized in noninterest revenue.
In the event that management decides to retain a loan in the held-for-sale portfolio, the loan is transferred to the held-for-investment portfolio at the lower of cost or fair value on the date of transfer. These loans are subsequently assessed for impairment based on the Firm’s allowance methodology. For a further discussion of the methodologies used in establishing the Firm’s allowance for loan losses, see Note 15.
13.Loan modifications
The Firm seeks to modify certain loans in conjunction with its loss-mitigation activities. Through the modification, JPMorgan Chase grants one or more concessions to a borrower who is experiencing financial difficulty in order to minimize the Firm’s economic loss and avoid foreclosure or repossession of the collateral, and to ultimately maximize payments received by the Firm from the borrower. The concessions granted vary by program and by borrower-specific characteristics, and may include interest rate reductions, term extensions, payment deferrals, principal forgiveness, or the acceptance of equity or other assets in lieu of payments.
Such modifications are accounted for and reported as troubled debt restructurings (“TDRs”).TDRs. A loan that has been modified in a TDR is generally considered to be impaired until it matures, is repaid, or is otherwise liquidated, regardless of whether the borrower performs under the modified terms. In certain limited cases, the effective interest rate applicable to the modified loan is at or above the current market rate at the time of the restructuring. In such circumstances, and assuming that the loan subsequently performs under its modified terms and the Firm expects to collect all contractual principal and interest cash flows, the loan is disclosed as impaired and as a TDR only during the year of the modification; in subsequent years, the loan is not disclosed as an impaired loan or as a TDR so long as repayment of the restructured loan under its modified terms is reasonably assured.
Loans, except for credit card loans, modified in a TDR are generally placed on nonaccrual status, although in many cases such loans were already on nonaccrual status prior to modification. These loans may be returned to performing status (the accrual of interest is resumed) if the following criteria are met: (a)(i) the borrower has performed under the modified terms for a minimum of six months and/or six payments, and (b)(ii) the Firm has an expectation that repayment of the modified loan is reasonably assured based on, for example, the borrower’s debt capacity and level of future earnings, collateral values, loan-to-value (“LTV”)LTV ratios, and other current market considerations. In certain limited and well-defined circumstances in which the loan is current at the modification date, such loans are not placed on nonaccrual status at the time of modification.
Because loans modified in TDRs are considered to be impaired, these loans are measured for impairment using the Firm’s established asset-specific allowance methodology, which considers the expected re-default rates for the modified loans. A loan modified in a TDR generally remains subject to the asset-specific allowance methodology throughout its remaining life, regardless of whether the loan is performing and has been returned to accrual status and/or the loan has been removed from the impaired loans disclosures (i.e., loans restructured at market rates). For further discussion of the methodology used to estimate the Firm’s asset-specific allowance, see Note 15.
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240 | | JPMorgan Chase & Co./2014 Annual Report |
Foreclosed property
The Firm acquires property from borrowers through loan restructurings, workouts, and foreclosures. Property acquired may include real property (e.g., residential real estate, land, and buildings) and commercial and personal property (e.g., automobiles, aircraft, railcars, and ships).
The Firm recognizes foreclosed property upon receiving assets in satisfaction of a loan (e.g., by taking legal title or physical possession). For loans collateralized by real property, the Firm generally recognizes the asset received at foreclosure sale or upon the execution of a deed in lieu of
foreclosure transaction with the borrower. Foreclosed assets are reported in other assets on the Consolidated balance sheets and initially recognized at fair value less costs to sell. Each quarter the fair value of the acquired property is reviewed and adjusted, if necessary, to the lower of cost or fair value. Subsequent adjustments to fair value are charged/credited to noninterest revenue. Operating expense, such as real estate taxes and maintenance, are charged to other expense.
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 213 |
Notes to consolidated financial statements
The Firm’s loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class:class.
|
| | | | |
Consumer, excluding credit card(a) | | Credit card | | Wholesale(c)(f) |
Residential real estate – excluding PCI • Residential mortgage(b) • Home equity – senior lien • Home equity – junior lien
• Prime mortgage, including
option ARMs
• Subprime mortgage(c)
Other consumer loans • Auto(b)(d) • Consumer & Business bankingBanking(b)(d)(e) • Student and other Residential real estate – PCI • Home equity • Prime mortgage • Subprime mortgage • Option ARMs | | • Credit card loans | | • Commercial and industrial • Real estate • Financial institutions • Government agencies • Other(d)(g) |
| |
| (a) | Includes loans held in CCB, prime mortgage and home equity loans held in AMAWM and prime mortgage loans held in Corporate. |
| |
| (b) | Predominantly includes prime (including option ARMs) and subprime loans. |
| |
| (c) | Includes senior and junior lien home equity loans. |
| |
| (d) | Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses; these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes. |
| |
(c)(e) | Predominantly includes Business Banking loans. |
| |
| (f) | Includes loans held in CIB, CB, AMAWM and Corporate. Excludes prime mortgage and home equity loans held in AMAWM and prime mortgage loans held in Corporate. Classes are internally defined and may not align with regulatory definitions. |
| |
(d)(g) | Other primarily includesIncludes loans to SPEsto: individuals; SPEs; and loans to private banking clients. See Note 1 for additionaleducation and civic organizations. For more information on SPEs.SPEs, see Note 14. |
|
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JPMorgan Chase & Co./2014 Annual Report | | 241 |
Notes to consolidated financial statements
The following tables summarize the Firm’s loan balances by portfolio segment.
| | | December 31, 2014 | Consumer, excluding credit card | Credit card(a) | Wholesale | Total | | |
| December 31, 2017 | | Consumer, excluding credit card | Credit card(a) | Wholesale | Total | |
| (in millions) | Consumer, excluding credit card | Credit card(a) | Wholesale | Total | | |
| Retained | (b) | | $ | 372,553 |
| | $ | 149,387 |
| | $ | 402,898 |
| | $ | 924,838 |
| (b) |
| Held-for-sale | | 395 |
| | 3,021 |
| | 3,801 |
| | 7,217 |
| | | 128 |
| | 124 |
| | 3,099 |
| | 3,351 |
| |
| At fair value | | — |
| | — |
| | 2,611 |
| | 2,611 |
| | | — |
| | — |
| | 2,508 |
| | 2,508 |
| |
| Total | | $ | 295,374 |
| | $ | 131,048 |
| | $ | 330,914 |
| | $ | 757,336 |
| | | $ | 372,681 |
| | $ | 149,511 |
| | $ | 408,505 |
| | $ | 930,697 |
| |
| | | | | | | | | | | | | | | | | | | |
| December 31, 2013 | Consumer, excluding credit card | | Credit card(a) | | Wholesale | | Total | | |
| December 31, 2016 | | Consumer, excluding credit card | | Credit card(a) | | Wholesale | | Total | |
| (in millions) | Consumer, excluding credit card | | Credit card(a) | | Wholesale | | Total | | |
| Retained | (b) | | $ | 364,406 |
| | $ | 141,711 |
| | $ | 383,790 |
| | $ | 889,907 |
| (b) |
| Held-for-sale | | 614 |
| | 326 |
| | 11,290 |
| | 12,230 |
| | | 238 |
| | 105 |
| | 2,285 |
| | 2,628 |
| |
| At fair value | | — |
| | — |
| | 2,011 |
| | 2,011 |
| | | — |
| | — |
| | 2,230 |
| | 2,230 |
| |
| Total | | $ | 289,063 |
| | $ | 127,791 |
| | $ | 321,564 |
| | $ | 738,418 |
| | | $ | 364,644 |
| | $ | 141,816 |
| | $ | 388,305 |
| | $ | 894,765 |
| |
| |
| (a) | Includes billed finance chargesaccrued interest and fees net of an allowance for the uncollectible amounts.portion of accrued interest and fee income. |
| |
| (b) | Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unearned income, unamortized discounts and premiums and net deferred loan costsfees or costs. These amounts were not material as of $1.3 billion and $1.9 billion at December 31, 20142017 and 2013, respectively. 2016. |
|
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| 214 | | JPMorgan Chase & Co./2017 Annual Report |
The following tables providetable provides information about the carrying value of retained loans purchased, sold and reclassified to held-for-sale during the periods indicated. These tables excludeThis table excludes loans recorded at fair value. The Firm manages its exposure to credit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures.
| | | | | | 2014 | | | 2017 |
Year ended December 31,
(in millions) | | Consumer, excluding credit card | Credit card | Wholesale | Total | | Consumer, excluding credit card | Credit card | Wholesale | Total |
| Purchases | | | $ | 7,434 |
| (a)(b) | | $ | — |
| | $ | 885 |
| | $ | 8,319 |
| | | $ | 3,461 |
| (a)(b) | | $ | — |
| | $ | 1,799 |
| | $ | 5,260 |
|
| Sales | | 6,655 |
| | 291 |
| | 7,381 |
| | 14,327 |
| | 3,405 |
| | — |
| | 11,063 |
| | 14,468 |
|
| Retained loans reclassified to held-for-sale | | 1,190 |
| | 3,039 |
| | 581 |
| | 4,810 |
| | 6,340 |
| (c) | | — |
| | 1,229 |
| | 7,569 |
|
| | | | | | 2013 | | | 2016 |
Year ended December 31,
(in millions) | | Consumer, excluding credit card | Credit card | Wholesale | Total | | Consumer, excluding credit card | Credit card | Wholesale | Total |
| Purchases | | $ | 7,616 |
| (a)(b) | | $ | 328 |
| | $ | 697 |
| | $ | 8,641 |
| | $ | 4,116 |
| (a)(b) | | $ | — |
| | $ | 1,448 |
| | $ | 5,564 |
|
| Sales | | 4,845 |
| | — |
| | 4,232 |
| | 9,077 |
| | 6,368 |
| | — |
| | 8,739 |
| | 15,107 |
|
| Retained loans reclassified to held-for-sale | | 1,261 |
| | 309 |
| | 5,641 |
| | 7,211 |
| | 321 |
| | — |
| | 2,381 |
| | 2,702 |
|
| | | | | | 2012 | | | 2015 |
Year ended December 31,
(in millions) | | Consumer, excluding credit card | Credit card | Wholesale | Total | | Consumer, excluding credit card | Credit card | Wholesale | Total |
| Purchases | | $ | 6,601 |
| (a)(b) | | $ | — |
| | $ | 827 |
| | $ | 7,428 |
| | $ | 5,279 |
| (a)(b) | | $ | — |
| | $ | 2,154 |
| | $ | 7,433 |
|
| Sales | | 1,852 |
| | — |
| | 3,423 |
| | 5,275 |
| | 5,099 |
| | — |
| | 9,188 |
| | 14,287 |
|
| Retained loans reclassified to held-for-sale | | — |
| | 1,043 |
| | 504 |
| | 1,547 |
| | 1,514 |
| | 79 |
| | 642 |
| | 2,235 |
|
| |
| (a) | Purchases predominantly represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools as permitted by Government National Mortgage Association (“Ginnie MaeMae”) guidelines. The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, the Federal Housing Administration (“FHA”), Rural Housing Services (“RHS”)FHA, RHS, and/or the U.S. Department of Veterans Affairs (“VA”).VA. |
| |
| (b) | ExcludedExcludes purchases of retained loans purchased from correspondents that were originatedsourced through the correspondent origination channel and underwritten in accordance with the Firm’s underwriting standards. Such purchases were $15.1$23.5 billion, $5.7$30.4 billion and $1.4$50.3 billion for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. |
| |
| (c) | Includes the Firm’s student loan portfolio which was sold in 2017. |
The following table provides information about gains and losses on loan sales, including lower of cost or fair value adjustments, on loan sales by portfolio segment.
| | | Year ended December 31, (in millions) | 2014 | 2013 | 2012 | 2017 | | 2016 | | 2015 |
Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a) | | | | | | |
Consumer, excluding credit card | $ | 341 |
| $ | 313 |
| $ | 122 |
| $ | (126 | ) | | $ | 231 |
| | $ | 305 |
|
| Credit card | (241 | ) | 3 |
| (9 | ) | (8 | ) | | (12 | ) | | 1 |
|
| Wholesale | 101 |
| (76 | ) | 180 |
| 41 |
| | 26 |
| | 34 |
|
| Total net gains/(losses) on sales of loans (including lower of cost or fair value adjustments) | $ | 201 |
| $ | 240 |
| $ | 293 |
| $ | (93 | ) | | $ | 245 |
| | $ | 340 |
|
| |
| (a) | Excludes sales related to loans accounted for at fair value. |
| |
| (b) | Includes amounts related to the Firm’s student loan portfolio which was sold in 2017. |
|
| | |
242 | | JPMorgan Chase & Co./20142017 Annual Report | | 215 |
Notes to consolidated financial statements
Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist primarily of residential mortgages, home equity loans and lines of credit, auto loans, consumer and business banking loans and student and other loans, with a focus on serving the prime consumer credit market. The portfolio also includes home equity loans secured by junior liens, prime mortgage loans with an interest-only payment period, and certain payment-option loans originated by Washington Mutual that may result in negative amortization.
The table below provides information about retained consumer loans, excluding credit card, by class. In 2017, the Firm sold its student loan portfolio. | | | December 31, (in millions) | 2014 | 2013 | 2017 |
| 2016 |
|
| Residential real estate – excluding PCI | | |
| Home equity: | | |
| Senior lien | $ | 16,367 |
| $ | 17,113 |
| |
| Junior lien | 36,375 |
| 40,750 |
| |
| Mortgages: | | |
| Prime, including option ARMs | 104,921 |
| 87,162 |
| |
| Subprime | 5,056 |
| 7,104 |
| |
Residential mortgage(a) | | $ | 216,496 |
| $ | 192,486 |
|
| Home equity | | 33,450 |
| 39,063 |
|
| Other consumer loans | | |
| Auto | 54,536 |
| 52,757 |
| 66,242 |
| 65,814 |
|
| Business banking | 20,058 |
| 18,951 |
| |
| Student and other | 10,970 |
| 11,557 |
| |
Consumer & Business Banking(a) | | 25,789 |
| 24,307 |
|
Student(a) | | — |
| 7,057 |
|
| Residential real estate – PCI | | |
| Home equity | 17,095 |
| 18,927 |
| 10,799 |
| 12,902 |
|
| Prime mortgage | 10,220 |
| 12,038 |
| 6,479 |
| 7,602 |
|
| Subprime mortgage | 3,673 |
| 4,175 |
| 2,609 |
| 2,941 |
|
| Option ARMs | 15,708 |
| 17,915 |
| 10,689 |
| 12,234 |
|
| Total retained loans | $ | 294,979 |
| $ | 288,449 |
| $ | 372,553 |
| $ | 364,406 |
|
(a) Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation.
Delinquency rates are a primary credit quality indicator for consumer loans. Loans that are more than 30 days past due provide an early warning of borrowers who may be experiencing financial difficulties and/or who may be unable or unwilling to repay the loan. As the loan continues to age, it becomes more clear thatwhether the borrower is likely either unable or unwilling to pay. In the case of residential real estate loans, late-stage delinquencies (greater than 150 days past due) are a strong indicator of loans that will ultimately result in a foreclosure or similar liquidation transaction. In addition to delinquency rates, other credit quality indicators for consumer loans vary based on the class of loan, as follows:
For residential real estate loans, including both non-PCI and PCI portfolios, the current estimated LTV ratio, or the combined LTV ratio in the case of junior lien loans, is an indicator of the potential loss severity in the event of default. Additionally, LTV or combined LTV ratios can provide
insight into a borrower’s continued willingness to pay, as the delinquency rate of high-LTV loans tends to be greater than that for loans where the borrower has equity in the collateral. The geographic distribution of the loan collateral also provides insight as to the credit quality of the portfolio, as factors such as the regional economy, home price changes and specific events such as natural disasters, will affect credit quality. The borrower’s current or “refreshed” FICO score is a secondary credit-quality indicator for certain loans, as FICO scores are an indication of the borrower’s credit payment history. Thus, a loan to a borrower with a low FICO score (660 or below)(less than 660 ) is considered to be of higher risk than a loan to a borrower with a highhigher FICO score. Further, a loan to a borrower with a high LTV ratio and a low FICO score is at greater risk of default than a loan to a borrower that has both a high LTV ratio and a high FICO score.
For scored auto and scored business banking and student loans, geographic distribution is an indicator of the credit performance of the portfolio. Similar to residential real estate loans, geographic distribution provides insights into the portfolio performance based on regional economic activity and events.
Risk-rated business banking and auto loans are similar to wholesale loans in that the primary credit quality indicators are the risk rating that is assigned to the loan and whether the loans are considered to be criticized and/or nonaccrual. Risk ratings are reviewed on a regular and ongoing basis by Credit Risk Management and are adjusted as necessary for updated information about borrowers’ ability to fulfill their obligations. For further information about risk-rated wholesale loan credit quality indicators, seepage 255228of this Note.
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| | |
| 216 | | JPMorgan Chase & Co./2017 Annual Report |
Residential real estate –— excluding PCI loans
The following table provides information by class for residential real estate –— excluding retained PCI loans in the consumer, excluding credit card, portfolio segment.
The following factors should be considered in analyzing certain credit statistics applicable to the Firm’s residential real estate – excluding PCI loans portfolio: (i) junior lien home equity loans may be fully charged off when the loan becomes 180 days past due, and the value of the collateral does not support the repayment of the loan, resulting in relatively high charge-off rates for this product class; and (ii) the lengthening of loss-mitigation timelines may result in higher delinquency rates for loans carried at the net realizable value of the collateral that remain on the Firm’s Consolidated balance sheets.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 243 |
Notes to consolidated financial statements
| | | Residential real estate – excluding PCI loans | Residential real estate – excluding PCI loans | | | | | | | | Residential real estate – excluding PCI loans | | | | |
| | Home equity | | Mortgages | | | |
December 31, (in millions, except ratios) | Senior lien | | Junior lien | | Prime, including option ARMs | | Subprime | | Total residential real estate – excluding PCI | Residential mortgage(g) | | Home equity | | Total residential real estate – excluding PCI |
| 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
Loan delinquency(a) | | | | | | | | | | | | | | |
| Current | $ | 15,730 |
| $ | 16,470 |
| | $ | 35,575 |
| $ | 39,864 |
| | $ | 93,951 |
| $ | 76,108 |
| | $ | 4,296 |
| $ | 5,956 |
| | $ | 149,552 |
| $ | 138,398 |
| $ | 208,713 |
| $ | 184,133 |
| | $ | 32,391 |
| $ | 37,941 |
| | $ | 241,104 |
| $ | 222,074 |
|
| 30–149 days past due | 275 |
| 298 |
| | 533 |
| 662 |
| | 4,091 |
| 3,155 |
| | 489 |
| 646 |
| | 5,388 |
| 4,761 |
| 4,234 |
| 3,828 |
| | 671 |
| 646 |
| | 4,905 |
| 4,474 |
|
| 150 or more days past due | 362 |
| 345 |
| | 267 |
| 224 |
| | 6,879 |
| 7,899 |
| | 271 |
| 502 |
| | 7,779 |
| 8,970 |
| 3,549 |
| 4,525 |
| | 388 |
| 476 |
| | 3,937 |
| 5,001 |
|
| Total retained loans | $ | 16,367 |
| $ | 17,113 |
| | $ | 36,375 |
| $ | 40,750 |
| | $ | 104,921 |
| $ | 87,162 |
| | $ | 5,056 |
| $ | 7,104 |
| | $ | 162,719 |
| $ | 152,129 |
| $ | 216,496 |
| $ | 192,486 |
| | $ | 33,450 |
| $ | 39,063 |
| | $ | 249,946 |
| $ | 231,549 |
|
% of 30+ days past due to total retained loans(b) | 3.89 | % | 3.76 | % | | 2.20 | % | 2.17 | % | | 1.42 | % | 2.32 | % | | 15.03 | % | 16.16 | % | | 2.27 | % | 3.09 | % | 0.77 | % | 0.75 | % | | 3.17 | % | 2.87 | % | | 1.09 | % | 1.11 | % |
| 90 or more days past due and still accruing | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| $ | — |
| |
90 or more days past due and government guaranteed(c) | — |
| — |
| | — |
| — |
| | 7,544 |
| 7,823 |
| | — |
| — |
| | 7,544 |
| 7,823 |
| $ | 4,172 |
| $ | 4,858 |
| | — |
| — |
| | $ | 4,172 |
| $ | 4,858 |
|
| Nonaccrual loans | 938 |
| 932 |
| | 1,590 |
| 1,876 |
| | 2,190 |
| 2,666 |
| | 1,036 |
| 1,390 |
| | 5,754 |
| 6,864 |
| 2,175 |
| 2,256 |
| | 1,610 |
| 1,845 |
| | 3,785 |
| 4,101 |
|
Current estimated LTV ratios(d)(e)(f)(g) | | | | | | | | |
Current estimated LTV ratios(d)(e) | | | | | | |
| Greater than 125% and refreshed FICO scores: | | | | | | | | | | | | | | |
| Equal to or greater than 660 | $ | 21 |
| $ | 40 |
| | $ | 467 |
| $ | 1,101 |
| | $ | 120 |
| $ | 236 |
| | $ | 10 |
| $ | 52 |
| | $ | 618 |
| $ | 1,429 |
| $ | 37 |
| $ | 30 |
| | $ | 10 |
| $ | 70 |
| | $ | 47 |
| $ | 100 |
|
| Less than 660 | 10 |
| 22 |
| | 138 |
| 346 |
| | 103 |
| 281 |
| | 51 |
| 197 |
| | 302 |
| 846 |
| 19 |
| 48 |
| | 3 |
| 15 |
| | 22 |
| 63 |
|
| 101% to 125% and refreshed FICO scores: | | | | | | | | | | | | | | |
| Equal to or greater than 660 | 134 |
| 212 |
| | 3,149 |
| 4,645 |
| | 648 |
| 1,210 |
| | 118 |
| 249 |
| | 4,049 |
| 6,316 |
| 36 |
| 135 |
| | 296 |
| 668 |
| | 332 |
| 803 |
|
| Less than 660 | 69 |
| 107 |
| | 923 |
| 1,407 |
| | 340 |
| 679 |
| | 298 |
| 597 |
| | 1,630 |
| 2,790 |
| 88 |
| 177 |
| | 95 |
| 221 |
| | 183 |
| 398 |
|
| 80% to 100% and refreshed FICO scores: | | | | | | | | | | | | | | |
| Equal to or greater than 660 | 633 |
| 858 |
| | 6,481 |
| 7,995 |
| | 3,863 |
| 4,749 |
| | 432 |
| 614 |
| | 11,409 |
| 14,216 |
| 4,369 |
| 4,026 |
| | 1,676 |
| 2,961 |
| | 6,045 |
| 6,987 |
|
| Less than 660 | 226 |
| 326 |
| | 1,780 |
| 2,128 |
| | 1,026 |
| 1,590 |
| | 770 |
| 1,141 |
| | 3,802 |
| 5,185 |
| 483 |
| 718 |
| | 569 |
| 945 |
| | 1,052 |
| 1,663 |
|
| Less than 80% and refreshed FICO scores: | | | | | | | | | | | | | | |
| Equal to or greater than 660 | 13,048 |
| 13,186 |
| | 20,030 |
| 19,732 |
| | 81,805 |
| 59,634 |
| | 1,586 |
| 1,961 |
| | 116,469 |
| 94,513 |
| 194,758 |
| 169,579 |
| | 25,262 |
| 27,317 |
| | 220,020 |
| 196,896 |
|
| Less than 660 | 2,226 |
| 2,362 |
| | 3,407 |
| 3,396 |
| | 4,906 |
| 5,071 |
| | 1,791 |
| 2,293 |
| | 12,330 |
| 13,122 |
| 6,952 |
| 6,759 |
| | 3,850 |
| 4,380 |
| | 10,802 |
| 11,139 |
|
| No FICO/LTV available | | 1,259 |
| 1,650 |
| | 1,689 |
| 2,486 |
| | 2,948 |
| 4,136 |
|
| U.S. government-guaranteed | — |
| — |
| | — |
| — |
| | 12,110 |
| 13,712 |
| | — |
| — |
| | 12,110 |
| 13,712 |
| 8,495 |
| 9,364 |
| | — |
| — |
| | 8,495 |
| 9,364 |
|
| Total retained loans | $ | 16,367 |
| $ | 17,113 |
| | $ | 36,375 |
| $ | 40,750 |
| | $ | 104,921 |
| $ | 87,162 |
| | $ | 5,056 |
| $ | 7,104 |
| | $ | 162,719 |
| $ | 152,129 |
| $ | 216,496 |
| $ | 192,486 |
| | $ | 33,450 |
| $ | 39,063 |
| | $ | 249,946 |
| $ | 231,549 |
|
| Geographic region | Geographic region | | | | | | | | | | | | |
| California | $ | 2,232 |
| $ | 2,397 |
| | $ | 8,144 |
| $ | 9,240 |
| | $ | 28,133 |
| $ | 21,876 |
| | $ | 718 |
| $ | 1,069 |
| | $ | 39,227 |
| $ | 34,582 |
| $ | 68,855 |
| $ | 59,802 |
| | $ | 6,582 |
| $ | 7,644 |
| | $ | 75,437 |
| $ | 67,446 |
|
| New York | 2,805 |
| 2,732 |
| | 7,685 |
| 8,429 |
| | 16,550 |
| 14,085 |
| | 677 |
| 942 |
| | 27,717 |
| 26,188 |
| 27,473 |
| 24,916 |
| | 6,866 |
| 7,978 |
| | 34,339 |
| 32,894 |
|
| Illinois | 1,306 |
| 1,248 |
| | 2,605 |
| 2,815 |
| | 6,654 |
| 5,216 |
| | 207 |
| 280 |
| | 10,772 |
| 9,559 |
| 14,501 |
| 13,126 |
| | 2,521 |
| 2,947 |
| | 17,022 |
| 16,073 |
|
| Texas | | 12,508 |
| 10,772 |
| | 2,021 |
| 2,225 |
| | 14,529 |
| 12,997 |
|
| Florida | 861 |
| 847 |
| | 1,923 |
| 2,167 |
| | 5,106 |
| 4,598 |
| | 632 |
| 885 |
| | 8,522 |
| 8,497 |
| 9,598 |
| 8,395 |
| | 1,847 |
| 2,133 |
| | 11,445 |
| 10,528 |
|
| Texas | 1,845 |
| 2,044 |
| | 1,087 |
| 1,199 |
| | 4,935 |
| 3,565 |
| | 177 |
| 220 |
| | 8,044 |
| 7,028 |
| |
| New Jersey | 654 |
| 630 |
| | 2,233 |
| 2,442 |
| | 3,361 |
| 2,679 |
| | 227 |
| 339 |
| | 6,475 |
| 6,090 |
| 7,142 |
| 6,374 |
| | 1,957 |
| 2,253 |
| | 9,099 |
| 8,627 |
|
| Washington | | 6,962 |
| 5,451 |
| | 1,026 |
| 1,229 |
| | 7,988 |
| 6,680 |
|
| Colorado | | 7,335 |
| 6,306 |
| | 632 |
| 677 |
| | 7,967 |
| 6,983 |
|
| Massachusetts | | 6,323 |
| 5,834 |
| | 295 |
| 371 |
| | 6,618 |
| 6,205 |
|
| Arizona | 927 |
| 1,019 |
| | 1,595 |
| 1,827 |
| | 1,805 |
| 1,385 |
| | 112 |
| 144 |
| | 4,439 |
| 4,375 |
| 4,109 |
| 3,595 |
| | 1,439 |
| 1,772 |
| | 5,548 |
| 5,367 |
|
| Washington | 506 |
| 555 |
| | 1,216 |
| 1,378 |
| | 2,410 |
| 1,951 |
| | 109 |
| 150 |
| | 4,241 |
| 4,034 |
| |
| Michigan | 736 |
| 799 |
| | 848 |
| 976 |
| | 1,203 |
| 998 |
| | 121 |
| 178 |
| | 2,908 |
| 2,951 |
| |
| Ohio | 1,150 |
| 1,298 |
| | 778 |
| 907 |
| | 615 |
| 466 |
| | 112 |
| 161 |
| | 2,655 |
| 2,832 |
| |
All other(h) | 3,345 |
| 3,544 |
| | 8,261 |
| 9,370 |
| | 34,149 |
| 30,343 |
| | 1,964 |
| 2,736 |
| | 47,719 |
| 45,993 |
| |
All other(f) | | 51,690 |
| 47,915 |
| | 8,264 |
| 9,834 |
| | 59,954 |
| 57,749 |
|
| Total retained loans | $ | 16,367 |
| $ | 17,113 |
| | $ | 36,375 |
| $ | 40,750 |
| | $ | 104,921 |
| $ | 87,162 |
| | $ | 5,056 |
| $ | 7,104 |
| | $ | 162,719 |
| $ | 152,129 |
| $ | 216,496 |
| $ | 192,486 |
| | $ | 33,450 |
| $ | 39,063 |
| | $ | 249,946 |
| $ | 231,549 |
|
| |
| (a) | Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $2.6$2.4 billion and $4.7$2.5 billion; 30–149 days past due included $3.5$3.2 billion and $2.4$3.1 billion; and 150 or more days past due included $6.0$2.9 billion and $6.6$3.8 billion at December 31, 20142017 and 2013,2016, respectively. |
| |
| (b) | At December 31, 20142017 and 2013, Prime, including option ARMs2016, residential mortgage loans excluded mortgage loans insured by U.S. government agencies of $9.5$6.1 billion and $9.0$6.9 billion, respectively.respectively, that are 30 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee. |
| |
| (c) | These balances, which are 90 days or more past due, but insured by U.S. government agencies, arewere excluded from nonaccrual loans. In predominantly all cases, 100% ofloans as the loans are guaranteed by U.S government agencies. Typically the principal balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. These amounts have been excluded from nonaccrual loans based upon the government guarantee. At December 31, 20142017 and 2013,2016, these balances included $4.2$1.5 billion and $4.7$2.2 billion, respectively, of loans that are no longer accruing interest because interest has been curtailed bybased on the U.S. government agencies although, in predominantly all cases, 100% of the principal is still insured.agreed-upon servicing guidelines. For the remaining balance, interest is being accrued at the guaranteed reimbursement rate. There were no loans that were not guaranteed by U.S. government agencies that are 90 or more days past due and still accruing interest at December 31, 2017 and 2016. |
| |
| (d) | Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. |
| |
(e) | Junior lien represents Current estimated combined LTV whichfor junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property. All other products are presented without consideration of subordinate liens on the property. |
| |
(f)(e) | Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis. |
| |
(g)(f) | The prior period prime, including option ARMs have been revised. This revision had no impact on the Firm’s Consolidated balance sheets or its results of operations. |
| |
(h) | At December 31, 20142017 and 2013,2016, included mortgage loans insured by U.S. government agencies of $12.1$8.5 billion and $13.7$9.4 billion, respectively. |
| |
| (g) | Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation. |
|
| | |
244 | | JPMorgan Chase & Co./20142017 Annual Report | | 217 |
Notes to consolidated financial statements
The following tables representtable represents the Firm’s delinquency statistics for junior lien home equity loans and lines as of December 31, 20142017 and 20132016.
|
| | | | | | | | | | | | | | | | | | | |
| | | Delinquencies | | | | Total 30+ day delinquency rate |
| December 31, 2014 | | 30–89 days past due | | 90–149 days past due | | 150+ days past due | | Total loans | |
| (in millions, except ratios) | | | | | |
HELOCs:(a) | | | | | | | | | | |
Within the revolving period(b) | | $ | 233 |
| | $ | 69 |
| | $ | 141 |
| | $ | 25,252 |
| | 1.75 | % |
| Beyond the revolving period | | 108 |
| | 37 |
| | 107 |
| | 7,979 |
| | 3.16 |
|
| HELOANs | | 66 |
| | 20 |
| | 19 |
| | 3,144 |
| | 3.34 |
|
| Total | | $ | 407 |
| | $ | 126 |
| | $ | 267 |
| | $ | 36,375 |
| | 2.20 | % |
| | | | | Delinquencies | | | | Total 30+ day delinquency rate | | Total loans | | Total 30+ day delinquency rate |
| December 31, 2013 | | 30–89 days past due | | 90–149 days past due | | 150+ days past due | | Total loans | | |
| (in millions, except ratios) | | |
| December 31, (in millions except ratios) | | | 2017 | 2016 | | 2017 | 2016 |
HELOCs:(a) | | | | | | | | | | | | | | |
Within the revolving period(b) | | $ | 341 |
| | $ | 104 |
| | $ | 162 |
| | $ | 31,848 |
| | 1.91 | % | | $ | 6,363 |
| $ | 10,304 |
| | 0.50 | % | 1.27 | % |
| Beyond the revolving period | | 84 |
| | 21 |
| | 46 |
| | 4,980 |
| | 3.03 |
| | 13,532 |
| 13,272 |
| | 3.56 |
| 3.05 |
|
| HELOANs | | 86 |
| | 26 |
| | 16 |
| | 3,922 |
| | 3.26 |
| | 1,371 |
| 1,861 |
| | 3.50 |
| 2.85 |
|
| Total | | $ | 511 |
| | $ | 151 |
| | $ | 224 |
| | $ | 40,750 |
| | 2.17 | % | | $ | 21,266 |
| $ | 25,437 |
| | 2.64 | % | 2.32 | % |
(a) These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period, but also include HELOCs originated by Washington Mutual that requireallow interest-only payments beyond the revolving period.
(b) The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are experiencing financial difficulty or when the collateral does not support the loan amount.difficulty.
Home equity lines of credit (“HELOCs”)HELOCs beyond the revolving period and home equity loans (“HELOANs”)HELOANs have higher delinquency rates than do HELOCs within the revolving period. That is primarily because the fully-amortizing payment that is generally required for those products is higher than the minimum payment options
available for HELOCs within the revolving period. The higher delinquency rates associated with amortizing HELOCs and HELOANs are factored into the loss estimates produced by the Firm’s delinquency roll-rate methodology, which estimates defaults based on the current delinquency status of a portfolio.allowance for loan losses.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 245 |
Notes to consolidated financial statements
Impaired loans
The table below sets forth information about the Firm’s residential real estate impaired loans, excluding PCI loans. These loans are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 15.13.
| | | | Home equity | | Mortgages | | Total residential real estate – excluding PCI | | | | | | | | | | | | | |
December 31, (in millions) | Senior lien | | Junior lien | | Prime, including option ARMs | | Subprime | | Residential mortgage | | Home equity | | Total residential real estate – excluding PCI |
| 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 |
| Impaired loans | | | | | | | | | | | | | | |
| With an allowance | $ | 552 |
| $ | 567 |
| | $ | 722 |
| $ | 727 |
| | $ | 4,949 |
| $ | 5,871 |
| | $ | 2,239 |
| $ | 2,989 |
| | $ | 8,462 |
| $ | 10,154 |
| $ | 4,407 |
| $ | 4,689 |
| | $ | 1,236 |
| $ | 1,266 |
| | $ | 5,643 |
| $ | 5,955 |
|
Without an allowance(a) | 549 |
| 579 |
| | 582 |
| 592 |
| | 1,196 |
| 1,133 |
| | 639 |
| 709 |
| | 2,966 |
| 3,013 |
| 1,213 |
| 1,343 |
| | 882 |
| 998 |
| | 2,095 |
| 2,341 |
|
Total impaired loans(b)(c) | $ | 1,101 |
| $ | 1,146 |
| | $ | 1,304 |
| $ | 1,319 |
| | $ | 6,145 |
| $ | 7,004 |
| | $ | 2,878 |
| $ | 3,698 |
| | $ | 11,428 |
| $ | 13,167 |
| $ | 5,620 |
| $ | 6,032 |
| | $ | 2,118 |
| $ | 2,264 |
| | $ | 7,738 |
| $ | 8,296 |
|
| Allowance for loan losses related to impaired loans | $ | 84 |
| $ | 94 |
| | $ | 147 |
| $ | 162 |
| | $ | 127 |
| $ | 144 |
| | $ | 64 |
| $ | 94 |
| | $ | 422 |
| $ | 494 |
| $ | 62 |
| $ | 68 |
| | $ | 111 |
| $ | 121 |
| | $ | 173 |
| $ | 189 |
|
Unpaid principal balance of impaired loans(d) | 1,451 |
| 1,515 |
| | 2,603 |
| 2,625 |
| | 7,813 |
| 8,990 |
| | 4,200 |
| 5,461 |
| | 16,067 |
| 18,591 |
| 7,741 |
| 8,285 |
| | 3,701 |
| 3,847 |
| | 11,442 |
| 12,132 |
|
Impaired loans on nonaccrual status(e) | 628 |
| 641 |
| | 632 |
| 666 |
| | 1,559 |
| 1,737 |
| | 931 |
| 1,127 |
| | 3,750 |
| 4,171 |
| 1,743 |
| 1,755 |
| | 1,032 |
| 1,116 |
| | 2,775 |
| 2,871 |
|
| |
| (a) | Represents collateral-dependent residential mortgagereal estate loans that are charged off to the fair value of the underlying collateral less costcosts to sell. The Firm reports, in accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower (“Chapter 7 loans”) as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2014,2017, Chapter 7 residential real estate loans included approximately 19%12% of senior lien home equity 12%and 15% of junior lien home equity, 25% of prime mortgages, including option ARMs, and 18% of subprimeresidential mortgages that were 30 days or more past due. |
| |
| (b) | At December 31, 20142017 and 2013, $4.92016, $3.8 billion and $7.6$3.4 billion, respectively, of loans modified subsequent to repurchase from Government National Mortgage Association (“Ginnie Mae”)Mae in accordance with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure. |
| |
| (c) | Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S. |
| |
| (d) | Represents the contractual amount of principal owed at December 31, 20142017 and 2013.2016. The unpaid principal balance differs from the impaired loan balances due to various factors including charge-offs, net deferred loan fees or costs;costs, and unamortized discounts or premiums on purchased loans. |
| |
| (e) | As of December 31, 20142017 and 2013,2016, nonaccrual loans included $2.9$2.2 billion and $3.0$2.3 billion, respectively, of TDRs for which the borrowers were less than 90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status refer to the Loan accounting framework on pages 238–240211–213 of this Note. |
|
| | |
| 218 | | JPMorgan Chase & Co./2017 Annual Report |
The following table presents average impaired loans and the related interest income reported by the Firm.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | Average impaired loans | | Interest income on impaired loans(a) | | Interest income on impaired loans on a cash basis(a) |
| (in millions) | 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 |
| Home equity | | | | | | | | | | | |
| Senior lien | $ | 1,122 |
| $ | 1,151 |
| $ | 610 |
| | $ | 55 |
| $ | 59 |
| $ | 27 |
| | $ | 37 |
| $ | 40 |
| $ | 12 |
|
| Junior lien | 1,313 |
| 1,297 |
| 848 |
| | 82 |
| 82 |
| 42 |
| | 53 |
| 55 |
| 16 |
|
| Mortgages | | | | | | | | | | | |
| Prime, including option ARMs | 6,730 |
| 7,214 |
| 5,989 |
| | 262 |
| 280 |
| 238 |
| | 54 |
| 59 |
| 28 |
|
| Subprime | 3,444 |
| 3,798 |
| 3,494 |
| | 182 |
| 200 |
| 183 |
| | 51 |
| 55 |
| 31 |
|
| Total residential real estate – excluding PCI | $ | 12,609 |
| $ | 13,460 |
| $ | 10,941 |
| | $ | 581 |
| $ | 621 |
| $ | 490 |
| | $ | 195 |
| $ | 209 |
| $ | 87 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31, (in millions) | Average impaired loans | | Interest income on impaired loans(a) | | Interest income on impaired loans on a cash basis(a) |
| 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 |
| Residential mortgage | $ | 5,797 |
| $ | 6,376 |
| $ | 7,697 |
| | $ | 287 |
| $ | 305 |
| $ | 348 |
| | $ | 75 |
| $ | 77 |
| $ | 87 |
|
| Home equity | 2,189 |
| 2,311 |
| 2,369 |
| | 127 |
| 125 |
| 128 |
| | 80 |
| 80 |
| 85 |
|
| Total residential real estate – excluding PCI | $ | 7,986 |
| $ | 8,687 |
| $ | 10,066 |
| | $ | 414 |
| $ | 430 |
| $ | 476 |
| | $ | 155 |
| $ | 157 |
| $ | 172 |
|
| |
| (a) | Generally, interest income on loans modified in TDRs is recognized on a cash basis until such time as the borrower has made a minimum of six payments under the new terms.terms, unless the loan is deemed to be collateral-dependent. |
|
| | |
246 | | JPMorgan Chase & Co./2014 Annual Report |
Loan modifications
The Firm is required to provide borrower relief under the terms of certain Consent Orders and settlements entered into by the Firm related to its mortgage servicing, originations and residential mortgage-backed securities activities. This borrower relief includes reductions of principal and forbearance.
Modifications of residential real estate loans, excluding PCI loans, are generally accounted for and reported as TDRs. There were no additional commitments to lend to borrowers whose residential real estate loans, excluding PCI loans, have been modified in TDRs.
The following table presents new TDRs reported by the Firm.
|
| | | | | | | | | |
Year ended December 31,
(in millions) | 2017 |
| 2016 |
| 2015 |
|
| Residential mortgage | $ | 373 |
| $ | 254 |
| $ | 267 |
|
| Home equity | 321 |
| 385 |
| 401 |
|
| Total residential real estate – excluding PCI | $ | 694 |
| $ | 639 |
| $ | 668 |
|
|
| | | | | | | | | |
Year ended December 31,
(in millions) | 2014 | 2013 | 2012 |
| Home equity: | | | |
| Senior lien | $ | 110 |
| $ | 210 |
| $ | 835 |
|
| Junior lien | 211 |
| 388 |
| 711 |
|
| Mortgages: | | | |
| Prime, including option ARMs | 287 |
| 770 |
| 2,918 |
|
| Subprime | 124 |
| 319 |
| 1,043 |
|
| Total residential real estate – excluding PCI | $ | 732 |
| $ | 1,687 |
| $ | 5,507 |
|
Nature and extent of modifications
The U.S. Treasury’s Making Home Affordable (“MHA”),programs, as well as the Firm’s proprietary modification programs, generally provide various concessions to financially troubled borrowers including, but not limited to, interest rate reductions, term or payment extensions and deferral of principal and/or interest payments that would otherwise have been required under the terms of the original agreement.
The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the Firm’s loss mitigation programs described above during the periods presented. This table excludes Chapter 7 loans where the sole concession granted is the discharge of debt.
| | | Year ended Dec. 31, | Home equity | | Mortgages | | Total residential real estate - excluding PCI | |
| Senior lien | | Junior lien | | Prime, including option ARMs | | Subprime | | |
| 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 | |
| Year ended December 31, | | Residential mortgage | | Home equity | | Total residential real estate – excluding PCI |
| 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 |
Number of loans approved for a trial modification | 939 |
| 1,719 |
| 1,695 |
| | 626 |
| 884 |
| 918 |
| | 1,052 |
| 2,846 |
| 3,895 |
| | 2,056 |
| 4,233 |
| 4,841 |
| | 4,673 |
| 9,682 |
| 11,349 |
| 1,283 |
| 1,945 |
| 2,711 |
| | 2,321 |
| 3,760 |
| 3,933 |
| | 3,604 |
| 5,705 |
| 6,644 |
|
Number of loans permanently modified | 1,171 |
| 1,765 |
| 4,385 |
| | 2,813 |
| 5,040 |
| 7,430 |
| | 2,507 |
| 4,356 |
| 9,043 |
| | 3,141 |
| 5,364 |
| 9,964 |
| | 9,632 |
| 16,525 |
| 30,822 |
| 2,628 |
| 3,338 |
| 3,145 |
| | 5,624 |
| 4,824 |
| 4,296 |
| | 8,252 |
| 8,162 |
| 7,441 |
|
Concession granted:(a) | | | | | | | | | | | | | | |
| Interest rate reduction | 53 | % | 70 | % | 83 | % | | 84 | % | 88 | % | 88 | % | | 43 | % | 73 | % | 74 | % | | 47 | % | 72 | % | 69 | % | | 58 | % | 77 | % | 77 | % | 63 | % | 76 | % | 71 | % | | 59 | % | 75 | % | 66 | % | | 60 | % | 76 | % | 68 | % |
| Term or payment extension | 67 |
| 76 |
| 47 |
| | 83 |
| 80 |
| 76 |
| | 51 |
| 73 |
| 57 |
| | 53 |
| 56 |
| 41 |
| | 63 |
| 70 |
| 55 |
| 72 |
| 90 |
| 81 |
| | 69 |
| 83 |
| 89 |
| | 70 |
| 86 |
| 86 |
|
| Principal and/or interest deferred | 16 |
| 12 |
| 6 |
| | 23 |
| 24 |
| 17 |
| | 19 |
| 30 |
| 16 |
| | 12 |
| 13 |
| 7 |
| | 18 |
| 21 |
| 12 |
| 15 |
| 16 |
| 27 |
| | 10 |
| 19 |
| 23 |
| | 12 |
| 18 |
| 24 |
|
| Principal forgiveness | 36 |
| 38 |
| 11 |
| | 22 |
| 32 |
| 23 |
| | 51 |
| 38 |
| 29 |
| | 53 |
| 48 |
| 42 |
| | 41 |
| 39 |
| 29 |
| 16 |
| 26 |
| 28 |
| | 13 |
| 9 |
| 7 |
| | 14 |
| 16 |
| 16 |
|
Other(b) | — |
| — |
| — |
| | — |
| — |
| — |
| | 10 |
| 23 |
| 29 |
| | 10 |
| 14 |
| 8 |
| | 6 |
| 11 |
| 11 |
| 33 |
| 25 |
| 11 |
| | 31 |
| 6 |
| — |
| | 32 |
| 14 |
| 5 |
|
| |
| (a) | Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages exceeds 100% because predominantly all of the modifications include more than one type of concession. A significant portion of trial modifications include interest rate reductions and/or term or payment extensions. |
| |
| (b) | RepresentsPredominantly represents variable interest rate to fixed interest rate modifications. |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 247219 |
Notes to consolidated financial statements
Financial effects of modifications and redefaults
The following table provides information about the financial effects of the various concessions granted in modifications of residential real estate loans, excluding PCI, under the Firm’s loss mitigation programs described above and about redefaults of certain loans modified in TDRs for the periods presented. Because the specific types and amounts of concessions offered to borrowers frequently change between the trial modification and the permanent modification, theThe following table presents only the final financial effects of permanent modifications and does not include temporary concessions offered through trial modifications. This table also excludes Chapter 7 loans where the sole concession granted is the discharge of debt.
| | Year ended December 31,
(in millions, except weighted-average data and number of loans) | Home equity | | Mortgages | | Total residential real estate – excluding PCI | Residential mortgage | | Home equity | | Total residential real estate – excluding PCI |
| Senior lien | | Junior lien | | Prime, including option ARMs | | Subprime | | | |
| 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 | 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 |
| Weighted-average interest rate of loans with interest rate reductions – before TDR | 6.38 | % | 6.35 | % | 7.20 | % | | 4.81 | % | 5.05 | % | 5.45 | % | | 4.82 | % | 5.28 | % | 6.14 | % | | 7.16 | % | 7.33 | % | 7.73 | % | | 5.61 | % | 5.88 | % | 6.57 | % | 5.15 | % | 5.59 | % | 5.67 | % | | 4.94 | % | 4.99 | % | 5.20 | % | | 5.06 | % | 5.36 | % | 5.51 | % |
| Weighted-average interest rate of loans with interest rate reductions – after TDR | 3.03 |
| 3.23 |
| 4.61 |
| | 2.00 |
| 2.14 |
| 1.94 |
| | 2.69 |
| 2.77 |
| 3.67 |
| | 3.37 |
| 3.52 |
| 4.14 |
| | 2.78 |
| 2.92 |
| 3.69 |
| 2.99 |
| 2.93 |
| 2.79 |
| | 2.64 |
| 2.34 |
| 2.35 |
| | 2.83 |
| 2.70 |
| 2.64 |
|
| Weighted-average remaining contractual term (in years) of loans with term or payment extensions – before TDR | 17 |
| 19 |
| 18 |
| | 19 |
| 20 |
| 20 |
| | 25 |
| 25 |
| 25 |
| | 24 |
| 24 |
| 24 |
| | 23 |
| 23 |
| 24 |
| 24 |
| 24 |
| 25 |
| | 21 |
| 18 |
| 18 |
| | 23 |
| 22 |
| 22 |
|
| Weighted-average remaining contractual term (in years) of loans with term or payment extensions – after TDR | 30 |
| 31 |
| 28 |
| | 35 |
| 34 |
| 32 |
| | 37 |
| 37 |
| 36 |
| | 36 |
| 35 |
| 32 |
| | 36 |
| 36 |
| 34 |
| 38 |
| 38 |
| 37 |
| | 39 |
| 38 |
| 35 |
| | 38 |
| 38 |
| 36 |
|
| Charge-offs recognized upon permanent modification | $ | 2 |
| $ | 7 |
| $ | 8 |
| | $ | 25 |
| $ | 70 |
| $ | 65 |
| | $ | 9 |
| $ | 16 |
| $ | 35 |
| | $ | 3 |
| $ | 5 |
| $ | 29 |
| | $ | 39 |
| $ | 98 |
| $ | 137 |
| $ | 2 |
| $ | 4 |
| $ | 11 |
| | $ | 1 |
| $ | 1 |
| $ | 4 |
| | $ | 3 |
| $ | 5 |
| $ | 15 |
|
| Principal deferred | 5 |
| 7 |
| 4 |
| | 11 |
| 24 |
| 23 |
| | 39 |
| 129 |
| 133 |
| | 19 |
| 43 |
| 43 |
| | 74 |
| 203 |
| 203 |
| 12 |
| 30 |
| 58 |
| | 10 |
| 23 |
| 27 |
| | 22 |
| 53 |
| 85 |
|
| Principal forgiven | 14 |
| 30 |
| 20 |
| | 21 |
| 51 |
| 58 |
| | 83 |
| 206 |
| 249 |
| | 89 |
| 218 |
| 324 |
| | 207 |
| 505 |
| 651 |
| 20 |
| 44 |
| 66 |
| | 13 |
| 7 |
| 6 |
| | 33 |
| 51 |
| 72 |
|
Balance of loans that redefaulted within one year of permanent modification(a) | $ | 19 |
| $ | 26 |
| $ | 30 |
| | $ | 10 |
| $ | 20 |
| $ | 46 |
| | $ | 121 |
| $ | 164 |
| $ | 255 |
| | $ | 93 |
| $ | 106 |
| $ | 156 |
| | $ | 243 |
| $ | 316 |
| $ | 487 |
| $ | 124 |
| $ | 98 |
| $ | 133 |
| | $ | 56 |
| $ | 40 |
| $ | 21 |
| | $ | 180 |
| $ | 138 |
| $ | 154 |
|
| |
| (a) | Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such loans defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments past due. In the event that a modified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar type of liquidation transaction. Redefaults of loans modified within the last 12 months may not be representative of ultimate redefault levels. |
At December 31, 2014,2017, the weighted-average estimated remaining lives of residential real estate loans, excluding PCI loans, permanently modified in TDRs were 614 years for senior lien home equity, 8residential mortgage and 10 years for junior lien home equity, 9 years for prime mortgages, including option ARMs, and 8 years for subprime mortgage.equity. The estimated remaining lives of these loans reflect estimated prepayments, both voluntary and involuntary (i.e., foreclosures and other forced liquidations).
Active and suspended foreclosure
At December 31, 20142017 and 2013,2016, the Firm had non-PCI residential real estate loans, excluding those insured by U.S. government agencies, with a carrying value of $1.5 billion$787 million and $2.1 billion,$932 million, respectively, that were not included in REO, but were in the process of active or suspended foreclosure.
|
| | |
248220 | | JPMorgan Chase & Co./20142017 Annual Report |
Other consumer loans
The table below provides information for other consumer retained loan classes, including auto and business banking andloans. This table excludes student loans.loans that were sold in 2017.
| | December 31, (in millions, except ratios) | Auto | | Business banking | | Student and other | | Total other consumer | | Auto | | Consumer & Business Banking(c) |
| 2014 | | 2013 | | 2014 | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | 2017 | | 2016 | | 2017 | | 2016 |
Loan delinquency(a) | | | | | | | | | | | | | | | | | | | | | |
| Current | $ | 53,866 |
| | $ | 52,152 |
| | $ | 19,710 |
| $ | 18,511 |
| | $ | 10,080 |
| | $ | 10,529 |
| | $ | 83,656 |
| | $ | 81,192 |
| | $ | 65,651 |
| | $ | 65,029 |
| | $ | 25,454 |
| | $ | 23,920 |
|
| 30–119 days past due | 663 |
| | 599 |
| | 208 |
| 280 |
| | 576 |
| | 660 |
| | 1,447 |
| | 1,539 |
| | 584 |
| | 773 |
| | 213 |
| | 247 |
|
| 120 or more days past due | 7 |
| | 6 |
| | 140 |
| 160 |
| | 314 |
| | 368 |
| | 461 |
| | 534 |
| | 7 |
| | 12 |
| | 122 |
| | 140 |
|
| Total retained loans | $ | 54,536 |
| | $ | 52,757 |
| | $ | 20,058 |
| $ | 18,951 |
| | $ | 10,970 |
| | $ | 11,557 |
| | $ | 85,564 |
| | $ | 83,265 |
| | $ | 66,242 |
| | $ | 65,814 |
| | $ | 25,789 |
| | $ | 24,307 |
|
| % of 30+ days past due to total retained loans | 1.23 | % | | 1.15 | % | | 1.73 | % | 2.32 | % | | 2.15 | % | (d) | 2.52 | % | (d) | 1.47 | % | (d) | 1.60 | % | (d) | 0.89 | % | | 1.19 | % | | 1.30 | % | | 1.59 | % |
90 or more days past due and still accruing (b) | $ | — |
| | $ | — |
| | $ | — |
| $ | — |
| | $ | 367 |
| | $ | 428 |
| | $ | 367 |
| | $ | 428 |
| | |
| Nonaccrual loans | 115 |
| | 161 |
| | 279 |
| 385 |
| | 270 |
| | 86 |
| | 664 |
| | 632 |
| | |
Nonaccrual loans(a) | | 141 |
| | 214 |
| | 283 |
| | 287 |
|
| Geographic region | Geographic region | | | | | | | | | | Geographic region |
| California | $ | 6,294 |
| | $ | 5,615 |
| | $ | 3,008 |
| $ | 2,374 |
| | $ | 1,143 |
| | $ | 1,112 |
| | $ | 10,445 |
| | $ | 9,101 |
| | $ | 8,445 |
| | $ | 7,975 |
| | $ | 5,032 |
| | $ | 4,426 |
|
| Texas | | 7,013 |
| | 7,041 |
| | 2,916 |
| | 2,954 |
|
| New York | 3,662 |
| | 3,898 |
| | 3,187 |
| 3,084 |
| | 1,259 |
| | 1,218 |
| | 8,108 |
| | 8,200 |
| | 4,023 |
| | 4,078 |
| | 4,195 |
| | 3,979 |
|
| Illinois | 3,175 |
| | 2,917 |
| | 1,373 |
| 1,341 |
| | 729 |
| | 740 |
| | 5,277 |
| | 4,998 |
| | 3,916 |
| | 3,984 |
| | 2,017 |
| | 1,758 |
|
| Florida | 2,301 |
| | 2,012 |
| | 827 |
| 646 |
| | 521 |
| | 539 |
| | 3,649 |
| | 3,197 |
| | 3,350 |
| | 3,374 |
| | 1,424 |
| | 1,195 |
|
| Texas | 5,608 |
| | 5,310 |
| | 2,626 |
| 2,646 |
| | 868 |
| | 878 |
| | 9,102 |
| | 8,834 |
| | |
| Arizona | | 2,221 |
| | 2,209 |
| | 1,383 |
| | 1,307 |
|
| Ohio | | 2,105 |
| | 2,194 |
| | 1,380 |
| | 1,402 |
|
| Michigan | | 1,418 |
| | 1,567 |
| | 1,357 |
| | 1,343 |
|
| New Jersey | 1,945 |
| | 2,014 |
| | 451 |
| 392 |
| | 378 |
| | 397 |
| | 2,774 |
| | 2,803 |
| | 2,044 |
| | 2,031 |
| | 721 |
| | 623 |
|
| Arizona | 2,003 |
| | 1,855 |
| | 1,083 |
| 1,046 |
| | 239 |
| | 252 |
| | 3,325 |
| | 3,153 |
| | |
| Washington | 1,019 |
| | 950 |
| | 258 |
| 234 |
| | 235 |
| | 227 |
| | 1,512 |
| | 1,411 |
| | |
| Michigan | 1,633 |
| | 1,902 |
| | 1,375 |
| 1,383 |
| | 466 |
| | 513 |
| | 3,474 |
| | 3,798 |
| | |
| Ohio | 2,157 |
| | 2,229 |
| | 1,354 |
| 1,316 |
| | 629 |
| | 708 |
| | 4,140 |
| | 4,253 |
| | |
| Louisiana | | 1,656 |
| | 1,814 |
| | 849 |
| | 979 |
|
| All other | 24,739 |
| | 24,055 |
| | 4,516 |
| 4,489 |
| | 4,503 |
| | 4,973 |
| | 33,758 |
| | 33,517 |
| | 30,051 |
| | 29,547 |
| | 4,515 |
| | 4,341 |
|
| Total retained loans | $ | 54,536 |
| | $ | 52,757 |
| | $ | 20,058 |
| $ | 18,951 |
| | $ | 10,970 |
| | $ | 11,557 |
| | $ | 85,564 |
| | $ | 83,265 |
| | $ | 66,242 |
| | $ | 65,814 |
| | $ | 25,789 |
| | $ | 24,307 |
|
Loans by risk ratings(c) | | | | | | | | | | | | | | | |
Loans by risk ratings(b) | | | | | | | | |
| Noncriticized | $ | 9,822 |
| | $ | 9,968 |
| | $ | 14,619 |
| $ | 13,622 |
| | NA |
| | NA |
| | $ | 24,441 |
| | $ | 23,590 |
| | $ | 15,604 |
| | $ | 13,899 |
| | $ | 17,938 |
| | $ | 16,858 |
|
| Criticized performing | 35 |
| | 54 |
| | 708 |
| 711 |
| | NA |
| | NA |
| | 743 |
| | 765 |
| | 93 |
| | 201 |
| | 791 |
| | 816 |
|
| Criticized nonaccrual | — |
| | 38 |
| | 213 |
| 316 |
| | NA |
| | NA |
| | 213 |
| | 354 |
| | 9 |
| | 94 |
| | 213 |
| | 217 |
|
| |
| (a) | Individual delinquency classifications includedThere were no loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) as follows: current included $4.3 billion and $4.9 billion; 30-119 days past due included $364 million and $387 million; and 120that were 90 or more days past due included $290 million and $350 millionstill accruing interest at December 31, 20142017, and 2013, respectively.December 31, 2016. |
| |
| (b) | These amounts represent student loans, which are insured by U.S. government agencies under the FFELP. These amounts were accruing as reimbursement of insured amounts is proceeding normally. |
| |
(c) | For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are considered to be criticized and/or nonaccrual. |
| |
(d)(c) | December 31, 2014 and 2013, excluded loans 30 days or more past due and still accruing, which are insured by U.S. government agencies underCertain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the FFELP, of $654 million and $737 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.current period presentation. |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 249221 |
Notes to consolidated financial statements
Other consumer impaired loans and loan modifications
The following table below sets forth information about the Firm’s other consumer impaired loans, including risk-rated business banking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.
|
| | | | | | |
| December 31, (in millions) | 2017 |
| 2016 |
|
| Impaired loans | | |
| With an allowance | $ | 272 |
| $ | 614 |
|
Without an allowance(a) | 26 |
| 30 |
|
Total impaired loans(b)(c) | $ | 298 |
| $ | 644 |
|
| Allowance for loan losses related to impaired loans | $ | 73 |
| $ | 119 |
|
Unpaid principal balance of impaired loans(d) | 402 |
| 753 |
|
| Impaired loans on nonaccrual status | 268 |
| 508 |
|
|
| | | | | | |
December 31, (in millions) | 2014 | 2013 |
| Impaired loans | | |
| With an allowance | $ | 557 |
| $ | 571 |
|
Without an allowance(a) | 35 |
| 47 |
|
Total impaired loans(b)(c) | $ | 592 |
| $ | 618 |
|
| Allowance for loan losses related to impaired loans | $ | 117 |
| $ | 107 |
|
Unpaid principal balance of impaired loans(d) | 719 |
| 788 |
|
| Impaired loans on nonaccrual status | 456 |
| 441 |
|
| |
| (a) | When discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically occurs when the impaired loans have been partially charged off and/or there have been interest payments received and applied to the loan balance. |
| |
| (b) | Predominantly all other consumer impaired loans are in the U.S. |
| |
| (c) | Other consumer average impaired loans were $599$427 million, $648$635 million and $733$566 million for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. The related interest income on impaired loans, including those on a cash basis, was not material for the years ended December 31, 2014, 20132017, 2016 and 2012.2015. |
| |
| (d) | Represents the contractual amount of principal owed at December 31, 20142017 and 2013.2016. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs;charge-offs, interest payments received and applied to the principal balance;balance, net deferred loan fees or costs;costs and unamortized discounts or premiums on purchased loans. |
Loan modifications
Certain other consumer loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing financial difficulty. All of these TDRs are reported as impaired loans.The following table provides information about the Firm’s other consumer loans modified in TDRs. All of theseNew TDRs are reported as impaired loans inwere not material for the tables above.years ended December 31, 2017 and 2016.
|
| | | | | | |
December 31,
(in millions) | 2014 | 2013 |
Loans modified in troubled debt restructurings(a)(b) | $ | 442 |
| $ | 378 |
|
| TDRs on nonaccrual status | 306 |
| 201 |
|
|
| | | | | | |
| December 31, (in millions) | 2017 | 2016 |
Loans modified in TDRs(a)(b) | $ | 102 |
| $ | 362 |
|
| TDRs on nonaccrual status | 72 |
| 226 |
|
| |
| (a) | The impact of these modifications was not material to the Firm for the years ended December 31, 20142017 and 2013.2016. |
| |
| (b) | Additional commitments to lend to borrowers whose loans have been modified in TDRs as of December 31, 20142017 and 20132016 were immaterial. |
Other consumer new TDRs were $291 million, $156 million, and $249 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Financial effects of modifications and redefaults
For auto loans, TDRs typically occur in connection with the bankruptcy of the borrower. In these cases, the loan is modified with a revised repayment plan that typically incorporates interest rate reductions and, to a lesser extent, principal forgiveness.
For business banking loans, concessions are dependent on individual borrower circumstances and can be of a short-term nature for borrowers who need temporary relief or longer term for borrowers experiencing more fundamental financial difficulties. Concessions are predominantly term or payment extensions, but also may include interest rate reductions.
The balance of business banking loans modified in TDRs that experienced a payment default, and for which the payment default occurred within one year of the modification, was $25 million, $43 million and $42 million, during the years ended December 31, 2014, 2013 and 2012, respectively. The balance of auto loans modified in TDRs that experienced a payment default, and for which the payment default occurred within one year of the modification, was $43 million, $54 million, and $46 million, during the years ended December 31, 2014, 2013, and 2012, respectively. A payment default is deemed to occur as follows: (1) for scored auto and business banking loans, when the loan is two payments past due; and (2) for risk-rated business banking loans and auto loans, when the borrower has not made a loan payment by its scheduled due date after giving effect to the contractual grace period, if any.
In May 2014 the Firm began extending the deferment period for up to 24 months for certain student loans, which resulted in extending the maturity of the loans at their original contractual interest rates. These modified loans are considered TDRs and placed on nonaccrual status.
|
| | |
250222 | | JPMorgan Chase & Co./20142017 Annual Report |
Purchased credit-impaired loans
PCI loans are initially recorded at fair value at acquisition. PCI loans acquired in the same fiscal quarter may be aggregated into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. With respect to the Washington Mutual transaction, all of the consumer PCI loans were aggregated into pools of loans with common risk characteristics.
On a quarterly basis, the Firm estimates the total cash flows (both principal and interest) expected to be collected over the remaining life of each pool. These estimates incorporate assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that reflect then-current market conditions. Probable decreases in expected cash flows (i.e., increased credit losses) trigger the recognition of impairment, which is then measured as the present value of the expected principal loss plus any related foregoneforgone interest cash flows, discounted at the pool’s effective interest rate. Impairments are recognized through the provision for credit losses and an increase in the allowance for loan losses. Probable and significant increases in expected cash flows (e.g., decreased credit losses, the net benefit of modifications) would first reverse any previously recorded allowance for loan losses with any remaining increases recognized prospectively as a yield adjustment over the remaining estimated lives of the underlying loans. The impacts of (i) prepayments, (ii) changes in variable interest rates, and (iii) any other changes in the timing of expected cash flows are generally recognized prospectively as adjustments to interest income.
The Firm continues to modify certain PCI loans. The impact of these modifications is incorporated into the Firm’s quarterly assessment of whether a probable and significant change in expected cash flows has occurred, and the loans continue to be accounted for and reported as PCI loans. In evaluating the effect of modifications on expected cash flows, the Firm incorporates the effect of any foregoneforgone interest and also considers the potential for redefault. The Firm develops product-specific probability of default estimates, which are used to compute expected credit losses. In developing these probabilities of default, the Firm considers the relationship between the credit quality characteristics of the underlying loans and certain assumptions about home prices and unemployment based upon industry-wide data. The Firm also considers its own historical loss experience to-date based on actual redefaulted modified PCI loans.
The excess of cash flows expected to be collected over the carrying value of the underlying loans is referred to as the accretable yield. This amount is not reported on the Firm’s Consolidated balance sheets but is accreted into interest income at a level rate of return over the remaining estimated lives of the underlying pools of loans.
If the timing and/or amounts of expected cash flows on PCI loansloan pools were determined not to be reasonably estimable, no interest would be accreted and the loansloan pools would be reported as nonaccrual loans; however, since the timing and amounts of expected cash flows for the Firm’s PCI consumer loansloan pools are reasonably estimable, interest is being accreted and the loansloan pools are being reported as performing loans.
The liquidation of PCI loans, which may include sales of loans, receipt of payment in full byfrom the borrower, or foreclosure, results in removal of the loans from the underlying PCI pool. When the amount of the liquidation proceeds (e.g., cash, real estate), if any, is less than the unpaid principal balance of the loan, the difference is first applied against the PCI pool’s nonaccretable difference for principal losses (i.e., the lifetime credit loss estimate established as a purchase accounting adjustment at the acquisition date). When the nonaccretable difference for a particular loan pool has been fully depleted, any excess of the unpaid principal balance of the loan over the liquidation proceeds is written off against the PCI pool’s allowance for loan losses. Beginning in the fourth quarter of 2014, write-offsWrite-offs of PCI loans also include other adjustments, primarily related to interest forgiveness modifications. Because the Firm’s PCI loans are accounted for at a pool level, the Firm does not recognize charge-offs of PCI loans when they reach specified stages of delinquency (i.e., unlike non-PCI consumer loans, these loans are not charged off based on FFIEC standards).
The PCI portfolio affects the Firm’s results of operations primarily through: (i) contribution to net interest margin; (ii) expense related to defaults and servicing resulting from the liquidation of the loans; and (iii) any provision for loan losses. The PCI loans acquired in the Washington Mutual transaction were funded based on the interest rate characteristics of the loans. For example, variable-rate loans were funded with variable-rate liabilities and fixed-rate loans were funded with fixed-rate liabilities with a similar maturity profile. A net spread will be earned on the declining balance of the portfolio, which is estimated as of December 31, 2014,2017, to have a remaining weighted-average life of 89 years.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 251223 |
Notes to consolidated financial statements
Residential real estate – PCI loans
The table below sets forth information about the Firm’s consumer, excluding credit card, PCI loans.
| | December 31, (in millions, except ratios) | Home equity | | Prime mortgage | | Subprime mortgage | | Option ARMs | | Total PCI | Home equity | | Prime mortgage | | Subprime mortgage | | Option ARMs | | Total PCI |
| 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
Carrying value(a) | $ | 17,095 |
| $ | 18,927 |
| | $ | 10,220 |
| $ | 12,038 |
| | $ | 3,673 |
| $ | 4,175 |
| | $ | 15,708 |
| $ | 17,915 |
| | $ | 46,696 |
| $ | 53,055 |
| $ | 10,799 |
| $ | 12,902 |
| | $ | 6,479 |
| $ | 7,602 |
| | $ | 2,609 |
| $ | 2,941 |
| | $ | 10,689 |
| $ | 12,234 |
| | $ | 30,576 |
| $ | 35,679 |
|
Related allowance for loan losses(b) | 1,758 |
| 1,758 |
| | 1,193 |
| 1,726 |
| | 180 |
| 180 |
| | 194 |
| 494 |
| | 3,325 |
| 4,158 |
| 1,133 |
| 1,433 |
| | 863 |
| 829 |
| | 150 |
| — |
| | 79 |
| 49 |
| | 2,225 |
| 2,311 |
|
| Loan delinquency (based on unpaid principal balance) | | | | | | | | | | Loan delinquency (based on unpaid principal balance) | | | | | | | | | |
| Current | $ | 16,295 |
| $ | 18,135 |
| | $ | 8,912 |
| $ | 10,118 |
| | $ | 3,565 |
| $ | 4,012 |
| | $ | 13,814 |
| $ | 15,501 |
| | $ | 42,586 |
| $ | 47,766 |
| $ | 10,272 |
| $ | 12,423 |
| | $ | 5,839 |
| $ | 6,840 |
| | $ | 2,640 |
| $ | 3,005 |
| | $ | 9,662 |
| $ | 11,074 |
| | $ | 28,413 |
| $ | 33,342 |
|
| 30–149 days past due | 445 |
| 583 |
| | 500 |
| 589 |
| | 536 |
| 662 |
| | 858 |
| 1,006 |
| | 2,339 |
| 2,840 |
| 356 |
| 291 |
| | 336 |
| 336 |
| | 381 |
| 361 |
| | 547 |
| 555 |
| | 1,620 |
| 1,543 |
|
| 150 or more days past due | 1,000 |
| 1,112 |
| | 837 |
| 1,169 |
| | 551 |
| 797 |
| | 1,824 |
| 2,716 |
| | 4,212 |
| 5,794 |
| 392 |
| 478 |
| | 327 |
| 451 |
| | 176 |
| 240 |
| | 689 |
| 917 |
| | 1,584 |
| 2,086 |
|
| Total loans | $ | 17,740 |
| $ | 19,830 |
| | $ | 10,249 |
| $ | 11,876 |
| | $ | 4,652 |
| $ | 5,471 |
| | $ | 16,496 |
| $ | 19,223 |
| | $ | 49,137 |
| $ | 56,400 |
| $ | 11,020 |
| $ | 13,192 |
| | $ | 6,502 |
| $ | 7,627 |
| | $ | 3,197 |
| $ | 3,606 |
| | $ | 10,898 |
| $ | 12,546 |
| | $ | 31,617 |
| $ | 36,971 |
|
| % of 30+ days past due to total loans | 8.15 | % | 8.55 | % | | 13.05 | % | 14.80 | % | | 23.37 | % | 26.67 | % | | 16.26 | % | 19.36 | % | | 13.33 | % | 15.31 | % | 6.79 | % | 5.83 | % | | 10.20 | % | 10.32 | % | | 17.42 | % | 16.67 | % | | 11.34 | % | 11.73 | % | | 10.13 | % | 9.82 | % |
| | | | | | | | | | | |
Current estimated LTV ratios (based on unpaid principal balance)(c)(d) | | | | | | | | | | Current estimated LTV ratios (based on unpaid principal balance)(c)(d) | | | | | | | | |
| Greater than 125% and refreshed FICO scores: | | | | | | | | | | | | | | | | | | |
| Equal to or greater than 660 | $ | 513 |
| $ | 1,168 |
| | $ | 45 |
| $ | 240 |
| | $ | 34 |
| $ | 115 |
| | $ | 89 |
| $ | 301 |
| | $ | 681 |
| $ | 1,824 |
| $ | 33 |
| $ | 69 |
| | $ | 4 |
| $ | 6 |
| | $ | 2 |
| $ | 7 |
| | $ | 6 |
| $ | 12 |
| | $ | 45 |
| $ | 94 |
|
| Less than 660 | 273 |
| 662 |
| | 97 |
| 290 |
| | 160 |
| 459 |
| | 150 |
| 575 |
| | 680 |
| 1,986 |
| 21 |
| 39 |
| | 16 |
| 17 |
| | 20 |
| 31 |
| | 9 |
| 18 |
| | 66 |
| 105 |
|
| 101% to 125% and refreshed FICO scores: | | | | | | | | | | | | | | | | | | |
| Equal to or greater than 660 | 2,245 |
| 3,248 |
| | 456 |
| 1,017 |
| | 215 |
| 316 |
| | 575 |
| 1,164 |
| | 3,491 |
| 5,745 |
| 274 |
| 555 |
| | 16 |
| 52 |
| | 20 |
| 39 |
| | 43 |
| 83 |
| | 353 |
| 729 |
|
| Less than 660 | 1,073 |
| 1,541 |
| | 402 |
| 884 |
| | 509 |
| 919 |
| | 771 |
| 1,563 |
| | 2,755 |
| 4,907 |
| 132 |
| 256 |
| | 42 |
| 84 |
| | 75 |
| 135 |
| | 71 |
| 144 |
| | 320 |
| 619 |
|
| 80% to 100% and refreshed FICO scores: | | | | | | | | | | | | | | | | | | |
| Equal to or greater than 660 | 4,171 |
| 4,473 |
| | 2,154 |
| 2,787 |
| | 519 |
| 544 |
| | 2,418 |
| 3,311 |
| | 9,262 |
| 11,115 |
| 1,195 |
| 1,860 |
| | 221 |
| 442 |
| | 119 |
| 214 |
| | 316 |
| 558 |
| | 1,851 |
| 3,074 |
|
| Less than 660 | 1,647 |
| 1,782 |
| | 1,316 |
| 1,699 |
| | 1,006 |
| 1,197 |
| | 1,996 |
| 2,769 |
| | 5,965 |
| 7,447 |
| 559 |
| 804 |
| | 230 |
| 381 |
| | 309 |
| 439 |
| | 371 |
| 609 |
| | 1,469 |
| 2,233 |
|
| Lower than 80% and refreshed FICO scores: | | | | | | | | | | | | | | | | | | |
| Equal to or greater than 660 | 5,824 |
| 5,077 |
| | 3,663 |
| 2,897 |
| | 719 |
| 521 |
| | 6,593 |
| 5,671 |
| | 16,799 |
| 14,166 |
| 6,134 |
| 6,676 |
| | 3,551 |
| 3,967 |
| | 895 |
| 919 |
| | 6,113 |
| 6,754 |
| | 16,693 |
| 18,316 |
|
| Less than 660 | 1,994 |
| 1,879 |
| | 2,116 |
| 2,062 |
| | 1,490 |
| 1,400 |
| | 3,904 |
| 3,869 |
| | 9,504 |
| 9,210 |
| 2,095 |
| 2,183 |
| | 2,103 |
| 2,287 |
| | 1,608 |
| 1,645 |
| | 3,499 |
| 3,783 |
| | 9,305 |
| 9,898 |
|
| No FICO/LTV available | | 577 |
| 750 |
| | 319 |
| 391 |
| | 149 |
| 177 |
| | 470 |
| 585 |
| | 1,515 |
| 1,903 |
|
| Total unpaid principal balance | $ | 17,740 |
| $ | 19,830 |
| | $ | 10,249 |
| $ | 11,876 |
| | $ | 4,652 |
| $ | 5,471 |
| | $ | 16,496 |
| $ | 19,223 |
| | $ | 49,137 |
| $ | 56,400 |
| $ | 11,020 |
| $ | 13,192 |
| | $ | 6,502 |
| $ | 7,627 |
| | $ | 3,197 |
| $ | 3,606 |
| | $ | 10,898 |
| $ | 12,546 |
| | $ | 31,617 |
| $ | 36,971 |
|
| | | | | | | | | | | |
| Geographic region (based on unpaid principal balance) | | | | | | | | Geographic region (based on unpaid principal balance) | | | | | | | | | |
| California | $ | 10,671 |
| $ | 11,937 |
| | $ | 5,965 |
| $ | 6,845 |
| | $ | 1,138 |
| $ | 1,293 |
| | $ | 9,190 |
| $ | 10,419 |
| | $ | 26,964 |
| $ | 30,494 |
| $ | 6,555 |
| $ | 7,899 |
| | $ | 3,716 |
| $ | 4,396 |
| | $ | 797 |
| $ | 899 |
| | $ | 6,225 |
| $ | 7,128 |
| | $ | 17,293 |
| $ | 20,322 |
|
| Florida | | 1,137 |
| 1,306 |
| | 428 |
| 501 |
| | 296 |
| 332 |
| | 878 |
| 1,026 |
| | 2,739 |
| 3,165 |
|
| New York | 876 |
| 962 |
| | 672 |
| 807 |
| | 463 |
| 563 |
| | 933 |
| 1,196 |
| | 2,944 |
| 3,528 |
| 607 |
| 697 |
| | 457 |
| 515 |
| | 330 |
| 363 |
| | 628 |
| 711 |
| | 2,022 |
| 2,286 |
|
| Washington | | 532 |
| 673 |
| | 135 |
| 167 |
| | 61 |
| 68 |
| | 238 |
| 290 |
| | 966 |
| 1,198 |
|
| Illinois | 405 |
| 451 |
| | 301 |
| 353 |
| | 229 |
| 283 |
| | 397 |
| 481 |
| | 1,332 |
| 1,568 |
| 273 |
| 314 |
| | 200 |
| 226 |
| | 161 |
| 178 |
| | 249 |
| 282 |
| | 883 |
| 1,000 |
|
| Florida | 1,696 |
| 1,865 |
| | 689 |
| 826 |
| | 432 |
| 526 |
| | 1,440 |
| 1,817 |
| | 4,257 |
| 5,034 |
| |
| Texas | 273 |
| 327 |
| | 92 |
| 106 |
| | 281 |
| 328 |
| | 85 |
| 100 |
| | 731 |
| 861 |
| |
| New Jersey | 348 |
| 381 |
| | 279 |
| 334 |
| | 165 |
| 213 |
| | 553 |
| 701 |
| | 1,345 |
| 1,629 |
| 242 |
| 280 |
| | 178 |
| 210 |
| | 110 |
| 125 |
| | 336 |
| 401 |
| | 866 |
| 1,016 |
|
| Massachusetts | | 79 |
| 94 |
| | 149 |
| 173 |
| | 98 |
| 110 |
| | 307 |
| 346 |
| | 633 |
| 723 |
|
| Maryland | | 57 |
| 64 |
| | 129 |
| 144 |
| | 132 |
| 145 |
| | 232 |
| 267 |
| | 550 |
| 620 |
|
| Arizona | 323 |
| 361 |
| | 167 |
| 187 |
| | 85 |
| 95 |
| | 227 |
| 264 |
| | 802 |
| 907 |
| 203 |
| 241 |
| | 106 |
| 124 |
| | 60 |
| 68 |
| | 156 |
| 181 |
| | 525 |
| 614 |
|
| Washington | 959 |
| 1,072 |
| | 225 |
| 266 |
| | 95 |
| 112 |
| | 395 |
| 463 |
| | 1,674 |
| 1,913 |
| |
| Michigan | 53 |
| 62 |
| | 166 |
| 189 |
| | 130 |
| 145 |
| | 182 |
| 206 |
| | 531 |
| 602 |
| |
| Ohio | 20 |
| 23 |
| | 48 |
| 55 |
| | 72 |
| 84 |
| | 69 |
| 75 |
| | 209 |
| 237 |
| |
| Virginia | | 66 |
| 77 |
| | 123 |
| 142 |
| | 51 |
| 56 |
| | 280 |
| 314 |
| | 520 |
| 589 |
|
| All other | 2,116 |
| 2,389 |
| | 1,645 |
| 1,908 |
| | 1,562 |
| 1,829 |
| | 3,025 |
| 3,501 |
| | 8,348 |
| 9,627 |
| 1,269 |
| 1,547 |
| | 881 |
| 1,029 |
| | 1,101 |
| 1,262 |
| | 1,369 |
| 1,600 |
| | 4,620 |
| 5,438 |
|
| Total unpaid principal balance | $ | 17,740 |
| $ | 19,830 |
| | $ | 10,249 |
| $ | 11,876 |
| | $ | 4,652 |
| $ | 5,471 |
| | $ | 16,496 |
| $ | 19,223 |
| | $ | 49,137 |
| $ | 56,400 |
| $ | 11,020 |
| $ | 13,192 |
| | $ | 6,502 |
| $ | 7,627 |
| | $ | 3,197 |
| $ | 3,606 |
| | $ | 10,898 |
| $ | 12,546 |
| | $ | 31,617 |
| $ | 36,971 |
|
| |
| (a) | Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition. |
| |
| (b) | Management concluded, as part of the Firm’s regular assessment of the PCI loan pools, that it was probable that higher expected credit losses would result in a decrease in expected cash flows. As a result, an allowance for loan losses for impairment of these pools has been recognized. |
| |
| (c) | Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property. |
| |
| (d) | Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis. |
|
| | |
252224 | | JPMorgan Chase & Co./20142017 Annual Report |
Approximately 20%25% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or HELOCs. The following tables settable sets forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on the unpaid principal balance as of December 31, 20142017 and 20132016.
|
| | | | | | | | | | | | | | | | | | | |
| | | Delinquencies | | | | Total 30+ day delinquency rate |
| December 31, 2014 | | 30–89 days past due | | 90–149 days past due | | 150+ days past due | | Total loans | |
| (in millions, except ratios) | | | | | |
HELOCs:(a) | | | | | | | | | | |
Within the revolving period(b) | | $ | 155 |
| | $ | 50 |
| | $ | 371 |
| | $ | 8,972 |
| | 6.42 | % |
Beyond the revolving period(c) | | 76 |
| | 24 |
| | 166 |
| | 4,143 |
| | 6.42 |
|
| HELOANs | | 20 |
| | 7 |
| | 38 |
| | 736 |
| | 8.83 |
|
| Total | | $ | 251 |
| | $ | 81 |
| | $ | 575 |
| | $ | 13,851 |
| | 6.55 | % |
| | | | | Delinquencies | | | | Total 30+ day delinquency rate | | Total loans | | Total 30+ day delinquency rate |
| December 31, 2013 | | 30–89 days past due | | 90–149 days past due | | 150+ days past due | | Total loans | | |
| December 31, | | | 2017 | 2016 | | 2017 | 2016 |
| (in millions, except ratios) | | 30–89 days past due | | 90–149 days past due | | 150+ days past due | | | | Total 30+ day delinquency rate | | | | |
HELOCs:(a) | | | | | | | |
Within the revolving period(b) | | $ | 243 |
| | $ | 88 |
| | $ | 526 |
| | $ | 12,670 |
| | | $ | 51 |
| $ | 2,126 |
| | 1.96 | % | 3.67 | % |
Beyond the revolving period(c) | | 54 |
| | 21 |
| | 82 |
| | 2,336 |
| | 6.72 |
| | 7,875 |
| 7,452 |
| | 4.63 |
| 4.03 |
|
| HELOANs | | 24 |
| | 11 |
| | 39 |
| | 908 |
| | 8.15 |
| | 360 |
| 465 |
| | 5.28 |
| 5.38 |
|
| Total | | $ | 321 |
| | $ | 120 |
| | $ | 647 |
| | $ | 15,914 |
| | 6.84 | % | | $ | 8,286 |
| $ | 10,043 |
| | 4.65 | % | 4.01 | % |
| |
| (a) | In general, these HELOCs are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of the loan’s term. |
| |
| (b) | Substantially all undrawn HELOCs within the revolving period have been closed. |
| |
| (c) | Includes loans modified into fixed-ratefixed rate amortizing loans. |
The table below sets forth the accretable yield activity for the Firm’s PCI consumer loans for the years ended December 31, 20142017, 20132016 and 20122015, and represents the Firm’s estimate of gross interest income expected to be earned over the remaining life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not represent net interest income expected to be earned on these portfolios.
| | Year ended December 31,
(in millions, except ratios) | Total PCI | Total PCI |
| 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 |
| Beginning balance | $ | 16,167 |
| | $ | 18,457 |
| | $ | 19,072 |
| $ | 11,768 |
| | $ | 13,491 |
| | $ | 14,592 |
|
| Accretion into interest income | (1,934 | ) | | (2,201 | ) | | (2,491 | ) | (1,396 | ) | | (1,555 | ) | | (1,700 | ) |
| Changes in interest rates on variable-rate loans | (174 | ) | | (287 | ) | | (449 | ) | 503 |
| | 260 |
| | 279 |
|
Other changes in expected cash flows(a) | 533 |
| | 198 |
| | 2,325 |
| 284 |
| | (428 | ) | | 230 |
|
Reclassification from nonaccretable difference(b) | | — |
| | — |
| | 90 |
|
| Balance at December 31 | $ | 14,592 |
| | $ | 16,167 |
| | $ | 18,457 |
| $ | 11,159 |
| | $ | 11,768 |
| | $ | 13,491 |
|
| Accretable yield percentage | 4.19 | % | | 4.31 | % | | 4.38 | % | 4.53 | % | | 4.35 | % | | 4.20 | % |
| |
| (a) | Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model, for example cash flows expected to be collected due to the impact of modifications and periodically updates modelchanges in prepayment assumptions. For |
| |
| (b) | Reclassifications from the nonaccretable difference in the year ended December 31, 2014, other changes in expected cash flows2015 were driven by changescontinued improvement in prepayment assumptions. Forhome prices and delinquencies, as well as increased granularity in the year ended December 31, 2013, other changes in expected cash flows were due to refining the expected interest cash flows on HELOCs with balloon payments, partially offset by changes in prepayment assumptions. For the year ended December 31, 2012, other changes in expected cash flows were principally driven by the impact of modifications, but also related to changes in prepayment assumptions.impairment estimates. |
The factors that most significantly affect estimates of gross cash flows expected to be collected, and accordingly the accretable yield balance, include: (i) changes in the benchmark interest rate indices for variable-rate products such as option ARM and home equity loans; and (ii) changes in prepayment assumptions.
Since the date of acquisition, the decrease in the accretable yield percentage has been primarily related to a decrease in interest rates on variable-rate loans and, to a lesser extent, extended loan liquidation periods. Certain events, such as extended or shortened loan liquidation periods, affect the timing of expected cash flows and the accretable yield percentage, but not the amount of cash expected to be received (i.e., the accretable yield balance). While extended
loan liquidation periods reduce the accretable yield percentage (because the same accretable yield balance is recognized against a higher-than-expected loan balance over a longer-than-expected period of time), shortened loan liquidation periods would have the opposite effect.
Active and suspended foreclosure
At December 31, 20142017 and 2013,2016, the Firm had PCI residential real estate loans with an unpaid principal balance of $3.2$1.3 billion and $4.8$1.7 billion, respectively, that were not included in REO, but were in the process of active or suspended foreclosure.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 253225 |
Notes to consolidated financial statements
Credit card loan portfolio
The credit card portfolio segment includes credit card loans originated and purchased by the Firm. Delinquency rates are the primary credit quality indicator for credit card loans as they provide an early warning that borrowers may be experiencing difficulties (30 days past due); information on those borrowers that have been delinquent for a longer period of time (90 days past due) is also considered. In addition to delinquency rates, the geographic distribution of the loans provides insight as to the credit quality of the portfolio based on the regional economy.
While the borrower’s credit score is another general indicator of credit quality, the Firm does not view credit scores as a primary indicator of credit quality because the borrower’s credit score tends to be a lagging indicator. However, theThe distribution of such scores provides a general indicator of credit quality trends within the portfolio.portfolio; however, the score does not capture all factors that would be predictive of future credit performance. Refreshed FICO score information, which is obtained at least quarterly, for a statistically significant random sample of the credit card portfolio is indicated in the table below;following table. FICO is considered to be the industry benchmark for credit scores.
The Firm generally originates new card accounts to prime consumer borrowers. However, certain cardholders’ FICO scores may decrease over time, depending on the performance of the cardholder and changes in credit score technology.calculation.
The table below sets forth information about the Firm’s credit card loans. | | As of or for the year ended December 31, (in millions, except ratios) | 2014 | 2013 | 2017 | 2016 |
| Net charge-offs | $ | 3,429 |
| $ | 3,879 |
| $ | 4,123 |
| $ | 3,442 |
|
| % of net charge-offs to retained loans | 2.75 | % | 3.14 | % | 2.95 | % | 2.63 | % |
| Loan delinquency | | |
Current and less than 30 days past due
and still accruing | $ | 126,189 |
| $ | 125,335 |
| $ | 146,704 |
| $ | 139,434 |
|
| 30–89 days past due and still accruing | 943 |
| 1,108 |
| 1,305 |
| 1,134 |
|
| 90 or more days past due and still accruing | 895 |
| 1,022 |
| 1,378 |
| 1,143 |
|
| Nonaccrual loans | — |
| — |
| |
| Total retained credit card loans | $ | 128,027 |
| $ | 127,465 |
| $ | 149,387 |
| $ | 141,711 |
|
| Loan delinquency ratios | | |
| % of 30+ days past due to total retained loans | 1.44 | % | 1.67 | % | 1.80 | % | 1.61 | % |
| % of 90+ days past due to total retained loans | 0.70 |
| 0.80 |
| 0.92 |
| 0.81 |
|
| Credit card loans by geographic region | | |
| California | $ | 17,940 |
| $ | 17,194 |
| $ | 22,245 |
| $ | 20,571 |
|
| Texas | 11,088 |
| 10,400 |
| 14,200 |
| 13,220 |
|
| New York | 10,940 |
| 10,497 |
| 13,021 |
| 12,249 |
|
| Florida | | 9,138 |
| 8,585 |
|
| Illinois | 7,497 |
| 7,412 |
| 8,585 |
| 8,189 |
|
| Florida | 7,398 |
| 7,178 |
| |
| New Jersey | 5,750 |
| 5,554 |
| 6,506 |
| 6,271 |
|
| Ohio | 4,707 |
| 4,881 |
| 4,997 |
| 4,906 |
|
| Pennsylvania | 4,489 |
| 4,462 |
| 4,883 |
| 4,787 |
|
| Colorado | | 4,006 |
| 3,699 |
|
| Michigan | 3,552 |
| 3,618 |
| 3,826 |
| 3,741 |
|
| Virginia | 3,263 |
| 3,239 |
| |
| All other | 51,403 |
| 53,030 |
| 57,980 |
| 55,493 |
|
| Total retained credit card loans | $ | 128,027 |
| $ | 127,465 |
| $ | 149,387 |
| $ | 141,711 |
|
| Percentage of portfolio based on carrying value with estimated refreshed FICO scores | | |
| Equal to or greater than 660 | 85.7 | % | 85.1 | % | 84.0 | % | 84.4 | % |
| Less than 660 | 14.3 |
| 14.9 |
| 14.6 |
| 14.2 |
|
| No FICO available | | 1.4 |
| 1.4 |
|
|
| | |
254226 | | JPMorgan Chase & Co./20142017 Annual Report |
Credit card impaired loans and loan modifications
The table below sets forth information about the Firm’s impaired credit card loans. All of these loans are considered to be impaired as they have been modified in TDRs.
| | | December 31, (in millions) | 2014 | 2013 | 2017 |
| 2016 |
|
Impaired credit card loans with an allowance(a)(b) | | |
Credit card loans with modified payment terms(c) | $ | 1,775 |
| $ | 2,746 |
| $ | 1,135 |
| $ | 1,098 |
|
Modified credit card loans that have reverted to pre-modification payment terms(d) | 254 |
| 369 |
| 80 |
| 142 |
|
Total impaired credit card loans(e) | $ | 2,029 |
| $ | 3,115 |
| $ | 1,215 |
| $ | 1,240 |
|
| Allowance for loan losses related to impaired credit card loans | $ | 500 |
| $ | 971 |
| $ | 383 |
| $ | 358 |
|
| |
| (a) | The carrying value and the unpaid principal balance are the same for credit card impaired loans. |
| |
| (b) | There were no impaired loans without an allowance. |
| |
| (c) | Represents credit card loans outstanding to borrowers enrolled in a credit card modification program as of the date presented. |
| |
| (d) | Represents credit card loans that were modified in TDRs but that have subsequently reverted back to the loans’ pre-modification payment terms. At December 31, 20142017 and 2013, $1592016, $43 million and $226$94 million, respectively, of loans have reverted back to the pre-modification payment terms of the loans due to noncompliance with the terms of the modified loans. The remaining $95$37 million and $143$48 million at December 31, 20142017 and 2013,2016, respectively, of these loans are to borrowers who have successfully completed a short-term modification program. The Firm continues to report these loans as TDRs since the borrowers’ credit lines remain closed. |
| |
| (e) | Predominantly all impaired credit card loans are in the U.S. |
The following table presents average balances of impaired credit card loans and interest income recognized on those loans.
| | Year ended December 31, (in millions) | | 2014 | 2013 | 2012 | | 2017 |
| 2016 |
| 2015 |
|
| Average impaired credit card loans | | $ | 2,503 |
| $ | 3,882 |
| $ | 5,893 |
| | $ | 1,214 |
| $ | 1,325 |
| $ | 1,710 |
|
Interest income on impaired credit card loans | | 123 |
| 198 |
| 308 |
| | 59 |
| 63 |
| 82 |
|
Loan modifications
JPMorgan Chase may offer one of a number of loan modification programs to credit card borrowers who are experiencing financial difficulty. Most of the credit card loans have been modified under long-term programs for borrowers who are experiencing financial difficulties. Modifications under long-term programs involve placing the customer on a fixed payment plan, generally for 60 months. The Firm may also offer short-term programs for borrowers who may be in need of temporary relief; however, none are currently being offered. Modifications under all short- and long-term programs typically include reducing the interest rate on the credit card. Substantially all modifications are considered to be TDRs.
If the cardholder does not comply with the modified payment terms, then the credit card loan agreement reverts back to its pre-modification payment terms. Assuming that the cardholder does not begin to perform in accordance with those payment terms, the loan continues to age and will ultimately be charged-off in accordance with the Firm’s standard charge-off policy. In addition, if a borrower successfully completes a short-term modification program,
then the loan reverts back to its pre-modification payment terms. However, in most cases, the Firm does not reinstate the borrower’s line of credit.
New enrollments in these loan modification programs for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, were $807$756 million, $1.2 billion$636 million and $1.7 billion,$638 million, respectively.
Financial effects of modifications and redefaults
The following table provides information about the financial effects of the concessions granted on credit card loans modified in TDRs and redefaults for the periods presented.
| | Year ended December 31, (in millions, except weighted-average data) | | 2014 | 2013 | 2012 | | 2017 | 2016 | 2015 |
| Weighted-average interest rate of loans – before TDR | | 14.96 | % | 15.37 | % | 15.67 | % | | 16.58 | % | 15.56 | % | 15.08 | % |
| Weighted-average interest rate of loans – after TDR | | 4.40 |
| 4.38 |
| 5.19 |
| | 4.88 |
| 4.76 |
| 4.40 |
|
Loans that redefaulted within one year of modification(a) | | $ | 119 |
| $ | 167 |
| $ | 309 |
| | $ | 75 |
| $ | 79 |
| $ | 85 |
|
| |
| (a) | Represents loans modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the modification. The amounts presented represent the balance of such loans as of the end of the quarter in which they defaulted. |
For credit card loans modified in TDRs, payment default is deemed to have occurred when the loans become two payments past due. Aa substantial portion of these loans isare expected to be charged-off in accordance with the Firm’s standard charge-off policy. Based on historical experience, the estimated weighted-average default rate for modified credit card loans modified was expected to be 27.91%31.54%, 30.72%28.87% and 38.23%25.61% as of December 31, 20142017, 20132016 and 20122015, respectively.
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 227 |
Notes to consolidated financial statements
Wholesale loan portfolio
Wholesale loans include loans made to a variety of customers,clients, ranging from large corporate and institutional clients to high-net-worth individuals.
The primary credit quality indicator for wholesale loans is the risk rating assigned to each loan. Risk ratings are used to identify the credit quality of loans and differentiate risk within the portfolio. Risk ratings on loans consider the probability of default (“PD”)PD and the loss given default (“LGD”).LGD. The PD is the likelihood that a loan will default and not be fully repaid by the borrower.default. The LGD is the estimated loss on the loan that would be realized upon the default of the borrower and takes into consideration collateral and structural support for each credit facility.
Management considers several factors to determine an appropriate risk rating, including the obligor’s debt capacity and financial flexibility, the level of the obligor’s earnings, the amount and sources for repayment, the level and nature of contingencies, management strength, and the industry and geography in which the obligor operates. The Firm’s definition of criticized aligns with the banking regulatory definition of criticized exposures, which consist of special mention, substandard and doubtful categories. Risk ratings generally represent ratings profiles similar to those defined
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 255 |
Notes to consolidated financial statements
by S&P and Moody’s. Investment-grade ratings range from “AAA/Aaa” to “BBB-/Baa3.” Noninvestment-grade ratings are classified as noncriticized (“BB+/Ba1 and B-/B3”) and criticized (“CCC+”/“Caa1 and below”), and the criticized portion is further subdivided into performing and nonaccrual loans, representing management’s assessment of the collectibility of principal and interest. Criticized loans have a higher probability of default than noncriticized loans.
Risk ratings are reviewed on a regular and ongoing basis by Credit Risk Management and are adjusted as necessary for
updated information affecting the obligor’s ability to fulfill its obligations.
As noted above, the risk rating of a loan considers the industry in which the obligor conducts its operations. As part of the overall credit risk management framework, the Firm focuses on the management and diversification of its industry and client exposures, with particular attention paid to industries with actual or potential credit concern. See Note 54 for further detail on industry concentrations.
|
| | |
| 228 | | JPMorgan Chase & Co./2017 Annual Report |
The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
In 2017 the Firm revised its methodology for the assignment of industry classifications, to better monitor and manage concentrations. This largely resulted in the re-assignment of holding companies from Other to the industry of risk category based on the primary business activity of the holding company's underlying entities. In the tables and industry discussions below, the prior period amounts have been revised to conform with the current period presentation.
Below are summaries of the Firm’s exposures as of December 31, 2017 and 2016. For additional information on industry concentrations, see Note 4.
| | As of or for the year ended December 31, (in millions, except ratios) | Commercial and industrial | | Real estate | | Financial
institutions | | Government agencies | | Other(d) | | Total
retained loans | Commercial and industrial | | Real estate | | Financial
institutions | | Government agencies | | Other(d) | | Total
retained loans |
| 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 |
| Loans by risk ratings | | | | | | | | | | | | | | | | | | | | | | |
| Investment grade | $ | 63,069 |
| $ | 57,690 |
| | $ | 61,006 |
| $ | 52,195 |
| | $ | 27,111 |
| $ | 26,712 |
| | $ | 8,393 |
| $ | 9,979 |
| | $ | 82,087 |
| $ | 79,494 |
| | $ | 241,666 |
| $ | 226,070 |
| |
| Noninvestment grade: | | | | | | | | | | | | |
| Investment-grade | | $ | 68,071 |
| $ | 65,687 |
| | $ | 98,467 |
| $ | 88,649 |
| | $ | 26,791 |
| $ | 24,294 |
| | $ | 15,140 |
| $ | 15,935 |
| | $ | 103,212 |
| $ | 95,358 |
| | $ | 311,681 |
| $ | 289,923 |
|
Noninvestment- grade: | | | | | | | | | | | | |
| Noncriticized | 44,117 |
| 43,477 |
| | 16,541 |
| 14,381 |
| | 7,085 |
| 6,674 |
| | 300 |
| 440 |
| | 10,075 |
| 10,992 |
| | 78,118 |
| 75,964 |
| 46,558 |
| 47,531 |
| | 14,335 |
| 16,155 |
| | 13,071 |
| 11,075 |
| | 369 |
| 439 |
| | 9,988 |
| 9,360 |
| | 84,321 |
| 84,560 |
|
| Criticized performing | 2,251 |
| 2,385 |
| | 1,313 |
| 2,229 |
| | 316 |
| 272 |
| | 3 |
| 42 |
| | 236 |
| 480 |
| | 4,119 |
| 5,408 |
| 3,983 |
| 6,186 |
| | 710 |
| 798 |
| | 210 |
| 200 |
| | — |
| 6 |
| | 259 |
| 163 |
| | 5,162 |
| 7,353 |
|
| Criticized nonaccrual | 188 |
| 294 |
| | 253 |
| 346 |
| | 18 |
| 25 |
| | — |
| 1 |
| | 140 |
| 155 |
| | 599 |
| 821 |
| 1,357 |
| 1,491 |
| | 136 |
| 200 |
| | 2 |
| 9 |
| | — |
| — |
| | 239 |
| 254 |
| | 1,734 |
| 1,954 |
|
| Total noninvestment grade | 46,556 |
| 46,156 |
| | 18,107 |
| 16,956 |
| | 7,419 |
| 6,971 |
| | 303 |
| 483 |
| | 10,451 |
| 11,627 |
| | 82,836 |
| 82,193 |
| |
Total noninvestment- grade | | 51,898 |
| 55,208 |
| | 15,181 |
| 17,153 |
| | 13,283 |
| 11,284 |
| | 369 |
| 445 |
| | 10,486 |
| 9,777 |
| | 91,217 |
| 93,867 |
|
| Total retained loans | $ | 109,625 |
| $ | 103,846 |
| | $ | 79,113 |
| $ | 69,151 |
| | $ | 34,530 |
| $ | 33,683 |
| | $ | 8,696 |
| $ | 10,462 |
| | $ | 92,538 |
| $ | 91,121 |
| | $ | 324,502 |
| $ | 308,263 |
| $ | 119,969 |
| $ | 120,895 |
| | $ | 113,648 |
| $ | 105,802 |
| | $ | 40,074 |
| $ | 35,578 |
| | $ | 15,509 |
| $ | 16,380 |
| | $ | 113,698 |
| $ | 105,135 |
| | $ | 402,898 |
| $ | 383,790 |
|
| % of total criticized to total retained loans | 2.22 | % | 2.58 | % | | 1.98 | % | 3.72 | % | | 0.97 | % | 0.88 | % | | 0.03 | % | 0.41 | % | | 0.41 | % | 0.70 | % | | 1.45 | % | 2.02 | % | 4.45 | % | 6.35 | % | | 0.74 | % | 0.94 | % | | 0.53 | % | 0.59 | % | | — |
| 0.04 | % | | 0.44 | % | 0.40 | % | | 1.71 | % | 2.43 | % |
| % of nonaccrual loans to total retained loans | 0.17 |
| 0.28 |
| | 0.32 |
| 0.50 |
| | 0.05 |
| 0.07 |
| | — |
| 0.01 |
| | 0.15 |
| 0.17 |
| | 0.18 |
| 0.27 |
| 1.13 |
| 1.23 |
| | 0.12 |
| 0.19 |
| | — |
| 0.03 |
| | — |
| — |
| | 0.21 |
| 0.24 |
| | 0.43 |
| 0.51 |
|
Loans by geographic distribution(a) | | | | | | | | | | | | | | | | | | | | | | |
| Total non-U.S. | $ | 33,739 |
| $ | 34,440 |
| | $ | 2,099 |
| $ | 1,369 |
| | $ | 20,944 |
| $ | 22,726 |
| | $ | 1,122 |
| $ | 2,146 |
| | $ | 42,961 |
| $ | 43,376 |
| | $ | 100,865 |
| $ | 104,057 |
| $ | 28,470 |
| $ | 30,563 |
| | $ | 3,101 |
| $ | 3,302 |
| | $ | 16,790 |
| $ | 15,147 |
| | $ | 2,906 |
| $ | 3,726 |
| | $ | 44,112 |
| $ | 38,776 |
| | $ | 95,379 |
| $ | 91,514 |
|
| Total U.S. | 75,886 |
| 69,406 |
| | 77,014 |
| 67,782 |
| | 13,586 |
| 10,957 |
| | 7,574 |
| 8,316 |
| | 49,577 |
| 47,745 |
| | 223,637 |
| 204,206 |
| 91,499 |
| 90,332 |
| | 110,547 |
| 102,500 |
| | 23,284 |
| 20,431 |
| | 12,603 |
| 12,654 |
| | 69,586 |
| 66,359 |
| | 307,519 |
| 292,276 |
|
| Total retained loans | $ | 109,625 |
| $ | 103,846 |
| | $ | 79,113 |
| $ | 69,151 |
| | $ | 34,530 |
| $ | 33,683 |
| | $ | 8,696 |
| $ | 10,462 |
| | $ | 92,538 |
| $ | 91,121 |
| | $ | 324,502 |
| $ | 308,263 |
| $ | 119,969 |
| $ | 120,895 |
| | $ | 113,648 |
| $ | 105,802 |
| | $ | 40,074 |
| $ | 35,578 |
| | $ | 15,509 |
| $ | 16,380 |
| | $ | 113,698 |
| $ | 105,135 |
| | $ | 402,898 |
| $ | 383,790 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Net charge-offs/(recoveries) | $ | 22 |
| $ | 99 |
| | $ | (9 | ) | $ | 6 |
| | $ | (12 | ) | $ | (99 | ) | | $ | 25 |
| $ | 1 |
| | $ | (14 | ) | $ | 9 |
| | $ | 12 |
| $ | 16 |
| $ | 117 |
| $ | 345 |
| | $ | (4 | ) | $ | (7 | ) | | $ | 6 |
| $ | (1 | ) | | $ | 5 |
| $ | (1 | ) | | $ | (5 | ) | $ | 5 |
| | $ | 119 |
| $ | 341 |
|
| % of net charge-offs/(recoveries) to end-of-period retained loans | 0.02 | % | 0.10 | % | | (0.01 | )% | 0.01 | % | | (0.04 | )% | (0.29 | )% | | 0.29 | % | 0.01 | % | | (0.02 | )% | 0.01 | % | | — | % | 0.01 | % | 0.10 | % | 0.28 | % | | — | % | (0.01 | )% | | 0.01 | % | (0.01 | )% | | 0.03 | % | (0.01 | )% | | — | % | 0.01 | % | | 0.03 | % | 0.09 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Loan delinquency(b) | | | | | | | | | | | | | | | | | | | | | | |
| Current and less than 30 days past due and still accruing | $ | 108,857 |
| $ | 103,357 |
| | $ | 78,552 |
| $ | 68,627 |
| | $ | 34,408 |
| $ | 33,426 |
| | $ | 8,627 |
| $ | 10,421 |
| | $ | 91,168 |
| $ | 89,717 |
| | $ | 321,612 |
| $ | 305,548 |
| $ | 118,288 |
| $ | 119,050 |
| | $ | 113,258 |
| $ | 105,396 |
| | $ | 40,042 |
| $ | 35,523 |
| | $ | 15,493 |
| $ | 16,269 |
| | $ | 112,559 |
| $ | 104,280 |
| | $ | 399,640 |
| $ | 380,518 |
|
| 30–89 days past due and still accruing | 566 |
| 181 |
| | 275 |
| 164 |
| | 104 |
| 226 |
| | 69 |
| 40 |
| | 1,201 |
| 1,233 |
| | 2,215 |
| 1,844 |
| 216 |
| 268 |
| | 242 |
| 204 |
| | 15 |
| 25 |
| | 12 |
| 107 |
| | 898 |
| 582 |
| | 1,383 |
| 1,186 |
|
90 or more days past due and still accruing(c) | 14 |
| 14 |
| | 33 |
| 14 |
| | — |
| 6 |
| | — |
| — |
| | 29 |
| 16 |
| | 76 |
| 50 |
| 108 |
| 86 |
| | 12 |
| 2 |
| | 15 |
| 21 |
| | 4 |
| 4 |
| | 2 |
| 19 |
| | 141 |
| 132 |
|
| Criticized nonaccrual | 188 |
| 294 |
| | 253 |
| 346 |
| | 18 |
| 25 |
| | — |
| 1 |
| | 140 |
| 155 |
| | 599 |
| 821 |
| 1,357 |
| 1,491 |
| | 136 |
| 200 |
| | 2 |
| 9 |
| | — |
| — |
| | 239 |
| 254 |
| | 1,734 |
| 1,954 |
|
| Total retained loans | $ | 109,625 |
| $ | 103,846 |
| | $ | 79,113 |
| $ | 69,151 |
| | $ | 34,530 |
| $ | 33,683 |
| | $ | 8,696 |
| $ | 10,462 |
| | $ | 92,538 |
| $ | 91,121 |
| | $ | 324,502 |
| $ | 308,263 |
| $ | 119,969 |
| $ | 120,895 |
| | $ | 113,648 |
| $ | 105,802 |
| | $ | 40,074 |
| $ | 35,578 |
| | $ | 15,509 |
| $ | 16,380 |
| | $ | 113,698 |
| $ | 105,135 |
| | $ | 402,898 |
| $ | 383,790 |
|
| |
| (a) | The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower. |
| |
| (b) | The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor’s ability to meet contractual obligations rather than relying on the past due status, which is generally a lagging indicator of credit quality. For a discussion of more significant risk factors, see pages 255–256 of this Note. |
| |
| (c) | Represents loans that are considered well-collateralized and therefore still accruing interest. |
| |
| (d) | Other primarily includes loansindividuals, SPEs, holding companies, and private education and civic organizations. For more information on exposures to SPEs, and loans to private banking clients. Seesee Note 1 for additional information on SPEs.14. |
|
| | |
256 | | JPMorgan Chase & Co./20142017 Annual Report | | 229 |
Notes to consolidated financial statements
The following table presents additional information on the real estate class of loans within the Wholesale portfolio segment for the periods indicated. The real estate classExposure consists primarily consists of secured commercial loans, mainly to borrowers for multi-family and commercial lessor properties.of which multifamily is the largest segment. Multifamily lending specifically finances apartment buildings. Commercial lessors receive financing specifically for real estate leased to retail, officeacquisition, leasing and industrial tenants. Commercial construction and development loans represent financing for the construction of apartments, office and professionalapartment buildings, and malls. Other real estate loans include lodging,includes exposure to real estate investment trusts (“REITs”), single-family, homebuilders. Other commercial lending largely includes financing for acquisition, leasing and otherconstruction, largely for office, retail and industrial real estate.estate, and includes exposure to REITs. Included in real estate loans is $10.8 billion and $9.2 billion as of December 31, 2017 and 2016, respectively, of construction and development exposure consisting of loans originally purposed for construction and development, general purpose loans for builders, as well as loans for land subdivision and pre-development.
| | December 31, (in millions, except ratios) | Multifamily | | Commercial lessors | | Commercial construction and development | | Other | | Total real estate loans | Multifamily | | Other Commercial | | Total real estate loans |
| 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 |
| Real estate retained loans | $ | 51,049 |
| $ | 44,389 |
| | $ | 17,438 |
| $ | 15,949 |
| | $ | 4,264 |
| $ | 3,674 |
| | $ | 6,362 |
| $ | 5,139 |
| | $ | 79,113 |
| $ | 69,151 |
| $ | 77,597 |
| $ | 72,143 |
| | $ | 36,051 |
| $ | 33,659 |
| | $ | 113,648 |
| $ | 105,802 |
|
| Criticized | 652 |
| 1,142 |
| | 841 |
| 1,323 |
| | 42 |
| 81 |
| | 31 |
| 29 |
| | 1,566 |
| 2,575 |
| 491 |
| 539 |
| | 355 |
| 459 |
| | 846 |
| 998 |
|
| % of criticized to total real estate retained loans | 1.28 | % | 2.57 | % | | 4.82 | % | 8.30 | % | | 0.98 | % | 2.20 | % | | 0.49 | % | 0.56 | % | | 1.98 | % | 3.72 | % | 0.63 | % | 0.75 | % | | 0.98 | % | 1.36 | % | | 0.74 | % | 0.94 | % |
| Criticized nonaccrual | $ | 126 |
| $ | 191 |
| | $ | 110 |
| $ | 143 |
| | $ | — |
| $ | 3 |
| | $ | 17 |
| $ | 9 |
| | $ | 253 |
| $ | 346 |
| $ | 44 |
| $ | 57 |
| | $ | 92 |
| $ | 143 |
| | $ | 136 |
| $ | 200 |
|
| % of criticized nonaccrual to total real estate retained loans | 0.25 | % | 0.43 | % | | 0.63 | % | 0.90 | % | | — | % | 0.08 | % | | 0.27 | % | 0.18 | % | | 0.32 | % | 0.50 | % | 0.06 | % | 0.08 | % | | 0.26 | % | 0.42 | % | | 0.12 | % | 0.19 | % |
Wholesale impaired loans and loan modifications
Wholesale impaired loans are comprisedconsist of loans that have been placed on nonaccrual status and/or that have been modified in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 15.13.
The table below sets forth information about the Firm’s wholesale impaired loans.
| | December 31, (in millions) | Commercial and industrial | | Real estate | | Financial institutions | | Government agencies | | Other | | Total retained loans | | Commercial and industrial | | Real estate | | Financial institutions | | Government agencies | | Other | | Total retained loans | |
| 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | | 2014 | | 2013 | | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 | | 2017 | | 2016 | |
| Impaired loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| With an allowance | $ | 174 |
| $ | 236 |
| | $ | 193 |
| $ | 258 |
| | $ | 15 |
| $ | 17 |
| | $ | — |
| $ | 1 |
| | $ | 89 |
| $ | 85 |
| | $ | 471 |
| | $ | 597 |
| | $ | 1,170 |
| $ | 1,127 |
| | $ | 78 |
| $ | 124 |
| | $ | 93 |
| $ | 9 |
| | $ | — |
| $ | — |
| | $ | 168 |
| $ | 180 |
| | $ | 1,509 |
| | $ | 1,440 |
| |
Without an allowance(a) | 24 |
| 58 |
| | 87 |
| 109 |
| | 3 |
| 8 |
| | — |
| — |
| | 52 |
| 73 |
| | 166 |
| | 248 |
| | 228 |
| 414 |
| | 60 |
| 87 |
| | — |
| — |
| | — |
| — |
| | 70 |
| 76 |
| | 358 |
| | 577 |
| |
Total impaired loans | $ | 198 |
| $ | 294 |
| | $ | 280 |
| $ | 367 |
| | $ | 18 |
| $ | 25 |
| | $ | — |
| $ | 1 |
| | $ | 141 |
| $ | 158 |
| | $ | 637 |
| (c) | $ | 845 |
| (c) | $ | 1,398 |
| $ | 1,541 |
| | $ | 138 |
| $ | 211 |
| | $ | 93 |
| $ | 9 |
| | $ | — |
| $ | — |
| | $ | 238 |
| $ | 256 |
| | $ | 1,867 |
| (c) | $ | 2,017 |
| (c) |
| Allowance for loan losses related to impaired loans | $ | 34 |
| $ | 75 |
| | $ | 36 |
| $ | 63 |
| | $ | 4 |
| $ | 16 |
| | $ | — |
| $ | — |
| | $ | 13 |
| $ | 27 |
| | $ | 87 |
| | $ | 181 |
| | $ | 404 |
| $ | 258 |
| | $ | 11 |
| $ | 18 |
| | $ | 4 |
| $ | 3 |
| | $ | — |
| $ | — |
| | $ | 42 |
| $ | 63 |
| | $ | 461 |
| | $ | 342 |
| |
Unpaid principal balance of impaired loans(b) | 266 |
| 448 |
| | 345 |
| 454 |
| | 22 |
| 24 |
| | — |
| 1 |
| | 202 |
| 241 |
| | 835 |
| | 1,168 |
| | 1,604 |
| 1,754 |
| | 201 |
| 295 |
| | 94 |
| 12 |
| | — |
| — |
| | 255 |
| 284 |
| | 2,154 |
| | 2,345 |
| |
| |
| (a) | When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance. |
| |
| (b) | Represents the contractual amount of principal owed at December 31, 20142017 and 2013.2016. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and unamortized discount or premiums on purchased loans. |
| |
| (c) | Based upon the domicile of the borrower, predominantly all wholesale impairedlargely consists of loans are in the U.S. |
The following table presents the Firm’s average impaired loans for the years ended 20142017, 20132016 and 20122015.
| | | Year ended December 31, (in millions) | 2014 | 2013 | 2012 | 2017 | 2016 | 2015 |
| Commercial and industrial | $ | 243 |
| $ | 412 |
| $ | 873 |
| $ | 1,145 |
| $ | 1,480 |
| $ | 453 |
|
| Real estate | 297 |
| 484 |
| 784 |
| 164 |
| 217 |
| 250 |
|
| Financial institutions | 20 |
| 17 |
| 17 |
| 20 |
| 13 |
| 13 |
|
| Government agencies | — |
| — |
| 9 |
| — |
| — |
| — |
|
| Other | 155 |
| 211 |
| 277 |
| 231 |
| 213 |
| 129 |
|
Total(a) | $ | 715 |
| $ | 1,124 |
| $ | 1,960 |
| $ | 1,560 |
| $ | 1,923 |
| $ | 845 |
|
| |
| (a) | The related interest income on accruing impaired loans and interest income recognized on a cash basis were not material for the years ended December 31, 2014, 20132017, 2016 and 2012. 2015. |
Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing financial difficulty. All TDRs are reported as impaired loans in the tables above. TDRs were not material$614 million and $733 million as of December 31, 20142017 and 2013.2016.
|
| | |
| 230 | | JPMorgan Chase & Co./20142017 Annual Report | | 257 |
Notes to consolidated financial statements
Note 1513 – Allowance for credit losses
JPMorgan Chase’sChase’s allowance for loan losses covers the consumer, including credit card, portfolio segments (primarily scored); and wholesale (risk-rated) portfolio, and represents management’s estimate of probable credit losses inherent in the Firm’s retained loan portfolio.portfolio, which consists of the two consumer portfolio segments (primarily scored) and the wholesale portfolio segment (risk-rated). The allowance for loan losses includes a formula-based component, an asset-specific component, a formula-based component, and a component related to PCI loans, as described below. Management also estimates an allowance for wholesale and certain consumer lending-related commitments using methodologies similar to those used to estimate the allowance on the underlying loans.
During 2014,the second quarter of 2017, the Firm did not make any significant changesrefined its credit loss estimates relating to the methodologies orwholesale portfolio by incorporating the use of internal historical data versus external credit rating agency default statistics to estimate PD. In addition, an adjustment to the statistical calculation for wholesale lending-related commitments was incorporated similar to the adjustment applied for wholesale loans. The impacts of these refinements were not material to the allowance for credit losses.
The Firm’s policies used to determine its allowance for credit losses; such policieslosses are described in the following paragraphs.
Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowances for loan losses and lending-related commitments in future periods. At least quarterly, the allowance for credit losses is reviewed by the CRO, the CFO and the Controller of the Firm and discussed with the DRPC and the Audit Committee. As of December 31, 2017, JPMorgan Chase deemed the allowance for credit losses to be appropriate (i.e., sufficient to absorb probable credit losses inherent in the portfolio).
Formula-based component
The formula-based component is based on a statistical calculation to provide for incurred credit losses in all consumer loans and performing risk-rated loans. All loans restructured in TDRs as well as any impaired risk-rated loans have an allowance assessed as part of the asset-specific component, while PCI loans have an allowance assessed as part of the PCI component. See Note 12 for more information on TDRs, Impaired loans and PCI loans.
Formula-based component - Consumer loans and certain lending-related commitments
The formula-based allowance for credit losses for the consumer portfolio segments is calculated by applying statistical credit loss factors (estimated PD and loss severities) to the recorded investment balances or loan-equivalent amounts of pools of loan exposures with similar risk characteristics over a loss emergence period to arrive at an estimate of incurred credit losses. Estimated loss emergence periods may vary by product and may change
over time; management applies judgment in estimating loss emergence periods, using available credit information and trends. In addition, management applies judgment to the statistical loss estimates for each loan portfolio category, using delinquency trends and other risk characteristics to estimate the total incurred credit losses in the portfolio. Management uses additional statistical methods and considers actual portfolio performance, including actual losses recognized on defaulted loans and collateral valuation trends, to review the appropriateness of the primary statistical loss estimate. The economic impact of potential modifications of residential real estate loans is not included in the statistical calculation because of the uncertainty regarding the type and results of such modifications.
The statistical calculation is then adjusted to take into consideration model imprecision, external factors and current economic events that have occurred but that are not yet reflected in the factors used to derive the statistical calculation; these adjustments are accomplished in part by analyzing the historical loss experience for each major product segment. However, it is difficult to predict whether historical loss experience is indicative of future loss levels. Management applies judgment in making this adjustment, taking into account uncertainties associated with current macroeconomic and political conditions, quality of underwriting standards, borrower behavior, and other relevant internal and external factors affecting the credit quality of the portfolio. In certain instances, the interrelationships between these factors create further uncertainties. The application of different inputs into the statistical calculation, and the assumptions used by management to adjust the statistical calculation, are subject to management judgment, and emphasizing one input or assumption over another, or considering other inputs or assumptions, could affect the estimate of the allowance for credit losses for the consumer credit portfolio.
Overall, the allowance for credit losses for consumer portfolios is sensitive to changes in the economic environment (e.g., unemployment rates), delinquency rates, the realizable value of collateral (e.g., housing prices), FICO scores, borrower behavior and other risk factors. While all of these factors are important determinants of overall allowance levels, changes in the various factors may not occur at the same time or at the same rate, or changes may be directionally inconsistent such that improvement in one factor may offset deterioration in another. In addition, changes in these factors would not necessarily be consistent across all geographies or product types. Finally, it is difficult to predict the extent to which changes in these factors would ultimately affect the frequency of losses, the severity of losses or both.
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 231 |
Notes to consolidated financial statements
Formula-based component - Wholesale loans and lending-related commitments
The Firm’s methodology for determining the allowance for loan losses and the allowance for lending-related commitments involves the early identification of credits that are deteriorating. The formula-based component of the allowance for wholesale loans and lending-related commitments is calculated by applying statistical credit loss factors (estimated PD and LGD) to the recorded investment balances or loan-equivalent over a loss emergence period to arrive at an estimate of incurred credit losses in the portfolio. Estimated loss emergence periods may vary by funded versus unfunded status of the instrument and may change over time.
The Firm assesses the credit quality of its borrower or counterparty and assigns a risk rating. Risk ratings are assigned at origination or acquisition, and if necessary, adjusted for changes in credit quality over the life of the exposure. In assessing the risk rating of a particular loan or lending-related commitment, among the factors considered are the obligor’s debt capacity and financial flexibility, the level of the obligor’s earnings, the amount and sources for repayment, the level and nature of contingencies, management strength, and the industry and geography in which the obligor operates. These factors are based on an evaluation of historical and current information and involve subjective assessment and interpretation. Determining risk ratings involves significant judgment; emphasizing one factor over another or considering additional factors could affect the risk rating assigned by the Firm.
A PD estimate is determined based on the Firm’s history of defaults over more than one credit cycle.
LGD estimate is a judgment-based estimate assigned to each loan or lending-related commitment. The estimate represents the amount of economic loss if the obligor were to default. The type of obligor, quality of collateral, and the seniority of the Firm’s lending exposure in the obligor’s capital structure affect LGD.
The Firm applies judgment in estimating PD, LGD, loss emergence period and loan-equivalent used in calculating the allowance for credit losses. Estimates of PD, LGD, loss emergence period and loan-equivalent used are subject to periodic refinement based on any changes to underlying external or Firm-specific historical data. Changes to the time period used for PD and LGD estimates could also affect the allowance for credit losses. The use of different inputs, estimates or methodologies could change the amount of the allowance for credit losses determined appropriate by the Firm.
In addition to the statistical credit loss estimates applied to the wholesale portfolio, management applies its judgment to adjust the statistical estimates for wholesale loans and lending-related commitments, taking into consideration model imprecision, external factors and economic events that have occurred but are not yet reflected in the loss factors. Historical experience of both LGD and PD are
considered when estimating these adjustments. Factors related to concentrated and deteriorating industries also are incorporated where relevant. These estimates are based on management’s view of uncertainties that relate to current macroeconomic conditions, quality of underwriting standards and other relevant internal and external factors affecting the credit quality of the current portfolio.
Asset-specific component
The asset-specific component of the allowance relates to loans considered to be impaired, which includes loans that have been modified in TDRs as well as risk-rated loans that have been placed on nonaccrual status. To determine the asset-specific component of the allowance, larger risk-rated loans (primarily loans in the wholesale portfolio segment) are evaluated individually, while smaller loans (both risk-rated and scored) are evaluated as pools using historical loss experience for the respective class of assets. Scored loans (i.e., consumer loans) are pooled by product type, while risk-rated loans (primarily wholesale loans) are segmented by risk rating.
The Firm generally measures the asset-specific allowance as the difference between the recorded investment in the loan and the present value of the cash flows expected to be collected, discounted at the loan’s original effective interest rate. Subsequent changes in impairment are reported as an adjustment to the provisionallowance for loan losses. In certain cases, the asset-specific allowance is determined using an observable market price, and the allowance is measured as the difference between the recorded investment in the loan and the loan’s fair value. Impaired collateral-dependentCollateral-dependent loans are charged down to the fair value of collateral less costs to sellsell. For any of these impaired loans, the amount of the asset-specific allowance required to be recorded, if any, is dependent upon the recorded investment in the loan (including prior charge-offs), and therefore may not be subject to an asset-specific reserve as are other impaired loans.either the expected cash flows or fair value of collateral. See Note 1412 for more information about charge-offs and collateral-dependent loans.
The asset-specific component of the allowance for impaired loans that have been modified in TDRs incorporates the effects of foregone(including forgone interest, if any, in the present value calculation and alsoprincipal forgiveness, as well as other concessions) incorporates the effect of the modification on the loan’s expected cash flows, which considers the potential for redefault. For residential real estate loans modified in TDRs, the Firm develops product-specific probability of default estimates, which are applied at a loan level to compute expected losses. In developing these probabilities of default, the Firm considers the relationship between the credit quality characteristics of the underlying loans and certain assumptions about home prices and unemployment, based upon industry-wide data. The Firm also considers its own historical loss experience to dateto-date based on actual redefaulted modified loans. For credit card loans modified in TDRs, expected losses incorporate projected redefaults based on the Firm’s historical experience by type of modification program. For wholesale loans modified in TDRs, expected losses incorporate redefaults based on management’s expectation of the borrower’s ability to repay under the modified terms.
The formula-based component is based on a statistical calculation to provide for incurred credit losses in performing risk-rated loans and all consumer loans, except for any loans restructured in TDRs and PCI loans. See Note 14 for more information on PCI loans.
For scored loans, the statistical calculation is performed on pools of loans with similar risk characteristics (e.g., product type) and generally computed by applying loss factors to outstanding principal balances over an estimated loss emergence period. The loss emergence period represents the time period between the date at which the loss is estimated to have been incurred and the ultimate realization of that loss (through a charge-off). Estimated loss emergence periods may vary by product and may change over time; management applies judgment in estimating loss emergence periods, using available credit information and trends.
|
| | |
258232 | | JPMorgan Chase & Co./20142017 Annual Report |
LossEstimating the timing and amounts of future cash flows is highly judgmental as these cash flow projections rely upon estimates such as loss severities, asset valuations, default rates (including redefault rates on modified loans), the amounts and timing of interest or principal payments (including any expected prepayments) or other factors that are statistically derivedreflective of current and sensitive to changes in delinquency status, credit scores, collateral values and other risk factors. The Firm uses a number of different forecasting models to estimate both the PD and the loss severity, including delinquency roll rate models and credit loss severity models. In developing PD and loss severity assumptions, the Firm also considers known and anticipated changes in the economic environment, including changes in home prices, unemployment rates and other risk indicators.
A nationally recognized home price index measure is used to estimate both the PD and the loss severity on residential real estate loans at the metropolitan statistical areas (“MSA”) level. Loss severityexpected market conditions. These estimates are, regularly validated by comparison to actual losses recognizedin turn, dependent on defaulted loans, market-specific real estate appraisals and property sales activity. Thefactors such as the duration of current overall economic impactconditions, industry-, portfolio-, or borrower-specific factors, the expected outcome of potential modifications of residential real estate loans is not includedinsolvency proceedings as well as, in the statistical calculation because of the uncertainty regarding the type and results of such modifications.
For risk-rated loans, the statistical calculation is the product of an estimated PD and an estimated LGD. Thesecertain circumstances, other economic factors, are differentiated by risk rating and expected maturity. In assessing the risk rating of a particular loan, among the factors considered are the obligor’s debt capacity and financial flexibility,including the level of future home prices. All of these estimates and assumptions require significant management judgment and certain assumptions are highly subjective.
PCI loans
In connection with the obligor’s earnings,acquisition of certain PCI loans, which are accounted for as described in Note 12, the allowance for loan losses for the PCI portfolio is based on quarterly estimates of the amount of principal and sources for repayment,interest cash flows expected to be collected over the level and natureestimated remaining lives of contingencies, management strength, and the industry and geography in which the obligor operates. loans.
These factorscash flow projections are based on an evaluationestimates regarding default rates (including redefault rates on modified loans), loss severities, the amounts and timing of historicalprepayments and other factors that are reflective of current information, and involve subjective assessment and interpretation. Emphasizing one factor over another or considering additional factors could impact the risk rating assigned by the Firm to that loan. PDexpected future market conditions. These estimates are baseddependent on observable external through-the-cycle data, using credit-rating agency default statistics. LGD estimates are based onassumptions regarding the Firm’s historylevel of actual credit losses over more than one credit cycle. Estimates of PD and LGD are subject to periodic refinement based on changes to underlying external and Firm-specific historical data.
Management applies judgment within an established framework to adjust the results of applying the statistical calculation described above. The determination of the appropriate adjustment is based on management’s view of loss events that have occurred but that are not yet reflected in the loss factors and that relate to current macroeconomic and political conditions, the quality of underwriting standards and other relevant internal and external factors affecting the credit quality of the portfolio. For the scored loan portfolios, adjustments to the statistical calculation are made in part by analyzing the historical loss experience for each major product segment. Factors related to unemployment,future home prices, borrower behavior and lien position, the estimated effects of the mortgage foreclosure-related settlement with federal and state officials and uncertainties regarding the ultimate success of loan modifications are incorporated into the calculation, as appropriate. For junior lien products, management considers the delinquency and/or modification status of any senior liens in determining the adjustment. In addition, for the risk-rated portfolios, any adjustments made to the statistical calculation take into consideration model imprecision, deteriorating conditions within an industry, product or portfolio type, geographic location, credit concentration, and current economic events that have occurred but that are not yet reflected in the factors used to derive the statistical calculation.
Management establishes an asset-specific allowance for lending-related commitments that are considered impaired and computes a formula-based allowance for performing consumer and wholesale lending-related commitments. These are computed using a methodology similar to that used for the wholesale loan portfolio, modified for expected maturities and probabilities of drawdown.
Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowances for loan losses and lending-related commitments in future periods. At least quarterly, the allowance for credit losses is reviewed by the Chief Risk Officer, the Chief Financial Officer and the Controllerduration of the Firmcurrent overall economic conditions, among other factors. These estimates and discussed with the Risk Policyassumptions require significant management judgment and Audit Committees of the Board of Directors of the Firm. As of December 31, 2014, JPMorgan Chase deemed the allowance for credit losses to be appropriate (i.e., sufficient to absorb probable credit losses inherent in the portfolio).certain assumptions are highly subjective.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 259233 |
Notes to consolidated financial statements
Allowance for credit losses and loans and lending-related commitments by impairment methodologyrelated information
The table below summarizes information about the allowanceallowances for loan losses and lending-relating commitments, and includes a breakdown of loans by impairment methodology, the allowance for lending-related commitments and lending-related commitments by impairment methodology.
|
| |
| | | 2014 | 2017 | |
Year ended December 31, (in millions) | Consumer, excluding credit card | | Credit card | | Wholesale | | Total | Consumer, excluding credit card | | Credit card | | Wholesale | | Total | |
| Allowance for loan losses | | | | | | | | | | | | | | | |
| Beginning balance at January 1, | $ | 8,456 |
| | $ | 3,795 |
| | $ | 4,013 |
| | $ | 16,264 |
| $ | 5,198 |
| | $ | 4,034 |
| | $ | 4,544 |
| | $ | 13,776 |
| |
| Gross charge-offs | 2,132 |
|
| 3,831 |
| | 151 |
| | 6,114 |
| 1,779 |
|
| 4,521 |
| | 212 |
| | 6,512 |
| |
| Gross recoveries | (814 | ) | | (402 | ) | | (139 | ) | | (1,355 | ) | (634 | ) | | (398 | ) | | (93 | ) | | (1,125 | ) | |
| Net charge-offs/(recoveries) | 1,318 |
|
| 3,429 |
| | 12 |
| | 4,759 |
| |
| Net charge-offs | | 1,145 |
|
| 4,123 |
| | 119 |
| | 5,387 |
| |
Write-offs of PCI loans(a) | 533 |
| | — |
| | — |
| | 533 |
| 86 |
| | — |
| | — |
| | 86 |
| |
| Provision for loan losses | 414 |
| | 3,079 |
| | (269 | ) | | 3,224 |
| 613 |
| | 4,973 |
| | (286 | ) | | 5,300 |
| |
| Other | 31 |
|
| (6 | ) | | (36 | ) | | (11 | ) | (1 | ) |
| — |
| | 2 |
| | 1 |
| |
| Ending balance at December 31, | $ | 7,050 |
| | $ | 3,439 |
| | $ | 3,696 |
| | $ | 14,185 |
| $ | 4,579 |
| | $ | 4,884 |
| | $ | 4,141 |
| | $ | 13,604 |
| |
| | | | | | | | | | | | | | | | |
| Allowance for loan losses by impairment methodology | | | | | | | | | | | | | | | |
Asset-specific(b) | $ | 539 |
| | $ | 500 |
| (c) | $ | 87 |
| | $ | 1,126 |
| $ | 246 |
| | $ | 383 |
| (c) | $ | 461 |
| | $ | 1,090 |
| |
| Formula-based | 3,186 |
| | 2,939 |
| | 3,609 |
| | 9,734 |
| 2,108 |
| | 4,501 |
| | 3,680 |
| | 10,289 |
| |
| PCI | 3,325 |
| | — |
| | — |
| | 3,325 |
| 2,225 |
| | — |
| | — |
| | 2,225 |
| |
| Total allowance for loan losses | $ | 7,050 |
| | $ | 3,439 |
| | $ | 3,696 |
| | $ | 14,185 |
| $ | 4,579 |
| | $ | 4,884 |
| | $ | 4,141 |
| | $ | 13,604 |
| |
| | | | | | | | | | | | | | | | |
| Loans by impairment methodology | | | | | | | | | | | | | | | |
| Asset-specific | $ | 12,020 |
| | $ | 2,029 |
| | $ | 637 |
| | $ | 14,686 |
| $ | 8,036 |
| | $ | 1,215 |
| | $ | 1,867 |
| | $ | 11,118 |
| |
| Formula-based | 236,263 |
| | 125,998 |
| | 323,861 |
| | 686,122 |
| 333,941 |
| | 148,172 |
| | 401,028 |
| | 883,141 |
| |
| PCI | 46,696 |
| | — |
| | 4 |
| | 46,700 |
| 30,576 |
| | — |
| | 3 |
| | 30,579 |
| |
| Total retained loans | $ | 294,979 |
| | $ | 128,027 |
| | $ | 324,502 |
| | $ | 747,508 |
| $ | 372,553 |
| | $ | 149,387 |
| | $ | 402,898 |
| | $ | 924,838 |
| |
| | | | | | | | | | | | | | | | |
| Impaired collateral-dependent loans | | | | | | | | | | | | | | | |
| Net charge-offs | $ | 133 |
|
| $ | — |
| | $ | 21 |
| | $ | 154 |
| $ | 64 |
|
| $ | — |
| | $ | 31 |
| | $ | 95 |
| |
| Loans measured at fair value of collateral less cost to sell | 3,025 |
| | — |
| | 326 |
| | 3,351 |
| 2,133 |
| | — |
| | 233 |
| | 2,366 |
| |
| | | | | | | | | | | | | | | | |
| Allowance for lending-related commitments | | | | | | | | | | | | | | | |
| Beginning balance at January 1, | $ | 8 |
| | $ | — |
| | $ | 697 |
| | $ | 705 |
| $ | 26 |
| | $ | — |
| | $ | 1,052 |
| | $ | 1,078 |
| |
| Provision for lending-related commitments | 5 |
| | — |
| | (90 | ) | | (85 | ) | 7 |
| | — |
| | (17 | ) | | (10 | ) | |
| Other | — |
| | — |
| | 2 |
| | 2 |
| — |
| | — |
| | — |
| | — |
| |
| Ending balance at December 31, | $ | 13 |
| | $ | — |
| | $ | 609 |
| | $ | 622 |
| $ | 33 |
| | $ | — |
| | $ | 1,035 |
| | $ | 1,068 |
| |
| | | | | | | | | | | | | | | | |
| Allowance for lending-related commitments by impairment methodology | | | | | | | | | | | | | | | |
| Asset-specific | $ | — |
| | $ | — |
| | $ | 60 |
| | $ | 60 |
| $ | — |
| | $ | — |
| | $ | 187 |
| | $ | 187 |
| |
| Formula-based | 13 |
| | — |
| | 549 |
| | 562 |
| 33 |
| | — |
| | 848 |
| | 881 |
| |
| Total allowance for lending-related commitments | $ | 13 |
| | $ | — |
| | $ | 609 |
| | $ | 622 |
| $ | 33 |
| | $ | — |
| | $ | 1,035 |
| | $ | 1,068 |
| |
| | | | | | | | | | | | | | | | |
| Lending-related commitments by impairment methodology | | | | | | | | | | | | | | | |
| Asset-specific | $ | — |
| | $ | — |
| | $ | 103 |
| | $ | 103 |
| $ | — |
| | $ | — |
| | $ | 731 |
| | $ | 731 |
| |
| Formula-based | 58,153 |
| | 525,963 |
| | 471,953 |
| | 1,056,069 |
| 48,553 |
| | 572,831 |
| | 369,367 |
| | 990,751 |
| |
| Total lending-related commitments | $ | 58,153 |
| | $ | 525,963 |
| | $ | 472,056 |
| | $ | 1,056,172 |
| $ | 48,553 |
| | $ | 572,831 |
| | $ | 370,098 |
| | $ | 991,482 |
| |
| |
| (a) | Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation). During the fourth quarter of 2014, the Firm recorded a $291 million adjustment to reduce the PCI allowance and the recorded investment in the Firm’s PCI loan portfolio, primarily reflecting the cumulative effect of interest forgiveness modifications. This adjustment had no impact to the Firm’s Consolidated statements of income.pool. |
| |
| (b) | Includes risk-rated loans that have been placed on nonaccrual status and all loans that have been modified in a TDR. |
| |
| (c) | The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates. |
| |
| (d) | The prior period amounts have been revised to conform with the current period presentation. |
|
| | |
260234 | | JPMorgan Chase & Co./20142017 Annual Report |
| | | (table continued from previous page) | (table continued from previous page) | | | | | | | | (table continued from previous page) | | | | | | | | | | | |
| 2013 | | 2012 | |
| 2016 | | 2016 | | 2015 | |
Consumer, excluding credit card | Consumer, excluding credit card | | Credit card | | Wholesale | Total | | Consumer, excluding credit card | | Credit card | | Wholesale | Total | Consumer, excluding credit card | | Credit card | | Wholesale | | Total | | Consumer, excluding credit card | | Credit card | | Wholesale | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ | 12,292 |
| | $ | 5,501 |
| | $ | 4,143 |
| $ | 21,936 |
| | $ | 16,294 |
| | $ | 6,999 |
| | $ | 4,316 |
| $ | 27,609 |
| 5,806 |
| | $ | 3,434 |
| | $ | 4,315 |
| | $ | 13,555 |
| | $ | 7,050 |
| | $ | 3,439 |
| | $ | 3,696 |
| | $ | 14,185 |
| |
| 2,754 |
| | 4,472 |
| | 241 |
| 7,467 |
| | 4,805 |
| | 5,755 |
| | 346 |
| 10,906 |
| |
| (847 | ) | | (593 | ) | | (225 | ) | (1,665 | ) | | (508 | ) | | (811 | ) | | (524 | ) | (1,843 | ) | |
| 1,907 |
| | 3,879 |
| | 16 |
| 5,802 |
| | 4,297 |
| | 4,944 |
| | (178 | ) | 9,063 |
| |
| 53 |
| | — |
| | — |
| 53 |
| | — |
| | — |
| | — |
| — |
| |
| (1,872 | ) | | 2,179 |
| | (119 | ) | 188 |
| | 302 |
| | 3,444 |
| | (359 | ) | 3,387 |
| |
| (4 | ) | | (6 | ) | | 5 |
| (5 | ) | | (7 | ) | | 2 |
| | 8 |
| 3 |
| |
| 1,500 | | 1,500 |
| | 3,799 |
| | 398 |
| | 5,697 |
| | 1,658 |
| | 3,488 |
| | 95 |
| | 5,241 |
| |
| (591 | | (591 | ) | | (357 | ) | | (57 | ) | | (1,005 | ) | | (704 | ) | | (366 | ) | | (85 | ) | | (1,155 | ) | |
| 909 | | 909 |
| | 3,442 |
| | 341 |
| | 4,692 |
| | 954 |
| | 3,122 |
| | 10 |
| | 4,086 |
| |
| 156 | | 156 |
| | — |
| | — |
| | 156 |
| | 208 |
| | — |
| | — |
| | 208 |
| |
| 467 | | 467 |
| | 4,042 |
| | 571 |
| | 5,080 |
| | (82 | ) | | 3,122 |
| | 623 |
| | 3,663 |
| |
| (10 | | (10 | ) | | — |
| | (1 | ) | | (11 | ) | | — |
| | (5 | ) | | 6 |
| | 1 |
| |
| $ | 8,456 |
| | $ | 3,795 |
| | $ | 4,013 |
| $ | 16,264 |
| | $ | 12,292 |
| | $ | 5,501 |
| | $ | 4,143 |
| $ | 21,936 |
| 5,198 |
| | $ | 4,034 |
| | $ | 4,544 |
| | $ | 13,776 |
| | $ | 5,806 |
| | $ | 3,434 |
| | $ | 4,315 |
| | $ | 13,555 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ | 601 |
| | $ | 971 |
| (c) | $ | 181 |
| $ | 1,753 |
| | $ | 729 |
| | $ | 1,681 |
| (c) | $ | 319 |
| $ | 2,729 |
| 308 |
| | $ | 358 |
| (c) | $ | 342 |
| | $ | 1,008 |
| | $ | 364 |
| | $ | 460 |
| (c) | $ | 274 |
| | $ | 1,098 |
| |
| 3,697 |
| | 2,824 |
| | 3,832 |
| 10,353 |
| | 5,852 |
| | 3,820 |
| | 3,824 |
| 13,496 |
| |
| 4,158 |
| | — |
| | — |
| 4,158 |
| | 5,711 |
| | — |
| | — |
| 5,711 |
| |
| 2,579 | | 2,579 |
| | 3,676 |
| | 4,202 |
| | 10,457 |
| | 2,700 |
| | 2,974 |
| | 4,041 |
| | 9,715 |
| |
| 2,311 | | 2,311 |
| | — |
| | — |
| | 2,311 |
| | 2,742 |
| | — |
| | — |
| | 2,742 |
| |
| $ | 8,456 |
| | $ | 3,795 |
| | $ | 4,013 |
| $ | 16,264 |
| | $ | 12,292 |
| | $ | 5,501 |
| | $ | 4,143 |
| $ | 21,936 |
| 5,198 |
| | $ | 4,034 |
| | $ | 4,544 |
| | $ | 13,776 |
| | $ | 5,806 |
| | $ | 3,434 |
| | $ | 4,315 |
| | $ | 13,555 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ | 13,785 |
| | $ | 3,115 |
| | $ | 845 |
| $ | 17,745 |
| | $ | 13,938 |
| | $ | 4,762 |
| | $ | 1,475 |
| $ | 20,175 |
| 8,940 |
| | $ | 1,240 |
| | $ | 2,017 |
| | $ | 12,197 |
| | $ | 9,606 |
| | $ | 1,465 |
| | $ | 1,024 |
| | $ | 12,095 |
| |
| 221,609 |
| | 124,350 |
| | 307,412 |
| 653,371 |
| | 218,945 |
| | 123,231 |
| | 304,728 |
| 646,904 |
| |
| 53,055 |
| | — |
| | 6 |
| 53,061 |
| | 59,737 |
| | — |
| | 19 |
| 59,756 |
| |
| 319,787 | | 319,787 |
| | 140,471 |
| | 381,770 |
| | 842,028 |
| | 293,751 |
| | 129,922 |
| | 356,022 |
| | 779,695 |
| |
| 35,679 | | 35,679 |
| | — |
| | 3 |
| | 35,682 |
| | 40,998 |
| | — |
| | 4 |
| | 41,002 |
| |
| $ | 288,449 |
| | $ | 127,465 |
| | $ | 308,263 |
| $ | 724,177 |
| | $ | 292,620 |
| | $ | 127,993 |
| | $ | 306,222 |
| $ | 726,835 |
| 364,406 |
| | $ | 141,711 |
| | $ | 383,790 |
| | $ | 889,907 |
| | $ | 344,355 |
| | $ | 131,387 |
| | $ | 357,050 |
| | $ | 832,792 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ | 235 |
| | $ | — |
| | $ | 37 |
| $ | 272 |
| | $ | 973 |
| | $ | — |
| | $ | 77 |
| $ | 1,050 |
| 98 |
| | $ | — |
| | $ | 7 |
| | $ | 105 |
| | $ | 104 |
| | $ | — |
| | $ | 16 |
| | $ | 120 |
| |
| 3,105 |
| | — |
| | 362 |
| 3,467 |
| | 3,272 |
| | — |
| | 445 |
| 3,717 |
| |
| 2,391 | | 2,391 |
| | — |
| | 300 |
| | 2,691 |
| | 2,566 |
| | — |
| | 283 |
| | 2,849 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ | 7 |
| | $ | — |
| | $ | 661 |
| $ | 668 |
| | $ | 7 |
| | $ | — |
| | $ | 666 |
| $ | 673 |
| 14 |
| | $ | — |
| | $ | 772 |
| | $ | 786 |
| | $ | 13 |
| | $ | — |
| | $ | 609 |
| | $ | 622 |
| |
| 1 |
| | — |
| | 36 |
| 37 |
| | — |
| | — |
| | (2 | ) | (2 | ) | |
| — | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | (3 | ) | (3 | ) | — |
| | — |
| | 281 |
| | 281 |
| | 1 |
| | — |
| | 163 |
| | 164 |
| |
| 12 | | 12 |
| | — |
| | (1 | ) | | 11 |
| | — |
| | — |
| | — |
| | — |
| |
| $ | 8 |
| | $ | — |
| | $ | 697 |
| $ | 705 |
| | $ | 7 |
| | $ | — |
| | $ | 661 |
| $ | 668 |
| 26 |
| | $ | — |
| | $ | 1,052 |
| | $ | 1,078 |
| | $ | 14 |
| | $ | — |
| | $ | 772 |
| | $ | 786 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ | — |
| | $ | — |
| | $ | 60 |
| $ | 60 |
| | $ | — |
| | $ | — |
| | $ | 97 |
| $ | 97 |
| — |
| | $ | — |
| | $ | 169 |
| | $ | 169 |
| | $ | — |
| | $ | — |
| | $ | 73 |
| | $ | 73 |
| |
| 8 |
| | — |
| | 637 |
| 645 |
| | 7 |
| | — |
| | 564 |
| 571 |
| |
| 26 | | 26 |
| | — |
| | 883 |
| | 909 |
| | 14 |
| | — |
| | 699 |
| | 713 |
| |
| $ | 8 |
| | $ | — |
| | $ | 697 |
| $ | 705 |
| | $ | 7 |
| | $ | — |
| | $ | 661 |
| $ | 668 |
| 26 |
| | $ | — |
| | $ | 1,052 |
| | $ | 1,078 |
| | $ | 14 |
| | $ | — |
| | $ | 772 |
| | $ | 786 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ | — |
| | $ | — |
| | $ | 206 |
| $ | 206 |
| | $ | — |
| | $ | — |
| | $ | 355 |
| $ | 355 |
| — |
| | $ | — |
| | $ | 506 |
| | $ | 506 |
| | $ | — |
| | $ | — |
| | $ | 193 |
| | $ | 193 |
| |
| 56,057 |
| | 529,383 |
| | 446,026 |
| 1,031,466 |
| | 60,156 |
| | 533,018 |
| | 434,459 |
| 1,027,633 |
| |
| 53,247 | | 53,247 |
| (d) | 553,891 |
| | 367,508 |
| | 974,646 |
| (d) | 56,865 |
| (d) | 515,518 |
| | 366,206 |
| | 938,589 |
| (d) |
| $ | 56,057 |
| | $ | 529,383 |
| | $ | 446,232 |
| $ | 1,031,672 |
| | $ | 60,156 |
| | $ | 533,018 |
| | $ | 434,814 |
| $ | 1,027,988 |
| 53,247 |
| (d) | $ | 553,891 |
| | $ | 368,014 |
| | $ | 975,152 |
| (d) | $ | 56,865 |
| (d) | $ | 515,518 |
| | $ | 366,399 |
| | $ | 938,782 |
| (d) |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 261235 |
Notes to consolidated financial statements
Note 1614 – Variable interest entities
For a further description of JPMorgan Chase’s accounting policies regarding consolidation of VIEs, see Note 1.
The following table summarizes the most significant types of Firm-sponsored VIEs by business segment. The Firm considers a “sponsored” VIE to include any entity where: (1) JPMorgan Chase is the principalprimary beneficiary of the structure; (2) the VIE is used by JPMorgan Chase to securitize Firm assets; (3) the VIE issues financial instruments with the JPMorgan Chase name; or (4) the entity is a JPMorgan Chase–administered asset-backed commercial paper conduit.
|
| | | |
Line-of-BusinessLine of Business | Transaction Type | Activity | Annual Report page references |
| CCB | Credit card securitization trusts | Securitization of both originated and purchased credit card receivables | 262236-237 |
| Mortgage securitization trusts | SecuritizationServicing and securitization of both originated and purchased residential mortgages | 263-265 |
| Other securitization trusts | Securitization of originated student loans | 263-265237-239 |
| CIB | Mortgage and other securitization trusts | Securitization of both originated and purchased residential and commercial mortgages automobile and studentother consumer loans | 263-265237-239 |
| Multi-seller conduits Investor intermediation activities:
| Assist clients in accessing the financial markets in a cost-efficient manner and structures transactions to meet investor needs | 265-267239 |
| Municipal bond vehicles | Financing of municipal bond investments | 265-266 |
| Credit-related note and asset swap vehicles | | 267239-240 |
The Firm’s other business segments are also involved with VIEs (both third-party and Firm-sponsored), but to a lesser extent, as follows:
Asset & Wealth Management: SponsorsAWM sponsors and manages certain funds that are deemed VIEs. As asset manager of the funds, AMAWM earns a fee based on assets managed; the fee varies with each fund’s investment objective and is competitively priced. For fund entities that qualify as VIEs, AM’sAWM’s interests are, in certain cases, considered to be significant variable interests that result in consolidation of the financial results of these entities.
Commercial Banking: CB makes investments inprovides financing and provides lendinglending-related services to community developmenta wide spectrum of clients, including certain third party-sponsored entities that may meet the definition of a VIE. In addition, CB provides financing and lending-related services to certain client-sponsored VIEs. In general, CB does not control the activities of these entities and does not consolidate these entities. CB’s maximum loss exposure, regardless of whether the entity is a VIE, is generally limited to loans and lending-related commitments which are reported and disclosed in the same manner as any other third-party transaction.
Corporate: The Private Equity business, within Corporate may beis involved with entities that may meet the definition of VIEs; however these entities are deemed VIEs. However, the Firm’s private equity business isgenerally subject to specialized investment company accounting, which does not require the consolidation of investments, including VIEs. In addition, Treasury and CIO invest in securities generally issued by third parties which may meet the definition of VIEs (e.g., issuers of asset-backed securities). In general, the Firm does not have the power to direct the significant activities of these entities and therefore does not consolidate these entities. See Note 10 for further information on the Firm’s investment securities portfolio.
The FirmIn addition, CIB also invests in and provides financing and other services to VIEs sponsored by third parties, as described on page 268parties. See pages 241-242 of this Note.Note for more information on the VIEs sponsored by third parties.
Significant Firm-sponsored variable interest entities
Credit card securitizations
TheCCB’s Card business securitizes originated and purchased credit card loans, primarily through the Chase Issuance Trust (the “Trust”). The Firm’s continuing involvement in credit card securitizations includes servicing the receivables, retaining an undivided seller’s interest in the receivables, retaining certain senior and subordinated securities and maintaining escrow accounts.
The Firm is considered to be the primary beneficiary of these Firm-sponsored credit card securitization trusts based on the Firm’s ability to direct the activities of these VIEs through its servicing responsibilities and other duties, including making decisions as to the receivables that are transferred into those trusts and as to any related modifications and workouts. Additionally, the nature and extent of the Firm’s other continuing involvement with the trusts, as indicated above, obligates the Firm to absorb
losses and gives the Firm the right to receive certain benefits from these VIEs that could potentially be significant.
The underlying securitized credit card receivables and other assets of the securitization trusts are available only for payment of the beneficial interests issued by the securitization trusts; they are not available to pay the Firm’s other obligations or the claims of the Firm’s other creditors.
The agreements with the credit card securitization trusts require the Firm to maintain a minimum undivided interest in the credit card trusts (which is generally 4%(generally 5%). As of December 31, 20142017 and 2013,2016, the Firm held undivided interests in Firm-sponsored credit card securitization trusts of $10.9$15.8 billion and $14.3$8.9 billion, respectively. The Firm maintained an average undivided interest in principal receivables owned by those trusts of approximately 22%26% and 30%16% for the years ended December 31, 20142017 and 2013, respectively. The2016. As of both
|
| | |
| 236 | | JPMorgan Chase & Co./2017 Annual Report |
December 31, 2017 and 2016, the Firm also retained $40 million and $130 million ofdid not retain any senior securities and $5.3retained $4.5 billion and $5.5$5.3 billion of subordinated securities in certain of its credit card securitization trusts as of December 31, 20142017 and 2013,2016, respectively. The Firm’s undivided interests in the credit card trusts and securities retained are eliminated in consolidation.
|
| | |
262 | | JPMorgan Chase & Co./2014 Annual Report |
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and purchased residential mortgages, commercial mortgages and other consumer loans (including automobile and student loans) primarily in its CCB and CIB businesses.
Depending on the particular transaction, as well as the line ofrespective business involved, the Firm may act as the servicer of the loans and/or retain certain beneficial interests in the securitization trusts.
The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing involvement includes servicing the loans;loans, holding senior interests or subordinated interests;interests (including amounts required to be held pursuant to credit risk retention rules), recourse or guarantee arrangements;arrangements, and derivative transactions. In certain instances, the Firm’s only continuing involvement is servicing the loans. See Securitization activity on page 269242 of this Note for further information regarding the Firm’s cash flows with and interests retained in nonconsolidated VIEs, and pages 269–270page 243 of this Note for information on the Firm’s loan sales to U.S. government agencies.
| | | | Principal amount outstanding | | JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(c)(d)(e) | Principal amount outstanding | | JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(c)(d)(e) |
December 31, 2014 (a) (in billions) | Total assets held by securitization VIEs | Assets held in consolidated securitization VIEs | Assets held in nonconsolidated securitization VIEs with continuing involvement | | Trading assets | AFS securities | Total interests held by JPMorgan Chase | |
December 31, 2017 (in millions) | | Total assets held by securitization VIEs | Assets held in consolidated securitization VIEs | Assets held in nonconsolidated securitization VIEs with continuing involvement | | Trading assets | Securities | Other financial assets | Total interests held by JPMorgan Chase |
Securitization-related | | | | | | |
| Residential mortgage: | | | | | | |
| Prime/Alt-A and Option ARMs | $ | 96.3 |
| $ | 2.7 |
| $ | 78.3 |
| | $ | 0.5 |
| $ | 0.7 |
| $ | 1.2 |
| |
| Prime/Alt-A and option ARMs | | $ | 68,874 |
| $ | 3,615 |
| $ | 52,280 |
| | $ | 410 |
| $ | 943 |
| $ | — |
| $ | 1,353 |
|
| Subprime | 28.4 |
| 0.8 |
| 25.7 |
| | 0.1 |
| — |
| 0.1 |
| 18,984 |
| 7 |
| 17,612 |
| | 93 |
| — |
| — |
| 93 |
|
Commercial and other(b) | 129.6 |
| 0.2 |
| 94.4 |
| | 0.4 |
| 3.5 |
| 3.9 |
| 94,905 |
| 63 |
| 63,411 |
| | 745 |
| 1,133 |
| 157 |
| 2,035 |
|
| Total | $ | 254.3 |
| $ | 3.7 |
| $ | 198.4 |
| | $ | 1.0 |
| $ | 4.2 |
| $ | 5.2 |
| $ | 182,763 |
| $ | 3,685 |
| $ | 133,303 |
| | $ | 1,248 |
| $ | 2,076 |
| $ | 157 |
| $ | 3,481 |
|
| | | | Principal amount outstanding | | JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(c)(d)(e) | Principal amount outstanding | | JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(c)(d)(e) |
December 31, 2013(a) (in billions) | Total assets held by securitization VIEs | Assets held in consolidated securitization VIEs | Assets held in nonconsolidated securitization VIEs with continuing involvement | | Trading assets | AFS securities | Total interests held by JPMorgan Chase | |
| December 31, 2016(in millions) | | Total assets held by securitization VIEs | Assets held in consolidated securitization VIEs | Assets held in nonconsolidated securitization VIEs with continuing involvement | | Trading assets | Securities | Other financial assets | Total interests held by JPMorgan Chase |
Securitization-related | | | | | | |
| Residential mortgage: | | | | | | |
| Prime/Alt-A and Option ARMs | $ | 109.2 |
| $ | 3.2 |
| $ | 90.4 |
| | $ | 0.5 |
| $ | 0.3 |
| $ | 0.8 |
| |
| Prime/Alt-A and option ARMs | | $ | 76,789 |
| $ | 4,209 |
| $ | 57,543 |
| | $ | 226 |
| $ | 1,334 |
| $ | — |
| $ | 1,560 |
|
| Subprime | 32.1 |
| 1.3 |
| 28.0 |
| | 0.1 |
| — |
| 0.1 |
| 21,542 |
| — |
| 19,903 |
| | 76 |
| — |
| — |
| 76 |
|
Commercial and other(b) | 130.4 |
| — |
| 98.0 |
| | 0.5 |
| 3.5 |
| 4.0 |
| 101,265 |
| 107 |
| 71,464 |
| | 509 |
| 2,064 |
| — |
| 2,573 |
|
| Total | $ | 271.7 |
| $ | 4.5 |
| $ | 216.4 |
| | $ | 1.1 |
| $ | 3.8 |
| $ | 4.9 |
| $ | 199,596 |
| $ | 4,316 |
| $ | 148,910 |
| | $ | 811 |
| $ | 3,398 |
| $ | — |
| $ | 4,209 |
|
| |
| (a) | Excludes U.S. government agency securitizations.securitizations and re-securitizations, which are not Firm-sponsored. See pages 269–270page 243 of this Note for information on the Firm’s loan sales to U.S. government agencies. |
| |
| (b) | Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third parties. The Firm generally does not retain a residual interest in its sponsored commercial mortgage securitization transactions. |
| |
| (c) | The table above excludesExcludes the following: retained servicing (see Note 1715 for a discussion of MSRs); securities retained from loan sales to U.S. government agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (See Note 65 for further information on derivatives); senior and subordinated securities of $13688 million and $3448 million, respectively, at December 31, 20142017, and $151180 million and $3049 million, respectively, at December 31, 20132016, which the Firm purchased in connection with CIB’s secondary market-making activities.
|
| |
| (d) | Includes interests held in re-securitization transactions. |
| |
| (e) | As of December 31, 20142017 and 20132016, 77%61% and 69%61%, respectively, of the Firm’s retained securitization interests, which are predominantly carried at fair value and include amounts required to be held pursuant to credit risk retention rules, were risk-rated “A” or better, on an S&P-equivalent basis. The retained interests in prime residential mortgages consisted of $1.11.3 billion and $551 million1.5 billion of investment-grade and $18548 million and $26077 million of noninvestment-grade retained interests at December 31, 20142017 and 2013,2016, respectively. The retained interests in commercial and other securitizations trusts consisted of $3.71.6 billion and $3.92.4 billion of investment-grade and $194412 million and $80210 million of noninvestment-grade retained interests at December 31, 20142017 and 20132016, respectively. |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 263237 |
Notes to consolidated financial statements
Residential mortgage
The Firm securitizes residential mortgage loans originated by CCB, as well as residential mortgage loans purchased from third parties by either CCB or CIB. CCB generally retains servicing for all residential mortgage loans it originated or purchased, by CCB, and for certain mortgage loans purchased by CIB. For securitizations of loans serviced by CCB, the Firm has the power to direct the significant activities of the VIE because it is responsible for decisions related to loan modifications and workouts. CCB may also retain an interest upon securitization.
In addition, CIB engages in underwriting and trading activities involving securities issued by Firm-sponsored securitization trusts. As a result, CIB at times retains senior and/or subordinated interests (including residual interests)interests and amounts required to be held pursuant to credit risk retention rules) in residential mortgage securitizations uponat the time of securitization, and/or reacquires positions in the secondary market in the normal course of business. In certain instances, as a result of the positions retained or reacquired by CIB or held by CCB, when considered together with the servicing arrangements entered into by CCB, the Firm is deemed to be the primary beneficiary of certain securitization trusts. See the table on page 268241 of this Note for more information on consolidated residential mortgage securitizations.
The Firm does not consolidate a residential mortgage securitization (Firm-sponsored or third-party-sponsored) when it is not the servicer (and therefore does not have the power to direct the most significant activities of the trust) or does not hold a beneficial interest in the trust that could potentially be significant to the trust. At December 31, 2014 and 2013, the Firm did not consolidate the assets of certain Firm-sponsored residential mortgage securitization VIEs, in which the Firm had continuing involvement, primarily due to the fact that the Firm did not hold an interest in these trusts that could potentially be significant to the trusts. See the table on page 268241 of this Note for more information on the consolidated residential mortgage securitizations, and the table on the previous page of this Note for further information on interests held in nonconsolidated residential mortgage securitizations.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans, and engages in underwriting and trading activities involving the securities issued by securitization trusts. CIB may retain unsold senior and/or subordinated interests (including amounts required to be held pursuant to credit risk retention rules) in commercial mortgage securitizations at the time of securitization but, generally, the Firm does not service commercial loan securitizations. For commercial mortgage securitizations the power to direct the significant activities of the VIE generally is held by the servicer or investors in a specified class of securities (“controlling class”). The Firm generally does not retain an interest in the controlling class in its sponsored commercial mortgage securitization transactions. See the table on page 268241 of this Note for more information on the consolidated commercial mortgage securitizations,
and the table on the previous page of this Note for further information on interests held in nonconsolidated securitizations.
The Firm retains servicing responsibilities for certain student loan securitizations. The Firm has the power to direct the activities of these VIEs through these servicing responsibilities. See the table on page 268 of this Note for more information on the consolidated student loan securitizations, and the table on the previous page of this Note for further information on interests held in nonconsolidated securitizations.
Re-securitizations
The Firm engages in certain re-securitization transactions in which debt securities are transferred to a VIE in exchange for new beneficial interests. These transfers occur in connection with both agency (Fannie Mae, (Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie MacMac”) and Government National Mortgage Association (“Ginnie Mae)Mae”)) and nonagency (private-label) sponsored VIEs, which may be backed by either residential or commercial mortgages. The Firm’s consolidation analysis is largely dependent on the Firm’s role and interest in the re-securitization trusts. During
The following table presents the years ended December 31, 2014, 2013 and 2012, the Firm transferred $22.7 billion, $25.3 billion and $10.0 billion, respectively,principal amount of securities transferred to agency VIEs, and $1.1 billion, $55 million and $286 million, respectively, of securities to private-labelre-securitization VIEs.
|
| | | | | | | | | | | |
Year ended December 31,
(in millions) | 2017 | | 2016 | | 2015 |
| Transfers of securities to VIEs | | | | | |
| Firm-sponsored private-label | $ | — |
| | $ | 647 |
| | $ | 777 |
|
| Agency | $ | 12,617 |
| | $ | 11,241 |
| | $ | 21,908 |
|
Most re-securitizations with which the Firm is involved are client-driven transactions in which a specific client or group of clients is seeking a specific return or risk profile. For these transactions, the Firm has concluded that the decision-making power of the entity is shared between the Firm and its clients, considering the joint effort and decisions in establishing the re-securitization trust and its assets, as well as the significant economic interest the client holds in the re-securitization trust; therefore the Firm does not consolidate the re-securitization VIE.
In more limited circumstances, the Firm creates a nonagency re-securitization trust independently and not in conjunction with specific clients. In these circumstances, the Firm is deemed to have the unilateral ability to direct the most significant activities of the re-securitization trust because of the decisions made during the establishment and design of the trust; therefore, the Firm consolidates the re-securitization VIE if the Firm holds an interest that could potentially be significant.
Additionally, the Firm may invest in beneficial interests of third-party securitizationsre-securitizations and generally purchases these interests in the secondary market. In these circumstances, the Firm does not have the unilateral ability to direct the most significant activities of the re-securitization trust, either because it was not involved in the initial design of the trust, or the Firm is involved with an independent third-party sponsor and demonstrates shared power over the creation of the trust; therefore, the Firm does not consolidate the re-securitization VIE.
As of December 31, 2014 and 2013, the Firm did not consolidate any agency re-securitizations. As of December 31, 2014 and 2013, the Firm consolidated assets of $77 million and $86 million, respectively, and liabilities of $21 million and $23 million, respectively, of
|
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264238 | | JPMorgan Chase & Co./20142017 Annual Report |
private-label re-securitizations. See theThe following table on page 268 of this Note for morepresents information on the consolidatednonconsolidated re-securitization transactions.VIEs.
|
| | | | | |
Year ended December 31, (in millions) | 2017 |
| | 2016 |
|
| Firm-sponsored private-label | | | |
Assets held in VIEs with continuing involvement(a) | 783 |
| | 875 |
|
| Interest in VIEs | 29 |
| | 43 |
|
| Agency | | | |
| Interest in VIEs | 2,250 |
| | 1,986 |
|
| |
| (a) | Represents the principal amount and includes the notional amount of interest-only securities. |
As of December 31, 20142017 and 2013, total assets (including2016, the notional amount of interest-only securities) of nonconsolidatedFirm did not consolidate any agency re-securitizations or any Firm-sponsored private-label re-securitization entities in which the Firm has continuing involvement were $2.9 billion and $2.8 billion, respectively. At December 31, 2014 and 2013, the Firm held approximately $2.4 billion and $1.3 billion, respectively, of interests in nonconsolidated agency re-securitization entities, and $36 million and $6 million, respectively, of senior and subordinated interests in nonconsolidated private-label re-securitization entities. See the table on page 263 of this Note for further information on interests held in nonconsolidated securitizations.re-securitizations.
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy remote entities that purchase interests in, and make loansprovide secured financing, collateralized by pools of receivables and other financial assets, pursuant to agreements with customers of the Firm. The conduits fund their purchases and loansfinancing facilities through the issuance of highly rated commercial paper. The primary source of repayment of the commercial paper is the cash flows from the pools of assets. In most instances, the assets are structured with deal-specific credit enhancements provided to the conduits by the customers (i.e., sellers) or other third parties. Deal-specific credit enhancements are generally structured to cover a multiple of historical losses expected on the pool of assets, and are typically in the form of overcollateralization provided by the seller. The deal-specific credit enhancements mitigate the Firm’s potential losses on its agreements with the conduits.
To ensure timely repayment of the commercial paper, and to provide the conduits with funding to purchase interests in or make loans secured by pools of receivablesprovide financing to customers in the event that the conduits do not obtain funding in the commercial paper market, each asset pool financed by the conduits has a minimum 100% deal-specific liquidity facility associated with it provided by JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. also provides the multi-seller conduit vehicles with uncommitted program-wide liquidity facilities and program-wide credit enhancement in the form of standby letters of credit. The amount of program-wide credit enhancement required is based upon commercial paper issuance and approximates 10% of the outstanding balance.balance of commercial paper.
The Firm consolidates its Firm-administered multi-seller conduits, as the Firm has both the power to direct the significant activities of the conduits and a potentially significant economic interest in the conduits. As administrative agent and in its role in structuring transactions, the Firm makes decisions regarding asset types and credit quality, and manages the commercial paper funding needs of the conduits. The Firm’s interests that could potentially be significant to the VIEs include the fees received as administrative agent and liquidity and
program-wide credit enhancement provider, as well as the potential exposure created by the liquidity and credit
enhancement facilities provided to the conduits. See page 268241 of this Note for further information on consolidated VIE assets and liabilities.
In the normal course of business, JPMorgan Chase makes markets in and invests in commercial paper issued by the Firm-administered multi-seller conduits. The Firm held $5.7$20.4 billion and $4.1$21.2 billion of the commercial paper issued by the Firm-administered multi-seller conduits at December 31, 20142017 and 2013, respectively.2016, respectively, which have been eliminated in consolidation. The Firm’s investments reflect the Firm’s funding needs and capacity and were not driven by market illiquidity. TheOther than the amounts required to be held pursuant to credit risk retention rules, the Firm is not obligated under any agreement to purchase the commercial paper issued by the Firm-administered multi-seller conduits.
Deal-specific liquidity facilities, program-wide liquidity and credit enhancement provided by the Firm have been eliminated in consolidation. The Firm or the Firm-administered multi-seller conduits provide lending-related commitments to certain clients of the Firm-administered multi-seller conduits. The unfunded portion of these commitments was $9.9were $8.8 billion and $9.1$7.4 billion at December 31, 20142017 and 2013,2016, respectively, and are reported as off-balance sheet lending-related commitments. For more information on off-balance sheet lending-related commitments, see Note 29.
VIEs associated with investor intermediation activities
As a financial intermediary, the Firm creates certain types of VIEs and also structures transactions with these VIEs, typically using derivatives, to meet investor needs. The Firm may also provide liquidity and other support. The risks inherent in the derivative instruments or liquidity commitments are managed similarly to other credit, market or liquidity risks to which the Firm is exposed. The principal types of VIEs for which the Firm is engaged in on behalf of clients are municipal bond vehicles, credit-related note vehicles and asset swap vehicles.27.
Municipal bond vehicles
The Firm has created a series ofMunicipal bond vehicles or tender option bond (“TOB”) trusts that provide short-term investors with qualifying tax-exempt investments, and that allow investors in tax-exempt securitiesinstitutions to finance their municipal bond investments at short-term tax-exempt rates. In a typical TOB transaction, the vehicletrust purchases fixed-rate longer-term highly rated municipal bondsbond(s) of a single issuer and funds the purchase by issuing two types of securities: (1) puttable floating-rate certificates (“Floaters”) and (2) inverse floating-rate residual interests (“residual interests”Residuals”). The maturity of each of the puttable floating-rate certificatesFloaters are typically purchased by money market funds or other short-term investors and the residual interests is equalmay be tendered, with requisite notice, to the life ofTOB trust. The Residuals are retained by the vehicle, whileinvestor seeking to finance its municipal bond investment.TOB transactions where the maturity ofResidual is held by a third party investor are typically known as Customer TOB trusts, and Non-Customer TOB trusts are transactions where the underlying municipal bondsResidual is typically longer. Holders ofretained by the puttable floating-rate certificatesFirm. Customer TOB trusts are sponsored by a third party; see page 242 on this Note for further information. The Firm serves as sponsor for all Non-Customer TOB transactions. The Firm may “put,”provide various services to a TOB trust, including remarketing agent, liquidity or tender the certificates if theoption provider, and/or sponsor.
J.P. Morgan Securities LLC may serve as a remarketing agent cannot successfully remarketon the floating-rate certificatesFloaters for TOB trusts. The remarketing agent is responsible for establishing the periodic variable rate on the Floaters, conducting the initial placement and remarketing tendered Floaters. The remarketing agent may, but is not obligated to, another investor. A liquidity facility conditionally obligates the liquidity provider to fund the purchasemake markets in Floaters. The Firm held an insignificant amount of the tendered floating-rate certificates. Upon termination of the vehicle, proceeds fromFloaters during 2017 and 2016.
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JPMorgan Chase & Co./20142017 Annual Report | | 265239 |
Notes to consolidated financial statements
the sale of the underlying municipal bonds would first repay any funded liquidity facility or outstanding floating-rate certificates and the remaining amount, if any, would be paid to the residual interests. If the proceeds from the sale of the underlying municipal bonds are not sufficient to repay the liquidity facility, in certain transactions the liquidity provider has recourse to the residual interest holders for reimbursement. Certain residual interest holders may be required to post collateral with the Firm, as liquidity provider, to support such reimbursement obligations should the market value of the municipal bonds decline.
JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC often serves as the sole liquidity or tender option provider and J.P. Morgan Securities LLC serves as remarketing agent, offor the puttable floating-rate certificates.TOB trusts. The liquidity provider’s obligation to perform is conditional and is limited by certain termination events (“Termination Events”), which include bankruptcy or failure to pay by the municipal bond issuer or credit enhancement provider, an event of taxability on the municipal bonds or the immediate downgrade of the municipal bond to below investment grade. In addition, the Firm’sliquidity provider’s exposure as liquidity provider is typically further limited by the high credit quality of the underlying municipal bonds, the excess collateralization in the vehicle, or, in certain transactions, the reimbursement agreements with the residual interestResidual holders.
The long-term credit ratingsHolders of the puttable floating rate certificates are directly relatedFloaters may “put,” or tender, their Floaters to the credit ratingsTOB trust. If the remarketing agent cannot successfully remarket the Floaters to another investor, the liquidity provider either provides a loan to the TOB trust for the TOB trust’s purchase of the underlying municipal bonds,Floaters, or it directly purchases the credit rating of any insurer of the underlying municipal bond, and the Firm’s short-term credit rating as liquidity provider. A downgrade in any of these ratings would affect the rating of the puttable
floating-rate certificates and could cause demand for these certificates by investors to decline or disappear. However, a downgrade of JPMorgan Chase Bank, N.A.’s short-term rating does not affect the Firm’s obligation under the liquidity facility.
As remarketing agent, the Firm may hold puttable floating-rate certificates of the municipal bond vehicles. At December 31, 2014 and 2013, the Firm held $55 million and $262 million, respectively, of these certificates on its Consolidated balance sheets. The largest amount held by the Firm at any end of day during 2014 was $250 million, or 3.0%, of the municipal bond vehicles’ aggregate outstanding puttable floating-rate certificates. The Firm did not have and continues not to have any intent to protect any residual interest holder from potential losses on any of the municipal bond holdings.tendered Floaters.
TOB trusts are considered to be variable interest entities. The Firm consolidates municipal bond vehicles if it ownsNon-Customer TOB trusts because as the residual interest. The residual interest generally allowsResidual holder, the ownerFirm has the right to make decisions that significantly impact the economic performance of the municipal bond vehicle, primarily by directing the sale of the municipal bonds owned by the vehicle. In addition, the residual interest owners haveand it has the right to receive benefits and bear losses that could potentially be significant to the municipal bond vehicle. The Firm does not consolidate municipal bond vehicles if it does not own the residual interests, since the Firm does not have the power to make decisions that significantly impact the economic performance of the municipal bond vehicle.See Seepage 268241 of this Note for further information on consolidated municipal bond vehicles.
The Firm’s exposure to nonconsolidated municipal bond VIEs at December 31, 2014 and 2013, including the ratings profile of the VIEs’ assets, was as follows.
|
| | | | | | | | | | | | |
December 31, (in billions) | Fair value of assets held by VIEs | Liquidity facilities | Excess/(deficit)(a) | Maximum exposure |
| Nonconsolidated municipal bond vehicles | | | | |
| 2014 | $ | 11.5 |
| $ | 6.3 |
| $ | 5.2 |
| $ | 6.3 |
|
| 2013 | 11.8 |
| 6.9 |
| 4.9 |
| 6.9 |
|
| | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Ratings profile of VIE assets(b) | Fair value of assets held by VIEs | Wt. avg. expected life of assets (years) |
| | Investment-grade | | Noninvestment- grade |
December 31, (in billions, except where otherwise noted) | AAA to AAA- | AA+ to AA- | A+ to A- | BBB+ to BBB- | | BB+ and below |
| 2014 | $ | 2.7 |
| $ | 8.4 |
| $ | 0.4 |
| $ | — |
| | $ | — |
| $ | 11.5 |
| 4.9 |
| 2013 | 2.7 |
| 8.9 |
| 0.2 |
| — |
| | — |
| $ | 11.8 |
| 7.2 |
| |
(a) | Represents the excess/(deficit) of the fair values of municipal bond assets available to repay the liquidity facilities, if drawn. |
| |
(b) | The ratings scale is presented on an S&P-equivalent basis. |
|
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266240 | | JPMorgan Chase & Co./20142017 Annual Report |
Credit-related note and asset swap vehicles
Credit-related note vehicles
The Firm structures transactions with credit-related note vehicles in which the VIE purchases highly rated assets (generally investment-grade), such as government bonds, corporate bonds or asset-backed securities, and enters into a credit derivative contract with the Firm to obtain exposure to a referenced credit which the VIE otherwise does not hold. The VIE then issues credit-linked notes (“CLNs”) to transfer the risk of the referenced credit to the VIE’s investors. Clients and investors often prefer using a CLN vehicle since they may be of the view that the CLNs issued by the VIE is of a higher credit quality than equivalent notes issued directly by JPMorgan Chase. The Firm divides its credit-related note structures broadly into two types: static and managed. In a static credit-related note structure, the CLNs and associated credit derivative contract either reference a single credit (e.g., a multi-national corporation), or all or part of a fixed portfolio of credits. In a managed credit-related note structure, the CLNs and associated credit derivative generally reference all or part of an actively managed portfolio of credits.
The Firm’s involvement with CLN vehicles is generally limited to being a derivative counterparty and it does not act as a portfolio manager for managed CLN VIEs. The Firm does not provide any additional contractual financial support to the VIE over and above its contractual obligations as derivative counterparty, but may also make a market in the CLNs issued by such VIEs, although it is under no obligation to do so. The Firm has not historically provided any financial support to the CLN vehicles over and above its contractual obligations. As a derivative counterparty the assets held by the VIE serve as collateral for any derivatives receivables. As such the collateral represents the maximum exposure the Firm has to these vehicles, which was $5.9 billion and $8.7 billion as of December 31, 2014 and 2013, respectively. The Firm’s maximum exposure arises through the derivatives executed with the VIEs; the exposure varies over time with changes in the fair value of the derivatives. The Firm relies on the collateral held by the VIEs to pay any amounts due under the derivatives; the vehicles are structured at inception so that the par value of the collateral is expected to be sufficient to pay amounts due under the derivative contracts
Since each CLN is established to the specifications of the investors, the investors have the power over the activities of that VIE that most significantly affect the performance of the CLN. The Firm consolidates credit-related note entities only in limited circumstances where it holds positions in these entities that provided the Firm with control over the entity. The Firm consolidated credit-related note vehicles with collateral fair values of $163 million and $311 million, at December 31, 2014 and 2013, respectively. These consolidated VIEs included some that were structured by the Firm where the Firm provides the credit derivative, and
some that have been structured by third parties where the Firm is not the credit derivative provider.
The Firm reports derivatives with unconsolidated CLN vehicles as well as any CLNs that it holds as market-maker on its Consolidated balance sheets at fair value with changes in fair value reported in principal transactions revenue. The Firm’s exposure to non-consolidated CLN VIEs as of December 31, 2014 and 2013 was not material.
Asset swap vehicles
The Firm structures transactions with asset swap vehicles on behalf of investors. In such transactions, the VIE purchases a specific asset or assets (substantially all of which are investment-grade) and then enters into a derivative with the Firm in order to tailor the interest rate or foreign exchange currency risk, or both, according to investors’ requirements. Investors typically invest in the notes issued by such VIEs in order to obtain exposure to the credit risk of the specific assets, as well as exposure to foreign exchange and interest rate risk that is tailored to their specific needs.
The Firm’s involvement with asset swap vehicles is generally limited to being an interest rate or foreign exchange derivative counterparty. The Firm does not provide any additional contractual financial support to the VIE over and above its contractual obligations as derivative counterparty, but may also make a market in the notes issued by such VIEs, although it is under no obligation to do so. The Firm has not historically provided any financial support to asset swap vehicles over and above its contractual obligations. As a derivative counterparty the assets held by the VIE serve as collateral for any derivatives receivables. As such the collateral represents the maximum exposure the Firm has to these vehicles, which was $5.7 billion and $7.7 billion as of December 31, 2014 and 2013, respectively. The Firm’s maximum exposure arises through the derivatives executed with the VIEs; the exposure varies over time with changes in the fair value of the derivatives. The Firm relies on the collateral held by the VIEs to pay any amounts due under the derivatives; the vehicles are structured at inception so that the par value of the collateral is expected to be sufficient to pay amounts due under the derivative contracts
Since each asset swap vehicle is established to the specifications of the investors, the investors have the power over the activities of that VIE that most significantly affect the performance of the entity. Accordingly, the Firm does not generally consolidate these asset swap vehicles and did not consolidate any asset swap vehicles at December 31, 2014 and 2013.
The Firm reports derivatives with unconsolidated asset swap vehicles that it holds as market-maker on its Consolidated balance sheets at fair value with changes in fair value reported in principal transactions revenue. The Firm’s exposure to non-consolidated asset swap VIEs as of December 31, 2014 and 2013 was not material.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 267 |
Notes to consolidated financial statements
VIEs sponsored by third parties
The Firm enters into transactions with VIEs structured by other parties. These include, for example, acting as a derivative counterparty, liquidity provider, investor, underwriter, placement agent, trustee or custodian. These transactions are conducted at arm’s-length, and individual credit decisions are based on the analysis of the specific VIE, taking into consideration the quality of the underlying assets. Where the Firm does not have the power to direct
the activities of the VIE that most significantly impact the VIE’s economic performance, or a variable interest that could potentially be significant, the Firm records and reports these positions on its Consolidated balance sheets similarly to the way it would record and report positions in respect of any other third-party transaction.
Consolidated VIE assets and liabilities
The following table presents information on assets and liabilities related to VIEs consolidated by the Firm as of December 31, 20142017 and 2013.2016.
| | | | Assets | | Liabilities | Assets | | Liabilities |
December 31, 2014 (in billions)(a) | Trading assets | Loans | Other(c) | Total
assets(d) | | Beneficial interests in
VIE assets(e) | Other(f) | Total
liabilities | |
| VIE program type | | | | |
| December 31, 2017 (in millions) | | Trading assets | Loans | Other(d) | Total
assets(e) | | Beneficial interests in
VIE assets(f) | Other(g) | Total
liabilities |
VIE program type(a) | | | | |
| Firm-sponsored credit card trusts | $ | — |
| $ | 48.3 |
| $ | 0.7 |
| $ | 49.0 |
| | $ | 31.2 |
| $ | — |
| $ | 31.2 |
| $ | — |
| $ | 41,923 |
| $ | 652 |
| $ | 42,575 |
| | $ | 21,278 |
| $ | 16 |
| $ | 21,294 |
|
| Firm-administered multi-seller conduits | — |
| 17.7 |
| 0.1 |
| 17.8 |
| | 12.0 |
| — |
| 12.0 |
| — |
| 23,411 |
| 48 |
| 23,459 |
| | 3,045 |
| 28 |
| 3,073 |
|
| Municipal bond vehicles | 5.3 |
| — |
| — |
| 5.3 |
| | 4.9 |
| — |
| 4.9 |
| 1,278 |
| — |
| 3 |
| 1,281 |
| | 1,265 |
| 2 |
| 1,267 |
|
Mortgage securitization entities(b) | 3.3 |
| 0.7 |
| — |
| 4.0 |
| | 2.1 |
| 0.8 |
| 2.9 |
| 66 |
| 3,661 |
| 55 |
| 3,782 |
| | 359 |
| 199 |
| 558 |
|
| Student loan securitization entities | 0.2 |
| 2.2 |
| — |
| 2.4 |
| | 2.1 |
| — |
| 2.1 |
| |
Student loan securitization entities(c) | | — |
| — |
| — |
| — |
| | — |
| — |
| — |
|
| Other | 0.3 |
| — |
| 1.0 |
| 1.3 |
| | 0.1 |
| 0.1 |
| 0.2 |
| 105 |
| — |
| 1,916 |
| 2,021 |
| | 134 |
| 104 |
| 238 |
|
| Total | $ | 9.1 |
| $ | 68.9 |
| $ | 1.8 |
| $ | 79.8 |
| | $ | 52.4 |
| $ | 0.9 |
| $ | 53.3 |
| $ | 1,449 |
| $ | 68,995 |
| $ | 2,674 |
| $ | 73,118 |
| | $ | 26,081 |
| $ | 349 |
| $ | 26,430 |
|
| | | | | | | |
| | Assets | | Liabilities | Assets | | Liabilities |
December 31, 2013 (in billions)(a) | Trading assets | Loans | Other(c) | Total
assets(d) | | Beneficial interests in
VIE assets(e) | Other(f) | Total
liabilities | |
| VIE program type | | | | |
| December 31, 2016 (in millions) | | Trading assets | Loans | Other(d) | Total
assets(e) | | Beneficial interests in
VIE assets(f) | Other(g) | Total
liabilities |
VIE program type(a) | | | | |
| Firm-sponsored credit card trusts | $ | — |
| $ | 46.9 |
| $ | 1.1 |
| $ | 48.0 |
| | $ | 26.6 |
| $ | — |
| $ | 26.6 |
| $ | — |
| $ | 45,919 |
| $ | 790 |
| $ | 46,709 |
| | $ | 31,181 |
| $ | 18 |
| $ | 31,199 |
|
| Firm-administered multi-seller conduits | — |
| 19.0 |
| 0.1 |
| 19.1 |
| | 14.9 |
| — |
| 14.9 |
| — |
| 23,760 |
| 43 |
| 23,803 |
| | 2,719 |
| 33 |
| 2,752 |
|
| Municipal bond vehicles | 3.4 |
| — |
| — |
| 3.4 |
| | 2.9 |
| — |
| 2.9 |
| 2,897 |
| — |
| 8 |
| 2,905 |
| | 2,969 |
| 2 |
| 2,971 |
|
Mortgage securitization entities(b) | 2.3 |
| 1.7 |
| — |
| 4.0 |
| | 2.9 |
| 0.9 |
| 3.8 |
| 143 |
| 4,246 |
| 103 |
| 4,492 |
| | 468 |
| 313 |
| 781 |
|
| Student loan securitization entities | — |
| 2.4 |
| 0.1 |
| 2.5 |
| | 2.2 |
| — |
| 2.2 |
| |
Student loan securitization entities (c) | | — |
| 1,689 |
| 59 |
| 1,748 |
| | 1,527 |
| 4 |
| 1,531 |
|
| Other | 0.7 |
| 0.1 |
| 0.9 |
| 1.7 |
| | 0.1 |
| 0.2 |
| 0.3 |
| 145 |
| — |
| 2,318 |
| 2,463 |
| | 183 |
| 120 |
| 303 |
|
| Total | $ | 6.4 |
| $ | 70.1 |
| $ | 2.2 |
| $ | 78.7 |
| | $ | 49.6 |
| $ | 1.1 |
| $ | 50.7 |
| $ | 3,185 |
| $ | 75,614 |
| $ | 3,321 |
| $ | 82,120 |
| | $ | 39,047 |
| $ | 490 |
| $ | 39,537 |
|
| |
| (a) | Excludes intercompany transactions, which wereare eliminated in consolidation. |
| |
| (b) | Includes residential and commercial mortgage securitizations as well as re-securitizations.securitizations. |
| |
| (c) | The Firm deconsolidated the student loan securitization entities in the second quarter of 2017 as it no longer had a controlling financial interest in these entities as a result of the sale of the student loan portfolio. |
| |
| (d) | Includes assets classified as cash derivative receivables, AFS securities, and other assets withinon the Consolidated balance sheets. |
| |
(d)(e) | The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The difference between total assets and total liabilities recognized for consolidated VIEs represents the Firm’s interest in the consolidated VIEs for each program type. |
| |
(e)(f) | The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item on the Consolidated balance sheets titled, “Beneficial interests issued by consolidated variable interest entities.” The holders of these beneficial interests do not have recourse to the general credit of JPMorgan Chase.Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $35.4$21.8 billion and $31.8$33.4 billion at December 31, 20142017 and 2013,2016, respectively. The maturities of theFor additional information on interest bearing long-term beneficial interests as of December 31, 2014, were as follows: $10.9 billion under one year, $19.0 billion between one and five years, and $5.5 billion over five years, all respectively. interest, see Note 19. |
| |
(f)(g) | Includes liabilities classified as accounts payable and other liabilities inon the Consolidated balance sheets. |
VIEs sponsored by third parties
The Firm enters into transactions with VIEs structured by other parties. These include, for example, acting as a derivative counterparty, liquidity provider, investor, underwriter, placement agent, remarketing agent, trustee or custodian. These transactions are conducted at arm’s-length, and individual credit decisions are based on the analysis of the specific VIE, taking into consideration the quality of the underlying assets. Where the Firm does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, or a variable interest that could potentially be significant, the Firm generally does not consolidate the VIE, but it records and reports these positions on its Consolidated balance sheets in the same manner it would record and report positions in respect of any other third-party transaction.
Tax credit vehicles
The Firm holds investments in unconsolidated tax credit vehicles, which are limited partnerships and similar entities that construct, own and operate affordable housing, wind, solar and other alternative energy projects. These entities are primarily considered VIEs. A third party is typically the general partner or managing member and has control over the significant activities of the tax credit vehicles, and accordingly the Firm does not consolidate tax credit vehicles. The Firm generally invests in these partnerships as a limited partner and earns a return primarily through the receipt of tax credits allocated to the projects. The maximum loss exposure, represented by equity investments and funding commitments, was $13.4 billion and $14.8 billion, of which $3.2 billion and $3.8 billion was unfunded at December 31, 2017 and 2016 respectively. In order to reduce the risk of loss, the Firm assesses each project and withholds varying amounts of its capital investment until qualification of the project for tax credits. See Note 24 for
|
| | |
268 | | JPMorgan Chase & Co./20142017 Annual Report | | 241 |
Notes to consolidated financial statements
further information on affordable housing tax credits. For more information on off-balance sheet lending-related commitments, see Note 27.
Customer municipal bond vehicles (TOB trusts)
The Firm may provide various services to Customer TOB trusts, including remarketing agent, liquidity or tender option provider. In certain Customer TOB transactions, the Firm, as liquidity provider, has entered into a reimbursement agreement with the Residual holder. In those transactions, upon the termination of the vehicle, the Firm has recourse to the third party Residual holders for any shortfall. The Firm does not have any intent to protect Residual holders from potential losses on any of the underlying municipal bonds. The Firm does not consolidate Customer TOB trusts, since the Firm does not have the power to make decisions that significantly impact the economic performance of the municipal bond vehicle. The Firm’s maximum exposure as a liquidity provider to Customer TOB trusts at December 31, 2017 and 2016, was $5.3 billion and $5.0 billion, respectively. The fair value of assets held by such VIEs at December 31, 2017 and 2016 was $9.2 billion and $8.9 billion, respectively. For more information on off-balance sheet lending-related commitments, see Note 27.
Loan securitizations
The Firm has securitized and sold a variety of loans, including residential mortgage, credit card, automobile, student and commercial (primarily related to real estate) loans, as well as debt securities. The primary purposes of these securitization transactions were to satisfy investor demand and to generate liquidity for the Firm.
For loan securitizations in which the Firm is not required to consolidate the trust, the Firm records the transfer of the loan receivable to the trust as a sale when all of the following accounting criteria for a sale are met. Those criteria are:met: (1) the transferred financial assets are legally isolated from the Firm’s creditors; (2) the transferee or beneficial interest
holder can pledge or exchange the transferred financial assets; and (3) the Firm does not maintain effective control over the transferred financial assets (e.g., the Firm cannot repurchase the transferred assets before their maturity and it does not have the ability to unilaterally cause the holder to return the transferred assets).
For loan securitizations accounted for as a sale, the Firm recognizes a gain or loss based on the difference between the value of proceeds received (including cash, beneficial interests, or servicing assets received) and the carrying value of the assets sold. Gains and losses on securitizations are reported in noninterest revenue.
Securitization activity
The following table provides information related to the Firm’s securitization activities for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, related to assets held in JPMorgan Chase-sponsoredFirm-sponsored securitization entities that were not consolidated by the Firm, and where sale accounting was achieved based on the accounting rules in effect at the time of the securitization. | | | | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 |
Year ended December 31, (in millions, except rates)(a) | Residential mortgage(d)(e) | Commercial and other(e)(f) | | Residential mortgage(d)(e) | Commercial and other(e)(f) | | Residential mortgage(d)(e) | Commercial and other(e)(f) | | Residential mortgage(d) | Commercial and other(e) | | Residential mortgage(d) | Commercial and other(e) | | Residential mortgage(d) | Commercial and other(e) |
| Principal securitized | $ | 2,558 |
| $ | 11,911 |
| | $ | 1,404 |
| $ | 11,318 |
| | $ | — |
| $ | 5,421 |
| | $ | 5,532 |
| $ | 10,252 |
| | $ | 1,817 |
| $ | 8,964 |
| | $ | 3,008 |
| $ | 11,933 |
|
All cash flows during the period: | | | | | | | | | | | |
Proceeds from new securitizations(b) | $ | 2,569 |
| $ | 12,079 |
| | $ | 1,410 |
| $ | 11,507 |
| | $ | — |
| $ | 5,705 |
| | |
Proceeds received from loan sales as financial instruments(b) | | $ | 5,661 |
| $ | 10,340 |
| | $ | 1,831 |
| $ | 9,094 |
| | $ | 3,022 |
| $ | 12,011 |
|
| Servicing fees collected | 557 |
| 4 |
| | 576 |
| 5 |
| | 662 |
| 4 |
| | 525 |
| 3 |
| | 477 |
| 3 |
| | 528 |
| 3 |
|
Purchases of previously transferred financial assets (or the underlying collateral)(c) | 121 |
| — |
| | 294 |
| — |
| | 222 |
| — |
| | 1 |
| — |
| | 37 |
| — |
| | 3 |
| — |
|
| Cash flows received on interests | 179 |
| 578 |
| | 156 |
| 325 |
| | 185 |
| 163 |
| | 463 |
| 918 |
| | 482 |
| 1,441 |
| | 407 |
| 597 |
|
| |
| (a) | Excludes re-securitization transactions. |
| |
| (b) | Proceeds from residential mortgage securitizations were received in the form of securities. During 2014, $2.4 billion of residential mortgage securitizations were received as securities and classified in levelPredominantly includes Level 2 and $185 million were in level 3 of the fair value hierarchy. During 2013, $1.4 billion of residential mortgage securitizations were received as securities and classified in level 2 of the fair value hierarchy. Proceeds from commercial mortgage securitizations were received as securities and cash. During 2014, $11.4 billion of proceeds from commercial mortgage securitizations were received as securities and classified in level 2, and $130 million of proceeds were classified as level 3 of the fair value hierarchy; and $568 million of proceeds from commercial mortgage securitizations were received as cash. During 2013, $11.3 billion of commercial mortgage securitizations were classified in level 2 of the fair value hierarchy, and $207 million of proceeds from commercial mortgage securitizations were received as cash. During 2012, $5.7 billion of commercial mortgage securitizations were classified in level 2 of the fair value hierarchy.
assets. |
| |
| (c) | Includes cash paid by the Firm to reacquire assets from off–balance sheet, nonconsolidated entities – for example, loan repurchases due to representation and warranties and servicer clean-up“clean-up” calls. |
| |
| (d) | Includes prime, prime/Alt-A, subprime, and option ARMs. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie Mac. |
| |
| (e) | Key assumptions used to measure residentialIncludes commercial mortgage retained interests originated during the year included weighted-average life (in years) ofand other consumer loans. |
5.9 and 3.9 for the years ended December 31, 2014 and 2013, respectively, and weighted-average discount rate of 3.4% and 2.5% for the years ended December 31, 2014 and 2013, respectively. There were no residential mortgage securitizations during 2012. Key assumptions used to measure commercial and othervalue retained interests originated during the year included weighted-average life (in years) of 6.5, 8.3 and 8.8 forare shown in the years ended December 31, 2014, 2013, and 2012, respectively, and weighted-average discount rate of 4.8%, 3.2% and 3.6% for the years ended December 31, 2014, 2013 and 2012, respectively.
(f) Includes commercial and student loan securitizations.table below.
|
| | | | | | | | | |
| Year ended December 31, | | 2017 | | 2016 | | 2015 |
| Residential mortgage retained interest: |
| Weighted-average life (in years) | | 4.8 |
| | 4.5 |
| | 4.2 |
|
| Weighted-average discount rate | | 2.9 | % | | 4.2 | % | | 2.9 | % |
| Commercial mortgage retained interest: | | |
| Weighted-average life (in years) | | 7.1 |
| | 6.2 |
| | 6.2 |
|
| Weighted-average discount rate | | 4.4 | % | | 5.8 | % | | 4.1 | % |
|
| | |
| 242 | | JPMorgan Chase & Co./2017 Annual Report |
Loans and excess MSRs sold to the GSEs,U.S. government-sponsored enterprises, loans in securitization transactions pursuant to Ginnie Mae guidelines, and other third-party-sponsored securitization entities
In addition to the amounts reported in the securitization activity tables above, the Firm, in the normal course of business, sells originated and purchased mortgage loans and certain originated excess MSRs on a nonrecourse basis, predominantly to Fannie Mae and Freddie Mac (the “GSEs”U.S. government sponsored enterprises (“U.S. GSEs”). These loans and excess MSRs are sold primarily for the purpose of securitization by the U.S. GSEs, who provide certain
guarantee provisions (e.g., credit enhancement of the loans). The Firm also sells loans into securitization transactions pursuant to Ginnie Mae guidelines; these loans are typically insured or guaranteed by another U.S. government agency. The Firm does not consolidate the securitization vehicles underlying these transactions as it is not the primary beneficiary. For a limited number of loan sales, the Firm is obligated to share a portion of the credit risk associated with the sold loans with the purchaser. See Note 2927 for additional information about the Firm’s loan sales- and securitization-related indemnifications.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 269 |
Notes to consolidated financial statements
See Note 1715 for additional information about the impact of the Firm’s sale of certain excess mortgage servicing rights.MSRs.
The following table summarizes the activities related to loans sold to the U.S. GSEs, loans in securitization transactions pursuant to Ginnie Mae guidelines, and other third-party-sponsored securitization entities.
| | Year ended December 31, (in millions) | 2014 | 2013 | 2012 | 2017 | 2016 | 2015 |
Carrying value of loans sold(a) | $ | 55,802 |
| $ | 166,028 |
| $ | 179,008 |
| $ | 64,542 |
| $ | 52,869 |
| $ | 42,161 |
|
| Proceeds received from loan sales as cash | $ | 260 |
| $ | 782 |
| $ | 195 |
| $ | 117 |
| $ | 592 |
| $ | 313 |
|
Proceeds from loans sales as securities(b)(a) | 55,117 |
| 163,373 |
| 176,592 |
| 63,542 |
| 51,852 |
| 41,615 |
|
Total proceeds received from loan sales(c)(b) | $ | 55,377 |
| $ | 164,155 |
| $ | 176,787 |
| $ | 63,659 |
| $ | 52,444 |
| $ | 41,928 |
|
Gains on loan sales(d) | $ | 316 |
| $ | 302 |
| $ | 141 |
| |
Gains on loan sales(c)(d) | | $ | 163 |
| $ | 222 |
| $ | 299 |
|
| |
| (a) | Predominantly to the GSEs and in securitization transactions pursuant to Ginnie Mae guidelines. |
| |
(b) | Predominantly includes securities from theU.S. GSEs and Ginnie Mae that are generally sold shortly after receipt. |
| |
(c)(b) | Excludes the value of MSRs retained upon the sale of loans. |
| |
| (c) | Gains on loansloan sales include the value of MSRs. |
| |
| (d) | The carrying value of the loans accounted for at fair value approximated the proceeds received upon loan sale. |
Options to repurchase delinquent loans
In addition to the Firm’s obligation to repurchase certain loans due to material breaches of representations and warranties as discussed in Note 29,27, the Firm also has the option to repurchase delinquent loans that it services for Ginnie Mae loan pools, as well as for other U.S. government agencies under certain arrangements. The Firm typically elects to repurchase delinquent loans from Ginnie Mae loan pools as it continues to service them and/or manage the foreclosure process in accordance with the applicable requirements, and such loans continue to be insured or guaranteed. When the Firm’s repurchase option becomes exercisable, such loans must be reported on the Consolidated balance sheets as a loan with a corresponding liability. As of December 31, 2014 and 2013,
The following table presents loans the Firm had recorded on its Consolidated balance sheets $12.4 billion and $14.3 billion, respectively, of loans that either had been repurchased or for which the Firm had an option to repurchase. Predominantly all of these amounts relate to loans that have been repurchased from Ginnie Mae loan pools. Additionally,repurchase, real estate owned, resulting from voluntary repurchases ofand foreclosed government-guaranteed residential mortgage loans was $464 million and $2.0 billionrecognized on the Firm’s Consolidated balance sheets as of December 31, 20142017 and 2013, respectively.2016. Substantially all of these loans and real estate owned are insured or guaranteed by U.S. government agencies. For additional information, refer to Note 14.12.
|
| | | | | | |
December 31, (in millions) | 2017 |
| 2016 |
|
Loans repurchased or option to repurchase(a) | $ | 8,629 |
| $ | 9,556 |
|
| Real estate owned | 95 |
| 142 |
|
Foreclosed government-guaranteed residential mortgage loans(b) | 527 |
| 1,007 |
|
| |
| (a) | Predominantly all of these amounts relate to loans that have been repurchased from Ginnie Mae loan pools. |
| |
| (b) | Relates to voluntary repurchases of loans, which are included in accrued interest and accounts receivable. |
Loan delinquencies and liquidation losses
The table below includes information about components of nonconsolidated securitized financial assets held in Firm-sponsored private-label securitization entities, in which the Firm has continuing involvement, and delinquencies as of December 31, 20142017 and 2013.2016.
| | | | Securitized assets | | 90 days past due | | Liquidation losses | Securitized assets | | 90 days past due | | Liquidation losses |
| As of or for the year ended December 31, (in millions) | 2014 | 2013 | | 2014 | 2013 | | 2014 | 2013 | 2017 | 2016 | | 2017 | 2016 | | 2017 | 2016 |
Securitized loans(a) | | | | | | | | | | |
| Residential mortgage: | | | | | | | | | | |
| Prime/ Alt-A & Option ARMs | $ | 78,294 |
| $ | 90,381 |
| | $ | 11,363 |
| $ | 14,882 |
| | $ | 2,166 |
| $ | 4,688 |
| |
| Subprime mortgage | 25,659 |
| 28,008 |
| | 6,473 |
| 7,726 |
| | 1,931 |
| 2,420 |
| |
| Prime/ Alt-A & option ARMs | | $ | 52,280 |
| $ | 57,543 |
| | $ | 4,870 |
| $ | 6,169 |
| | $ | 790 |
| $ | 1,160 |
|
| Subprime | | 17,612 |
| 19,903 |
| | 3,276 |
| 4,186 |
| | 719 |
| 1,087 |
|
| Commercial and other | 94,438 |
| 98,018 |
| | 1,522 |
| 2,350 |
| | 1,267 |
| 1,003 |
| 63,411 |
| 71,464 |
| | 957 |
| 1,755 |
| | 114 |
| 643 |
|
Total loans securitized(b) | $ | 198,391 |
| $ | 216,407 |
| | $ | 19,358 |
| $ | 24,958 |
| | $ | 5,364 |
| $ | 8,111 |
| $ | 133,303 |
| $ | 148,910 |
| | $ | 9,103 |
| $ | 12,110 |
| | $ | 1,623 |
| $ | 2,890 |
|
| |
(a) | Total assets held in securitization-related SPEs were $254.3 billion and $271.7 billion, respectively, at December 31, 2014 and 2013. The $198.4 billion and $216.4 billion, respectively, of loans securitized at December 31, 2014 and 2013, excludes: $52.2 billion and $50.8 billion, respectively, of securitized loans in which the Firm has no continuing involvement, and $3.7 billion and $4.5 billion, respectively, of loan securitizations consolidated on the Firm’s Consolidated balance sheets at December 31, 2014 and 2013.
|
| |
(b) | Includes securitized loans that were previously recorded at fair value and classified as trading assets. |
|
| | |
270 | | JPMorgan Chase & Co./20142017 Annual Report | | 243 |
Notes to consolidated financial statements
Note 1715 – Goodwill and other intangible assetsMortgage servicing rights
Goodwill
Goodwill is recorded upon completion of a business combination as the difference between the purchase price and the fair value of the net assets acquired. Subsequent to initial recognition, goodwill is not amortized but is tested for impairment during the fourth quarter of each fiscal year, or more often if events or circumstances, such as adverse changes in the business climate, indicate there may be impairment.
The goodwill associated with each business combination is allocated to the related reporting units, which are determined based on how the Firm’s businesses are managed and how they are reviewed by the Firm’s Operating Committee. The following table presents goodwill attributed to the business segments.
| | | December 31, (in millions) | 2014 | 2013 | 2012 | 2017 | 2016 | 2015 |
| Consumer & Community Banking | $ | 30,941 |
| $ | 30,985 |
| $ | 31,048 |
| $ | 31,013 |
| $ | 30,797 |
| $ | 30,769 |
|
| Corporate & Investment Bank | 6,780 |
| 6,888 |
| 6,895 |
| 6,776 |
| 6,772 |
| 6,772 |
|
| Commercial Banking | 2,861 |
| 2,862 |
| 2,863 |
| 2,860 |
| 2,861 |
| 2,861 |
|
| Asset Management | 6,964 |
| 6,969 |
| 6,992 |
| |
Corporate(a) | 101 |
| 377 |
| 377 |
| |
| Asset & Wealth Management | | 6,858 |
| 6,858 |
| 6,923 |
|
| Total goodwill | $ | 47,647 |
| $ | 48,081 |
| $ | 48,175 |
| $ | 47,507 |
| $ | 47,288 |
| $ | 47,325 |
|
| |
(a) | The remaining $101 million of Private Equity goodwill was disposed of as part of the Private Equity sale completed in January 2015. For further information on the Private Equity sale, see Note 2. |
The following table presents changes in the carrying amount of goodwill.
| | Year ended December 31, (in millions) | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 |
| Balance at beginning of period | $ | 48,081 |
| | $ | 48,175 |
| | $ | 48,188 |
| $ | 47,288 |
| | $ | 47,325 |
| | $ | 47,647 |
|
| Changes during the period from: | | | | | |
| | | | | |
Business combinations | 43 |
| | 64 |
| | 43 |
| 199 |
| | — |
| | 28 |
|
Dispositions | (80 | ) | | (5 | ) | | (4 | ) | — |
| | (72 | ) | | (160 | ) |
Other(a)(c) | (397 | ) | | (153 | ) | | (52 | ) | 20 |
| | 35 |
| | (190 | ) |
| Balance at December 31, | $ | 47,647 |
| | $ | 48,081 |
| | $ | 48,175 |
| $ | 47,507 |
| | $ | 47,288 |
| | $ | 47,325 |
|
| |
| (a) | For 2017, represents CCB goodwill in connection with an acquisition. |
| |
| (b) | For 2016, represents AWM goodwill, which was disposed of as part of an AWM sales transaction. For 2015 includes $101 million of Private Equity goodwill, which was disposed of as part of the Private Equity sale. |
| |
| (c) | Includes foreign currency translation adjustments and other tax-related adjustments, and, during 2014, goodwill impairment associated with the Firm’s Private Equity business of $276 million.adjustments. |
Impairment testing
During 2014, the Firm recognized impairments of the Private Equity business’ goodwill totaling $276 million.
The Firm’s remaining goodwill was not impaired at December 31, 2014. Further, the Firm’s goodwill was not impaired at December 31, 2013 nor was any goodwill written off due to impairment during 2013 or 2012.2017, 2016, and 2015.
The goodwill impairment test is performed in two steps. In the first step, the current fair value of each reporting unit is compared with its carrying value, including goodwill.goodwill and other intangible assets. If the fair value is in excess of the carrying value, (including goodwill), then the reporting unit’s goodwill is considered not to be not impaired. If the fair value is less than the carrying value, (including goodwill), then a second step is performed. In the second step, the implied current fair value of the reporting unit’s goodwill is determined by comparing the
fair value of the reporting unit (as determined in step one) to the fair value of the net assets of the reporting unit, as if the reporting unit were being acquired in a business combination. The resulting implied current fair value of goodwill is then compared with the carrying value of the reporting unit’s goodwill. If the carrying value of the goodwill exceeds its implied current fair value, then an impairment charge is recognized for the excess. If the carrying value of goodwill is less than its implied current fair value, then no goodwill impairment is recognized.
The Firm uses the reporting units’ allocated equitycapital plus goodwill and other intangible assets capital as a proxy for the carrying amountsvalues of equity for the reporting units in the goodwill impairment testing. Reporting unit equity is determined on a similar basis as the allocation of equitycapital to the Firm’s lines of business, which takes into consideration the capital the business segment would require if it were operating independently, incorporating sufficient capital to address regulatory capital requirements (including Basel III), economic risk measures and capital levels for similarly rated peers. Proposed line of business equity levels are incorporated into the Firm’s annual budget process, which is reviewed by the Firm’s Board of Directors. Allocated equitycapital is further reviewed on a periodic basis and updated as needed.
|
| | |
| 244 | | JPMorgan Chase & Co./2017 Annual Report |
The primary method the Firm uses to estimate the fair value of its reporting units is the income approach. The models projectThis approach projects cash flows for the forecast period and useuses the perpetuity growth method to calculate terminal values. These cash flows and terminal values are then discounted using an appropriate discount rate. Projections of cash flows are based on the reporting units’ earnings forecasts which include the estimated effects of regulatory and legislative changes (including, but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)), and which are reviewed with the senior management of the Firm. The discount rate used for each reporting unit represents an estimate of the cost of equity for that reporting unit and is determined considering the Firm’s overall estimated cost of equity (estimated using the Capital Asset Pricing Model), as adjusted for the risk characteristics specific to each reporting unit (for example, for higher levels of risk or uncertainty associated with the business or management’s forecasts and assumptions). To assess the reasonableness of the discount rates used for each reporting unit management compares the discount rate to the estimated cost of equity for publicly traded institutions with similar businesses and risk characteristics. In addition, the weighted average cost of equity (aggregating the various reporting units) is compared with the Firms’ overall estimated cost of equity to ensure reasonableness.
The valuations derived from the discounted cash flow modelsanalysis are then compared with market-based trading and transaction multiples for relevant competitors. Trading and transaction comparables are used as general indicators to assess the general reasonableness of the estimated fair
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 271 |
Notes to consolidated financial statements
values, although precise conclusions generally cannot be drawn due to the differences that naturally exist between the Firm’s businesses and competitor institutions. Management also takes into consideration a comparison between the aggregate fair valuevalues of the Firm’s reporting units and JPMorgan Chase’s market capitalization. In evaluating this comparison, management considers several factors, including (a)(i) a control premium that would exist in a market transaction, (b)(ii) factors related to the level of execution risk that would exist at the firmwide level that do not exist at the reporting unit level and (c)(iii) short-term market volatility and other factors that do not directly affect the value of individual reporting units.
Deterioration in economic market conditions, increased estimates of the effects of regulatory or legislative changes, or additional regulatory or legislative changes may result in declines in projected business performance beyond management’s current expectations. For example, in the Firm’s Mortgage Banking business, such declines could result from increases in primary mortgage interest rates, lower mortgage origination volume, higher costs to resolve foreclosure-related matters or from deterioration in economic conditions, including decreases in home prices that result in increased credit losses. Declines in business performance, increases in equitycredit losses, increases in capital requirements, as well as deterioration in economic or market conditions, estimates of adverse regulatory or legislative changes or increases in the estimated market cost of equity, could cause the estimated fair values of the Firm’s reporting units or their associated goodwill to decline in the future, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill.
Mortgage servicing rights
Mortgage servicing rightsMSRs represent the fair value of expected future cash flows for performing servicing activities for others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the MSR asset against contractual servicing and ancillary fee income. MSRs are either purchased from third parties or recognized upon sale or securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to account for its MSRs at fair value. The Firm treats its MSRs as a single class of servicing assets based on the availability of market inputs used to measure the fair value of its MSR asset and its treatment of MSRs as one aggregate pool for risk management purposes. The Firm estimates the fair value of MSRs using an option-adjusted spread (“OAS”) model, which projects MSR cash flows over multiple interest rate scenarios in conjunction with the Firm’s prepayment model, and then discounts these cash flows at risk-adjusted rates. The model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, costs to service, late charges and other ancillary revenue, and other economic factors. The Firm compares fair value estimates and assumptions to observable market data where available, and also considers recent market activity and actual portfolio experience.
|
| | |
272 | | JPMorgan Chase & Co./20142017 Annual Report | | 245 |
Notes to consolidated financial statements
The fair value of MSRs is sensitive to changes in interest rates, including their effect on prepayment speeds. MSRs typically decrease in value when interest rates decline because declining interest rates tend to increase prepayments and therefore reduce the expected life of the net servicing cash flows that comprise the MSR asset. Conversely, securities (e.g., mortgage-backed securities), principal-only certificates and certain derivatives (i.e.,
those for which the Firm receives fixed-rate interest payments) increase in value when interest rates decline. JPMorgan Chase uses combinations of derivatives and securities to manage the risk of changes in the fair value of MSRs. The intent is to offset any interest-rate related changes in the fair value of MSRs with changes in the fair value of the related risk management instruments.
The following table summarizes MSR activity for the years ended December 31, 20142017, 20132016 and 20122015. | | | As of or for the year ended December 31, (in millions, except where otherwise noted) | 2014 |
| | 2013 |
| | 2012 |
| 2017 |
| | 2016 |
| | 2015 |
| |
| Fair value at beginning of period | $ | 9,614 |
| | $ | 7,614 |
| | $ | 7,223 |
| $ | 6,096 |
| | $ | 6,608 |
| | $ | 7,436 |
| |
| MSR activity: | | | | | | | | | | | |
| Originations of MSRs | 757 |
| | 2,214 |
| | 2,376 |
| 1,103 |
| | 679 |
| | 550 |
| |
| Purchase of MSRs | 11 |
| | 1 |
| | 457 |
| — |
| | — |
| | 435 |
| |
Disposition of MSRs(a) | (209 | ) | | (725 | ) | | (579 | ) | (140 | ) | | (109 | ) | | (486 | ) | |
| Net additions | 559 |
| | 1,490 |
| | 2,254 |
| 963 |
| | 570 |
| | 499 |
| |
| | | | | | | | | | | | |
Changes due to collection/realization of expected cash flows(b) | (911 | ) | | (1,102 | ) | | (1,228 | ) | (797 | ) | | (919 | ) | | (922 | ) | |
| | | | | | | | | | | | |
| Changes in valuation due to inputs and assumptions: | | | | | | | | | | | |
Changes due to market interest rates and other(c)(b) | (1,608 | ) | | 2,122 |
| | (589 | ) | (202 | ) | | (72 | ) | | (160 | ) | |
| Changes in valuation due to other inputs and assumptions: | | | | | | | | | | | |
Projected cash flows (e.g., cost to service)(d) | 133 |
| | 109 |
| | (452 | ) | (102 | ) | | (35 | ) | | (112 | ) | |
| Discount rates | (459 | ) | (h) | (78 | ) | | (98 | ) | (19 | ) | | 7 |
| | (10 | ) | |
Prepayment model changes and other(e)(c) | 108 |
| | (541 | ) | | 504 |
| 91 |
| | (63 | ) | | (123 | ) | |
| Total changes in valuation due to other inputs and assumptions | (218 | ) | | (510 | ) | | (46 | ) | (30 | ) | | (91 | ) | | (245 | ) | |
Total changes in valuation due to inputs and assumptions(b) | $ | (1,826 | ) | | $ | 1,612 |
| | $ | (635 | ) | (232 | ) | | (163 | ) | | (405 | ) | |
Fair value at December 31,(f) | $ | 7,436 |
| | $ | 9,614 |
| | $ | 7,614 |
| $ | 6,030 |
| | $ | 6,096 |
| | $ | 6,608 |
| |
Change in unrealized gains/(losses) included in income related to MSRs
held at December 31, | $ | (1,826 | ) | | $ | 1,612 |
| | $ | (635 | ) | $ | (232 | ) | | $ | (163 | ) | | $ | (405 | ) | |
| Contractual service fees, late fees and other ancillary fees included in income | $ | 2,884 |
| | $ | 3,309 |
| | $ | 3,783 |
| 1,886 |
| | 2,124 |
| | 2,533 |
| |
| Third-party mortgage loans serviced at December 31, (in billions) | $ | 756 |
| | $ | 822 |
| | $ | 867 |
| 555.0 |
| | 593.3 |
| | 677.0 |
| |
Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(g)(d) | $ | 8.5 |
| | $ | 9.6 |
| | $ | 10.9 |
| 4.0 |
| | 4.7 |
| | 6.5 |
| |
| |
| (a) | Predominantly representsIncludes excess mortgage servicing rightsMSRs transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities (“SMBS”). In each transaction, a portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired and has retained the remaining balance of those SMBS as trading securities. Also includes sales of MSRs in 2013 and 2012. |
| |
| (b) | Included changes related to commercial real estate of $(7) million, $(5) million and $(8) million for the years ended December 31, 2014, 2013 and 2012, respectively. |
| |
(c) | Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected prepayments. |
| |
(d) | For the year ended December 31, 2013, the increase was driven by the inclusion in the MSR valuation model of servicing fees receivable on certain delinquent loans. |
| |
(e)(c) | Represents changes in prepayments other than those attributable to changes in market interest rates. For the year ended December 31, 2013, the decrease was driven by changes in the inputs and assumptions used to derive prepayment speeds, primarily increases in home prices. |
| |
(f) | Included $11 million, $18 million and $23 million related to commercial real estate at December 31, 2014, 2013, and 2012, respectively. |
| |
(g)(d) | Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, to a trust, taxes and insurance), which will generally be reimbursed within a short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm’s credit risk associated with these servicer advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made in accordance with applicable rules and agreements. |
| |
(h) | For the year ending December 31, 2014, the decrease was primarily related to higher capital allocated to the Mortgage Servicing business, which, in turn, resulted in an increase in the option adjusted spread (“OAS”). The resulting OAS assumption continues to be consistent with capital and return requirements that the Firm believes a market participant would consider, taking into account factors such as the current operating risk environment and regulatory and economic capital requirements. |
|
| | |
| 246 | | JPMorgan Chase & Co./20142017 Annual Report | | 273 |
Notes to consolidated financial statements
The following table presents the components of mortgage fees and related income (including the impact of MSR risk management activities) for the years ended December 31, 2014, 20132017, 2016 and 2012.2015.
| | Year ended December 31, (in millions) | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 |
| CCB mortgage fees and related income | | | | | | | | | | |
| Net production revenue: | | | | | | |
| Production revenue | $ | 732 |
| | $ | 2,673 |
| | $ | 5,783 |
| |
| Repurchase (losses)/benefits | 458 |
| | 331 |
| | (272 | ) | |
| Net production revenue | 1,190 |
| | 3,004 |
| | 5,511 |
| $ | 636 |
| | $ | 853 |
| | $ | 769 |
|
| Net mortgage servicing revenue | | | | | |
| |
| | | | | | | |
| Net mortgage servicing revenue: | | | | | | |
|
| Operating revenue: | | | | | |
| | | | | |
|
| Loan servicing revenue | 3,303 |
| | 3,552 |
| | 3,772 |
| 2,014 |
| | 2,336 |
| | 2,776 |
|
| Changes in MSR asset fair value due to collection/realization of expected cash flows | (905 | ) | | (1,094 | ) | | (1,222 | ) | (795 | ) | | (916 | ) | | (917 | ) |
| Total operating revenue | 2,398 |
| | 2,458 |
| | 2,550 |
| 1,219 |
| | 1,420 |
| | 1,859 |
|
| Risk management: | | | | | |
| | | | | |
|
Changes in MSR asset fair value due to market interest rates and other(a) | (1,606 | ) | | 2,119 |
| | (587 | ) | (202 | ) | | (72 | ) | | (160 | ) |
Other changes in MSR asset fair value due to other inputs and assumptions in model(b) | (218 | ) | | (511 | ) | | (46 | ) | (30 | ) | | (91 | ) | | (245 | ) |
| Change in derivative fair value and other | 1,796 |
| | (1,875 | ) | | 1,252 |
| (10 | ) | | 380 |
| | 288 |
|
| Total risk management | (28 | ) | | (267 | ) | | 619 |
| (242 | ) | | 217 |
| | (117 | ) |
| Total CCB net mortgage servicing revenue | 2,370 |
| | 2,191 |
| | 3,169 |
| |
| Total net mortgage servicing revenue | | 977 |
| | 1,637 |
| | 1,742 |
|
| | | | | | | |
| Total CCB mortgage fees and related income | | 1,613 |
| | 2,490 |
| | 2,511 |
|
| | | | | | | |
| All other | 3 |
| | 10 |
| | 7 |
| 3 |
| | 1 |
| | 2 |
|
| Mortgage fees and related income | $ | 3,563 |
| | $ | 5,205 |
| | $ | 8,687 |
| $ | 1,616 |
| | $ | 2,491 |
| | $ | 2,513 |
|
| |
| (a) | Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected prepayments. |
| |
| (b) | Represents the aggregate impact of changes in model inputs and assumptions such as projected cash flows (e.g., cost to service), discount rates and changes in prepayments other than those attributable to changes in market interest rates (e.g., changes in prepayments due to changes in home prices). For the year ended December 31, 2013, the decrease was driven by changes in the inputs and assumptions used to derive prepayment speeds, primarily increases in home prices. |
The table below outlines the key economic assumptions used to determine the fair value of the Firm’s MSRs at December 31, 20142017 and 2013,2016, and outlines the sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.
| | December 31, (in millions, except rates) | 2014 | | 2013 | 2017 | | 2016 |
| Weighted-average prepayment speed assumption (“CPR”) | 9.80 | % | | 8.07 | % | 9.35 | % | | 9.41 | % |
| Impact on fair value of 10% adverse change | $ | (337 | ) | | $ | (362 | ) | $ | (221 | ) | | $ | (231 | ) |
| Impact on fair value of 20% adverse change | (652 | ) | | (705 | ) | (427 | ) | | (445 | ) |
| Weighted-average option adjusted spread | 9.43 | % | | 7.77 | % | 9.04 | % | | 8.55 | % |
| Impact on fair value of 100 basis points adverse change | $ | (300 | ) | | $ | (389 | ) | $ | (250 | ) | | $ | (248 | ) |
| Impact on fair value of 200 basis points adverse change | (578 | ) | | (750 | ) | (481 | ) | | (477 | ) |
CPR: Constant prepayment rate.
The sensitivity analysis in the preceding table is hypothetical and should be used with caution. Changes in fair value based on variation in assumptions generally cannot be easily extrapolated, because the relationship of the change in the assumptions to the change in fair value are often highly interrelated and may not be linear. In this table, the effect that a change in a particular assumption may have on the fair value is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which would either magnify or counteract the impact of the initial change.
Other intangible assets
Other intangible assets are recorded at their fair value upon completion of a business combination or certain other transactions, and generally represent the value of customer relationships or arrangements. Subsequently, the Firm’s intangible assets with finite lives, including core deposit intangibles, purchased credit card relationships, and other intangible assets, are amortized over their useful lives in a manner that best reflects the economic benefits of the intangible asset. The $426 million decrease in other intangible assets during 2014 was predominantly due to $380 million in amortization.
|
| | |
274 | | JPMorgan Chase & Co./2014 Annual Report |
The components of credit card relationships, core deposits and other intangible assets were as follows.
|
| | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 |
| | Gross amount(a) | Accumulated amortization(a) | Net carrying value | Gross amount | Accumulated amortization | Net carrying value |
| December 31, (in millions) |
| Purchased credit card relationships | $ | 200 |
| $ | 166 |
| $ | 34 |
| | $ | 3,540 |
| $ | 3,409 |
| $ | 131 |
|
| Other credit card-related intangibles | 497 |
| 378 |
| $ | 119 |
| | 542 |
| 369 |
| $ | 173 |
|
| Core deposit intangibles | 814 |
| 757 |
| $ | 57 |
| | 4,133 |
| 3,974 |
| $ | 159 |
|
Other intangibles(b) | 1,880 |
| 898 |
| $ | 982 |
| | 2,374 |
| 1,219 |
| $ | 1,155 |
|
| Total other intangible assets | $ | 3,391 |
| $ | 2,199 |
| $ | 1,192 |
| | $ | 10,589 |
| $ | 8,971 |
| $ | 1,618 |
|
| |
(a) | The decrease in the gross amount and accumulated amortization from December 31, 2013, was due to the removal of fully amortized assets, predominantly related to intangible assets acquired in the 2004 merger with Bank One Corporation (“Bank One”).
|
| |
(b) | Includes intangible assets of approximately $600 million consisting primarily of asset management advisory contracts, which were determined to have an indefinite life and are not amortized. |
Amortization expense
The following table presents amortization expense related to credit card relationships, core deposits and other intangible assets.
|
| | | | | | | | | | | |
| Year ended December 31, (in millions) | 2014 | | 2013 | | 2012 |
| Purchased credit card relationships | $ | 97 |
| | $ | 195 |
| | $ | 309 |
|
| Other credit card-related intangibles | 51 |
| | 58 |
| | 265 |
|
| Core deposit intangibles | 102 |
| | 196 |
| | 239 |
|
| Other intangibles | 130 |
| | 188 |
| | 144 |
|
Total amortization expense(a) | $ | 380 |
| | $ | 637 |
| | $ | 957 |
|
| |
(a) | The decline in amortization expense during 2014 predominantly related to intangible assets acquired in the 2004 merger with Bank One, most of which became fully amortized during the second quarter of 2014. |
Future amortization expense
The following table presents estimated future amortization expense related to credit card relationships, core deposits and other intangible assets at December 31, 2014.
|
| | | | | | | | | | | | | | | |
| Year ended December 31, (in millions) | Purchased credit card relationships | Other credit card-related intangibles | Core deposit intangibles | Other intangibles | Total |
| 2015 | $ | 13 |
| $ | 38 |
| $ | 26 |
| $ | 89 |
| $ | 166 |
|
| 2016 | 6 |
| 33 |
| 14 |
| 73 |
| 126 |
|
| 2017 | 5 |
| 28 |
| 7 |
| 70 |
| 110 |
|
| 2018 | 3 |
| 20 |
| 5 |
| 50 |
| 78 |
|
| 2019 | 2 |
| — |
| 3 |
| 37 |
| 42 |
|
Impairment testing
The Firm’s intangible assets are tested for impairment annually or more often if events or changes in circumstances indicate that the asset might be impaired.
The impairment test for a finite-lived intangible asset compares the undiscounted cash flows associated with the use or disposition of the intangible asset to its carrying value. If the sum of the undiscounted cash flows exceeds its carrying value, then no impairment charge is recorded. If the sum of the undiscounted cash flows is less than its carrying value, then an impairment charge is recognized in amortization expense to the extent the carrying amount of the asset exceeds its fair value.
The impairment test for indefinite-lived intangible assets compares the fair value of the intangible asset to its carrying amount. If the carrying value exceeds the fair value, then an impairment charge is recognized in amortization expense for the difference.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 275247 |
Notes to consolidated financial statements
Note 1816 – Premises and equipment
Premises and equipment, including leasehold improvements, are carried at cost less accumulated depreciation and amortization. JPMorgan Chase computes depreciation using the straight-line method over the estimated useful life of an asset. For leasehold improvements, the Firm uses the straight-line method computed over the lesser of the remaining term of the leased facility or the estimated useful life of the leased asset.
JPMorgan Chase capitalizes certain costs associated with the acquisition or development of internal-use software. Once the software is ready for its intended use, these costs are amortized on a straight-line basis over the software’s expected useful life and reviewed for impairment on an ongoing basis.
Note 1917 – Deposits
At December 31, 20142017 and 2013,2016, noninterest-bearing and interest-bearing deposits were as follows.
|
| | | | | | | |
| December 31, (in millions) | 2014 |
| | 2013 |
|
| U.S. offices | | | |
| Noninterest-bearing | $ | 437,558 |
| | $ | 389,863 |
|
| Interest-bearing | | | |
Demand(a) | 90,319 |
| | 84,631 |
|
Savings(b) | 466,730 |
| | 450,405 |
|
Time (included $7,501 and $5,995 at fair value)(c) | 86,301 |
| | 91,356 |
|
| Total interest-bearing deposits | 643,350 |
| | 626,392 |
|
| Total deposits in U.S. offices | 1,080,908 |
| | 1,016,255 |
|
| Non-U.S. offices | | | |
| Noninterest-bearing | 19,078 |
| | 17,611 |
|
| Interest-bearing | | | |
| Demand | 217,011 |
| | 214,391 |
|
| Savings | 2,673 |
| | 1,083 |
|
Time (included $1,306 and $629 at fair value)(c) | 43,757 |
| | 38,425 |
|
| Total interest-bearing deposits | 263,441 |
| | 253,899 |
|
| Total deposits in non-U.S. offices | 282,519 |
| | 271,510 |
|
| Total deposits | $ | 1,363,427 |
| | $ | 1,287,765 |
|
|
| | | | | | | | |
| December 31, (in millions) | 2017 |
|
| 2016 |
| |
| U.S. offices | | | | |
| Noninterest-bearing | $ | 393,645 |
| | $ | 400,831 |
| |
Interest-bearing (included $14,947, and $12,245 at fair value)(a) | 793,618 |
| | 737,949 |
| |
| Total deposits in U.S. offices | 1,187,263 |
| | 1,138,780 |
| |
| Non-U.S. offices | | | | |
| Noninterest-bearing | 15,576 |
| | 14,764 |
| |
Interest-bearing (included $6,374 and $1,667 at fair value)(a) | 241,143 |
| | 221,635 |
| |
| Total deposits in non-U.S. offices | 256,719 |
| | 236,399 |
| |
| Total deposits | $ | 1,443,982 |
| | $ | 1,375,179 |
| |
| |
| (a) | Includes Negotiable Order of Withdrawal (“NOW”) accounts, and certain trust accounts. |
| |
(b) | Includes Money Market Deposit Accounts (“MMDAs”). |
| |
(c) | Includes structured notes classified as deposits for which the fair value option has been elected. For further discussion, see Note 4.3. |
At December 31, 20142017 and 2013,2016, time deposits in denominations of $100,000$250,000 or more were as follows.
| | | December 31, (in millions) | | 2014 |
| | 2013 |
|
| 2017 |
|
| 2016 |
|
| U.S. offices | | $ | 71,630 |
| | $ | 74,804 |
|
| $ | 30,671 |
|
| $ | 26,180 |
|
Non-U.S. offices | | 43,743 |
| | 38,412 |
|
| 29,049 |
|
| 29,652 |
|
Total | | $ | 115,373 |
| | $ | 113,216 |
|
| $ | 59,720 |
|
| $ | 55,832 |
|
(a) The prior period amounts have been revised to conform with the current period presentation.
At December 31, 2014,2017, the maturities of interest-bearing time deposits were as follows.
|
| | | | | | | | | | | | |
December 31, 2017 (in millions) | | |
| | |
| | |
|
| | U.S. | | Non-U.S. |
| | Total |
|
| 2018 | | $ | 37,645 |
| | $ | 27,621 |
| | $ | 65,266 |
|
| 2019 | | 3,487 |
| | 349 |
| | 3,836 |
|
| 2020 | | 2,332 |
| | 22 |
| | 2,354 |
|
| 2021 | | 4,275 |
| | 26 |
| | 4,301 |
|
| 2022 | | 2,297 |
| | 443 |
| | 2,740 |
|
| After 5 years | | 3,391 |
| | 1,697 |
| | 5,088 |
|
| Total | | $ | 53,427 |
| | $ | 30,158 |
| | $ | 83,585 |
|
|
| | | | | | | | | | | | |
| December 31, 2014 | | |
| | |
| | |
|
| (in millions) | | U.S. | | Non-U.S. | | Total |
| 2015 | | $ | 70,929 |
| | $ | 43,031 |
| | $ | 113,960 |
|
| 2016 | | 6,511 |
| | 424 |
| | 6,935 |
|
| 2017 | | 1,480 |
| | 61 |
| | 1,541 |
|
| 2018 | | 1,750 |
| | 75 |
| | 1,825 |
|
| 2019 | | 1,423 |
| | 166 |
| | 1,589 |
|
| After 5 years | | 4,208 |
| | — |
| | 4,208 |
|
| Total | | $ | 86,301 |
| | $ | 43,757 |
| | $ | 130,058 |
|
Note 2018 – Accounts payable and other liabilities
Accounts payable and other liabilities consist of brokerage payables, which includes payables to customers; payables to brokers,customers, dealers and clearing organizations;organizations, and payables from security purchases that did not settle; accrued expenses, including income taxes payables; accrued expense, including interest-bearing liabilities;tax payables and credit card rewards liability; and all other liabilities, including litigation reserves and obligations to return securities received as collateral.collateral and litigation reserves.
The following table details the components of accounts payable and other liabilities.
| | | December 31, (in millions) | | 2014 |
| | 2013 |
| | 2017 |
| | 2016 |
|
Brokerage payables(a) | | $ | 134,467 |
| | $ | 116,391 |
| | $ | 102,727 |
| | $ | 109,842 |
|
Accounts payable and other liabilities(b) | | 72,487 |
| | 78,100 |
| |
| Total | | $ | 206,954 |
| | $ | 194,491 |
| |
Other payables and liabilities(a) | | | 86,656 |
| | 80,701 |
|
| Total accounts payable and other liabilities | | | $ | 189,383 |
| | $ | 190,543 |
|
| |
| (a) | Includes payables to customers, brokers, dealers and clearing organizations, and payables from security purchases that did not settle. |
| |
(b) | Includes $36 millioncredit card rewards liability of $4.9 billion and $25 million accounted for at fair value$3.8 billion at December 31, 20142017 and 2013,2016, respectively. |
|
| | |
276248 | | JPMorgan Chase & Co./20142017 Annual Report |
Note 2119 – Long-term debt
JPMorgan Chase issues long-term debt denominated in various currencies, although predominantly U.S. dollars, with both fixed and variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed instruments, which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions revenue in the Consolidated statements of income.income, except for unrealized gains/(losses) due to DVA which are recorded in OCI. The following table is a summary of long-term debt carrying values (including unamortized original issue discount,premiums and discounts, issuance costs, valuation adjustments and fair value adjustments, where applicable) by remaining contractual maturity as of December 31, 2014.2017. | | By remaining maturity at December 31, | | 2014 | | 2013 |
| |
| (in millions, except rates) | | Under 1 year |
| | 1-5 years |
| | After 5 years |
| | Total |
| | Total |
| |
By remaining maturity at December 31, (in millions, except rates) | | | 2017 | | 2016 |
| | Under 1 year |
| | 1-5 years |
| | After 5 years |
| | Total | | Total |
| Parent company | | |
| | | | | | | | |
| | | | | | | | | | |
| Senior debt: | Fixed rate | $ | 13,214 |
| | $ | 46,275 |
| | $ | 49,300 |
| | $ | 108,789 |
| | $ | 101,074 |
| Fixed rate | $ | 15,084 |
| | $ | 53,939 |
| | $ | 72,528 |
| | $ | 141,551 |
| | $ | 128,967 |
|
| | Variable rate | 7,196 |
| | 28,482 |
| | 6,572 |
| | 42,250 |
| | 41,030 |
| Variable rate | 5,547 |
| | 12,802 |
| | 8,112 |
| | 26,461 |
| | 34,766 |
|
| | Interest rates(a) | 0.33-6.75% |
| | 0.27-7.25% |
| | 0.18-6.40% |
| | 0.18-7.25% |
| | 0.19-7.25% |
| Interest rates(a) | 0.38-7.25% | | 0.16-6.30% | | 0.45-6.40% | | 0.16-7.25% | | 0.09-7.25% |
| Subordinated debt: | Fixed rate | $ | 2,581 |
| | $ | 2,373 |
| | $ | 11,763 |
| | $ | 16,717 |
| | $ | 15,198 |
| Fixed rate | $ | — |
| | $ | 149 |
| | $ | 14,497 |
| | $ | 14,646 |
| | $ | 16,811 |
|
| | Variable rate | 1,446 |
| | 2,000 |
| | 9 |
| | 3,455 |
| | 4,566 |
| Variable rate | — |
| | — |
| | 9 |
| | 9 |
| | 1,245 |
|
| | Interest rates(a) | 0.48-5.25% |
| | 1.06-8.53% |
| | 3.38-8.00% |
| | 0.48-8.53% |
| | 0.63-8.53% |
| Interest rates(a) | — | % | | 8.53% | | 3.38-8.00% | | 3.38-8.53% | | 0.82-8.53% |
|
| | Subtotal | $ | 24,437 |
| | $ | 79,130 |
| | $ | 67,644 |
| | $ | 171,211 |
| | $ | 161,868 |
| Subtotal | $ | 20,631 |
| | $ | 66,890 |
| | $ | 95,146 |
| | $ | 182,667 |
| | $ | 181,789 |
|
| Subsidiaries | | |
| | |
| | |
| | |
| | |
| | | | | | | | | | |
| Federal Home Loan Banks (“FHLB”) advances: | Fixed rate | $ | 2,006 |
| | $ | 32 |
| | $ | 166 |
| | $ | 2,204 |
| | $ | 3,236 |
| |
| Federal Home Loan Banks advances: | | Fixed rate | $ | 4 |
| | $ | 34 |
| | $ | 129 |
| | $ | 167 |
| | $ | 179 |
|
| | Variable rate | 7,800 |
| | 53,490 |
| | 1,500 |
| | 62,790 |
| | 58,640 |
| Variable rate | 12,450 |
| | 37,000 |
| | 11,000 |
| | 60,450 |
| | 79,340 |
|
| | Interest rates(a) | 0.27-2.04% |
| | 0.11-0.43% |
| | 0.39 | % | | 0.11-2.04% |
| | 0.16-2.04% |
| Interest rates(a) | 1.58-1.75% | | 1.46-2.00% | | 1.18-1.47% | | 1.18-2.00% | | 0.41-1.21% |
|
| Senior debt: | Fixed rate | $ | 334 |
| | $ | 1,493 |
| | $ | 3,924 |
| | $ | 5,751 |
| | $ | 5,428 |
| Fixed rate | $ | 1,122 |
| | $ | 3,970 |
| | $ | 6,898 |
| | $ | 11,990 |
| | $ | 8,329 |
|
| | Variable rate | 3,805 |
| | 13,692 |
| | 2,587 |
| | 20,084 |
| | 23,458 |
| Variable rate | 8,967 |
| | 13,287 |
| | 3,964 |
| | 26,218 |
| | 19,379 |
|
| | Interest rates(a) | 0.36-0.48% |
| | 0.26-8.00% |
| | 1.30-7.28% |
| | 0.26-8.00% |
| | 0.12-8.00% |
| Interest rates(a) | 0.22-7.50% | | 1.65-7.50% | | 1.00-7.50% |
| | 0.22-7.50% | | 0.00-7.50% |
|
| Subordinated debt: | Fixed rate | $ | — |
| | $ | 5,289 |
| | $ | 1,647 |
| | $ | 6,936 |
| | $ | 7,286 |
| Fixed rate | $ | — |
| | $ | — |
| | $ | 313 |
| | $ | 313 |
| | $ | 3,884 |
|
| | Variable rate | — |
| | 2,364 |
| | — |
| | 2,364 |
| | 2,528 |
| Variable rate | — |
| | — |
| |
|
| | — |
| | — |
|
| | Interest rates(a) | — | % | | 0.57-6.00% |
| | 4.38-8.25% |
| | 0.57-8.25% |
| | 0.57-8.25% |
| Interest rates(a) | — | % | | — | % | | 8.25% | | 8.25% | | 6.00-8.25% |
|
| | Subtotal | $ | 13,945 |
| | $ | 76,360 |
| | $ | 9,824 |
| | $ | 100,129 |
| | $ | 100,576 |
| Subtotal | $ | 22,543 |
| | $ | 54,291 |
| | $ | 22,304 |
| | $ | 99,138 |
| | $ | 111,111 |
|
| Junior subordinated debt: | Fixed rate | $ | — |
| | $ | — |
| | $ | 2,226 |
| | $ | 2,226 |
| | $ | 2,176 |
| |
Junior subordinated debt (b): | | Fixed rate | $ | — |
| | $ | — |
| | $ | 690 |
| | $ | 690 |
| | $ | 706 |
|
| | Variable rate | — |
| | — |
| | 3,270 |
| | 3,270 |
| | 3,269 |
| Variable rate | — |
| | — |
| | 1,585 |
| | 1,585 |
| | 1,639 |
|
| | Interest rates(a) | — | % | | — | % | | 0.73-8.75% |
| | 0.73-8.75% |
| | 0.74-8.75% |
| Interest rates(a) | — | % | | — | % | | 1.88-8.75% | | 1.88-8.75% | | 1.39-8.75% |
|
| | Subtotal | $ | — |
| | $ | — |
| | $ | 5,496 |
| | $ | 5,496 |
| | $ | 5,445 |
| Subtotal | $ | — |
| | $ | — |
| | $ | 2,275 |
| | $ | 2,275 |
| | $ | 2,345 |
|
Total long-term debt(d)(e) | | $ | 38,382 |
| | $ | 155,490 |
| | $ | 82,964 |
| | $ | 276,836 |
| (f)(g) | $ | 267,889 |
| | $ | 43,174 |
| | $ | 121,181 |
| | $ | 119,725 |
| | $ | 284,080 |
| (g)(h) | $ | 295,245 |
|
| Long-term beneficial interests: | | |
| | |
| | |
| | |
| | |
| | | | | | | | | | |
| | Fixed rate | $ | 4,650 |
| | $ | 7,924 |
| | $ | 1,398 |
| | $ | 13,972 |
| | $ | 10,958 |
| |
| Long-term beneficial interests: | | Fixed rate | $ | 5,927 |
| | $ | 7,652 |
| | $ | — |
| | $ | 13,579 |
| | $ | 18,678 |
|
| Variable rate | 6,230 |
| | 11,079 |
| | 4,128 |
| | 21,437 |
| | 20,872 |
| Variable rate | 3,399 |
| | 4,472 |
| | 321 |
| | 8,192 |
| | 14,681 |
|
| | Interest rates | 0.18-1.36% |
| | 0.20-5.23% |
| | 0.05-15.93% |
| | 0.05-15.93% |
| | 0.04-15.93% |
| Interest rates | 1.10-2.50% | | 1.27-6.54% | | 0.00-3.75% | | 0.00-6.54% | | 0.39-7.87% |
Total long-term beneficial interests(e)(f) | | $ | 10,880 |
| | $ | 19,003 |
| | $ | 5,526 |
| | $ | 35,409 |
| | $ | 31,830 |
| | $ | 9,326 |
| | $ | 12,124 |
| | $ | 321 |
| | $ | 21,771 |
| | $ | 33,359 |
|
| |
| (a) | The interest rates shown are the range of contractual rates in effect at year-end,December 31, 2017 and 2016, respectively, including non-U.S. dollar fixed- and variable-rate issuances, which excludes the effects of the associated derivative instruments used in hedge accounting relationships, if applicable. The use of these derivative instruments modifies the Firm’s exposure to the contractual interest rates disclosed in the table above. Including the effects of the hedge accounting derivatives, the range of modified rates in effect at December 31, 2014,2017, for total long-term debt was (0.10)(0.19)% to 8.55%8.88%, versus the contractual range of 0.11%0.16% to 8.75% presented in the table above. The interest rate ranges shown exclude structured notes accounted for at fair value. |
| |
| (b) | As of December 31, 2017, includes $0.7 billion of fixed rate junior subordinated debentures issued to an issuer trust and $1.6 billion of variable rate junior subordinated debentures distributed pro rata to the holders of the $1.6 billion of trust preferred securities which were cancelled on December 18, 2017. |
| |
| (c) | Included long-term debt of $69.2$63.5 billion and $68.4$82.2 billion secured by assets totaling $156.7$208.4 billion and $131.3$205.6 billion at December 31, 20142017 and 2013,2016, respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments. |
| |
(c)(d) | Included $30.2$47.5 billion and $28.9$37.7 billion of long-term debt accounted for at fair value at December 31, 20142017 and 2013,2016, respectively. |
| |
(d)(e) | Included $2.9$10.3 billion and $2.7$7.5 billion of outstanding zero-coupon notes at December 31, 20142017 and 2013,2016, respectively. The aggregate principal amount of these notes at their respective maturities is $7.5$33.5 billion and $4.5$25.1 billion, respectively. The aggregate principal amount reflects the contractual principal payment at maturity, which may exceed the contractual principal payment at the Firm’s next call date, if applicable. |
| |
(e)(f) | Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIEs. Also included $2.2 billion$45 million and $2.0 billion of outstanding structured notes$120 million accounted for at fair value at December 31, 20142017 and 2013,2016, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $17.0$4.3 billion and $17.8$5.7 billion at December 31, 20142017 and 2013,2016, respectively. |
| |
(f)(g) | At December 31, 2014,2017, long-term debt in the aggregate of $23.5$111.2 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to maturity, based on the terms specified in the respective notes.instruments. |
| |
(g)(h) | The aggregate carrying values of debt that matures in each of the five years subsequent to 20142017 is $38.4 billion in 2015, $50.0 billion in 2016, $42.0 billion in 2017, $35.3$43.2 billion in 2018, and $28.2$34.7 billion in 2019.2019, $39.3 billion in 2020, $33.8 billion in 2021 and $13.4 billion in 2022. |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 277249 |
Notes to consolidated financial statements
The weighted-average contractual interest rates for total long-term debt excluding structured notes accounted for at fair value were 2.43%2.87% and 2.56%2.49% as of December 31, 20142017 and 2013,2016, respectively. In order to modify exposure to interest rate and currency exchange rate movements, JPMorgan Chase utilizes derivative instruments, primarily interest rate and cross-currency interest rate swaps, in conjunction with some of its debt issues.issuances. The use of these instruments modifies the Firm’s interest expense on the associated debt. The modified weighted-average interest rates for total long-term debt, including the effects of related derivative instruments, were 1.50%2.56% and 1.54%2.01% as of December 31, 20142017 and 2013,2016, respectively.
The Parent CompanyJPMorgan Chase & Co. has guaranteed certain long-term debt of its subsidiaries, including both long-term debt and structured notes sold as part of the Firm’s market-making activities.notes. These guarantees rank on parity with all of the Firm’s other unsecured and unsubordinated indebtedness. Guaranteed liabilities were $352 millionThe amount of such guaranteed long-term debt and $478 millionstructured notes was $7.9 billion and $3.9 billion at December 31, 20142017 and 2013,2016, respectively.
The Firm’s unsecured debt does not contain requirements that would call for an acceleration of payments, maturities or changes in the structure of the existing debt, provide any limitations on future borrowings or require additional collateral, based on unfavorable changes in the Firm’s credit ratings, financial ratios, earnings or stock price.
Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities
On May 8, 2013, the Firm redeemed approximately $5.0 billion, or 100% of the liquidation amount, of the following eight series of guaranteed capital debt securities (“trust preferred securities”): JPMorgan Chase Capital X, XI, XII, XIV, XVI, XIX and XXIV, and BANK ONE Capital VI. Other
income for the year endedAt December 31, 2013, reflected a modest loss related to the redemption of trust preferred securities. On July 12, 2012, the Firm redeemed $9.0 billion, or 100% of the liquidation amount, of the following nine series of trust preferred securities: JPMorgan Chase Capital XV, XVII, XVIII, XX, XXII, XXV, XXVI, XXVII and XXVIII. Other income for the year ended December 31, 2012, reflected $888 million of pretax extinguishment gains related to adjustments applied to the cost basis of the redeemed trust preferred securities during the period they were in a qualified hedge accounting relationship.
At December 31, 2014,2016, the Firm had outstanding nine wholly ownedeight wholly-owned Delaware statutory business trusts (“issuer trusts”) that had issued guaranteed capital debttrust preferred securities.
The On December 18, 2017, seven of the eight issuer trusts were liquidated, $1.6 billion of trust preferred and $56 million of common securities originally issued by those trusts were cancelled, and the junior subordinated deferrable interest debentures issuedpreviously held by the Firmeach trust issuer were distributed pro rata to the issuer trusts, totaling $5.5 billion and $5.4 billion at December 31, 2014 and 2013, respectively, were reflected onholders of the Firm’s Consolidated balance sheets in long-term debt, and in the table on the preceding page under the caption “Junior subordinated debt” (i.e.,corresponding series of trust preferred securities). The Firm also records theand common capital securities issued by the issuer trusts in other assets in its Consolidated balance sheets at December 31, 2014 and 2013. securities.
Beginning in 2014, the junior subordinated debentures issued to the issuer trusts by the Firm, less the common capital securities of the issuer trusts, began being phased out from inclusion as Tier 1 capital under Basel III.III and they were fully phased out as of December 31, 2016. As of December 31, 2014, $2.72017 and 2016, $300 million and $1.4 billion, of these debentures qualified as Tier 1 capital, while $2.7 billionrespectively, qualified as Tier 2 capital. As
The Firm redeemed $1.6 billion of December 31, 2013, under Basel I, the entire balance of these debentures qualified as Tier 1 capital.
The following is a summary of the outstanding trust preferred securities including unamortized original issue discount, issued by each trust, andin the junior subordinated deferrable interest debenture issued to each trust, as of year ended December 31, 2014.2016.
|
| | | | | | | | | | | | | | | | | | |
December 31, 2014 (in millions) | | Amount of trust preferred securities issued by trust(a) | | Principal amount of debenture issued to trust(b) | | Issue date | | Stated maturity of trust preferred securities and debentures | | Earliest redemption date | | Interest rate of trust preferred securities and debentures | | Interest payment/distribution dates |
| Bank One Capital III | | $ | 474 |
| | $ | 726 |
| | 2000 | | 2030 | | Any time | | 8.75% | | Semiannually |
| Chase Capital II | | 482 |
| | 498 |
| | 1997 | | 2027 | | Any time | | LIBOR + 0.50% | | Quarterly |
| Chase Capital III | | 296 |
| | 305 |
| | 1997 | | 2027 | | Any time | | LIBOR + 0.55% | | Quarterly |
| Chase Capital VI | | 242 |
| | 249 |
| | 1998 | | 2028 | | Any time | | LIBOR + 0.625% | | Quarterly |
| First Chicago NBD Capital I | | 249 |
| | 257 |
| | 1997 | | 2027 | | Any time | | LIBOR + 0.55% | | Quarterly |
| JPMorgan Chase Capital XIII | | 466 |
| | 480 |
| | 2004 | | 2034 | | Any time | | LIBOR + 0.95% | | Quarterly |
| JPMorgan Chase Capital XXI | | 836 |
| | 838 |
| | 2007 | | 2037 | | Any time | | LIBOR + 0.95% | | Quarterly |
| JPMorgan Chase Capital XXIII | | 643 |
| | 643 |
| | 2007 | | 2047 | | Any time | | LIBOR + 1.00% | | Quarterly |
| JPMorgan Chase Capital XXIX | | 1,500 |
| | 1,500 |
| | 2010 | | 2040 | | 2015 | | 6.70% | | Quarterly |
| Total | | $ | 5,188 |
| | $ | 5,496 |
| | | | | | | | | | |
| |
(a) | Represents the amount of trust preferred securities issued to the public by each trust, including unamortized original-issue discount. |
| |
(b) | Represents the principal amount of JPMorgan Chase debentures issued to each trust, including unamortized original-issue discount. The principal amount of debentures issued to the trusts includes the impact of hedging and purchase accounting fair value adjustments that were recorded on the Firm’s Consolidated Financial Statements. |
|
| | |
278250 | | JPMorgan Chase & Co./20142017 Annual Report |
Note 2220 – Preferred stock
At December 31, 20142017 and 20132016, JPMorgan Chase was authorized to issue 200 million shares of preferred stock, in one or more series, with a par value of $1.001 per share.
In the event of a liquidation or dissolution of the Firm, JPMorgan Chase’s preferred stock then outstanding takes precedence over the Firm’s common stock forwith respect to the payment of dividends and the distribution of assets.
The following is a summary of JPMorgan Chase’s non-cumulative preferred stock outstanding as of December 31, 20142017 and 2013.2016.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Shares at December 31, (represented by
depositary shares)(a) | | Carrying value
(in millions)
at December 31, | | Issue date | Contractual rate
in effect at
December 31,
2014 | Earliest redemption date | Date at which dividend rate becomes floating | Floating annual
rate of
three-month LIBOR plus: |
| |
| |
| | 2014 | 2013 | 2014 | 2013 |
| | Fixed-rate: | | | | | | | | | | | | |
| | Series O | 125,750 |
| 125,750 |
| | $ | 1,258 |
| $ | 1,258 |
| | 8/27/2012 | 5.500 | % | 9/1/2017 | NA | NA | |
| | Series P | 90,000 |
| 90,000 |
| | 900 |
| 900 |
| | 2/5/2013 | 5.450 |
| 3/1/2018 | NA | NA | |
| | Series T | 92,500 |
| — |
| | 925 |
| — |
| | 1/30/2014 | 6.700 |
| 3/1/2019 | NA | NA | |
| | Series W | 88,000 |
| — |
| | 880 |
| — |
| | 6/23/2014 | 6.300 |
| 9/1/2019 | NA | NA | |
| | | | | | | | | | | | | | |
| | Fixed-to-floating rate: | | | | | | | | | | | | |
| | Series I | 600,000 |
| 600,000 |
| | 6,000 |
| 6,000 |
| | 4/23/2008 | 7.900 | % | 4/30/2018 | 4/30/2018 | LIBOR + 3.47 | % |
| | Series Q | 150,000 |
| 150,000 |
| | 1,500 |
| 1,500 |
| | 4/23/2013 | 5.150 |
| 5/1/2023 | 5/1/2023 | LIBOR + 3.25 | |
| | Series R | 150,000 |
| 150,000 |
| | 1,500 |
| 1,500 |
| | 7/29/2013 | 6.000 |
| 8/1/2023 | 8/1/2023 | LIBOR + 3.30 | |
| | Series S | 200,000 |
| — |
| | 2,000 |
| — |
| | 1/22/2014 | 6.750 |
| 2/1/2024 | 2/1/2024 | LIBOR + 3.78 | |
| | Series U | 100,000 |
| — |
| | 1,000 |
| — |
| | 3/10/2014 | 6.125 |
| 4/30/2024 | 4/30/2024 | LIBOR + 3.33 | |
| | Series V | 250,000 |
| — |
| | 2,500 |
| — |
| | 6/9/2014 | 5.000 |
| 7/1/2019 | 7/1/2019 | LIBOR + 3.32 | |
| | Series X | 160,000 |
| — |
| | 1,600 |
| — |
| | 9/23/2014 | 6.100 |
| 10/1/2024 | 10/1/2024 | LIBOR + 3.33 | |
| | | | | | | | | | | | | | |
| | Total preferred stock | 2,006,250 |
| 1,115,750 |
| | $ | 20,063 |
| $ | 11,158 |
| | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Shares at December 31,(a) | | Carrying value (in millions) at December 31,
| | Issue date | Contractual rate
in effect at
December 31, 2017 | | Earliest redemption date | Date at which dividend rate becomes floating | Floating annual
rate of
three-month LIBOR plus: |
| | 2017 | 2016 | | 2017 | 2016 | |
| Fixed-rate: | | | | | | | | | | | | |
| Series O | — |
| 125,750 |
| | $ | — |
| $ | 1,258 |
| | 8/27/2012 | N/A |
| | 9/1/2017 | NA | NA |
| Series P | 90,000 |
| 90,000 |
| | 900 |
| 900 |
| | 2/5/2013 | 5.450 | % | | 3/1/2018 | NA | NA |
| Series T | 92,500 |
| 92,500 |
| | 925 |
| 925 |
| | 1/30/2014 | 6.700 |
| | 3/1/2019 | NA | NA |
| Series W | 88,000 |
| 88,000 |
| | 880 |
| 880 |
| | 6/23/2014 | 6.300 |
| | 9/1/2019 | NA | NA |
| Series Y | 143,000 |
| 143,000 |
| | 1,430 |
| 1,430 |
| | 2/12/2015 | 6.125 |
| | 3/1/2020 | NA | NA |
| Series AA | 142,500 |
| 142,500 |
| | 1,425 |
| 1,425 |
| | 6/4/2015 | 6.100 |
| | 9/1/2020 | NA | NA |
| Series BB | 115,000 |
| 115,000 |
| | 1,150 |
| 1,150 |
| | 7/29/2015 | 6.150 |
| | 9/1/2020 | NA | NA |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Fixed-to-floating-rate: | | | | | | | | | | | | |
| Series I | 600,000 |
| 600,000 |
| | 6,000 |
| 6,000 |
| | 4/23/2008 | 7.900 | % | | 4/30/2018 | 4/30/2018 | LIBOR + 3.47% |
| Series Q | 150,000 |
| 150,000 |
| | 1,500 |
| 1,500 |
| | 4/23/2013 | 5.150 |
| | 5/1/2023 | 5/1/2023 | LIBOR + 3.25 |
| Series R | 150,000 |
| 150,000 |
| | 1,500 |
| 1,500 |
| | 7/29/2013 | 6.000 |
| | 8/1/2023 | 8/1/2023 | LIBOR + 3.30 |
| Series S | 200,000 |
| 200,000 |
| | 2,000 |
| 2,000 |
| | 1/22/2014 | 6.750 |
| | 2/1/2024 | 2/1/2024 | LIBOR + 3.78 |
| Series U | 100,000 |
| 100,000 |
| | 1,000 |
| 1,000 |
| | 3/10/2014 | 6.125 |
| | 4/30/2024 | 4/30/2024 | LIBOR + 3.33 |
| Series V | 250,000 |
| 250,000 |
| | 2,500 |
| 2,500 |
| | 6/9/2014 | 5.000 |
| | 7/1/2019 | 7/1/2019 | LIBOR + 3.32 |
| Series X | 160,000 |
| 160,000 |
| | 1,600 |
| 1,600 |
| | 9/23/2014 | 6.100 |
| | 10/1/2024 | 10/1/2024 | LIBOR + 3.33 |
| Series Z | 200,000 |
| 200,000 |
| | 2,000 |
| 2,000 |
| | 4/21/2015 | 5.300 |
| | 5/1/2020 | 5/1/2020 | LIBOR + 3.80 |
| Series CC | 125,750 |
| — |
| | 1,258 |
| — |
| | 10/20/2017 | 4.625 |
| | 11/1/2022 | 11/1/2022 | LIBOR + 2.58 |
| Total preferred stock | 2,606,750 |
| 2,606,750 |
| | $ | 26,068 |
| $ | 26,068 |
| | | | | | | |
| |
| (a) | Represented by depositary shares. |
Each series of preferred stock has a liquidation value and redemption price per share of $10,000, plus any accrued but unpaid dividends.
Dividends on fixed-rate preferred stock are payable quarterly. Dividends on fixed-to-floating ratefixed-to-floating-rate preferred stock are payable semiannually while at a fixed rate, and will become payable quarterly after converting to a floating rate.
On SeptemberOctober 20, 2017, the Firm issued $1.3 billion of fixed to-floating rate non-cumulative preferred stock, Series CC, with an initial dividend rate of 4.625%. On December 1, 2013, the2017, The Firm redeemed all of the outstanding shares$1.3 billion of its 8.625% Non-Cumulative Preferred Stock,outstanding 5.50% non-cumulative preferred stock, Series J at their stated redemption value.O.
Redemption rights
Each series of the Firm’s preferred stock may be redeemed on any dividend payment date on or after the earliest redemption date for that series. All outstanding preferred stock series except Series I may also be redeemed following a capital“capital treatment event,” as described in the terms of each series. Any redemption of the Firm’s preferred stock is subject to non-objection from the Board of Governors of the Federal Reserve.Reserve System (the “Federal Reserve”).
Subsequent events
Issuance of preferred stock
On February 12, 2015, the Firm issued $1.4 billion of noncumulative preferred stock.
Note 23 – Common stock
At December 31, 2014 and 2013, JPMorgan Chase was authorized to issue 9.0 billion shares of common stock with a par value of $1 per share.
Common shares issued (newly issued or distributed from treasury) by JPMorgan Chase during the years ended December 31, 2014, 2013 and 2012 were as follows.
|
| | | | | | |
Year ended December 31, (in millions) | 2014 |
| 2013 |
| 2012 |
|
| Total issued – balance at January 1 and December 31 | 4,104.9 |
| 4,104.9 |
| 4,104.9 |
|
| Treasury – balance at January 1 | (348.8 | ) | (300.9 | ) | (332.2 | ) |
| Purchase of treasury stock | (82.3 | ) | (96.1 | ) | (33.5 | ) |
Share repurchases related to employee stock-based awards(a) | — |
| — |
| (0.2 | ) |
| Issued from treasury: | | | |
| Employee benefits and compensation plans | 39.8 |
| 47.1 |
| 63.7 |
|
| Employee stock purchase plans | 1.2 |
| 1.1 |
| 1.3 |
|
| Total issued from treasury | 41.0 |
| 48.2 |
| 65.0 |
|
| Total treasury – balance at December 31 | (390.1 | ) | (348.8 | ) | (300.9 | ) |
| Outstanding | 3,714.8 |
| 3,756.1 |
| 3,804.0 |
|
| |
(a) | Participants in the Firm’s stock-based incentive plans may have shares withheld to cover income taxes. |
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 279251 |
Notes to consolidated financial statements
Note 21 – Common stock
At each of December 31, 2014, 2013,2017 and 2012,2016, JPMorgan Chase was authorized to issue 9.0 billion shares of common stock with a par value of $1 per share.
Common shares issued (newly issued or reissuance from treasury) by JPMorgan Chase during the years ended December 31, 2017, 2016 and 2015 were as follows.
|
| | | | | | |
Year ended December 31, (in millions) | 2017 |
| 2016 |
| 2015 |
|
| Total issued – balance at January 1 | 4,104.9 |
| 4,104.9 |
| 4,104.9 |
|
| Treasury – balance at January 1 | (543.7 | ) | (441.4 | ) | (390.1 | ) |
| Repurchase | (166.6 | ) | (140.4 | ) | (89.8 | ) |
| Reissuance: | | | |
| Employee benefits and compensation plans | 24.5 |
| 26.0 |
| 32.8 |
|
| Warrant exercise | 5.4 |
| 11.1 |
| 4.7 |
|
| Employee stock purchase plans | 0.8 |
| 1.0 |
| 1.0 |
|
| Total reissuance | 30.7 |
| 38.1 |
| 38.5 |
|
| Total treasury – balance at December 31 | (679.6 | ) | (543.7 | ) | (441.4 | ) |
| Outstanding at December 31 | 3,425.3 |
| 3,561.2 |
| 3,663.5 |
|
At December 31, 2017, 2016, and 2015, respectively, the Firm had 59.815.0 million, 24.9 million and 47.4 million warrants outstanding to purchase shares of common stock (the “Warrants”). The Warrants are currently traded on the New York Stock Exchange, and they are exercisable, in whole or in part, at any time and from time to time until October 28, 2018. The original warrant exercise price was $42.42 per share. The number of shares issuable upon the exercise of each warrant and the warrant exercise price is subject to adjustment upon the occurrence of certain events, including, but not limited to, the extent to which regular quarterly cash dividends exceed $0.38 per share. As a result of the increase in the Firm’s quarterly common stock dividend to $0.40 per share commencing with the second quarter of 2014,December 31, 2017 the exercise price was $41.834 and the Warrant share number was 1.01.
On June 28, 2017, in conjunction with the Federal Reserve’s release of its 2017 CCAR results, the Warrants was adjusted each subsequent quarter, and was $42.391 as of December 31, 2014. There has been no change in the number of shares issuable upon exercise.
On March 13, 2012, theFirm’s Board of Directors authorized a $15.0$19.4 billion common equity (i.e., common stock and warrants) repurchase program. As of December 31, 2014, $3.82017, $9.8 billion (on a trade-date basis) of authorized repurchase capacity remained under the program. The amount of equity that may beThis authorization includes shares repurchased by the Firm is also subject to the amount that is set forth inoffset issuances under the Firm’s annual capital plan that is submitted to the Federal Reserve as part of the Comprehensive Capital Analysis and Review (“CCAR”) process.share-based compensation plans.
The following table sets forth the Firm’s repurchases of common equity for the years ended December 31, 2014, 20132017, 2016 and 2012, on a trade-date basis.2015. There were no warrants repurchased during the years ended December 31, 2014,2017, 2016 and 2013.2015.
| | | Year ended December 31, (in millions) | | 2014 | | 2013 | | 2012 | | 2017 |
| | 2016 |
| | 2015 |
|
| Total number of shares of common stock repurchased | | 83.4 |
| | 96.1 |
| | 30.9 |
| | 166.6 |
| | 140.4 |
| | 89.8 |
|
| Aggregate purchase price of common stock repurchases | | $ | 4,834 |
| | $ | 4,789 |
| | $ | 1,329 |
| | $ | 15,410 |
| | $ | 9,082 |
| | $ | 5,616 |
|
| Total number of Warrants repurchased | | — |
| | — |
| | 18.5 |
| |
| Aggregate purchase price of Warrant repurchases | | $ | — |
| | $ | — |
| | $ | 238 |
| |
The Firm may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate repurchases in accordance with the common equity repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common equity — for example, during internal trading “blackout periods.” All purchases under a Rule 10b5-1 plan must be made according to a predefined plan established when the Firm is not aware of material nonpublic information. For additional information regarding repurchases of the Firm’s equity securities, see Part II,
Item 5: Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities, on pages 18–19.page 28.
As of December 31, 2014,2017, approximately 240120 million unissued shares of common stock were reserved for issuance under various employee incentive, compensation, option and stock purchase plans, director compensation plans, and the Warrants, as discussed above.Warrants.
|
| | |
| 252 | | JPMorgan Chase & Co./2017 Annual Report |
Note 2422 – Earnings per share
Earnings per share (“EPS”) is calculated under the two-class method under which all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities based on their respective rights to receive dividends. JPMorgan Chase grants restricted stock and RSUs to certain employees under its stock-basedshare-based compensation programs, which entitle recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock; these unvested awards meet the definition of participating securities. Options issued under employee benefit plans that have an antidilutive effect are excluded from the computation of diluted EPS.
The following table presents the calculation of basic and diluted EPS for the years ended December 31, 20142017, 20132016 and 20122015.
| | Year ended December 31, (in millions, except per share amounts) | 2014 | 2013 | 2012 | 2017 | 2016 | 2015 |
| Basic earnings per share | | |
| Net income | $ | 21,762 |
| $ | 17,923 |
| $ | 21,284 |
| $ | 24,441 |
| $ | 24,733 |
| $ | 24,442 |
|
| Less: Preferred stock dividends | 1,125 |
| 805 |
| 653 |
| 1,663 |
| 1,647 |
| 1,515 |
|
| Net income applicable to common equity | 20,637 |
| 17,118 |
| 20,631 |
| 22,778 |
| 23,086 |
| 22,927 |
|
Less: Dividends and undistributed earnings allocated to participating securities | 544 |
| 525 |
| 754 |
| 211 |
| 252 |
| 276 |
|
Net income applicable to common stockholders | $ | 20,093 |
| $ | 16,593 |
| $ | 19,877 |
| $ | 22,567 |
| $ | 22,834 |
| $ | 22,651 |
|
| | | |
Total weighted-average basic shares outstanding | 3,763.5 |
| 3,782.4 |
| 3,809.4 |
| 3,551.6 |
| 3,658.8 |
| 3,741.2 |
|
| Net income per share | $ | 5.34 |
| $ | 4.39 |
| $ | 5.22 |
| $ | 6.35 |
| $ | 6.24 |
| $ | 6.05 |
|
| | | |
| Diluted earnings per share | | |
Net income applicable to common stockholders | $ | 20,093 |
| $ | 16,593 |
| $ | 19,877 |
| $ | 22,567 |
| $ | 22,834 |
| $ | 22,651 |
|
| Total weighted-average basic shares outstanding | 3,763.5 |
| 3,782.4 |
| 3,809.4 |
| |
Add: Employee stock options, SARs and warrants(a) | 34.0 |
| 32.5 |
| 12.8 |
| |
Total weighted-average diluted shares outstanding(b) | 3,797.5 |
| 3,814.9 |
| 3,822.2 |
| |
| | | |
Total weighted-average basic shares outstanding(a) | | 3,551.6 |
| 3,658.8 |
| 3,741.2 |
|
Add: Employee stock options, SARs, warrants and PSUs(a) | | 25.2 |
| 31.2 |
| 32.4 |
|
Total weighted-average diluted shares outstanding(a)(b) | | 3,576.8 |
| 3,690.0 |
| 3,773.6 |
|
| Net income per share | $ | 5.29 |
| $ | 4.35 |
| $ | 5.20 |
| $ | 6.31 |
| $ | 6.19 |
| $ | 6.00 |
|
| |
| (a) | Excluded fromThe prior period amounts have been revised to conform with the computation of diluted EPS (due tocurrent period presentation. The revision had no impact on the antidilutive effect) were certain options issued under employee benefit plans and the Warrants. The aggregate number of shares issuable upon the exercise of such options and Warrants was 1 million, 6 million and 148 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Firm’s reported earnings per share. |
| |
| (b) | Participating securities were included in the calculation of diluted EPS using the two-class method, as this computation was more dilutive than the calculation using the treasury stock method. |
|
| | |
280 | | JPMorgan Chase & Co./20142017 Annual Report | | 253 |
Notes to consolidated financial statements
Note 2523 – Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation adjustments (including the impact of related derivatives), cash flow hedging activities, and net loss and prior service costs/(credit) related to the Firm’s defined benefit pension and OPEB plans.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | Unrealized gains/(losses) on investment securities(a) | | Translation adjustments, net of hedges | | Cash flow hedges | | Defined benefit pension and OPEB plans | | Accumulated other comprehensive income/(loss) |
| (in millions) |
| Balance at December 31, 2011 | | $ | 3,565 |
| (b) | | | $ | (26 | ) | | | | $ | 51 |
| | | | $ | (2,646 | ) | | | | $ | 944 |
| |
| Net change | | 3,303 |
| | | | (69 | ) | | | | 69 |
| | | | (145 | ) | | | | 3,158 |
| |
| Balance at December 31, 2012 | | $ | 6,868 |
| (b) | | | $ | (95 | ) | | | | $ | 120 |
| | | | $ | (2,791 | ) | | | | $ | 4,102 |
| |
| Net change | | (4,070 | ) | | | | (41 | ) | | | | (259 | ) | | | | 1,467 |
| | | | (2,903 | ) | |
| Balance at December 31, 2013 | | $ | 2,798 |
| (b) | | | $ | (136 | ) | | | | $ | (139 | ) | | | | $ | (1,324 | ) | | | | $ | 1,199 |
| |
| Net change | | 1,975 |
| | | | (11 | ) | | | | 44 |
| | | | (1,018 | ) | | | | 990 |
| |
| Balance at December 31, 2014 | | $ | 4,773 |
| (b) | | | $ | (147 | ) | | | | $ | (95 | ) | | | | $ | (2,342 | ) | | | | $ | 2,189 |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, (in millions) | Unrealized gains/(losses) on investment securities(b) | | Translation adjustments, net of hedges | | Cash flow hedges | | Defined benefit pension and OPEB plans | DVA on fair value option elected liabilities | Accumulated other comprehensive income/(loss) |
| |
| | Balance at December 31, 2014 | | $ | 4,773 |
|
| | | $ | (147 | ) | | | | $ | (95 | ) | | | | $ | (2,342 | ) | | | $ | — |
| | | $ | 2,189 |
|
| | Net change | | (2,144 | ) | | | | (15 | ) | | | | 51 |
| | | | 111 |
| | | — |
| | | (1,997 | ) |
| | Balance at December 31, 2015 | | $ | 2,629 |
| | | | $ | (162 | ) | | | | $ | (44 | ) | | | | $ | (2,231 | ) | | | $ | — |
| | | $ | 192 |
|
| | Cumulative effect of change in accounting principle(a) | | — |
| | | | — |
| | | | — |
| | | | — |
| | | 154 |
| | | 154 |
|
| | Net change | | (1,105 | ) | | | | (2 | ) | | | | (56 | ) | | | | (28 | ) | | | (330 | ) | | | (1,521 | ) |
| | Balance at December 31, 2016 | | $ | 1,524 |
| | | | $ | (164 | ) | | | | $ | (100 | ) | | | | $ | (2,259 | ) | | | $ | (176 | ) | | | $ | (1,175 | ) |
| | Net change | | 640 |
| | | | (306 | ) | | | | 176 |
| | | | 738 |
| | | (192 | ) | | | 1,056 |
|
| | Balance at December 31, 2017 | | $ | 2,164 |
| | | | $ | (470 | ) | | | | $ | 76 |
| | | | $ | (1,521 | ) | | | (368 | ) | | | $ | (119 | ) |
| |
| (a) | Effective January 1, 2016, the Firm adopted new accounting guidance related to the recognition and measurement of financial liabilities where the fair value option has been elected. This guidance requires the portion of the total change in fair value caused by changes in the Firm’s own credit risk (DVA) to be presented separately in OCI; previously these amounts were recognized in net income. |
| |
| (b) | Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS, including as of the date of transfer during the first quarter of 2014, $9 million of net unrealized losses related to AFS securities that were transferred to HTM. Subsequent to transfer, includes any net unamortized unrealized gains and losses related to theAFS securities transferred securities. |
| |
(b) | At December 31, 2011, included after-tax non-credit related unrealized losses of $56 million on debt securities for which credit losses have been recognized in income. There were no such losses for the other periods presented.to HTM. |
The following table presents the before-pre-tax and after-tax changes in the components of other comprehensive income/(loss).OCI. | | | | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 |
| Year ended December 31, (in millions) | Pretax | | Tax effect | | After-tax | | Pretax | | Tax effect | | After-tax | | Pretax | | Tax effect | | After-tax | Pre-tax | | Tax effect | | After-tax | | Pre-tax | | Tax effect | | After-tax | | Pre-tax | | Tax effect | | After-tax |
| Unrealized gains/(losses) on investment securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net unrealized gains/(losses) arising during the period | $ | 3,193 |
| | $ | (1,170 | ) | | $ | 2,023 |
| | $ | (5,987 | ) | | $ | 2,323 |
| | $ | (3,664 | ) | | $ | 7,521 |
| | $ | (2,930 | ) | | $ | 4,591 |
| $ | 944 |
| | $ | (346 | ) | | $ | 598 |
| | $ | (1,628 | ) | | $ | 611 |
| | $ | (1,017 | ) | | $ | (3,315 | ) | | $ | 1,297 |
| | $ | (2,018 | ) |
Reclassification adjustment for realized (gains)/losses included in net income(a) | (77 | ) | | 29 |
| | (48 | ) | | (667 | ) | | 261 |
| | (406 | ) | | (2,110 | ) | | 822 |
| | (1,288 | ) | 66 |
| | (24 | ) | | 42 |
| | (141 | ) | | 53 |
| | (88 | ) | | (202 | ) | | 76 |
| | (126 | ) |
| Net change | 3,116 |
| | (1,141 | ) | | 1,975 |
| | (6,654 | ) | | 2,584 |
| | (4,070 | ) | | 5,411 |
| | (2,108 | ) | | 3,303 |
| 1,010 |
| | (370 | ) | | 640 |
| | (1,769 | ) | | 664 |
| | (1,105 | ) | | (3,517 | ) | | 1,373 |
| | (2,144 | ) |
| Translation adjustments: | | | | | | | | | | | | | | | | | | |
Translation adjustments(b): | | | | | | | | | | | | | | | | | | |
Translation(b) | (1,638 | ) | | 588 |
| | (1,050 | ) | | (807 | ) | | 295 |
| | (512 | ) | | (26 | ) | | 8 |
| | (18 | ) | 1,313 |
| | (801 | ) | | 512 |
| | (261 | ) | | 99 |
| | (162 | ) | | (1,876 | ) | | 682 |
| | (1,194 | ) |
Hedges(b) | 1,698 |
| | (659 | ) | | 1,039 |
| | 773 |
| | (302 | ) | | 471 |
| | (82 | ) | | 31 |
| | (51 | ) | (1,294 | ) | | 476 |
| | (818 | ) | | 262 |
| | (102 | ) | | 160 |
| | 1,885 |
| | (706 | ) | | 1,179 |
|
| Net change | 60 |
| | (71 | ) | | (11 | ) | | (34 | ) | | (7 | ) | | (41 | ) | | (108 | ) | | 39 |
| | (69 | ) | 19 |
| | (325 | ) | | (306 | ) | | 1 |
| | (3 | ) | | (2 | ) | | 9 |
| | (24 | ) | | (15 | ) |
| Cash flow hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net unrealized gains/(losses) arising during the period | 98 |
| | (39 | ) | | 59 |
| | (525 | ) | | 206 |
| | (319 | ) | | 141 |
| | (55 | ) | | 86 |
| 147 |
| | (55 | ) | | 92 |
| | (450 | ) | | 168 |
| | (282 | ) | | (97 | ) | | 35 |
| | (62 | ) |
Reclassification adjustment for realized (gains)/losses included in net income(c)(d) | (24 | ) | | 9 |
| | (15 | ) | | 101 |
| | (41 | ) | | 60 |
| | (28 | ) | | 11 |
| | (17 | ) | 134 |
| | (50 | ) | | 84 |
| | 360 |
| | (134 | ) | | 226 |
| | 180 |
| | (67 | ) | | 113 |
|
| Net change | 74 |
| | (30 | ) | | 44 |
| | (424 | ) | | 165 |
| | (259 | ) | | 113 |
| | (44 | ) | | 69 |
| 281 |
| | (105 | ) | | 176 |
| | (90 | ) | | 34 |
| | (56 | ) | | 83 |
| | (32 | ) | | 51 |
|
| Defined benefit pension and OPEB plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Prior service credits arising during the period | (53 | ) | | 21 |
| | (32 | ) | | — |
| | — |
| | — |
| | 6 |
| | (2 | ) | | 4 |
| |
| Net gains/(losses) arising during the period | (1,697 | ) | | 688 |
| | (1,009 | ) | | 2,055 |
| | (750 | ) | | 1,305 |
| | (537 | ) | | 228 |
| | (309 | ) | 802 |
| | (160 | ) | | 642 |
| | (366 | ) | | 145 |
| | (221 | ) | | 29 |
| | (47 | ) | | (18 | ) |
Reclassification adjustments included in net income(d): |
|
| |
|
| |
|
| | | | | | | | | | | | | |
Reclassification adjustments included in net income(e): | | | | | | | | | | | | | | | | | | |
| Amortization of net loss | 72 |
| | (29 | ) | | 43 |
| | 321 |
| | (124 | ) | | 197 |
| | 324 |
| | (126 | ) | | 198 |
| 250 |
| | (90 | ) | | 160 |
| | 257 |
| | (97 | ) | | 160 |
| | 282 |
| | (106 | ) | | 176 |
|
| Prior service costs/(credits) | (44 | ) | | 17 |
| | (27 | ) | | (43 | ) | | 17 |
| | (26 | ) | | (41 | ) | | 16 |
| | (25 | ) | (36 | ) | | 13 |
| | (23 | ) | | (36 | ) | | 14 |
| | (22 | ) | | (36 | ) | | 14 |
| | (22 | ) |
| Settlement loss/(gain) | | 2 |
| | (1 | ) | | 1 |
| | 4 |
| | (1 | ) | | 3 |
| | — |
| | — |
| | — |
|
| Foreign exchange and other | 39 |
| | (32 | ) | | 7 |
| | (14 | ) | | 5 |
| | (9 | ) | | (21 | ) | | 8 |
| | (13 | ) | (54 | ) | | 12 |
| | (42 | ) | | 77 |
| | (25 | ) | | 52 |
| | 33 |
| | (58 | ) | | (25 | ) |
| Net change | (1,683 | ) | | 665 |
| | (1,018 | ) | | 2,319 |
| | (852 | ) | | 1,467 |
| | (269 | ) | | 124 |
| | (145 | ) | 964 |
| | (226 | ) | | 738 |
| | (64 | ) | | 36 |
| | (28 | ) | | 308 |
| | (197 | ) | | 111 |
|
| DVA on fair value option elected liabilities, net change: | | $ | (303 | ) | | $ | 111 |
| | $ | (192 | ) | | $ | (529 | ) | | $ | 199 |
| | $ | (330 | ) | | $ | — |
| | $ | — |
| | $ | — |
|
| Total other comprehensive income/(loss) | $ | 1,567 |
| | $ | (577 | ) | | $ | 990 |
| | $ | (4,793 | ) | | $ | 1,890 |
| | $ | (2,903 | ) | | $ | 5,147 |
| | $ | (1,989 | ) | | $ | 3,158 |
| $ | 1,971 |
| | $ | (915 | ) | | $ | 1,056 |
| | $ | (2,451 | ) | | $ | 930 |
| | $ | (1,521 | ) | | $ | (3,117 | ) | | $ | 1,120 |
| | $ | (1,997 | ) |
| |
| (a) | The pretaxpre-tax amount is reported in securities gainsgains/(losses) in the Consolidated statements of income. |
| |
| (b) | Reclassifications of pretaxpre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the Consolidated statements of income. The amounts were not material for the periods presented. |
| |
| (c) | The pretax amount is reported in the same line as the hedged items, whichpre-tax amounts are predominantlyprimarily recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements of income. |
| |
| (d) | In 2015, the Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it is probable that the forecasted interest payment cash flows would not occur. For additional information, see Note 5. |
| |
| (e) | The pretaxpre-tax amount is reported in compensation expense in the Consolidated statements of income. |
|
| | |
| 254 | | JPMorgan Chase & Co./20142017 Annual Report | | 281 |
Notes to consolidated financial statements
Note 2624 – Income taxes
JPMorgan Chase and its eligible subsidiaries file a consolidated U.S. federal income tax return. JPMorgan Chase uses the asset and liability method to provide income taxes on all transactions recorded in the Consolidated Financial Statements. This method requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts of assets or liabilities for book and tax purposes. Accordingly, a deferred tax asset or liability for each temporary difference is determined based on the tax rates that the Firm expects to be in effect when the underlying items of income and expense are realized. JPMorgan Chase’s expense for income taxes includes the current and deferred portions of that expense. A valuation allowance is established to reduce deferred tax assets to the amount the Firm expects to realize.
Due to the inherent complexities arising from the nature of the Firm’s businesses, and from conducting business and being taxed in a substantial number of jurisdictions, significant judgments and estimates are required to be made. Agreement of tax liabilities between JPMorgan Chase and the many tax jurisdictions in which the Firm files tax returns may not be finalized for several years. Thus, the Firm’s final tax-related assets and liabilities may ultimately be different from those currently reported.
Effective tax rate and expense
A reconciliation of the applicable statutory U.S. federal income tax rate to the effective tax rate for each of the years ended December 31, 2014, 20132017, 2016 and 2012,2015, is presented in the following table.
| | | Effective tax rate | Effective tax rate | | | | | | |
| Year ended December 31, | | 2014 |
| | 2013 |
| | 2012 |
| | 2017 |
| | 2016 |
| | 2015 |
|
| Statutory U.S. federal tax rate | | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % |
| Increase/(decrease) in tax rate resulting from: | | | | | | | | | | | | |
| U.S. state and local income taxes, net of U.S. federal income tax benefit | | 2.7 |
| | 2.2 |
| | 1.6 |
| | 2.2 |
| | 2.4 |
| | 1.5 |
|
| Tax-exempt income | | (3.1 | ) | | (3.1 | ) | | (2.9 | ) | | (3.3 | ) | | (3.1 | ) | | (3.3 | ) |
Non-U.S. subsidiary earnings(a) | | (2.0 | ) | | (4.9 | ) | | (2.4 | ) | | (3.1 | ) | | (1.7 | ) | | (3.9 | ) |
| Business tax credits | | (5.4 | ) | | (5.4 | ) | | (4.2 | ) | | (4.2 | ) | | (3.9 | ) | | (3.7 | ) |
| Nondeductible legal expense | | 2.4 |
| | 8.0 |
| | (0.2 | ) | | — |
| | 0.3 |
| | 0.8 |
|
| Tax audit resolutions | | | — |
| | — |
| | (5.7 | ) |
| Impact of the TCJA | | | 5.4 |
| | — |
| | — |
|
| Other, net | | (2.6 | ) | | (1.0 | ) | | (0.5 | ) | | (0.1 | ) | | (0.6 | ) | | (0.3 | ) |
| Effective tax rate | | 27.0 | % | | 30.8 | % | | 26.4 | % | | 31.9 | % | | 28.4 | % | | 20.4 | % |
| |
| (a) | Predominantly includes earnings of U.K. subsidiaries that arewere deemed to be reinvested indefinitely.indefinitely through December 31, 2017. |
Impact of the TCJA
On December 22, 2017, the TCJA was signed into law. The Firm’s effective tax rate increased in 2017 driven by a $1.9 billion income tax expense representing the estimated impact of the enactment of the TCJA. The $1.9 billion tax expense was predominantly driven by a deemed repatriation of the Firm’s unremitted non-U.S. earnings and adjustments to the value of certain tax-oriented investments partially offset by a benefit from the revaluation of the Firm’s net deferred tax liability.
The deemed repatriation of the Firm’s unremitted non-U.S. earnings is based on the post-1986 earnings and profits of each controlled foreign corporation. The calculation resulted in an estimated income tax expense of $3.7 billion. Furthermore, accounting for income taxes requires the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The Firm remeasured its deferred tax asset and liability balances in the fourth quarter of 2017 to the new statutory U.S. federal income tax rate of 21% as well as any federal benefit associated with state and local deferred income taxes. The remeasurement resulted in an estimated income tax benefit of $2.1 billion.
The deemed repatriation and remeasurement of deferred taxes were calculated based on all available information and published legislative guidance. These amounts are considered to be estimates under SEC Staff Accounting Bulletin No. 118 as the Firm anticipates refinements to both calculations. Anticipated refinements will result from the issuance of future legislative and accounting guidance as well as those in the normal course of business, including true-ups to the tax liability on the tax return as filed and the resolution of tax audits.
Adjustments were also recorded to income tax expense for certain tax-oriented investments. These adjustments were driven by changes to affordable housing proportional amortization resulting from the reduction of the federal income tax rate under the TCJA. SEC Staff Accounting Bulletin No. 118 does not apply to these adjustments.
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 255 |
The components of income tax expense/(benefit) included in the Consolidated statements of income were as follows for each of the years ended December 31, 2014, 2013,2017, 2016, and 2012.2015.
| | Income tax expense/(benefit) | Year ended December 31, (in millions) | | 2014 |
| | 2013 |
| | 2012 |
| | 2017 |
| | 2016 |
| | 2015 |
|
| Current income tax expense/(benefit) | | | | | | | | | | | | |
| U.S. federal | | $ | 1,610 |
| | $ | (1,316 | ) | | $ | 3,225 |
| | $ | 5,718 |
| | $ | 2,488 |
| | $ | 3,160 |
|
| Non-U.S. | | 1,353 |
| | 1,308 |
| | 1,782 |
| | 2,400 |
| | 1,760 |
| | 1,220 |
|
| U.S. state and local | | 857 |
| | (4 | ) | | 1,496 |
| | 1,029 |
| | 904 |
| | 547 |
|
| Total current income tax expense/(benefit) | | 3,820 |
| | (12 | ) | | 6,503 |
| | 9,147 |
| | 5,152 |
| | 4,927 |
|
| Deferred income tax expense/(benefit) | | | | | | | | | | | | |
| U.S. federal | | 3,738 |
| | 7,080 |
| | 2,238 |
| | 2,174 |
| | 4,364 |
| | 1,213 |
|
| Non-U.S. | | 71 |
| | 10 |
| | (327 | ) | | (144 | ) | | (73 | ) | | (95 | ) |
| U.S. state and local | | 401 |
| | 913 |
| | (781 | ) | | 282 |
| | 360 |
| | 215 |
|
| Total deferred income tax expense/(benefit) | | 4,210 |
| | 8,003 |
| | 1,130 |
| | 2,312 |
| | 4,651 |
| | 1,333 |
|
| Total income tax expense | | $ | 8,030 |
| | $ | 7,991 |
| | $ | 7,633 |
| | $ | 11,459 |
| | $ | 9,803 |
| | $ | 6,260 |
|
Total income tax expense includes $451$252 million, $531$55 million and $200 million$2.4 billion of tax benefits recorded in 2014, 2013,2017, 2016, and 2012,2015, respectively, as a result of tax audit resolutions. In 2013, the relationship between current and deferred income tax expense was largely driven by the reversal
Tax effect of significant deferred tax assets as well as prior-year tax adjustments and audit resolutions.items recorded in stockholders’ equity
The preceding table does not reflect the tax effect of certain items that are recorded each period directly in stockholders’ equity and certain tax benefits associated with the Firm’s employee stock-based compensation plans.equity. The tax effect of all items recorded directly to stockholders’ equity resulted in a decrease of $140$915 million in 2014,2017, an increase of $2.1$925 million in 2016, and an increase of $1.5 billion in 2013,2015. Effective January 1, 2016, the Firm adopted new accounting guidance related to employee share-based payments. As a result of the adoption of this new guidance, all excess tax benefits (including tax benefits from dividends or dividend equivalents) on share-based payment awards are recognized within income tax expense in the Consolidated statements of income. In prior years these tax benefits were recorded as increases to additional paid-in capital.
Results from Non-U.S. earnings
The following table presents the U.S. and a decreasenon-U.S. components of $1.9 billion in 2012.income before income tax expense for the years ended December 31, 2017, 2016 and 2015.
|
| | | | | | | | | | | | |
Year ended December 31,
(in millions) | | 2017 |
| | 2016 |
| | 2015 |
|
| U.S. | | $ | 27,103 |
| | $ | 26,651 |
| | $ | 23,191 |
|
Non-U.S.(a) | | 8,797 |
| | 7,885 |
| | 7,511 |
|
| Income before income tax expense | | $ | 35,900 |
| | $ | 34,536 |
| | $ | 30,702 |
|
| |
| (a) | For purposes of this table, non-U.S. income is defined as income generated from operations located outside the U.S. |
Prior to December 31, 2017, U.S. federal income taxes havehad not been provided on the undistributed earnings of certain non-U.S. subsidiaries, to the extent that such earnings havehad been reinvested abroad for an indefinite period of time. BasedThe Firm will no longer maintain the indefinite reinvestment assertion on JPMorgan Chase’s ongoing review of the business requirements and capital needs of its non-U.S. subsidiaries, combined with the formation of specific strategies and steps taken to fulfill these requirements and needs, the Firm has determined that the undistributed earnings of certain of itsthose non-U.S. subsidiaries would be indefinitely reinvested to fund current and future growthin light of the related businesses. As management does not intend to useenactment of the TCJA. The U.S. federal and state and local income taxes associated with the undistributed and previously untaxed earnings of thesethose non-U.S. subsidiaries was included in the deemed repatriation charge recorded as of December 31, 2017.
JPMC will treat any tax it may incur on global intangible low tax income as a sourceperiod cost to tax expense when the tax is incurred.
Affordable housing tax credits
The Firm recognized $1.7 billion, $1.7 billion and $1.6 billion of fundingtax credits and other tax benefits associated with investments in affordable housing projects within income tax expense for its U.S. operations,the years 2017, 2016 and 2015, respectively. The amount of amortization of such earnings will not be distributed toinvestments reported in income tax expense under the U.S.current period presentation during these years was $1.7 billion, $1.2 billion and $1.1 billion, respectively. The carrying value of these investments, which are reported in other assets on the foreseeable future. For 2014, pretax earnings of $2.6Firm’s Consolidated balance sheets, was $7.8 billion were generated and will be indefinitely reinvested in these subsidiaries. At $8.8 billion at December 31, 2014, the cumulative2017 and 2016, respectively. The amount of undistributed pretax earningscommitments related to these investments, which are reported in these subsidiaries were $31.1 billion. Ifaccounts payable and other liabilities on the Firm were to record a deferred tax liability associated with these undistributed earnings, the amount would be $7.0Firm’s Consolidated balance sheets, was $2.4 billion and $2.8 billion at December 31, 2014.2017 and 2016, respectively. The results are inclusive of any impacts from the TCJA.
|
| | |
282256 | | JPMorgan Chase & Co./20142017 Annual Report |
These undistributed earnings are related to subsidiaries located predominantly in the U.K. where the 2014 statutory tax rate was 21.5%.Deferred taxes
Tax expense applicable to securities gains and losses for the years 2014, 2013 and 2012 was $30 million, $261 million, and $822 million, respectively.
Deferred income tax expense/(benefit) results from differences between assets and liabilities measured for financial reporting purposes versus income tax return purposes. Deferred tax assets are recognized if, in management’s judgment, their realizability is determined to be more likely than not. If a deferred tax asset is determined to be unrealizable, a valuation allowance is established. The significant components of deferred tax assets and liabilities are reflected in the following table as of December 31, 20142017 and 2013.2016.
| | | Deferred taxes | | | | | |
| December 31, (in millions) | | 2014 |
| | 2013 |
| | 2017 |
| | 2016 |
|
| Deferred tax assets | | | | | | | | |
| Allowance for loan losses | | $ | 5,756 |
| | $ | 6,593 |
| | $ | 3,395 |
| | $ | 5,534 |
|
| Employee benefits | | 3,378 |
| | 4,468 |
| | 688 |
| | 2,911 |
|
| Accrued expenses and other | | 8,637 |
| | 9,179 |
| | 3,528 |
| | 6,831 |
|
| Non-U.S. operations | | 5,106 |
| | 5,493 |
| | 327 |
| | 5,368 |
|
| Tax attribute carryforwards | | 570 |
| | 748 |
| | 219 |
| | 2,155 |
|
| Gross deferred tax assets | | 23,447 |
| | 26,481 |
| | 8,157 |
| | 22,799 |
|
| Valuation allowance | | (820 | ) | | (724 | ) | | (46 | ) | | (785 | ) |
| Deferred tax assets, net of valuation allowance | | $ | 22,627 |
| | $ | 25,757 |
| | $ | 8,111 |
| | $ | 22,014 |
|
| Deferred tax liabilities | | | | | | | | |
| Depreciation and amortization | | $ | 3,073 |
| | $ | 3,196 |
| | $ | 2,299 |
| | $ | 3,294 |
|
| Mortgage servicing rights, net of hedges | | 5,533 |
| | 5,882 |
| | 2,757 |
| | 4,807 |
|
| Leasing transactions | | 2,495 |
| | 2,352 |
| | 3,483 |
| | 4,053 |
|
| Non-U.S. operations | | 4,444 |
| | 4,705 |
| | 200 |
| | 4,572 |
|
| Other, net | | 4,891 |
| | 3,459 |
| | 3,502 |
| | 5,493 |
|
| Gross deferred tax liabilities | | 20,436 |
| | 19,594 |
| | 12,241 |
| | 22,219 |
|
| Net deferred tax assets | | $ | 2,191 |
| | $ | 6,163 |
| |
| Net deferred tax (liabilities)/assets | | | $ | (4,130 | ) | | $ | (205 | ) |
JPMorgan Chase has recorded deferred tax assets of $570$219 million at December 31, 2014,2017, in connection with U.S. federal and non-U.S. net operating loss (“NOL”) carryforwards and state and local capital loss carryforwards. At December 31, 2014,2017, total U.S. federal NOL carryforwards were approximately $1.6 billion.$769 million, non-U.S. NOL carryforwards were approximately $142 million and state and local capital loss carryforwards were $660 million. If not utilized, the U.S. federal NOL carryforwards will expire between 2025 and 2034.2036 and the state and local capital loss carryforwards will expire between 2020 and 2021. Certain non-U.S. NOL carryforwards will expire between 2028 and 2034 whereas others have an unlimited carryforward period.
The valuation allowance at December 31, 2014,2017, was due to losses associated withthe state and local capital loss carryforwards and certain non-U.S. subsidiaries.NOL carryforwards.
Unrecognized tax benefits
At December 31, 2014, 20132017, 2016 and 2012,2015, JPMorgan Chase’s unrecognized tax benefits, excluding related interest expense and penalties, were $4.9$4.7 billion, $5.5$3.5 billion and $7.2$3.5 billion, respectively, of which $3.5 billion, $3.7$2.6 billion and $4.2$2.1 billion, respectively, if recognized, would reduce the annual effective tax rate. Included in the amount of unrecognized tax benefits are certain items that would not affect the effective tax rate if they were recognized in the Consolidated statements of income. These unrecognized items include the tax effect of certain temporary differences, the portion of gross state and local unrecognized tax benefits that would be offset by the benefit from associated U.S. federal income tax deductions, and the portion of gross non-U.S. unrecognized tax benefits that would have offsets in other jurisdictions. JPMorgan Chase is presently under audit by a number of taxing authorities, most notably by the Internal Revenue Service New York State and City, and the State of California as summarized in the Tax examination status table below. Based upon the statusAs JPMorgan Chase is presently under audit by a number of all of the tax examinations currently in process,taxing authorities, it is reasonably possible that over the next 12 months the resolution of these examinations could result in a reduction inmay increase or decrease the gross balance of unrecognized tax benefits in the range of $0 to approximately $2by as much as $1.3 billion. Upon settlement of an audit, the grosschange in the unrecognized tax benefitsbenefit would decline either because of tax paymentsresult from payment or the recognition of tax benefits.income statement recognition.
The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2014, 20132017, 2016 and 2012.2015.
| | | Unrecognized tax benefits | |
Year ended December 31, (in millions) | | 2014 |
| | 2013 |
| | 2012 |
| | 2017 |
| | 2016 |
| | 2015 |
|
| Balance at January 1, | | $ | 5,535 |
| | $ | 7,158 |
| | $ | 7,189 |
| | $ | 3,450 |
| | $ | 3,497 |
| | $ | 4,911 |
|
| Increases based on tax positions related to the current period | | 810 |
| | 542 |
| | 680 |
| | 1,355 |
| | 262 |
| | 408 |
|
| Increases based on tax positions related to prior periods | | 477 |
| | 88 |
| | 234 |
| | 626 |
| | 583 |
| | 1,028 |
|
| Decreases based on tax positions related to prior periods | | (1,902 | ) | | (2,200 | ) | | (853 | ) | | (350 | ) | | (785 | ) | | (2,646 | ) |
| Decreases related to settlements with taxing authorities | | (9 | ) | | (53 | ) | | (50 | ) | |
| Decreases related to cash settlements with taxing authorities | | | (334 | ) | | (56 | ) | | (204 | ) |
| Decreases related to a lapse of applicable statute of limitations | | — |
| | — |
| | (42 | ) | | — |
| | (51 | ) | | — |
|
| Balance at December 31, | | $ | 4,911 |
| | $ | 5,535 |
| | $ | 7,158 |
| | $ | 4,747 |
| | $ | 3,450 |
| | $ | 3,497 |
|
After-tax interest expense/(benefit) and penalties related to income tax liabilities recognized in income tax expense were $17$102 million, $(184)$86 million and $147$(156) million in 2014, 20132017, 2016 and 2012,2015, respectively.
At both December 31, 20142017 and 2013,2016, in addition to the liability for unrecognized tax benefits, the Firm had accrued $1.2 billion$639 million and $687 million, respectively, for income tax-related interest and penalties.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 283257 |
Notes to consolidated financial statements
Tax examination status
JPMorgan Chase is continually under examination by the Internal Revenue Service, by taxing authorities throughout the world, and by many statesstate and local jurisdictions throughout the U.S. The following table summarizes the status of significant income tax examinations of JPMorgan Chase and its consolidated subsidiaries as of December 31, 2014.2017.
|
| | | | |
Tax examination status |
December 31, 20142017 | | Periods under examination | | Status |
| JPMorgan Chase – U.S. | | 2003 -– 2005 | | At Appellate level |
| JPMorgan Chase – U.S. | | 2006 – 2010 | | Field examination completed;of amended returns; certain matters at Appellate level |
| JPMorgan Chase – U.S. | | 2006 - 20102011 – 2013 | | Field examinationExamination |
| JPMorgan Chase – California | | 2011 – 2012 | | Field Examination |
| JPMorgan Chase – U.K. | | 2006 – 20122015 | | Field examination of certain select entities |
JPMorgan Chase – New York State and City | | 2005 – 2007 | | Field examination |
JPMorgan Chase – California | | 2006 – 2010 | | Field examination |
The following table presents the U.S. and non-U.S. components of income before income tax expense for the years ended December 31, 2014, 2013 and 2012.
|
| | | | | | | | | | | | |
| Income before income tax expense - U.S. and non-U.S. |
Year ended December 31, (in millions) | | 2014 |
| | 2013 |
| | 2012 |
|
| U.S. | | $ | 22,515 |
| | $ | 17,229 |
| | $ | 24,895 |
|
Non-U.S.(a) | | 7,277 |
| | 8,685 |
| | 4,022 |
|
| Income before income tax expense | | $ | 29,792 |
| | $ | 25,914 |
| | $ | 28,917 |
|
| |
(a) | For purposes of this table, non-U.S. income is defined as income generated from operations located outside the U.S. |
Note 2725 – Restrictions on cash and
intercompany funds transfers
The business of JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”) is subject to examination and regulation by the OCC. The Bank is a member of the U.S. Federal Reserve System, and its deposits in the U.S. are insured by the FDIC.FDIC, subject to applicable limits.
The Federal Reserve requires depository institutions to maintain cash reserves with a Federal Reserve Bank. The average required amount of reserve balances deposited by the Firm’s bank subsidiaries with various Federal Reserve Banks was approximately $10.6$24.9 billion and $5.3$19.3 billion in 20142017 and 2013,2016, respectively.
Restrictions imposed by U.S. federal law prohibit JPMorgan Chase & Co. (“Parent Company”) and certain of its affiliates from borrowing from banking subsidiaries unless the loans are secured in specified amounts. Such secured loans provided by any banking subsidiary to the FirmParent Company or to any particular affiliate, together with certain other affiliatestransactions with such affiliate (collectively referred to as “covered transactions”), are generally limited to 10% of the banking subsidiary’s total capital, as determined by the risk-based capital guidelines; the aggregate amount of covered transactions between any banking subsidiary and all such loansof its affiliates is limited to 20% of the banking subsidiary’s total capital.
The Parent Company’s two principal subsidiaries are JPMorgan Chase Bank, N.A. and JPMorgan Chase Holdings LLC, an intermediate holding company (the “IHC”). The IHC holds the stock of substantially all of JPMorgan Chase’s subsidiaries other than JPMorgan Chase Bank, N.A. and its subsidiaries. The IHC also owns other assets and intercompany indebtedness owing to the holding company. The Parent Company is obligated to contribute to the IHC substantially all the net proceeds received from securities issuances (including issuances of senior and subordinated debt securities and of preferred and common stock).
The principal sources of JPMorgan Chase’s income (on a parent company-only basis)and funding for the Parent Company are dividends and interest from JPMorgan Chase Bank, N.A., and dividends and extensions of credit from the other banking and nonbanking subsidiaries of JPMorgan Chase. IHC.
In addition to dividend restrictions set forth in statutes and regulations, the Federal Reserve, the Office of the Comptroller of the Currency (“OCC”)OCC and the FDIC have authority under the Financial Institutions Supervisory Act to prohibit or to limit the payment of dividends by the banking organizations they supervise, including JPMorgan Chase and its subsidiaries that are banks or bank holding companies, if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the banking organization. The IHC is prohibited from paying dividends or extending credit to the Parent Company if certain capital or liquidity “thresholds” are breached or if limits are otherwise imposed by JPMorgan Chase’s management or Board of Directors.
At January 1, 2015,2018, JPMorgan Chase’s banking subsidiaries could pay, in the aggregate, approximately $31$17 billion in dividends to their respective bank holding companies without the prior approval of their relevant banking regulators. The capacity to pay dividends in 20152018 will be supplemented by the banking subsidiaries’ earnings during the year.
In compliance with rules and regulations established by U.S. and non-U.S. regulators, as of December 31, 20142017 and 2013,2016, cash in the amount of $16.8 billion and $17.2 billion, respectively, and securities with a fair value of $10.1 billion and $1.5$13.4 billion, respectively, were segregated in special bank accounts for the benefit of securities and futures brokerage customers. Also, as of December 31, 2017 and 2016, the Firm had:
Receivables and securities of $18.0 billion and $18.2 billion, respectively, consisting of cash and securities pledged with clearing organizations for the benefit of customers.
Securities with a fair value of $3.5 billion and $19.3 billion, respectively, were also restricted in relation to customer activity.
In addition, as of December 31, 20142017 and 2013,2016, the Firm had other restricted cash of $3.3 billion and $3.9$3.6 billion, respectively, primarily representing cash reserves held at non-U.S. central banks and held for other general purposes.
|
| | |
284258 | | JPMorgan Chase & Co./20142017 Annual Report |
Note 2826 – Regulatory capital
The Federal Reserve establishes capital requirements, including well-capitalized standards, for the consolidated financial holding company. The OCC establishes similar minimum capital requirements and standards for the Firm’s national banks,IDI, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.
Capital rules under Basel III rules underestablish minimum capital ratios and overall capital adequacy standards for large and internationally active U.S. bank holding companies and banks, including the transitional StandardizedFirm and Advanced Approachesits IDI subsidiaries. Basel III set forth two comprehensive approaches for calculating RWA: a standardized approach (“Basel III Standardized Transitional”Standardized”) and “Baselan advanced approach (“Basel III Advanced Transitional,” respectively) became effectiveAdvanced”). Certain of the requirements of Basel III are subject to phase-in periods that began on January 1, 2014; December 31, 2013 data is based on Basel I rules. Basel III establishes two comprehensive methodologies for calculating RWA (a Standardized approach2014 and an Advanced approach) which include capital requirements for credit risk, market risk, and incontinue through the caseend of Basel III Advanced, also operational risk. Key differences in the calculation of credit risk RWA between the Standardized and Advanced approaches are that for Basel III Advanced, credit risk RWA is based on risk-sensitive approaches which largely rely on the use of internal credit models and parameters, whereas for Basel III Standardized, credit risk RWA is generally based on supervisory risk-weightings which vary primarily by counterparty type and asset class. Market risk RWA is calculated mostly consistent across Basel III Standardized and Basel III Advanced, both of which incorporate the requirements set forth in Basel 2.5. For 2014, Basel III Standardized Transitional requires the Firm to calculate its capital ratios using the Basel III definition of capital divided by the Basel I definition of RWA, inclusive of Basel 2.5 for market risk.2018 (“transitional period”).
Beginning in 2014, there areThe three categories of risk-based capital and their predominant components under the Basel III Transitional rules: Common Equity Tier 1 capital (“CET1 capital”), as well as Tier 1 capital and Tier 2 capital. CET1 capital predominantly includes common stockholders’ equity (including capital for AOCI related to debt and equity securities classified as AFS as well as for defined benefit pension and OPEB plans), less certain deductions for goodwill, MSRs and deferred tax assets that arise from NOL and tax credit carryforwards. Tier 1 capital is predominantly comprised of CET1 capital as well as perpetual preferred stock. Tier 2 capital includes long-term debt qualifying as Tier 2 and qualifying allowance for credit losses. Total capital is Tier 1 capital plus Tier 2 capital.rules are illustrated below:
On February 21, 2014, the Federal Reserve and the OCC informed the Firm and its national bank subsidiaries that they had satisfactorily completed the parallel run requirements and were approved to calculate capital under Basel III Advanced, in addition to Basel III Standardized, as of April 1, 2014. In conjunction with its exit from the parallel run, the capital adequacy of the Firm and its national bank subsidiaries is evaluated against the Basel III approach (Standardized or Advanced) which results, for each quarter beginning with the second quarter of 2014, in the lower ratio (the “Collins Floor”), as required by the Collins Amendment of the Dodd-Frank Act.
The following tables present the regulatory capital, assets and risk-based capital ratios for JPMorgan Chase and its significant national bankIDI subsidiaries under both Basel III Standardized Transitional and Basel III Advanced Transitional at December 31, 2014,2017 and under Basel I at December 31, 2013.2016.
| | | | JPMorgan Chase & Co.(d) | JPMorgan Chase & Co. |
| | Basel III Standardized Transitional | | Basel III Advanced Transitional | | Basel I | Basel III Standardized Transitional | | Basel III Advanced Transitional |
(in millions, except ratios) | Dec 31,
2014 | | Dec 31,
2014 | | Dec 31,
2013 | Dec 31,
2017 |
| Dec 31,
2016 |
| | Dec 31,
2017 |
| Dec 31,
2016 |
|
| Regulatory capital | | | | | | |
| | | |
| |
|
| CET1 capital | $ | 164,764 |
| | $ | 164,764 |
| | NA | $ | 183,300 |
| $ | 182,967 |
| | $ | 183,300 |
| $ | 182,967 |
|
Tier 1 capital(a) | 186,632 |
| | 186,632 |
| | $ | 165,663 |
| 208,644 |
| 208,112 |
| | 208,644 |
| 208,112 |
|
| Total capital | 221,563 |
| | 211,022 |
| | 199,286 |
| 238,395 |
| 239,553 |
| | 227,933 |
| 228,592 |
|
| | | | | | | | | |
| Assets | | | | | | |
| |
| | |
| |
|
| Risk-weighted | 1,472,602 |
| | 1,608,240 |
| | 1,387,863 |
| 1,499,506 |
| 1,483,132 |
| (e) | 1,435,825 |
| 1,476,915 |
|
Adjusted average(b) | 2,465,414 |
| | 2,465,414 |
| | 2,343,713 |
| 2,514,270 |
| 2,484,631 |
| | 2,514,270 |
| 2,484,631 |
|
| | | | | | | | | |
Capital ratios(c) | | | | | | |
| |
| | |
| |
|
| CET1 | 11.2 | % | | 10.2 | % | | NA | 12.2 | % | 12.3 | % | (e) | 12.8 | % | 12.4 | % |
Tier 1(a) | 12.7 |
| | 11.6 |
| | 11.9 | % | 13.9 |
| 14.0 |
| (e) | 14.5 |
| 14.1 |
|
| Total | 15.0 |
| | 13.1 |
| | 14.4 |
| 15.9 |
| 16.2 |
| (e) | 15.9 |
| 15.5 |
|
Tier 1 leverage | 7.6 |
| | 7.6 |
| | 7.1 |
| 8.3 |
| 8.4 |
| | 8.3 |
| 8.4 |
|
| | | | JPMorgan Chase Bank, N.A.(d) | JPMorgan Chase Bank, N.A. |
| | Basel III Standardized Transitional | | Basel III Advanced Transitional | | Basel I | Basel III Standardized Transitional | | Basel III Advanced Transitional |
(in millions, except ratios) | Dec 31,
2014 | | Dec 31,
2014 | | Dec 31,
2013 | Dec 31,
2017 |
| Dec 31,
2016 |
|
| Dec 31,
2017 |
| Dec 31,
2016 |
|
| Regulatory capital | | | | | | |
| | | |
| |
|
| CET1 capital | $ | 156,898 |
| | $ | 156,898 |
| | NA | $ | 184,375 |
| $ | 179,319 |
| | $ | 184,375 |
| $ | 179,319 |
|
Tier 1 capital(a) | 157,222 |
| | 157,222 |
| | $ | 139,727 |
| 184,375 |
| 179,341 |
| | 184,375 |
| 179,341 |
|
| Total capital | 173,659 |
| | 166,662 |
| | 165,496 |
| 195,839 |
| 191,662 |
| | 189,419 |
| 184,637 |
|
| | | | | | |
|
| | | |
| Assets | | | | | | |
| | | |
| |
|
| Risk-weighted | 1,230,358 |
| | 1,330,175 |
| | 1,171,574 |
| 1,335,809 |
| 1,311,240 |
| (e) | 1,226,534 |
| 1,262,613 |
|
Adjusted average(b) | 1,968,131 |
| | 1,968,131 |
| | 1,900,770 |
| 2,116,031 |
| 2,088,851 |
| | 2,116,031 |
| 2,088,851 |
|
| | | | | | |
|
| | | |
Capital ratios(c) | | | | | | |
| | | |
| |
|
| CET1 | 12.8 | % | | 11.8 | % | | NA | 13.8 | % | 13.7 | % | (e) | 15.0 | % | 14.2 | % |
Tier 1(a) | 12.8 |
| | 11.8 |
| | 11.9 | % | 13.8 |
| 13.7 |
| (e) | 15.0 |
| 14.2 |
|
| Total | 14.1 |
| | 12.5 |
| | 14.1 |
| 14.7 |
| 14.6 |
| (e) | 15.4 |
| 14.6 |
|
Tier 1 leverage | 8.0 |
| | 8.0 |
| | 7.4 |
| 8.7 |
| 8.6 |
| | 8.7 |
| 8.6 |
|
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 285259 |
Notes to consolidated financial statements
| | | | Chase Bank USA, N.A.(d) | Chase Bank USA, N.A. |
| | Basel III Standardized Transitional | | Basel III Advanced Transitional | | Basel I | Basel III Standardized Transitional | | Basel III Advanced Transitional |
(in millions, except ratios) | Dec 31,
2014 | | Dec 31,
2014 | | Dec 31,
2013 | Dec 31,
2017 |
| | Dec 31,
2016 |
| | Dec 31,
2017 |
| | Dec 31,
2016 |
|
| Regulatory capital | | | | | | | | | | | | |
| CET1 capital | $ | 14,556 |
| | $ | 14,556 |
| | NA | $ | 21,600 |
| | $ | 16,784 |
| | $ | 21,600 |
| | $ | 16,784 |
|
Tier 1 capital(a) | 14,556 |
| | 14,556 |
| | $ | 12,956 |
| 21,600 |
| | 16,784 |
| | 21,600 |
| | 16,784 |
|
| Total capital | 20,517 |
| | 19,206 |
| | 16,389 |
| 27,691 |
| | 22,862 |
| | 26,250 |
| | 21,434 |
|
| | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | |
| Risk-weighted | 103,468 |
| | 157,565 |
| | 100,990 |
| 113,108 |
| | 112,297 |
| | 190,523 |
| | 186,378 |
|
Adjusted average(b) | 128,111 |
| | 128,111 |
| | 109,731 |
| 126,517 |
| | 120,304 |
| | 126,517 |
| | 120,304 |
|
| | | | | | | | | | | | | |
Capital ratios(c) | | | | | | | | | | | | |
| CET1 | 14.1 | % | | 9.2 | % | | NA | 19.1 | % | | 14.9 | % | | 11.3 | % | | 9.0 | % |
Tier 1(a) | 14.1 |
| | 9.2 |
| | 12.8 | % | 19.1 |
| | 14.9 |
| | 11.3 |
| | 9.0 |
|
| Total | 19.8 |
| | 12.2 |
| | 16.2 |
| 24.5 |
| | 20.4 |
| | 13.8 |
| | 11.5 |
|
Tier 1 leverage | 11.4 |
| | 11.4 |
| | 11.8 |
| 17.1 |
| | 14.0 |
| | 17.1 |
| | 14.0 |
|
| |
| (a) | AtIncludes the deduction associated with the permissible holdings of covered funds (as defined by the Volcker Rule). The deduction was not material as of December 31, 2014, trust preferred securities included in Basel III Tier 1 capital were $2.7 billion2017 and $300 million for JPMorgan Chase and JPMorgan Chase Bank, N.A., respectively. At December 31, 2014, Chase Bank USA, N.A. had no trust preferred securities.2016. |
| |
| (b) | Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for unrealized gains/(losses) on AFS securities, less deductions for disallowed goodwill and other intangible assets, investments in certain subsidiaries,defined benefit pension plan assets, and the total adjusted carrying value of nonfinancial equity investments that are subjectdeferred tax assets related to deductions from Tier 1 capital.tax attributes, including NOLs. |
| |
| (c) | For each of the risk-based capital ratios, the capital adequacy of the Firm and its IDI subsidiaries is evaluated against the lower of the Standardized Transitionaltwo ratios as calculated under Basel III approaches (Standardized or Advanced Transitional ratio representsAdvanced) as required by the Collins Floor.Amendment of the Dodd-Frank Act (the “Collins Floor”) |
| |
| (d) | Asset andThe Tier 1 leverage ratio is not a risk-based measure of capital. This ratio is calculated by dividing Tier 1 capital amounts for JPMorgan Chase’s banking subsidiaries reflect intercompany transactions; whereas the respective amounts for JPMorgan Chase reflect the elimination of intercompany transactions.by adjusted average assets. |
| |
Note:(e) | Rating agencies allow measures of capitalThe prior period amounts have been revised to be adjusted upward for deferred tax liabilities, which have resulted from both non-taxable business combinations and from tax-deductible goodwill. The Firm had deferred tax liabilities resulting from non-taxable business combinations totaling $130 million and $192 million at December 31, 2014, and December 31, 2013, respectively; and deferred tax liabilities resulting from tax-deductible goodwill of $2.7 billion and $2.8 billion at December 31, 2014, and December 31, 2013, respectively.conform with the current period presentation. |
Under the risk-based capital guidelines of the Federal Reserve, JPMorgan Chase is required to maintain minimum ratios of CET1, Tier 1 and Total capital to risk-weighted assets,
RWA, as well as a minimum leverage ratiosratio (which areis defined as Tier 1 capital divided by adjusted quarterly average assets). Failure to meet these minimum requirements could cause the Federal Reserve to take action. BankIDI subsidiaries also are subject to these capital requirements by their respective primary regulators. regulators.
The following table presents the minimum ratios to which the Firm and its national bankIDI subsidiaries are subject as of December 31, 2014.2017.
| | | | | | | | | Minimum capital ratios | Well-capitalized ratios |
| | Minimum capital ratios(a) | | Well-capitalized ratios(a) | | BHC(a)(e) | IDI(b)(e) | BHC(c) | IDI(d) |
| Capital ratios | | | | | | | |
| CET1 | 4.0 | % | | NA |
| | 7.50 | % | 5.75 | % | — | % | 6.50 | % |
| Tier 1 | 5.5 |
| | 6.0 | % | | 9.00 |
| 7.25 |
| 6.00 |
| 8.00 |
|
| Total | 8.0 |
| | 10.0 |
| | 11.00 |
| 9.25 |
| 10.00 |
| 10.00 |
|
| Tier 1 leverage | 4.0 |
| | 5.0 |
| (b) | 4.00 |
| 4.00 |
| — |
| 5.00 |
|
Note: The table above is as defined by the regulations issued by the Federal Reserve, OCC and FDIC and to which the Firm and its IDI subsidiaries are subject.
| |
| (a) | As defined byRepresents the regulations issued byTransitional minimum capital ratios applicable to the Federal Reserve, OCC and FDIC. TheFirm under Basel III at December 31, 2017. At December 31, 2017, the CET1 minimum capital ratio became a relevant measureincludes 1.25% resulting from the phase-in of the Firm’s 2.5% capital underconservation buffer, and 1.75% resulting from the prompt corrective action requirements on January 1, 2015.phase-in of the Firm’s 3.5% GSIB surcharge. |
| |
| (b) | Represents requirements for JPMorgan Chase’s IDI subsidiaries. The CET1 minimum capital ratio includes 1.25% resulting from the phase-in of the 2.5% capital conservation buffer that is applicable to the IDI subsidiaries. The IDI subsidiaries are not subject to the GSIB surcharge. |
| |
| (c) | Represents requirements for bank holding companies pursuant to regulations issued by the Federal Reserve. |
| |
| (d) | Represents requirements for IDI subsidiaries pursuant to regulations issued under the FDIC Improvement Act. There is no |
| |
| (e) | For the period ended December 31, 2016 the CET1, Tier 1, Total and Tier 1 leverage component inminimum capital ratios applicable to the definition of a well-capitalized bank holding company.Firm were 6.25%, 7.75%, 9.75% and 4.0% and the CET1, Tier 1, Total and Tier 1 leverage minimum capital ratios applicable to the Firm’s IDI subsidiaries were 5.125%, 6.625%, 8.625% and 4.0% respectively. |
As of December 31, 2014,2017 and 2013,2016, JPMorgan Chase and all of its bankingIDI subsidiaries were well-capitalized and met all capital requirements to which each was subject.
|
| | |
286260 | | JPMorgan Chase & Co./20142017 Annual Report |
Note 2927 – Off–balance sheet lending-related
financial instruments, guarantees, and
other commitments
JPMorgan Chase provides lending-related financial instruments (e.g., commitments and guarantees) to meet the financing needs of its clients or customers. The contractual amount of these financial instruments represents the maximum possible credit risk to the Firm should the counterparty draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and should the counterparty subsequently fail to perform according to the terms of the contract. Most of these commitments and guarantees are refinanced, extended, cancelled, or expire without being drawn or a default occurring. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its actualexpected future credit exposure or funding requirements.
To provide for probable credit losses inherent in wholesale and certain consumer (excluding credit card) and wholesale lending commitments,lending-commitments, an allowance for credit losses on lending-related
commitments is maintained. See Note 1513 for further discussioninformation regarding the allowance for credit losses on lending-related commitments. The following table summarizes the contractual amounts and carrying values of off-balance sheet lending-related financial instruments, guarantees and other commitments at December 31, 20142017 and 2013.2016. The amounts in the table below for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products will be utilized at the same time. The Firm can reduce or cancel credit card lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice. In addition, the Firm typically closes credit card lines when the borrower is 60 days or more past due. The Firm may reduce or close home equity lines of creditHELOCs when there are significant decreases in the value of the underlying property, or when there has been a demonstrable decline in the creditworthiness of the borrower. Also, the Firm typically closes credit card lines when the borrower is 60 days or more past due.
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 287261 |
Notes to consolidated financial statements
| | | Off–balance sheet lending-related financial instruments, guarantees and other commitments | Off–balance sheet lending-related financial instruments, guarantees and other commitments | | Off–balance sheet lending-related financial instruments, guarantees and other commitments | |
| | Contractual amount | | Carrying value(i) | Contractual amount | | Carrying value(i) |
| | 2014 | | 2013 | | 2014 | 2013 | 2017 | | 2016 | | 2017 | 2016 |
By remaining maturity at December 31, (in millions) | Expires in 1 year or less | Expires after
1 year through
3 years | Expires after
3 years through
5 years | Expires after 5 years | Total | | Total | | | Expires in 1 year or less | Expires after
1 year through
3 years | Expires after
3 years through
5 years | Expires after 5 years | Total | | Total | | |
| Lending-related | | | | | | | | | | |
| Consumer, excluding credit card: | | | | | | | | | | |
| Home equity – senior lien | $ | 2,166 |
| $ | 4,389 |
| $ | 1,841 |
| $ | 3,411 |
| $ | 11,807 |
| | $ | 13,158 |
| | $ | ��� |
| $ | — |
| |
| Home equity – junior lien | 3,469 |
| 5,920 |
| 2,141 |
| 3,329 |
| 14,859 |
| | 17,837 |
| | — |
| — |
| |
Prime mortgage(a) | 8,579 |
| — |
| — |
| — |
| 8,579 |
| | 4,817 |
| | — |
| — |
| |
| Subprime mortgage | — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| — |
| |
| Home equity | | $ | 2,165 |
| $ | 1,370 |
| $ | 1,379 |
| $ | 15,446 |
| $ | 20,360 |
| | $ | 21,714 |
| | $ | 12 |
| $ | 12 |
|
Residential mortgage(a)(b) | | 5,723 |
| — |
| — |
| 13 |
| 5,736 |
| | 10,332 |
| | — |
| — |
|
| Auto | 9,302 |
| 921 |
| 192 |
| 47 |
| 10,462 |
| | 8,309 |
| | 2 |
| 1 |
| 8,007 |
| 872 |
| 292 |
| 84 |
| 9,255 |
| | 8,468 |
| | 2 |
| 2 |
|
| Business banking | 10,557 |
| 807 |
| 117 |
| 413 |
| 11,894 |
| | 11,251 |
| | 11 |
| 7 |
| |
| Student and other | 97 |
| 8 |
| — |
| 447 |
| 552 |
| | 685 |
| | — |
| — |
| |
Consumer & Business Banking(b) | | 11,642 |
| 926 |
| 112 |
| 522 |
| 13,202 |
| | 12,733 |
| | 19 |
| 12 |
|
| Total consumer, excluding credit card | 34,170 |
| 12,045 |
| 4,291 |
| 7,647 |
| 58,153 |
| | 56,057 |
| | 13 |
| 8 |
| 27,537 |
| 3,168 |
| 1,783 |
| 16,065 |
| 48,553 |
| | 53,247 |
| (h) | 33 |
| 26 |
|
| Credit card | 525,963 |
| — |
| — |
| — |
| 525,963 |
| | 529,383 |
| | — |
| — |
| 572,831 |
| — |
| — |
| — |
| 572,831 |
| | 553,891 |
| | — |
| — |
|
Total consumer(b) | 560,133 |
| 12,045 |
| 4,291 |
| 7,647 |
| 584,116 |
| | 585,440 |
| | 13 |
| 8 |
| |
Total consumer(c) | | 600,368 |
| 3,168 |
| 1,783 |
| 16,065 |
| 621,384 |
| | 607,138 |
| (h) | 33 |
| 26 |
|
| Wholesale: | | | | | | | | | | |
Other unfunded commitments to extend credit(c)(d) | 68,688 |
| 83,877 |
| 112,992 |
| 7,119 |
| 272,676 |
| | 246,495 |
| | 374 |
| 432 |
| |
Standby letters of credit and other financial guarantees(c)(d)(e) | 22,584 |
| 29,753 |
| 34,982 |
| 2,555 |
| 89,874 |
| | 92,723 |
| | 788 |
| 943 |
| |
| Unused advised lines of credit | 90,816 |
| 13,702 |
| 519 |
| 138 |
| 105,175 |
| | 101,994 |
| | — |
| — |
| |
Other letters of credit(c) | 3,363 |
| 877 |
| 91 |
| — |
| 4,331 |
| | 5,020 |
| | 1 |
| 2 |
| |
Total wholesale(f) | 185,451 |
| 128,209 |
| 148,584 |
| 9,812 |
| 472,056 |
| | 446,232 |
| | 1,163 |
| 1,377 |
| |
Other unfunded commitments to extend credit(d) | | 61,536 |
| 118,907 |
| 138,289 |
| 12,428 |
| 331,160 |
| | 328,497 |
| | 840 |
| 905 |
|
Standby letters of credit and other financial guarantees(d) | | 15,278 |
| 9,905 |
| 7,963 |
| 2,080 |
| 35,226 |
| | 35,947 |
| | 636 |
| 586 |
|
Other letters of credit(d) | | 3,459 |
| 114 |
| 139 |
| — |
| 3,712 |
| | 3,570 |
| | 3 |
| 2 |
|
Total wholesale(e) | | 80,273 |
| 128,926 |
| 146,391 |
| 14,508 |
| 370,098 |
| | 368,014 |
| | 1,479 |
| 1,493 |
|
| Total lending-related | $ | 745,584 |
| $ | 140,254 |
| $ | 152,875 |
| $ | 17,459 |
| $ | 1,056,172 |
| | $ | 1,031,672 |
| | $ | 1,176 |
| $ | 1,385 |
| $ | 680,641 |
| $ | 132,094 |
| $ | 148,174 |
| $ | 30,573 |
| $ | 991,482 |
| | $ | 975,152 |
| (h) | $ | 1,512 |
| $ | 1,519 |
|
| Other guarantees and commitments | | | | | | | | | | |
Securities lending indemnification agreements and guarantees(g) | $ | 171,059 |
| $ | — |
| $ | — |
| $ | — |
| $ | 171,059 |
| | $ | 169,709 |
| | $ | — |
| $ | — |
| |
Securities lending indemnification agreements and guarantees(f) | | $ | 179,490 |
| $ | — |
| $ | — |
| $ | — |
| $ | 179,490 |
| | $ | 137,209 |
| | $ | — |
| $ | — |
|
| Derivatives qualifying as guarantees | 3,009 |
| 167 |
| 12,313 |
| 38,100 |
| 53,589 |
| | 56,274 |
| | 80 |
| 72 |
| 4,529 |
| 101 |
| 12,479 |
| 40,065 |
| 57,174 |
| | 51,966 |
| | 304 |
| 80 |
|
| Unsettled reverse repurchase and securities borrowing agreements | 40,993 |
| — |
| — |
| — |
| 40,993 |
| | 38,211 |
| | — |
| — |
| 76,859 |
| — |
| — |
| — |
| 76,859 |
| | 50,722 |
| | — |
| — |
|
| Unsettled repurchase and securities lending agreements | | 44,205 |
| — |
| — |
| — |
| 44,205 |
| | 26,948 |
| | — |
| — |
|
| Loan sale and securitization-related indemnifications: |
|
|
|
|
|
|
|
|
|
| | | |
| | | | | |
| Mortgage repurchase liability | NA |
| NA |
| NA |
| NA |
| NA |
| | NA |
| | 275 |
| 681 |
| NA |
| NA |
| NA |
| NA |
| NA |
| | NA |
| | 111 |
| 133 |
|
| Loans sold with recourse | NA |
| NA |
| NA |
| NA |
| 6,063 |
| | 7,692 |
| | 102 |
| 131 |
| NA |
| NA |
| NA |
| NA |
| 1,169 |
| | 2,730 |
| | 38 |
| 64 |
|
Other guarantees and commitments(h) | 487 |
| 506 |
| 3,391 |
| 1,336 |
| 5,720 |
| | 6,786 |
| | (121 | ) | (99 | ) | |
Other guarantees and commitments(g) | | 7,668 |
| 1,084 |
| 434 |
| 2,681 |
| 11,867 |
| | 5,715 |
| | (76 | ) | (118 | ) |
| |
| (a) | Includes certain commitments to purchase loans from correspondents. |
| |
| (b) | Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation. |
| |
| (c) | Predominantly all consumer lending-related commitments are in the U.S. |
| |
(c)(d) | At December 31, 20142017 and 2013, reflects2016, reflected the contractual amount net of risk participations totaling $243$334 million and $476$328 million, respectively, for other unfunded commitments to extend credit; $13.0$10.4 billion and $14.8$11.1 billion, respectively, for standby letters of credit and other financial guarantees; and $469$405 million and $622$265 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations. |
| |
(d) | At December 31, 2014 and 2013, included credit enhancements and bond and commercial paper liquidity commitments to U.S. states and municipalities, hospitals and other non-profit entities of $14.8 billion and $18.9 billion, respectively, within other unfunded commitments to extend credit; and $13.3 billion and $17.2 billion, respectively, within standby letters of credit and other financial guarantees. Other unfunded commitments to extend credit also include liquidity facilities to nonconsolidated municipal bond VIEs; see Note 16. |
| |
| (e) | At December 31, 20142017 and 2013, included unissued standby letters of credit commitments of $45.6 billion and $42.8 billion, respectively. |
| |
(f) | At December 31, 2014 and 2013,2016, the U.S. portion of the contractual amount of total wholesale lending-related commitments was 65%77% and 68%79%, respectively. |
| |
(g)(f) | At December 31, 20142017 and 2013,2016, collateral held by the Firm in support of securities lending indemnification agreements was $177.1$188.7 billion and $176.4$143.2 billion, respectively. Securities lending collateral comprisesconsist of primarily cash and securities issued by governments that are members of the Organisation for Economic Co-operation and Development (“OECD”)G7 and U.S. government agencies. |
| |
(h)(g) | At December 31, 2014 and 2013, included unfunded commitments of $147 million and $215 million, respectively, to third-party private equity funds; and $961 million and $1.9 billion, respectively, to other equity investments. These commitments included $150 million and $184 million, respectively, related to investments that are generally fair valued at net asset value as discussed in Note 3. In addition, at both December 31, 2014 and 2013, included2017, primarily includes letters of credit hedged by derivative transactions and managed on a market risk basis, of $4.5 billion.unfunded commitments related to institutional lending and commitments associated with the Firm’s membership in certain clearing houses. Additionally, includes unfunded commitments predominantly related to certain tax-oriented equity investments. |
| |
| (h) | The prior period amounts have been revised to conform with the current period presentation. |
| |
| (i) | For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-related products, the carrying value represents the fair value. |
|
| | |
288262 | | JPMorgan Chase & Co./20142017 Annual Report |
Other unfunded commitments to extend credit
Other unfunded commitments to extend credit generally compriseconsist of commitments for working capital and general corporate purposes, extensions of credit to support commercial paper facilities and bond financings in the event that those obligations cannot be remarketed to new investors, as well as committed liquidity facilities to clearing organizations. The Firm also issues commitments under multipurpose facilities which could be drawn upon in several forms, including the issuance of a standby letter of credit.
Also included in other unfunded commitments to extend credit are commitments to noninvestment-grade counterparties in connection with leveraged finance activities, which were $23.7 billion and $18.3 billion at December 31, 2014 and 2013, respectively. For further information, see Note 3 and Note 4.
The Firm acts as a settlement and custody bank in the U.S. tri-party repurchase transaction market. In its role as settlement and custody bank, the Firm is exposed to the intra-day credit risk of its cash borrower clients, usually broker-dealers. This exposure is secured by collateral and typically extinguished by the end of the day. During 2014, the Firm extendedarises under secured clearance advance facilities that the Firm extends to its clients (i.e. cash borrowers); these facilities contractually limit the Firm’s intra-day credit risk to the facility amount and must be repaid by the end of the day. Through these facilities, the Firm has reduced its intra-day credit risk substantially; the average daily tri-party repo balance was $253 billion during the year ended December 31, 2013, and asAs of December 31, 2014,2017 and 2016, the secured clearance advance facility maximum outstanding commitment amount was $12.6 billion.$1.5 billion and $2.4 billion, respectively.
Guarantees
U.S. GAAP requires that a guarantor recognize, at the inception of a guarantee, a liability in an amount equal to the fair value of the obligation undertaken in issuing the guarantee. U.S. GAAP defines a guarantee as a contract that contingently requires the guarantor to pay a guaranteed party based upon: (a) changes in an underlying asset, liability or equity security of the guaranteed party; or (b) a third party’s failure to perform under a specified agreement. The Firm considers the following off–balance sheet lending-related arrangements to be guarantees under U.S. GAAP: standby letters of credit and other financial guarantees, securities lending indemnifications, certain indemnification agreements included within third-party contractual arrangements and certain derivative contracts.
As required by U.S. GAAP, the Firm initially records guarantees at the inception date fair value of the obligation assumed (e.g., the amount of consideration received or the
net present value of the premium receivable). For certain types of guarantees, the Firm records this fair value amount in other liabilities with an offsetting entry recorded in cash (for premiums received), or other assets (for premiums receivable). Any premium receivable recorded in other assets is reduced as cash is received under the contract, and the fair value of the liability recorded at inception is amortized into income as lending and deposit-related fees over the life of the guarantee contract. For indemnifications provided in sales agreements, a portion of the sale proceeds is allocated to the guarantee, which adjusts the gain or loss that would otherwise result from the transaction. For these indemnifications, the initial liability is amortized to income as the Firm’s risk is reduced (i.e., over time or when the indemnification expires). Any contingent liability that exists as a result of issuing the guarantee or indemnification is recognized when it becomes probable and reasonably estimable. The contingent portion of the liability is not recognized if the estimated amount is less than the carrying amount of the liability recognized at inception (adjusted for any amortization). The recorded amounts of the liabilities related to guarantees and indemnifications at December 31, 20142017 and 2013,2016, excluding the allowance for credit losses on lending-related commitments, are discussed below.
Standby letters of credit and other financial guarantees
Standby letters of credit (“SBLC”) and other financial guarantees are conditional lending commitments issued by the Firm to guarantee the performance of a client or customer to a third party under certain arrangements, such as commercial paper facilities, bond financings, acquisition financings, trade and similar transactions. The carrying values of standby and other letters of credit were $789$639 million and $945$588 million at December 31, 20142017 and 2013,2016, respectively, which were classified in accounts payable and other liabilities on the Consolidated balance sheets; these carrying values included $235$195 million and $265$147 million, respectively, for the allowance for lending-related commitments, and $554$444 million and $680$441 million, respectively, for the guarantee liability and corresponding asset.
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 289 |
Notes to consolidated financial statements
The following table summarizes the types of facilities under which standby letters of credit and other letters of credit arrangements are outstanding by the ratings profiles of the Firm’s customers,clients, as of December 31, 20142017 and 2013.2016.
Standby letters of credit, other financial guarantees and other letters of credit
| | | | 2014 | | 2013 | 2017 | | 2016 |
December 31, (in millions) | Standby letters of credit and other financial guarantees | Other letters of credit | | Standby letters of credit and other financial guarantees | Other letters of credit | Standby letters of credit and other financial guarantees | | Other letters of credit | | Standby letters of credit and
other financial guarantees | | Other letters
of credit |
Investment-grade(a) | | $ | 66,856 |
| | $ | 3,476 |
| | $ | 69,109 |
| | $ | 3,939 |
| | $ | 28,492 |
| | $ | 2,646 |
| | $ | 28,245 |
| | $ | 2,781 |
|
Noninvestment-grade(a) | | 23,018 |
| | 855 |
| | 23,614 |
| | 1,081 |
| | 6,734 |
| | 1,066 |
| | 7,702 |
| | 789 |
|
| Total contractual amount | | $ | 89,874 |
| | $ | 4,331 |
| | $ | 92,723 |
| | $ | 5,020 |
| | $ | 35,226 |
| | $ | 3,712 |
| | $ | 35,947 |
| | $ | 3,570 |
|
| Allowance for lending-related commitments | | $ | 234 |
| | $ | 1 |
| | $ | 263 |
| | $ | 2 |
| | $ | 192 |
| | $ | 3 |
| | $ | 145 |
| | $ | 2 |
|
| Guarantee liability | | | 444 |
| | — |
| | | 441 |
| | | — |
|
| Total carrying value | | | $ | 636 |
| | $ | 3 |
| | $ | 586 |
| | $ | 2 |
|
| Commitments with collateral | | 39,726 |
| | 1,509 |
| | 40,410 |
| | 1,473 |
| | $ | 17,421 |
| | $ | 878 |
| | $ | 19,346 |
| | $ | 940 |
|
| |
| (a) | The ratings scale is based on the Firm’s internal ratings, which generally correspond to ratings as defined by S&P and Moody’s. |
An advised line of credit is a revolving credit line which specifies the maximum amount the Firm may make available |
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 263 |
Notes to an obligor, on a nonbinding basis. The borrower receives written or oral advice of this facility. The Firm may cancel this facility at any time by providing the borrower notice or, in some cases, without notice as permitted by law.consolidated financial statements
Securities lending indemnifications
Through the Firm’s securities lending program, customers’counterparties’ securities, via custodial and non-custodial arrangements, may be lent to third parties. As part of this program, the Firm provides an indemnification in the lending agreements which protects the lender against the failure of the borrower to return the lent securities. To minimize its liability under these indemnification agreements, the Firm obtains cash or other highly liquid collateral with a market value exceeding 100% of the value of the securities on loan from the borrower. Collateral is marked to market daily to help assure that collateralization is adequate. Additional collateral is called from the borrower if a shortfall exists, or collateral may be released to the borrower in the event of overcollateralization. If a borrower defaults, the Firm would use the collateral held to purchase replacement securities in the market or to credit the lending customerclient or counterparty with the cash equivalent thereof.
Derivatives qualifying as guarantees
In addition to the contracts described above, theThe Firm transacts certain derivative contracts that have the characteristics of a guarantee under U.S. GAAP. These contracts include written put options that require the Firm to purchase assets upon exercise by the option holder at a specified price by a specified date in the future. The Firm may enter into written put option contracts in order to meet client needs, or for other trading purposes. The terms of written put options are typically five years or less.
Derivatives deemed to be guarantees also include contracts such asincludes stable value derivativescontracts, commonly referred to as “stable value products”, that require the Firm to make a payment of the difference between the market value and the book value of a counterparty’s reference portfolio of assets in the event that market value is less than book value and certain other conditions have been met. Stable value derivatives, commonly referred to as
“stable value wraps”,products are transacted in order to allow investors to realize investment returns with less volatility than an unprotected portfolio andportfolio. These contracts are typically longer-term or may have no stated maturity, but allow the Firm to elect to terminate the contract under certain conditions.
Derivatives deemed to be guarantees are recorded on the Consolidated balance sheets at fair value in trading assets and trading liabilities. The total notional value of the derivatives that the Firm deems to be guarantees was $53.6 billion and $56.3 billion at December 31, 2014 and 2013, respectively. The notional amount generally represents the Firm’s maximum exposure to derivatives qualifying as guarantees.exposure. However, exposure to certain stable value contractsproducts is contractually limited to a substantially lower percentage of the notional amount; the notional amount on these stable value contracts was amount.
$27.5 billion and $27.0 billion at December 31, 2014 and 2013, respectively, and the maximum exposure to loss was $2.9 billion and $2.8 billion at both December 31, 2014 and 2013. The fair valuesvalue of the contracts reflectderivative guarantees reflects the probability, in the Firm’s view, of whether the Firm will be required to perform under the contract. The fair value of derivatives that the Firm deems to be guarantees were derivative payables of $102 million and $109 million and derivative receivables of $22 million and $37 million at December 31, 2014 and 2013, respectively. The Firm reduces exposures to these contracts by entering into offsetting transactions, or by entering into contracts that hedge the market risk related to the derivative guarantees.
The following table summarizes the derivatives qualifying as guarantees as of December 31, 2017, and 2016.
|
| | | | | |
| (in millions) | December 31, 2017 |
| | December 31, 2016 |
|
| Notional amounts | | | |
| Derivative guarantees | 57,174 |
| | 51,966 |
|
| Stable value contracts with contractually limited exposure | 29,104 |
| | 28,665 |
|
| Maximum exposure of stable value contracts with contractually limited exposure | 3,053 |
| | 3,012 |
|
| | | | |
| Fair value | | | |
| Derivative payables | 304 |
| | 96 |
|
| Derivative receivables | — |
| | 16 |
|
In addition to derivative contracts that meet the characteristics of a guarantee, the Firm is both a purchaser and seller of credit protection in the credit derivatives market. For a further discussion of credit derivatives, see Note 6.5.
Unsettled reverse repurchase and securities borrowing agreements, and unsettled repurchase and securities lending agreements
In the normal course of business, the Firm enters into reverse repurchase agreements and securities borrowing agreements, thatwhich are secured financing agreements. Such agreements settle at a future date. At settlement, these commitments require thatresult in the Firm advanceadvancing cash to and acceptreceiving securities collateral from the counterparty. The Firm also enters into repurchase agreements and securities lending agreements. At settlement, these commitments result in the Firm receiving cash from and providing securities collateral to the counterparty. These agreements generally do not meet the definition of a derivative, and
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290 | | JPMorgan Chase & Co./2014 Annual Report |
therefore, are not recorded on the Consolidated balance sheets until settlement date. The unsettled reverse repurchase agreements and securities borrowingThese agreements predominantly consist of agreements with regular-way settlement periods. For a further discussion of securities purchased under resale agreements and securities borrowed, and securities sold under repurchase agreements and securities loaned, see Note 11.
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| 264 | | JPMorgan Chase & Co./2017 Annual Report |
Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale and securitization activities with the GSEs, as described in Note 16,14, the Firm has made representations and warranties that the loans sold meet certain requirements. Therequirements that may require the Firm has been, and may be, required to repurchase mortgage loans and/or indemnify the GSEs (e.g.,loan purchaser. Further, although the Firm’s securitizations are predominantly nonrecourse, the Firm does provide recourse servicing in certain limited cases where it agrees to share credit risk with “make-whole” payments to reimburse the GSEs for their realized losses on liquidated loans).owner of the mortgage loans. To the extent that repurchase demands that are received relate to loans that the Firm purchased from third parties that remain viable, the Firm typically will have the right to seek a recovery of related repurchase losses from the third party. Generally, the maximum amount of future payments the Firm would be required to make for breaches of these representations and warranties would be equal to the unpaid principal balance of such loans that are deemed to have defects that were sold to purchasers (including securitization-related SPEs) plus, in certain circumstances, accrued interest on such loans and certain expense.
The following table summarizes the change in the mortgage repurchase liability for each of the periods presented.
|
| | | | | | | | | | | | |
Summary of changes in mortgage repurchase liability(a) |
Year ended December 31, (in millions) | 2014 | | 2013 | | 2012 | |
| Repurchase liability at beginning of period | $ | 681 |
| | $ | 2,811 |
| | $ | 3,557 |
| |
Net realized gains/(losses)(b) | 53 |
| | (1,561 | ) | | (1,158 | ) | |
| Reclassification to litigation reserve | — |
| | (179 | ) | | — |
| |
(Benefit)/provision for repurchase(c) | (459 | ) | | (390 | ) | | 412 |
| |
| Repurchase liability at end of period | $ | 275 |
| | $ | 681 |
| | $ | 2,811 |
| |
| |
(a) | On October 25, 2013, the Firm announced that it had reached a $1.1 billion agreement with the FHFA to resolve, other than certain limited types of exposures, outstanding and future mortgage repurchase demands associated with loans sold to the GSEs from 2000 to 2008. |
| |
(b) | Presented net of third-party recoveries and included principal losses and accrued interest on repurchased loans, “make-whole” settlements, settlements with claimants, and certain related expense. Make-whole settlements were $11 million, $414 million and $524 million, for the years ended December 31, 2014, 2013 and 2012, respectively.expenses.
|
| |
(c) | Included a provision related to new loan sales of $4 million, $20 million and $112 million, for the years ended December 31, 2014, 2013 and 2012, respectively.
|
Private label securitizations
The liability related to repurchase demands associated with private label securitizations is separately evaluated by the Firm in establishing its litigation reserves.
On November 15, 2013, the Firm announced that it had reached a $4.5 billion agreement with 21 major institutional investors to make a binding offer to the trustees of 330 residential mortgage-backed securities trusts issued by J.P.Morgan, Chase, and Bear Stearns (“RMBS Trust Settlement”) to resolve all representation and warranty claims, as well as all servicing claims, on all trusts issued by J.P. Morgan, Chase, and Bear Stearns between 2005 and 2008. The seven trustees (or separate and successor trustees) for this group of 330 trusts have accepted the RMBS Trust Settlement for 319 trusts in whole or in part and excluded from the settlement 16 trusts in whole or in part. The trustees’ acceptance is subject to a judicial approval proceeding initiated by the trustees, which is pending in New York state court.
In addition, from 2005 to 2008, Washington Mutual made certain loan level representations and warranties in connection with approximately $165 billion of residential mortgage loans that were originally sold or deposited into private-label securitizations by Washington Mutual. Of the $165 billion, approximately $78 billion has been repaid. In addition, approximately $49 billion of the principal amount of such loans has liquidated with an average loss severity of 59%. Accordingly, the remaining outstanding principal balance of these loans as of December 31, 2014, was approximately $38 billion, of which $8 billion was 60 days or more past due. The Firm believes that any repurchase obligations related to these loans remain with the FDIC receivership.
For additional information regarding litigation, see Note 31.29.
Loans sold with recourse
The Firm provides servicing for mortgages and certain commercial lending products on both a recourse and nonrecourse basis. In nonrecourse servicing, the principal credit risk to the Firm is the cost of temporary servicing advances of funds (i.e., normal servicing advances). In recourse servicing, the servicer agrees to share credit risk with the owner of the mortgage loans, such as Fannie Mae or Freddie Mac or a private investor, insurer or guarantor. Losses on recourse servicing predominantly occur when foreclosure sales proceeds of the property underlying a defaulted loan are less than the sum of the outstanding principal balance, plus accrued interest on the loan and the cost of holding and disposing of the underlying property. The Firm’s securitizations are predominantly nonrecourse, thereby effectively transferring the risk of future credit losses to the purchaser of the mortgage-backed securities issued by the trust. At December 31, 20142017 and 2013,2016, the unpaid principal balance of loans sold with recourse totaled $6.1$1.2 billion and $7.7$2.7 billion, respectively. The carrying value of the related liability that the Firm has recorded, which is representative of the Firm’s view of the likelihood it
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JPMorgan Chase & Co./2014 Annual Report | | 291 |
Notes to consolidated financial statements
will have to perform under its recourse obligations, was $102$38 million and $131$64 million at December 31, 20142017 and 2013,2016, respectively.
Other off-balance sheet arrangements
Indemnification agreements – general
In connection with issuing securities to investors outside the U.S., the Firm may enter into contractual arrangements with third parties that requireagree to pay additional amounts to the Firm to make a payment to themholders of the securities in the event ofthat, due to a change in tax law, or an adverse interpretationcertain types of tax law. In certain cases,withholding taxes are imposed
on payments on the contractsecurities. The terms of the securities may also may include a termination clause, which would allowgive the Firm the right to redeem the securities if such additional amounts are payable. The enactment of the TCJA will not cause the Firm to settle the contract at its fair value in lieu of making a payment under the indemnification clause.become obligated to pay any such additional amounts. The Firm may also enter into indemnification clauses in connection with the licensing of software to clients (“software licensees”) or when it sells a business or assets to a third party (“third-party purchasers”), pursuant to which it indemnifies software licensees for claims of liability or damages that may occur subsequent to the licensing of the software, or third-party purchasers for losses they may incur due to actions taken by the Firm prior to the sale of the business or assets. It is difficult to estimate the Firm’s maximum exposure under these indemnification arrangements, since this would require an assessment of future changes in tax law and future claims that may be made against the Firm that have not yet occurred. However, based on historical experience, management expects the risk of loss to be remote.
Credit cardCard charge-backs.
Chase Paymentech Solutions, Card’s merchant services business and a subsidiary of JPMorgan Chase Bank, N.A., is a global leader in payment processing and merchant acquiring.
Under the rules of Visa USA, Inc., and MasterCard International, JPMorgan Chase Bank, N.A., is primarily liable for the amount of each processed credit card sales transaction that is the subject of a dispute between a cardmember and a merchant. If a dispute is resolved in the cardmember’s favor, Chase PaymentechMerchant Services will (through the cardmember’s issuing bank) credit or refund the amount to the cardmember and will charge back the transaction to the merchant. If Chase PaymentechMerchant Services is unable to collect the amount from the merchant, Chase PaymentechMerchant Services will bear the loss for the amount credited or refunded to the cardmember. Chase PaymentechMerchant Services mitigates this risk by withholding future settlements, retaining cash reserve accounts or by obtaining other security. However, in the unlikely event that: (1) a merchant ceases operations and is unable to deliver products, services or a refund; (2) Chase PaymentechMerchant Services does not have sufficient collateral from the merchant to provide customercardmember refunds; and (3) Chase PaymentechMerchant Services does not have sufficient financial resources to provide customercardmember refunds, JPMorgan Chase Bank, N.A., would recognize the loss.
Chase PaymentechMerchant Services incurred aggregate losses of $10$28 million, $14$85 million, and $16$12 million on $847.9$1,191.7 billion, $750.1$1,063.4 billion, and $655.2$949.3 billion of aggregate volume processed for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. Incurred losses from merchant charge-backs are charged to other expense, with the offset recorded in a valuation allowance against accrued interest and accounts receivable on the Consolidated balance sheets. The carrying value of the valuation allowance was $4$7 million and $5$45 million at December 31, 20142017 and 2013,2016, respectively, which the Firm believes, based on historical experience and the collateral held by Chase PaymentechMerchant Services of $174$141 million and $208$125 million at December 31, 20142017 and 2013,2016, respectively, is representative of the payment or performance risk to the Firm related to charge-backs.
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| JPMorgan Chase & Co./2017 Annual Report | | 265 |
Notes to consolidated financial statements
Clearing Services -– Client Credit Risk
The Firm provides clearing services for clients by entering into securities purchases and sales and derivative transactions with central counterparties (“CCPs”),CCPs, including exchange-traded derivatives (“ETDs”)ETDs such as futures and options, as well as OTC-cleared derivative contracts. As a clearing member, the Firm stands behind the performance of its clients, collects cash and securities collateral (margin) as well as any settlement amounts due from or to clients, and remits them to the relevant CCP or client in whole or part. There are two types of margin. Variationmargin: variation margin is posted on a daily basis based on the value of clients’ derivative contracts. Initialcontracts and initial margin is posted at inception of a derivative contract, generally on the basis of the potential changes in the variation margin requirement for the contract.
As a clearing member, the Firm is exposed to the risk of non-performancenonperformance by its clients, but is not liable to clients for the performance of the CCPs. Where possible, the Firm seeks to mitigate its risk to the client through the collection of appropriate amounts of margin at inception and throughout the life of the transactions. The Firm can also cease provision ofproviding clearing services if clients do not adhere to their obligations under the clearing agreement. In the event of non-performancenonperformance by a client, the Firm would close out the client’s positions and access available margin. The CCP would utilize any margin it holds to make itself whole, with any remaining shortfalls required to be paid by the Firm as a clearing member.
The Firm reflects its exposure to non-performancenonperformance risk of the client through the recognition of margin payables or receivables tofrom clients and CCPs, but does not reflectmargin payables to CCPs; the clients’ underlying securities or derivative contracts are not reflected in itsthe Firm’s Consolidated Financial Statements.
It is difficult to estimate the Firm’s maximum possible exposure through its role as a clearing member, as this would require an assessment of transactions that clients may execute in the future. However, based upon historical experience, and the credit risk mitigants available to the Firm, management believes it is unlikely that the Firm will
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292 | | JPMorgan Chase & Co./2014 Annual Report |
have to make any material payments under these arrangements and the risk of loss is expected to be remote.
For information on the derivatives that the Firm executes for its own account and records in its Consolidated Financial Statements, see Note 6.5.
Exchange & Clearing House Memberships
Through the provision of clearing services, theThe Firm is a member of several securities and derivative exchanges and clearinghouses,clearing houses, both in the U.S. and other countries.countries, and it provides clearing services. Membership in some of these organizations requires the Firm to pay a pro rata share of the losses incurred by the organization as a result of the default of another member. Such obligations vary with different organizations. These obligations may be limited to members who dealt with the defaulting member or to the amount (or a multiple of the amount) of the Firm’s contribution to the guarantee fund maintained by a clearing house or exchange as part of the resources available to cover any losses in the event of a member default. Alternatively, these obligations may beinclude a full pro-ratapro rata share
of the residual losses after applying the guarantee fund. Additionally, certain clearinghousesclearing houses require the Firm as a member to pay a pro rata share of losses resultingthat may result from the clearinghouse’sclearing house’s investment of guarantee fund contributions and initial margin, unrelated to and independent of the default of another member. Generally a payment would only be required should such losses exceed the resources of the clearing house or exchange that are contractually required to absorb the losses in the first instance. It is difficult to estimate the Firm’s maximum possible exposure under these membership agreements, since this would require an assessment of future claims that may be made against the Firm that have not yet occurred. However, based on historical experience, management expects the risk of loss to be remote.
Guarantees of subsidiaries
In the normal course of business, JPMorgan Chase & Co. (“the Parent Company”) Companymay provide counterparties with guarantees of certain of the trading and other obligations of its subsidiaries on a contract-by-contract basis, as negotiated with the Firm’s counterparties. The obligations of the subsidiaries are included on the Firm’s Consolidated balance sheets or are reflected as off-balance sheet commitments; therefore, the Parent Company has not recognized a separate liability for these guarantees. The Firm believes that the occurrence of any event that would trigger payments by the Parent Company under these guarantees is remote.
The Parent Company has guaranteed certain debt of its subsidiaries, including both long-term debt and structured notes sold as part of its subsidiaries, including JPMorgan Chase Financial Company LLC (“JPMFC”), a 100%-owned finance subsidiary. All securities issued by JPMFC are fully and unconditionally guaranteed by the Parent Company. These guarantees, which rank on a parity with the Firm’s market-making activities. These guaranteesunsecured and unsubordinated indebtedness, are not included in the table on page 288262 of this Note. For additional information, see Note 21.19.
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| 266 | | JPMorgan Chase & Co./20142017 Annual Report | | 293 |
Notes to consolidated financial statements
Note 3028 – Commitments, pledged assets and
collateral
Lease commitments
At December 31, 20142017, JPMorgan Chase and its subsidiaries were obligated under a number of noncancelable operating leases for premises and equipment used primarily for banking purposes, and for energy-related tolling service agreements.purposes. Certain leases contain renewal options or escalation clauses providing for increased rental payments based on maintenance, utility and tax increases, or they require the Firm to perform restoration work on leased premises. No lease agreement imposes restrictions on the Firm’s ability to pay dividends, engage in debt or equity financing transactions or enter into further lease agreements.
The following table presents required future minimum rental payments under operating leases with noncancelable lease terms that expire after December 31, 20142017.
| | | Year ended December 31, (in millions) | | |
| 2015 | $ | 1,722 |
| |
| 2016 | 1,682 |
| |
| 2017 | 1,534 |
| |
| 2018 | 1,281 |
| 1,526 |
|
| 2019 | 1,121 |
| 1,450 |
|
| After 2019 | 5,101 |
| |
| 2020 | | 1,300 |
|
| 2021 | | 1,029 |
|
| 2022 | | 815 |
|
| After 2022 | | 3,757 |
|
Total minimum payments required(a) | 12,441 |
| 9,877 |
|
| Less: Sublease rentals under noncancelable subleases | (2,238 | ) | (1,034 | ) |
| Net minimum payment required | $ | 10,203 |
| $ | 8,843 |
|
| |
(a) | Lease restoration obligations are accrued in accordance with U.S. GAAP, and are not reported as a required minimum lease payment. |
Total rental expense was as follows.
|
| | | | | | | | | | | | |
Year ended December 31, (in millions) | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Gross rental expense | | $ | 1,853 |
| | $ | 1,860 |
| | $ | 2,015 |
|
| Sublease rental income | | (251 | ) | | (241 | ) | | (411 | ) |
| Net rental expense | | $ | 1,602 |
| | $ | 1,619 |
| | $ | 1,604 |
|
|
| | | | | | | | | | | | |
| Year ended December 31, | | | | | | |
| (in millions) | | 2014 | | 2013 | | 2012 |
| Gross rental expense | | $ | 2,255 |
| | $ | 2,187 |
| | $ | 2,212 |
|
| Sublease rental income | | (383 | ) | | (341 | ) | | (288 | ) |
| Net rental expense | | $ | 1,872 |
| | $ | 1,846 |
| | $ | 1,924 |
|
Pledged assets
FinancialThe Firm may pledge financial assets are pledgedthat it owns to maintain potential borrowing capacity with central banks and for other purposes, including to secure borrowings and public deposits, and to collateralize repurchase and other securities financing agreements.agreements, and cover customer short sales. Certain of these pledged assets may be sold or repledged or otherwise used by the secured parties and are identified as financial instruments owned (pledged to various parties) on the Consolidated balance sheets. At
December 31, 2014 and 2013,The following table presents the Firm hadFirm’s pledged assets of $324.5 billion and $251.3 billion, respectively, at Federal Reserve Banks and FHLBs. In addition, as of December 31, 2014 and 2013, the Firm had pledged to third parties assets. |
| | | | | | | | |
| December 31, (in billions) | | 2017 | | 2016 |
| Assets that may be sold or repledged or otherwise used by secured parties | | $ | 129.6 |
| | $ | 133.6 |
|
| Assets that may not be sold or repledged or otherwise used by secured parties | | 67.9 |
| | 53.5 |
|
| Assets pledged at Federal Reserve banks and FHLBs | | 493.7 |
| | 441.9 |
|
| Total assets pledged | | $ | 691.2 |
| | $ | 629.0 |
|
$60.1 billion and $68.4 billion, respectively, of financial instruments it owns that may not be sold or repledged by such secured parties. Total assets pledged do not include assets of consolidated VIEs; these assets are used to settle the liabilities of those entities. See Note 1614 for additional information on assets and liabilities of consolidated VIEs. For additional information on the Firm’s securities financing activities, andsee Note 11. For additional information on the Firm’s long-term debt, see Note 13 and Note 21, respectively.19. The significant components of the Firm’s pledged assets were as follows.
|
| | | | | | | | |
| December 31, (in billions) | | 2014 | | 2013 |
| Securities | | $ | 118.7 |
| | $ | 68.1 |
|
| Loans | | 248.2 |
| | 230.3 |
|
| Trading assets and other | | 169.0 |
| | 163.3 |
|
| Total assets pledged | | $ | 535.9 |
| | $ | 461.7 |
|
Collateral |
| | | | | | | | |
| December 31, (in billions) |
| 2017 |
| 2016 |
| Securities |
| $ | 86.2 |
|
| $ | 101.1 |
|
| Loans |
| 437.7 |
|
| 374.9 |
|
| Trading assets and other |
| 167.3 |
|
| 153.0 |
|
| Total assets pledged |
| $ | 691.2 |
|
| $ | 629.0 |
|
AtCollateral
December 31, 2014 and 2013, theThe Firm had acceptedaccepts financial assets as collateral that it couldis permitted to sell or repledge, deliver or otherwise use with a fair value of approximately $761.7 billion and $725.0 billion, respectively.use. This collateral wasis generally obtained under resale agreements, securities borrowing agreements, customer margin loans and derivative agreements. Of the collateral received, approximately $596.8 billion and $520.1 billion, respectively, were sold or repledged,Collateral is generally as collateralused under repurchase agreements, securities lending agreements or to cover customer short sales and to collateralize deposits and derivative agreements.
Certain prior period amounts for bothThe following table presents the fair value of collateral as well as pledged assets (including the corresponding pledged assets parenthetical disclosure for trading assets on the Consolidated balance sheets) have been revised to conform with the current period presentation.accepted.
|
| | | | | | | | |
| December 31, (in billions) |
| 2017 |
| 2016 |
| Collateral permitted to be sold or repledged, delivered, or otherwise used |
| $ | 968.8 |
|
| $ | 914.1 |
|
| Collateral sold, repledged, delivered or otherwise used |
| 775.3 |
|
| 746.6 |
|
|
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294 | | JPMorgan Chase & Co./20142017 Annual Report | | 267 |
Notes to consolidated financial statements
Note 3129 – Litigation
Contingencies
As of December 31, 2014,2017, the Firm and its subsidiaries and affiliates are defendants or putative defendants in numerous legal proceedings, including private, civil litigations and regulatory/government investigations. The litigations range from individual actions involving a single plaintiff to class action lawsuits with potentially millions of class members. Investigations involve both formal and informal proceedings, by both governmental agencies and self-regulatory organizations. These legal proceedings are at varying stages of adjudication, arbitration or investigation, and involve each of the Firm’s lines of business and geographies and a wide variety of claims (including common law tort and contract claims and statutory antitrust, securities and consumer protection claims), some of which present novel legal theories.
The Firm believes the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for its legal proceedings is from $0 to approximately $5.8$1.7 billion at December 31, 2014.2017. This estimated aggregate range of reasonably possible losses iswas based upon currently available information for those proceedings in which the Firm is involved, taking into account the Firm’s bestbelieves that an estimate of such losses for those cases for which such estimatereasonably possible loss can be made. For certain cases,matters, the Firm does not believe that such an estimate can currently be made.made, as of that date. The Firm’s estimate of the aggregate range of reasonably possible losses involves significant judgment, given the number, variety and varying stages of the proceedings (including the fact that many are currently in preliminary stages), the existence in many such proceedings of multiple defendants (including the Firm) whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims) and the attendant uncertainty of the various potential outcomes of such proceedings, particularly proceedingsincluding where the Firm has made assumptions concerning future rulings by the court or other adjudicator, or about the behavior or incentives of adverse parties or regulatory authorities, and those assumptions prove to be incorrect. In addition, the outcome of a particular proceeding may be a result which the Firm did not take into account in its estimate because the Firm had deemed the likelihood of that could result from government investigations.outcome to be remote. Accordingly, the Firm’s estimate of the aggregate range of reasonably possible losses will change from time to time, and actual losses may vary.vary significantly.
Set forth below are descriptions of the Firm’s material legal proceedings.
Auto Dealer Regulatory MatterForeign Exchange Investigations and Litigation.. The Firm previously reported settlements with certain government authorities relating to its foreign exchange (“FX”) sales and trading activities and controls related to those activities. FX-related investigations and inquiries by government authorities, including competition authorities, are ongoing,
and the Firm is engaged in discussionscooperating with and working to resolve those matters. In May 2015, the U.S.Firm pleaded guilty to a single violation of federal antitrust law. In January 2017, the Firm was sentenced, with judgment entered thereafter. The Department of Justice (“DOJ”) about potential statistical disparities in markups chargedLabor has granted the Firm a five-year exemption of disqualification, effective upon expiration of a temporary one-year exemption previously granted, that allows the Firm and its affiliates to different races and ethnicities by automobile dealerscontinue to rely on loans originated by those dealers and purchased by the Firm.
CIO Litigation. The Firm has been sued in a consolidated shareholder putative class action, a consolidated putative class action broughtQualified Professional Asset Manager exemption under the Employee Retirement Income Security Act (“ERISA”) and seven shareholder derivative actions brought. The Firm will need to reapply in Delaware state court and in New York federal and state courts relatingdue course for a further exemption to 2012 losses incover the synthetic credit portfolio managed by the Firm’s Chief Investment Office (“CIO”). Fourremainder of the shareholder derivative actions have been dismissed, and plaintiffsten-year disqualification period. Separately, in
three February 2017 the South Africa Competition Commission referred its FX investigation of those actions have appealed those dismissals. Motions to dismiss have also been filed in two other shareholder derivative actions.
Credit Default Swaps Investigations and Litigation. In July 2013, the European Commission (the “EC”) filed a Statement of Objections against the Firm (including various subsidiaries) and other industry members in connection with its ongoing investigation into the credit default swaps (“CDS”) marketplace. The EC asserts that between 2006 and 2009, a number of investment banks acted collectively through the International Swaps and Derivatives Association (“ISDA”) and Markit Group Limited (“Markit”) to foreclose exchanges from the potential market for exchange-traded credit derivatives. The Firm submitted a response to the Statement of Objections in January 2014, and the EC held a hearing in May 2014. DOJ also has an ongoing investigation into the CDS marketplace, which was initiated in July 2009.
Separately, the Firm and other industry members are defendants inbanks to the South Africa Competition Tribunal, which is conducting civil proceedings concerning that matter.
The Firm is also one of a consolidated putativenumber of foreign exchange dealers defending a class action filed in the United States District Court for the Southern District of New York on behalf of purchasers and sellers of CDS. The complaint refers to the ongoing investigations by the EC and DOJ into the CDS market, and alleges that the defendant investment banks and dealers, including the Firm, as well as Markit and/or ISDA, collectively prevented new entrants into the market for exchange-traded CDS products. Defendants moved to dismiss this action, and in September 2014, the Court granted defendants’ motion in part, dismissing claims for damages based on transactions effected before the Autumn of 2008, as well as certain other claims.
Foreign Exchange Investigations and Litigation. In November 2014, JPMorgan Chase Bank, N.A. reached separate settlements with the U.K. Financial Conduct Authority (“FCA”), the U.S. Commodity Futures Trading Commission (“CFTC”) and the U.S. Office of the Comptroller of the Currency (“OCC”) to resolve the agencies’ respective civil enforcement claims relating to the Bank’s foreign exchange (“FX”) trading business (collectively, the “Settlement Agreements”). Under the Settlement Agreements, JPMorgan Chase Bank, N.A. agreed to take certain remedial measures and paid penalties of £222 million to the FCA, $310 million to the CFTC and $350 million to the OCC.
In December 2014, the Hong Kong Monetary Authority (“HKMA”) announced the conclusion of its FX-related investigation regarding JPMorgan Chase Bank, N.A. and several other banks. The HKMA required the banks, including JPMorgan Chase Bank, N.A., to take certain remedial measures.
Other FX-related regulatory investigations of the Firm are ongoing, including a criminal investigation by DOJ. These investigations are focused on the Firm’s spot FX trading and sales activities as well as controls applicable to those activities. The Firm continues to cooperate with these investigations. The Firm is also engaged in discussions regarding potential resolution with DOJ.
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JPMorgan Chase & Co./2014 Annual Report | | 295 |
Notes to consolidated financial statements
Since November 2013, a number of class actions have been filed in the United States District Court for the Southern District of New York against a number of foreign exchange dealers, including the Firm, for allegedU.S.-based plaintiffs, principally alleging violations of federal and state antitrust laws and unjust enrichment based on an alleged conspiracy to manipulate foreign exchange rates reported on the WM/Reuters service. In March 2014, plaintiffs filed a consolidated amended U.S.(the “U.S. class action complaint; two other class actions were brought by non-U.S.-based plaintiffs. The Court denied defendants’ motion to dismiss the U.S. class action and granted the motion to dismiss the two non-U.S. class actions.action”). In January 2015, the Firm settledentered into a settlement agreement in the U.S. class action. Following this settlement, a number of additional putative class actions were filed seeking damages for persons who transacted FX futures and options on futures (the “exchanged-based actions”), consumers who purchased foreign currencies at allegedly inflated rates (the “consumer action”), participants or beneficiaries of qualified ERISA plans (the “ERISA actions”), and purported indirect purchasers of FX instruments (the “indirect purchaser action”). Since then, the Firm has entered into a revised settlement agreement to resolve the consolidated U.S. class action, including the exchange-based actions, and that agreement has been preliminarily approved by the Court. The District Court has dismissed one of the ERISA actions, and the plaintiffs have filed an appeal. The consumer action, a second ERISA action and this settlement is subject to court approval.the indirect purchaser action remain pending in the District Court.
General Motors Litigation.JPMorgan Chase Bank, N.A. participated in, and was the Administrative Agent on behalf of a syndicate of lenders on, a $1.5 billion syndicated Term Loan facility (“Term Loan”) for General Motors Corporation (“GM”). In July 2009, in connection with the GM bankruptcy proceedings, the Official Committee of Unsecured Creditors of Motors Liquidation Company (“Creditors Committee”) filed a lawsuit against JPMorgan Chase Bank, N.A., in its individual capacity and as Administrative Agent for other lenders on the Term Loan, seeking to hold the underlying lien invalid. In March 2013, the Bankruptcy Court granted JPMorgan Chase Bank, N.A.’s motion for summary judgment and dismissed the Creditors Committee’s complaintinvalid based on the grounds that JPMorgan Chase Bank, N.A. did not authorize the filing of thea UCC-3 termination statement at issue. The Creditors Committee appealedrelating to the Bankruptcy Court’s dismissal of its claim toTerm Loan. In January 2015, following several court proceedings, the United States Court of Appeals for the Second Circuit. In January 2015, the Court of AppealsCircuit reversed the Bankruptcy Court’s dismissal of the Creditors Committee’s claim and
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remanded the case to the Bankruptcy Court with instructions to enter partial summary judgment for the Creditors Committee as to the termination statement. JPMorgan Chase Bank, N.A. has filed a petition requesting that the full Court of Appeals rehear the case en banc. In the event that the request for rehearing is denied, continuedThe proceedings in the Bankruptcy Court are anticipatedcontinue with respect to, among other things, additional defenses asserted by JPMorgan Chase Bank, N.A. and the value of additional collateral on the Term Loan whichthat was notunaffected by the subjectfiling of the termination statement.statement at issue. In connection with that additional collateral, a trial in the Bankruptcy Court regarding the value of certain representative assets concluded in May 2017, and a ruling was issued in September 2017. The Bankruptcy Court found that 33 of the 40 representative assets are fixtures and that these fixtures generally should be valued on a “going concern” basis. The Creditors Committee is seeking leave to appeal the Bankruptcy Court’s ruling that the fixtures should be valued on a “going concern” basis rather than on a liquidation basis. In addition, certain Term Loan lenders filed cross-claims in the Bankruptcy Court against JPMorgan Chase Bank, N.A. seeking indemnification and asserting various claims. The parties are engaged in mediation concerning, among other things, the characterization and value of the remaining additional collateral, in light of the Bankruptcy Court’s ruling regarding the representative assets, as well as other issues, including the cross-claims.
Hopper Estate Litigation. The Firm is a defendant in an action in connection with its role as an independent administrator of an estate. The plaintiffs sought in excess of $7 million in compensatory damages, primarily relating to attorneys’ fees incurred by the plaintiffs. After a trial in probate court in Dallas, Texas that ended in September 2017, the jury returned a verdict against the Firm, awarding plaintiffs their full compensatory damages and multiple billions in punitive damages. Notwithstanding the jury verdict, in light of legal limitations on the availability of damages, certain of the plaintiffs moved for entry of judgment in the total amount of approximately $71 million, including punitive damages, while another plaintiff has not yet moved for judgment. The court has not yet entered a judgment in this matter. The parties are engaged in post-trial briefing.
Interchange Litigation. A group of merchants and retail associations filed a series of class action complaints alleging that Visa and MasterCard, as well as certain banks, conspired to set the price of credit and debit card interchange fees and enacted respective rules in violation of antitrust laws, and engaged in tying/bundling and exclusive dealing.laws. The parties have entered into an agreement to settlesettled the cases for a cash payment of $6.1 billion to the class plaintiffs (of which the Firm’s share is approximately 20%) and an amount equal to ten basis points of credit card interchange for a period of eight8 months to be measured from a date within 60 days of the end of the opt-out period. The agreementsettlement also providesprovided for modifications to each credit card network’s rules, including those that
prohibit surcharging credit card transactions. In December 2013, the District Court issued a decision grantinggranted final approval of the settlement.
A number of merchants have appealed. Certain merchants that opted outappealed to the United States Court of Appeals for the Second Circuit, which, in June 2016, vacated the District Court’s certification of the class settlementaction and reversed the approval of the class settlement. In March 2017, the U.S. Supreme Court declined petitions seeking review of the decision of the Court of Appeals. The case has been remanded to the District Court for further proceedings consistent with the appellate decision.
In addition, certain merchants have filed individual actions raising similar allegations against Visa and MasterCard, as well as against the Firm and other banks. Defendants’ motion to dismiss thebanks, and those actions was denied in July 2014.
Investment Management Litigation. The Firm is defending two pending cases that allege that investment portfolios managed by J.P. Morgan Investment Management (“JPMIM”) were inappropriately invested in securities backed by residential real estate collateral. Plaintiffs Assured Guaranty (U.K.) and Ambac Assurance UK Limited claim that JPMIM is liable for losses of more than $1 billion in market value of these securities. Discovery isare proceeding.
Lehman Brothers Bankruptcy Proceedings. In May 2010, Lehman Brothers Holdings Inc. (“LBHI”) and its Official Committee of Unsecured Creditors (the “Committee”) filed a complaint (and later an amended complaint) against JPMorgan Chase Bank, N.A. in the United States Bankruptcy Court for the Southern District of New York that asserts both federal bankruptcy law and state common law claims, and seeks, among other relief, to recover $7.9 billion in collateral that was transferred to JPMorgan Chase Bank, N.A. in the weeks preceding LBHI’s bankruptcy. The amended complaint also seeks unspecified damages on the grounds that JPMorgan Chase Bank, N.A.’s collateral requests hastened LBHI’s bankruptcy. The Court dismissed the counts of the amended complaint that sought to void the allegedly constructively fraudulent and preferential transfers made to the Firm during the months of August and September 2008. The Firm has filed counterclaims against LBHI alleging that LBHI fraudulently induced the Firm to make large extensions of credit against inappropriate collateral in connection with the Firm’s role as the clearing bank for Lehman Brothers Inc. (“LBI”), LBHI’s broker-dealer subsidiary. These extensions of credit left the Firm with more than $25 billion in claims against the estate of LBI. The case has been transferred from the Bankruptcy Court to the District Court, and the Firm has moved for summary judgment seeking the dismissal of all of LBHI’s claims. LBHI has also moved for summary judgment on certain of its claims and seeking the dismissal of the Firm’s counterclaims.
In the Bankruptcy Court proceedings, LBHI and several of its subsidiaries that had been Chapter 11 debtors have filed a separate complaint and objection to derivatives claims asserted by the Firm alleging that the amount of the derivatives claims had been overstated and challenging certain set-offs taken by JPMorgan Chase entities to recover on the claims. The Firm responded to this separate complaint and objection in February 2013. LBHI and the Committee have also filed an objection to the claims asserted by JPMorgan Chase Bank, N.A. against LBHI with respect to clearing advances made to LBI, principally on the grounds that the Firm had not conducted the sale of the securities collateral held for its claims in a commercially reasonable manner. Discovery regarding both objections is
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ongoing. In January 2015, LBHI filed additional objections relating to a variety of claims that the Firm had filed in the Bankruptcy Court proceedings. The bankruptcy claims and other claims of the Firm against Lehman entities have been paid in full, subject to potential adjustment depending on the outcome of the objections filed by LBHI and the Committee.
LIBOR and Other Benchmark Rate Investigations and Litigation. JPMorgan Chase has received subpoenas and requests for documents and, in some cases, interviews, from federal and state agencies and entities, including DOJ, the CFTC, the Securities and ExchangeU.S. Commodity Futures Trading Commission (the “SEC”(“CFTC”) and various state attorneys general, as well as the EC, the FCA, the Canadian Competition Bureau,European Commission (“EC”), the Swiss Competition Commission (“ComCo”) and other regulatory authorities and banking associations around the world relating primarily to the process by which interest rates were submitted to the British Bankers Association (“BBA”) in connection with the setting of the BBA’s London Interbank Offered Rate (“LIBOR”) for various currencies, principally in 2007 and 2008. Some of the inquiries also relate to similar processes by which information on rates iswas submitted to the European Banking Federation (“EBF”) in connection with the setting of the EBF’s Euro Interbank Offered Rates (“EURIBOR”) and to the Japanese Bankers’ Association for the setting of Tokyo Interbank Offered Rates (“TIBOR”) during similar time periods, as well as to other processes for the setting of U.S. dollar ISDAFIX rates and other reference rates in various parts of the world during similar time periods.periods, including through 2012. The Firm is responding to and continuingcontinues to cooperate with these inquiries.ongoing investigations, and is currently engaged in discussions with the CFTC about resolving its U.S. dollar ISDAFIX-related investigation with respect to the Firm. There is no assurance that such discussions will result in a settlement. As previously reported, the Firm has resolved EC inquiries relating to Yen LIBOR and Swiss Franc LIBOR. In December 2013, JPMorgan Chase reached a settlement with the EC regarding its Japanese Yen LIBOR investigation and agreed to pay a fine of €80 million. In January 2014, the Canadian Competition Bureau announced that it has discontinued its investigation related to Yen LIBOR. In May 2014, the EC issued a Statement of Objections outlining its case against2016, the Firm (and others) asresolved ComCo inquiries relating to these same rates. ComCo’s investigation relating to EURIBOR, to which the Firm and other banks are subject, continues. In December 2016, the EC issued a decision against the Firm and other banks finding an infringement of European antitrust rules relating to EURIBOR. The Firm has filed a response. In October 2014, JPMorgan Chase reached a settlementan appeal with the EC regarding the EC’s Swiss franc LIBOR investigation and agreed to pay a fine of €72 million. In January 2015, the FCA informed JPMorgan Chase that it has discontinued its investigation of the Firm concerning LIBOR and EURIBOR.European General Court.
In addition, the Firm has been named as a defendant along with other banks in a series of individual and putative class actions filed in various United States District Courts, Courts. These actions have been filed, or consolidated for pre-trial purposes, in whichthe United States District Court for the Southern District of New York. In these actions, plaintiffs make varying allegations that in various periods, starting in 2000 or later, defendants either individually or collectively
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manipulated the U.S. dollar LIBOR, Yen LIBOR, Swiss franc LIBOR, Euroyen TIBOR and/or EURIBORvarious benchmark rates by submitting rates that were artificially low or high. Plaintiffs allege that they transacted in loans, derivatives or other financial instruments whose values are affected by changes in U.S. dollar LIBOR, Yen LIBOR, Swiss franc LIBOR, Euroyen TIBOR or EURIBORthese rates and assert a variety of claims including antitrust claims seeking treble damages. These matters are in various stages of litigation.
The Firm has agreed to settle a putative class action related to Swiss franc LIBOR, and that settlement remains subject to final court approval.
In an action related to EURIBOR, the District Court dismissed all claims except a single antitrust claim and two common law claims, and dismissed all defendants except the Firm and Citibank.
In actions related to U.S. dollar LIBOR-related putative class actions were consolidated for pre-trial purposes inLIBOR, the United States
District Court fordismissed certain claims, including antitrust claims brought by some plaintiffs whom the Southern District of New York. The Court stayed all related cases while motionsfound did not have standing to dismiss the three lead class actions were pending. In March 2013, the Court granted in partassert such claims, and denied in part the defendants’ motions to dismiss thepermitted antitrust claims, in the three lead class actions, including dismissal with prejudice of the antitrust claims. In relation to the Firm, the Court has permitted certain claims under the Commodity Exchange Act and common law claims to proceed. In September 2013, classThe plaintiffs in two of the three lead class actions filed amended complaints, which defendants moved to dismiss. Plaintiffs in the third class action appealed the dismissal of thewhose antitrust claims and the United States Court of Appeals for the Second Circuitwere dismissed the appeal for lack of jurisdiction.standing have filed an appeal. In January 2015, the United States Supreme Court reversed the decision of the Court of Appeals, holding thatMay 2017, plaintiffs have the jurisdictional right to appeal and remanding the case to the Court of Appeals for further proceedings. In February 2015,in three putative class actions moved in the District Court enteredfor class certification, and the Firm and other defendants have opposed that motion. In January 2018, the District Court heard oral arguments on the class certification motions and reserved decision.
In an action related to the Singapore Interbank Offered Rate and the Singapore Swap Offer Rate, the District Court dismissed without prejudice all claims except a judgment on certainsingle antitrust claim, and dismissed without prejudice all defendants except the Firm, Bank of America and Citibank. The plaintiffs filed an amended complaint in September 2017, which the Firm and other plaintiffs’ antitrust claims so that those plaintiffs could also participate in the appeal. Motionsdefendants have moved to dismiss are pending in the remaining previously stayed individual actions and class actions.dismiss.
The Firm is one of the defendants in a putative class action alleging manipulation of Euroyen TIBOR and Yen LIBOR which was filed in the United States District Court for the Southern District of New York on behalf of plaintiffs who purchased or sold exchange-traded Euroyen futures and options contracts. In March 2014, the Court granted in part and denied in part the defendants’ motions to dismiss, including dismissal of plaintiff’s antitrust and unjust enrichment claims.
The Firm is one of the defendants in a putative class action filed in the United States District Court for the Southern District of New York relating to the interest rate benchmark EURIBOR. The case is currently stayed.
The Firm is also one of the defendants in a number of putative class actions alleging that defendant banks and ICAP conspired to manipulate the U.S. dollar ISDAFIX rates. Plaintiffs primarily assert claims under the federal antitrust laws and Commodities Exchange Act. In December 2014, defendants filed a motion to dismiss.
Madoff Litigation. Various subsidiaries ofApril 2016, the Firm including J.P. Morgan Securities plc,settled this litigation, along with certain other banks. Those settlements have been named as defendants in lawsuits filed in Bankruptcy Court in New York arising out of the liquidation proceedings of Fairfield Sentry Limited and Fairfield Sigma Limited, so-called Madoff feeder funds. These actions seek to recover payments madepreliminarily approved by the funds to defendants totaling approximately $155 million. All but two of these actions have been dismissed.Court.
In addition, a putative class action was brought by investors in certain feeder funds against JPMorgan Chase in the United States District Court for the Southern District of New York, as was a motion by separate potential class plaintiffs to add claims against the Firm and certain subsidiaries to an already pending putative class action in the same court. The allegations in these complaints largely track those
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previously raised by the court-appointed trustee for Bernard L. Madoff Investment Securities LLC. The District Court dismissed these complaints and the United States Court of Appeals for the Second Circuit affirmed the District Court’s decision. Plaintiffs have petitioned the United States Supreme Court for a writ of certiorari.
The Firm is a defendant in five other Madoff-related individual investor actions pending in New York state court. The allegations in all of these actions are essentially identical, and involve claims against the Firm for, among other things, aiding and abetting breach of fiduciary duty, conversion and unjust enrichment. In August 2014, the Court dismissed all claims against the Firm. Plaintiffs have filed a notice of appeal.
A putative class action has been filed in the United States District Court for the District of New Jersey by investors who were net winners (i.e., Madoff customers who had taken more money out of their accounts than had been invested) in Madoff’s Ponzi scheme and were not included in the previous class action settlement. These plaintiffs allege violations of the federal securities law, federal and state racketeering statutes and multiple common law and statutory claims including breach of trust, aiding and abetting embezzlement, unjust enrichment, conversion and commercial bad faith. A similar action has been filed in the United States District Court for the Middle District of Florida, although it is not styled as a class action, and includes a claim pursuant to a Florida statute. The Firm has moved to transfer these cases to the United States District Court for the Southern District of New York.
Three shareholder derivative actions have also been filed in New York federal and state court against the Firm, as nominal defendant, and certain of its current and former Board members, alleging breach of fiduciary duty in connection with the Firm’s relationship with Bernard Madoff and the alleged failure to maintain effective internal controls to detect fraudulent transactions. The actions seek declaratory relief and damages. In July 2014, the federal court granted defendants’ motions to dismiss two of the actions. One plaintiff chose not to appeal and the other filed a motion for reconsideration which was denied in November 2014. The latter plaintiff has filed an appeal. In the remaining state court action, a hearing on defendants’ motion to dismiss was held in October 2014, and the court reserved decision.
MF Global. J.P. Morgan Securities LLC has been named as one of several defendants in a number of putative class actions filed by purchasers of MF Global’s publicly traded securities asserting violations of federal securities laws and alleging that the offering documents contained materially false and misleading statements and omissions regarding MF Global. These actions have been settled, subject to final approval by the court. The Firm also has responded to inquiries from the CFTC relating to the Firm’s banking and other business relationships with MF Global, including as a depository for MF Global’s customer segregated accounts.
Mortgage-Backed Securities and Repurchase Litigation and Related Regulatory Investigations. JPMorgan ChaseThe Firm and affiliates (together, “JPMC”), Bear Stearns and affiliates (together, “Bear Stearns”) and certain Washington Mutual affiliates (together, “Washington Mutual”) have been named as defendants in a number of cases in their various roles in offerings of mortgage-backed securities (“MBS”). TheseMBS. The remaining civil cases include classone investor action suits on behalf of MBS purchasers, actions by individual MBS purchasers and actions by monoline insurance companies that guaranteed paymentsfor repurchase of principal and interest for particular tranches of MBS offerings. Following the settlements referred to under “Repurchase Litigation” and “Government Enforcement Investigations and Litigation” below, there are currently pending and tolled investor and monoline insurer claims involving MBS with an original principal balance of approximately $41 billion, of which $38 billion involves JPMC, Bear Stearns or Washington Mutual as issuer and $3 billion involves JPMC, Bear Stearns or Washington Mutual solely as underwriter.mortgage loans. The Firm and certain of its current and former officers and Board members have also been sued in a shareholder derivative actionsaction relating to the Firm’s MBS activities, and trustees have asserted or have threatened to assert claims that loans in securitization trusts should be repurchased.
Issuer Litigation – Class Actions. Two class actions remain pending against JPMC and Bear Stearns as MBS issuers in the United States District Court for the Southern District of New York. In the action concerning JPMC, plaintiffs’ motion for class certification has been granted with respect to liability but denied without prejudice as to damages. In the action concerning Bear Stearns, the parties have reached a settlement in principle, which is subject to court approval. The Firm is also defending a class action brought against Bear Stearns in the United States District Court for the District of Massachusetts, in which the court’s decision on defendants’ motion to dismiss isremains pending.
Issuer Litigation – Individual Purchaser Actions.Actions In addition to class actions,. With the exception of one remaining action, the Firm is defendinghas resolved all of the individual actions brought against JPMC, Bear Stearns and Washington Mutual as MBS issuers (and, in some cases, also as underwriters of their own MBS offerings). These actions are pending in federal and state courts across the U.S. and are in various stages of litigation.
Monoline Insurer Litigation. The Firm is defending two pending actions relating to the same monoline insurer’s guarantees of principal and interest on certain classes of 11 different Bear Stearns MBS offerings. These actions are pending in state court in New York and are in various stages of litigation.
Underwriter Actions. In actions against the Firm solely as an underwriter of other issuers’ MBS offerings, the Firm has contractual rights to indemnification from the issuers. However, those indemnity rights may prove effectively unenforceable in various situations, such as where the issuers are now defunct. There are currently actions of this type pending against the Firm in federal and state courts in
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various stages of litigation. One such class action has been settled, subject to final approval by the court.
Repurchase Litigation.Litigation. The Firm is defending a number offew actions brought by trustees and/or securities administrators or master servicers of various MBS trusts and others on behalf of purchasers of securities issued by those trusts. These cases generally allege breaches of various representations and warranties regarding securitized loans and seek repurchase of those loans or equivalent monetary relief, as well as indemnification of attorneys’ fees and costs and other remedies. Deutsche Bank National Trust Company, acting as trustee for various MBS trusts, has filed such a suit against JPMorgan Chase Bank, N.A. and the Federal Deposit Insurance Corporation (the “FDIC”) in connection with a significant number of MBS issued by Washington Mutual; that case is described in the Washington Mutual Litigations section below. Other repurchase actions, each specific to one The trustees and/or moresecurities administrators have accepted settlement offers on these MBS transactions, issued by JPMC and/or Bear Stearns,and these settlements are in various stages of litigation.subject to court approval.
In addition, the Firm and a group of 21 institutional21institutional MBS investors made a binding offer to the trustees of MBS issued by JPMC and Bear Stearns providing for the payment of $4.5 billion and the implementation of certain servicing changes by JPMC, to resolve all repurchase and servicing claims that have been asserted or could have been asserted with respect to the 330 MBS trusts issuedcreated between 2005 and 2008. The offer does not resolve claims relating to Washington Mutual MBS. The seven trustees (or separate and successor trustees) for this group of 330 trusts hashave accepted the settlement for 319 trusts in whole or in part and excluded from the settlement 16 trusts in whole or in part. The trustees’ acceptance is subject to a judicialreceived final approval proceeding initiated byfrom the trusteescourt and pending in New York state court. Certain investors in some of the trusts for whichFirm paid the settlement has been accepted have intervened in the judicial approval proceeding, challenging the trustees’ acceptance of the settlement.December 2017.
Additional actions have been filed against third-party trustees that relate to loan repurchase and servicing claims involving trusts that the Firm sponsored.sponsored by JPMC, Bear Stearns and Washington Mutual.
Derivative Actions. Shareholder derivativeIn actions relating to the Firm’s MBS activities have been filed against the Firm as nominal defendant, and certaininvolving offerings of its current and former officers and members of its Board of Directors, in New York state court and California federal court. Two of the New York actions have been dismissed and one is on appeal. A consolidated action in California federal court has been dismissed without prejudice for lack of personal jurisdiction and plaintiffs are pursuing discovery.
Government Enforcement Investigations and Litigation. The Firm is responding to an ongoing investigation being conducted by the Criminal Division of the United States Attorney’s Office for the Eastern District of California relating to MBS offerings securitized and soldissued by the Firm, and its subsidiaries. Thethe Firm has also received subpoenas and informal requests for informationcontractual rights to indemnification from state authorities concerningsellers of mortgage loans that were securitized in such offerings. However, certain of those indemnity rights may prove effectively unenforceable in various situations, such as where the issuance and underwriting of MBS-related
matters. The Firm continues to respond to these MBS-related regulatory inquiries.
In addition, the Firm continues to cooperate with investigations by DOJ, including the U.S. Attorney’s Office for the District of Connecticut, the SEC Division of Enforcement and the Office of the Special Inspector General for the Troubled Asset Relief Program, all of which relate to, among other matters, communications with counterparties in connection with certain secondary market trading in residential and commercial MBS.loan sellers are now defunct.
The Firm has entered into agreements with a number of MBS trustees or entities that purchased MBS that toll applicable statute of limitations periods with respect to their claims, and has settled, and in the future may settle, tolled claims. There is no assurance that the Firm will not be named as a defendant in additional MBS-related litigation.
Mortgage-Related Investigations and Litigation. Derivative ActionThe Attorney General of Massachusetts filed an. A shareholder derivative action against the Firm, other servicersas nominal defendant, and a mortgage recording company, asserting claims for various alleged wrongdoings relating to mortgage assignmentscertain of its current and useformer officers and members of the industry’s electronic mortgage registry. In January 2015, the Firm entered into a settlement resolving this action.
The Firm entered into a settlement resolving a putative class action lawsuit relating to its filing of affidavits or other documents in connection with mortgage foreclosure proceedings, and the court granted final approval of the settlement in January 2015.
One shareholder derivative action has been filed in New York Supreme Court against the Firm’s Board of Directors alleging thatrelating to the Board failed to exercise adequate oversight as to wrongful conduct by the Firm regarding mortgage servicing.Firm’s MBS activities was filed in California federal court in 2013. In December 2014,June 2017, the court granted defendants’ motion to dismiss the complaint.
The Civil Divisioncause of the United States Attorney’s Office for the Southern District of New York is conducting an investigation concerning the Firm’s compliance with the Fair Housing Act (“FHA”)action that alleged material misrepresentations and Equal Credit Opportunity Act (“ECOA”) in connection with its mortgage lending practices. In addition, three municipalities and a school district have commenced litigation against the Firm alleging violations of an unfair competition law and of the FHA and ECOA and seeking statutory damages for the unfair competition claim, and, for the FHA and ECOA claims, damagesomissions in the form of lost tax revenue and increased municipal costs associated with foreclosed properties. The court denied a motion to dismiss in one of the municipal actions, the school district action was dismissed with prejudice, another municipal action was recently served, and motions to dismiss are pending in the remaining actions.
JPMorgan Chase Bank, N.A. is responding to inquiries by the Executive Office of the U.S. Bankruptcy Trustee and various regional U.S. Bankruptcy Trustees relating to mortgage payment change notices and escrow statements in bankruptcy proceedings.
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Firm’s proxy statement, found that the court did not have personal jurisdiction over the individual defendants with respect to consolidated financial statementsthe remaining causes of action, and transferred that remaining portion of the case to the United States District Court for the Southern District of New York without ruling on the merits. The motion by the defendants to dismiss is pending.
Municipal Derivatives Litigation. Several civil actions were commenced in New York and Alabama courts against the Firm relating to certain Jefferson County, Alabama (the “County”) warrant underwritings and swap transactions. The claims in the civil actions generally alleged that the Firm made payments to certain third parties in exchange for being chosen to underwrite more than $3$3.0 billion in warrants issued by the County and to act as the counterparty for certain swaps executed by the County. The County filed for bankruptcy in November 2011. In June 2013, the County filed a Chapter 9 Plan of Adjustment, as amended (the “Plan of Adjustment”), which provided that all the above-described actions against the Firm would be released and dismissed with prejudice. In November 2013, the Bankruptcy Court confirmed the Plan of Adjustment, and in December 2013, certain sewer rate payers filed an appeal challenging the confirmation of the Plan of Adjustment. All conditions to the Plan of Adjustment’s effectiveness, including the dismissal of the actions against the Firm, were satisfied or waived and the transactions contemplated by the Plan of Adjustment occurred in December 2013. Accordingly, all the above-described actions against the Firm have been dismissed pursuant to the terms of the Plan of Adjustment. The appeal of the Bankruptcy Court’s order confirming the Plan of Adjustment remains pending.
Parmalat.In 2003, following the bankruptcy of the Parmalat group of companies (“Parmalat”), criminal prosecutors in Italy investigated the activities of Parmalat, its directors and the financial institutions that had dealings with them following the collapse of the company. In March 2012, the criminal prosecutor served a notice indicating an intention to pursue criminal proceedings against four former employees of the Firm (but not against the Firm) on charges of conspiracy to cause Parmalat’s insolvency by underwriting bonds and continuing derivatives trading when Parmalat’s balance sheet was false.A preliminary hearing, in which the judge will determine whether to recommend that the matter go to a full trial, is ongoing. The final hearings have been scheduled for March 2015.
In addition, the administrator of Parmalat commenced five civil actions against JPMorgan Chase entities including: two claw-back actions; a claim relating to bonds issued by Parmalat in which it is alleged that JPMorgan Chase kept Parmalat “artificially” afloat and delayed the declaration of insolvency; and similar allegations in two claims relating to derivatives transactions.
Petters Bankruptcy and Related Matters. JPMorgan Chase and certain of its affiliates, including One Equity Partners (“OEP”), have beenwere named as defendants in several actions filed in connection with the receivership and bankruptcy proceedings pertaining to Thomas J. Petters and certain affiliated entities (collectively, “Petters”) and the Polaroid Corporation. The principal actions against JPMorgan Chase and its affiliates have beenwere brought by a court-appointed receiver for Petters and the trustees in bankruptcy proceedings for three Petters entities. These actions generally seeksought to avoid certain putative transfers in
connection with (i) the 2005 acquisition by Petters of Polaroid, which at the time was majority-owned by OEP; (ii) two credit facilities that JPMorgan Chase and other financial institutions entered into with Polaroid; and (iii) a credit line and investment accounts held by Petters. The actions collectively seek recovery of approximately $450 million. Defendants have movedIn January 2017, the Court substantially denied the defendants’ motion to dismiss an amended complaint filed by the complaintsplaintiffs. In October 2017, JPMorgan Chase and its affiliates reached an agreement in principle to settle the actions filedlitigation brought by the Petters bankruptcy trustees.trustees, or their successors, and the receiver for Thomas J. Petters. The settlement is subject to final documentation and Court approval.
Power Matters.Wendel. The United States Attorney’s OfficeSince 2012, the French criminal authorities have been investigating a series of transactions entered into by senior managers of Wendel Investissement (“Wendel”) during the period from 2004 through 2007 to restructure their shareholdings in Wendel. JPMorgan Chase Bank, N.A., Paris branch provided financing for the Southern Districttransactions to a number of New York ismanagers of Wendel in 2007. JPMorgan Chase has cooperated with the investigation. The investigating matters relatingjudges issued an ordonnance de renvoi in November 2016, referring JPMorgan Chase Bank, N.A. to the bidding activities that wereFrench tribunal correctionnel for alleged complicity in tax fraud. No date for trial has been set by the subject of the July 2013 settlement between J.P. Morgan Ventures Energy Corp. and the Federal Energy Regulatory Commission.court. The Firm is respondinghas been successful in legal challenges made to and cooperating with the investigation.
Referral Hiring Practices Investigations. Various regulators are investigating, among other things, the Firm’s compliance with the Foreign Corrupt Practices Act and other lawsCourt of Cassation, France’s highest court, with respect to the Firm’s hiring practices related to candidates referred by clients, potential clients and government officials, and its engagementcriminal proceedings. In January 2018, the Paris Court of consultants inAppeal issued a decision cancelling the Asia Pacific region. The Firm is responding to and continuing to cooperate with these investigations.
Sworn Documents, Debt Sales and Collection Litigation Practices. The Firm has been responding to formal and informal inquiries from various state and federal regulators regarding practices involving credit card collections litigation (including with respect to sworn documents), the salemise en examen of consumer credit card debt and securities backed by credit card receivables.
Separately, the Consumer Financial Protection Bureau and multiple state Attorneys General are conducting investigations into the Firm’s collection and sale of consumer credit card debt. The California and Mississippi Attorneys General have filed separate civil actions against JPMorgan Chase & Co., Chase Bank USA, N.A. and Chase BankCard Services, Inc. alleging violations of law relating to debt collection practices.
Washington Mutual Litigations. Proceedings related to Washington Mutual’s failure are pending before the United States District Court for the District of Columbia and include a lawsuit brought by Deutsche Bank National Trust Company, initially against the FDIC and amended to include JPMorgan Chase Bank, N.A. asThe Firm is requesting clarification from the Court of Cassation concerning the Court of Appeal’s decision before seeking direction on next steps in the criminal proceedings. In addition, a defendant, asserting an estimated $6 billion to $10 billion in damages based upon alleged breachnumber of various mortgage securitization agreements and alleged violation of certain representations and warranties given by certain Washington Mutual affiliates in connection with those securitization agreements. The case includes assertions thatthe managers have commenced civil proceedings against JPMorgan Chase Bank, N.A. may have assumed liabilities for the alleged breachesThe claims are separate, involve different allegations and are at various stages of representations and warranties in the mortgage securitization agreements. The Firm and the FDIC have filed opposing motions, each seeking a ruling that the liabilities at issue are borne by the other.proceedings.
Certain holders of Washington Mutual Bank debt filed an action against JPMorgan Chase which alleged that by
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acquiring substantially all of the assets of Washington Mutual Bank from the FDIC, JPMorgan Chase Bank, N.A. caused Washington Mutual Bank to default on its bond obligations. JPMorgan Chase and the FDIC moved to dismiss this action and the District Court dismissed the case except as to the plaintiffs’ claim that JPMorgan Chase tortiously interfered with the plaintiffs’ bond contracts with Washington Mutual Bank prior to its closure. Discovery is ongoing.
JPMorgan Chase has also filed a complaint in the United States District Court for the District of Columbia against the FDIC in its capacity as receiver for Washington Mutual Bank and in its corporate capacity asserting multiple claims for indemnification under the terms of the Purchase & Assumption Agreement between JPMorgan Chase and the FDIC relating to JPMorgan Chase’s purchase of most of the assets and certain liabilities of Washington Mutual Bank.
* * *
In addition to the various legal proceedings discussed above, JPMorgan Chase and its subsidiaries are named as defendants or are otherwise involved in a substantial number of other legal proceedings. The Firm believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and it intends to defend itself vigorously in all such matters.vigorously. Additional legal proceedings may be initiated from time to time in the future.
The Firm has established reserves for several hundred of its currently outstanding legal proceedings. In accordance with the provisions of U.S. GAAP for contingencies, the Firm accrues for a litigation-related liability when it is probable that such a liability has been incurred and the amount of the loss can be reasonably estimated. The Firm evaluates its outstanding legal proceedings each quarter to assess its litigation reserves, and makes adjustments in such reserves, upwards or downward, as appropriate, based on management’s best judgment after consultation with counsel. During the years ended December 31, 2014, 20132017, 2016 and 2012,2015, the Firm incurred $2.9Firm’s legal expense was a benefit of $(35) million, a benefit of $(317) million, and an expense of $3.0 billion, $11.1 billion and $5.0 billion, respectively, of legal expense.respectively. There is no assurance that the Firm’s litigation reserves will not need to be adjusted in the future.
In view of the inherent difficulty of predicting the outcome of legal proceedings, particularly where the claimants seek very large or indeterminate damages, or where the matters present novel legal theories, involve a large number of
parties or are in early stages of discovery, the Firm cannot state with confidence what will be the eventual outcomes of the currently pending matters, the timing of their ultimate resolution or the eventual losses, fines, penalties or impact
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 271 |
Notes to consolidated financial statements
consequences related to those matters. JPMorgan Chase believes, based upon its current knowledge, after consultation with counsel and after taking into account its current litigation reserves, that the legal proceedings currently pending against it should not have a material adverse effect on the Firm’s consolidated financial condition. The Firm notes, however, that in light of the uncertainties involved in such proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves it has currently accrued; asaccrued or that a matter will not have material reputational consequences. As a result, the outcome of a particular matter may be material to JPMorgan Chase’s operating results for a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of JPMorgan Chase’s income for that period.
|
| | |
| 272 | | JPMorgan Chase & Co./20142017 Annual Report | | 301 |
Notes to consolidated financial statements
Note 3230 – International operations
The following table presents income statement-relatedstatement- and balance sheet-related information for JPMorgan Chase by major international geographic area. The Firm defines international activities for purposes of this footnote presentation as business transactions that involve clients residing outside of the U.S., and the information presented below is based predominantly on the domicile of the client, the location from which the client relationship is managed, or the location of the trading desk. However, many of the Firm’s U.S. operations serve international businesses.
As the Firm’s operations are highly integrated, estimates and subjective assumptions have been made to apportion revenue and expense between U.S. and international operations. These estimates and assumptions are consistent with the allocations used for the Firm’s segment reporting as set forth in Note 33.31.
The Firm’s long-lived assets for the periods presented are not considered by management to be significant in relation to total assets. The majority of the Firm’s long-lived assets are located in the U.S.
|
| | | | | | | | | | | | | | | | | | | | | |
| As of or for the year ended December 31, (in millions) | | Revenue(b) | | Expense(c) | | Income before income tax expense | | Net income | | Total assets | |
| 2014 | | | | | | | | | | | |
| Europe/Middle East and Africa | | $ | 16,013 |
| | $ | 10,123 |
| | $ | 5,890 |
| | $ | 3,935 |
| | $ | 481,328 |
| (d) |
| Asia and Pacific | | 6,083 |
| | 4,478 |
| | 1,605 |
| | 1,051 |
| | 147,357 |
| |
| Latin America and the Caribbean | | 2,047 |
| | 1,626 |
| | 421 |
| | 269 |
| | 44,567 |
| |
| Total international | | 24,143 |
| | 16,227 |
| | 7,916 |
| | 5,255 |
| | 673,252 |
| |
North America(a) | | 70,062 |
| | 48,186 |
| | 21,876 |
| | 16,507 |
| | 1,899,874 |
| |
| Total | | $ | 94,205 |
| | $ | 64,413 |
| | $ | 29,792 |
| | $ | 21,762 |
| | $ | 2,573,126 |
| |
| 2013 | | | | | | | | | | | |
| Europe/Middle East and Africa | | $ | 15,585 |
| | $ | 9,069 |
| | $ | 6,516 |
| | $ | 4,842 |
| | $ | 514,747 |
| (d) |
| Asia and Pacific | | 6,168 |
| | 4,248 |
| | 1,920 |
| | 1,254 |
| | 145,999 |
| |
| Latin America and the Caribbean | | 2,251 |
| | 1,626 |
| | 625 |
| | 381 |
| | 41,473 |
| |
| Total international | | 24,004 |
| | 14,943 |
| | 9,061 |
| | 6,477 |
| | 702,219 |
| |
North America(a) | | 72,602 |
| | 55,749 |
| | 16,853 |
| | 11,446 |
| | 1,713,470 |
| |
| Total | | $ | 96,606 |
| | $ | 70,692 |
| | $ | 25,914 |
| | $ | 17,923 |
| | $ | 2,415,689 |
| |
| 2012 | | | | | | | | | | | |
| Europe/Middle East and Africa | | $ | 10,522 |
| | $ | 9,326 |
| | $ | 1,196 |
| | $ | 1,508 |
| | $ | 553,147 |
| (d) |
| Asia and Pacific | | 5,605 |
| | 3,952 |
| | 1,653 |
| | 1,048 |
| | 167,955 |
| |
| Latin America and the Caribbean | | 2,328 |
| | 1,580 |
| | 748 |
| | 454 |
| | 53,984 |
| |
| Total international | | 18,455 |
| | 14,858 |
| | 3,597 |
| | 3,010 |
| | 775,086 |
| |
North America(a) | | 78,576 |
| | 53,256 |
| | 25,320 |
| | 18,274 |
| | 1,584,055 |
| |
| Total | | $ | 97,031 |
| | $ | 68,114 |
| | $ | 28,917 |
| | $ | 21,284 |
| | $ | 2,359,141 |
| |
|
| | | | | | | | | | | | | | | | | | | | | |
As of or for the year ended December 31,
(in millions) | | Revenue(b) | | Expense(c) | | Income before income tax
expense | | Net income | | Total assets |
| |
| 2017 | | | | | | | | | | | |
| Europe/Middle East/Africa | | $ | 14,426 |
| | $ | 8,653 |
| | $ | 5,773 |
| | $ | 4,007 |
| | $ | 407,145 |
| (d) |
| Asia/Pacific | | 5,805 |
| | 4,277 |
| | 1,528 |
| | 852 |
| | 163,718 |
| |
| Latin America/Caribbean | | 1,994 |
| | 1,523 |
| | 471 |
| | 299 |
| | 44,569 |
| |
| Total international | | 22,225 |
| | 14,453 |
| | 7,772 |
| | 5,158 |
| | 615,432 |
| |
North America(a) | | 77,399 |
| | 49,271 |
| | 28,128 |
| | 19,283 |
| | 1,918,168 |
| |
| Total | | $ | 99,624 |
| | $ | 63,724 |
| | $ | 35,900 |
| | $ | 24,441 |
| | $ | 2,533,600 |
| |
| 2016 | | | | | | | | | | | |
| Europe/Middle East/Africa | | $ | 13,842 |
| | $ | 8,550 |
| | $ | 5,292 |
| | $ | 3,783 |
| | $ | 394,134 |
| (d) |
| Asia/Pacific | | 6,112 |
| | 4,213 |
| | 1,899 |
| | 1,212 |
| | 156,946 |
| |
| Latin America/Caribbean | | 1,959 |
| | 1,632 |
| | 327 |
| | 208 |
| | 42,971 |
| |
| Total international | | 21,913 |
| | 14,395 |
| | 7,518 |
| | 5,203 |
| | 594,051 |
| |
North America(a) | | 73,755 |
| | 46,737 |
| | 27,018 |
| | 19,530 |
| | 1,896,921 |
| |
| Total | | $ | 95,668 |
| | $ | 61,132 |
| | $ | 34,536 |
| | $ | 24,733 |
| | $ | 2,490,972 |
| |
| 2015 | | | | | | | | | | | |
| Europe/Middle East/Africa | | $ | 14,206 |
| | $ | 8,871 |
| | $ | 5,335 |
| | $ | 4,158 |
| | $ | 347,647 |
| (d) |
| Asia/Pacific | | 6,151 |
| | 4,241 |
| | 1,910 |
| | 1,285 |
| | 138,747 |
| |
| Latin America/Caribbean | | 1,923 |
| | 1,508 |
| | 415 |
| | 253 |
| | 48,185 |
| |
| Total international | | 22,280 |
| | 14,620 |
| | 7,660 |
| | 5,696 |
| | 534,579 |
| |
North America(a) | | 71,263 |
| | 48,221 |
| | 23,042 |
| | 18,746 |
| | 1,817,119 |
| |
| Total | | $ | 93,543 |
| | $ | 62,841 |
| | $ | 30,702 |
| | $ | 24,442 |
| | $ | 2,351,698 |
| |
| |
| (a) | Substantially reflects the U.S. |
| |
| (b) | Revenue is composed of net interest income and noninterest revenue. |
| |
| (c) | Expense is composed of noninterest expense and the provision for credit losses. |
| |
| (d) | Total assets for the U.K. were approximately $434$310 billion, $451$310 billion, and $498$306 billion at December 31, 2014, 20132017, 2016 and 2012,2015, respectively. |
|
| | |
302 | | JPMorgan Chase & Co./20142017 Annual Report | | 273 |
Notes to consolidated financial statements
Note 3331 – Business segments
The Firm is managed on a line of business basis. There are four major reportable business segments – Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking and Asset & Wealth Management. In addition, there is a Corporate segment. The business segments are determined based on the products and services provided, or the type of customer served, and they reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis. For a definition of managed basis, see Explanation and Reconciliation of the Firm’s use of non-GAAP financial measures, on pages 77–78. For a further discussion concerning JPMorgan Chase’s business segments, see Business Segment Results on pages 79–80.results of this footnote.
The following is a description of each of the Firm’s business segments, and the products and services they provide to their respective client bases.
Consumer & Community Banking
Consumer & Community Banking (“CCB”) servesCCB offers services to consumers and businesses through personal service at bank branches, and through ATMs, online, mobile and telephone banking. CCB is organized into Consumer & Business Banking Mortgage Banking (including MortgageConsumer Banking/Chase Wealth Management and Business Banking), Home Lending (including Home Lending Production, MortgageHome Lending Servicing and Real Estate Portfolios) and Card, Merchant Services & Auto (“Card”).Auto. Consumer & Business Banking offers deposit and investment products and services to consumers, and lending, deposit, and cash management and payment solutions to small businesses. Mortgage BankingHome Lending includes mortgage origination and servicing activities, as well as portfolios comprisedconsisting of residential mortgages and home equity loans, including the PCI portfolio acquired in the Washington Mutual transaction.loans. Card, Merchant Services & Auto issues credit cards to consumers and small businesses, provides payment services to corporate and public sector clients through its commercial card products, offers payment processing services to merchants, and providesoriginates and services auto loans and student loan services.leases.
Corporate & Investment Bank
The Corporate & Investment Bank (“CIB”), comprisedCIB, which consists of Banking and Markets & Investor Services, offers a broad suite of investment banking, market-making, prime brokerage, and treasury and securities products and services to a global client base of corporations, investors, financial institutions, government and municipal entities. Within Banking the CIB offers a full range of investment banking products and services in all major capital markets, including advising on corporate strategy and structure, capital-raising in equity and debt markets, as well as loan origination and syndication. Also included in Banking isalso includes Treasury Services, which includesprovides transaction services, comprised primarilyconsisting of cash management and liquidity solutions, and trade finance products. Thesolutions. Markets & Investor Services segment of the CIB is a global market-makermarket-
maker in cash securities and derivative instruments, and also offers sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services also includes the Securities Services, business, a leading global custodian which includesprovides custody, fund accounting and administration, and securities lending products sold principally tofor asset managers, insurance companies and public and private investment funds.
Commercial Banking
Commercial Banking (“CB”)CB delivers extensive industry knowledge, local expertise and dedicated service to U.S. and U.S. multinational clients, including corporations, municipalities, financial institutions and non-profitnonprofit entities with annual revenue generally ranging from $20 million to $2 billion. In addition, CB provides financing to real estate investors and owners. Partnering with the Firm’s other businesses, CB provides comprehensive financial solutions, including lending, treasury services, investment banking and asset management to meet its clients’ domestic and international financial needs.
Asset & Wealth Management
Asset Management (“AM”),AWM, with client assets of $2.4$2.8 trillion, is a global leader in investment and wealth management. AMAWM clients include institutions, high-net-worth individuals and retail investors in everymany major marketmarkets throughout the world. AMAWM offers investment management across allmost major asset classes including equities, fixed income, alternatives and money market funds. AMAWM also offers multi-asset investment management, providing solutions for a broad range of clients’ investment needs. For Global Wealth Management clients, AMAWM also provides retirement products and services, brokerage and banking services including trusts and estates, loans, mortgages and deposits. The majority of AM’sAWM’s client assets are in actively managed portfolios.
Corporate
The Corporate segment comprises Private Equity,consists of Treasury and Chief Investment Office (“CIO”),CIO and Other Corporate, which includes corporate staff units and expense that is centrally managed. Treasury and CIO are predominantly responsible for measuring, monitoring, reporting and managing the Firm’s liquidity, funding and structural interest rate and foreign exchange risks, as well as executing the Firm’s capital plan. The major Other Corporate units include Real Estate, Enterprise Technology, Legal, Compliance, Finance, Human Resources, Internal Audit, Risk Management, Oversight & Control, Corporate Responsibility and various Other Corporate groups. Other centrally managed expense includes the Firm’s occupancy and pension-related expense that are subject to allocation to the businesses.
|
| | |
| 274 | | JPMorgan Chase & Co./20142017 Annual Report | | 303 |
Notes to consolidated financial statements
Segment results
The following tables provide a summary of the Firm’s segment results as of or for the years ended December 31, 2014, 20132017, 2016 and 20122015 on a managed basis. TotalThe Firm’s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue (noninterest revenue and net interest income) for each of the reportable business segments is presented on a fully taxable-equivalent (“FTE”)FTE basis. Accordingly, revenue from investments that receivereceiving tax credits and tax-exempt securities is presented in the managed results on a basis comparable to taxable investments and securities. This non-GAAP financial measure allows management to assess the comparability of revenue from year-to-year arising from both taxable and tax-tax-exempt
exempt sources. The corresponding income tax impact related to tax-exempt items is recorded within income tax expense/(benefit).
Business segment capital allocation changes
Effective January 1, 2013,2017, the Firm refinedFirm’s methodology used to allocate capital to the capital allocation framework to align it with the revised line ofFirm’s business structure that became effective in the fourth quarter of 2012.segments was updated. The change in equity levels for the lines of businesses was largely driven by the evolving regulatory requirements and higher capital targets the Firm had established under thenew methodology incorporates Basel III Standardized Fully Phased-In RWA (as well as Basel III Advanced Approach.Fully Phased-In RWA), leverage, the GSIB surcharge, and a simulation of capital in a severe stress environment. The methodology will continue to be weighted towards Basel III Advanced Fully Phased-In RWA because the Firm believes it to be the best proxy for economic risk.
Segment results and reconciliation
| | As of or the year ended December 31, (in millions, except ratios) | Consumer & Community Banking | | Corporate & Investment Bank | | Commercial Banking | |
| 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 | |
As of or for the year ended December 31, (in millions, except ratios) | | | Consumer & Community Banking | | Corporate & Investment Bank | | Commercial Banking | | Asset & Wealth Management |
| | 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 | | 2017 | 2016 | 2015 |
| Noninterest revenue | $ | 15,937 |
| $ | 17,552 |
| $ | 20,813 |
| | $ | 23,458 |
| $ | 23,810 |
| $ | 23,104 |
| | $ | 2,349 |
| $ | 2,298 |
| $ | 2,283 |
| | $ | 14,710 |
| $ | 15,255 |
| $ | 15,592 |
| | $ | 24,375 |
| $ | 24,325 |
| $ | 23,693 |
| | $ | 2,522 |
| $ | 2,320 |
| $ | 2,365 |
| | $ | 9,539 |
| $ | 9,012 |
| $ | 9,563 |
|
| Net interest income | 28,431 |
| 28,985 |
| 29,465 |
| | 11,175 |
| 10,976 |
| 11,658 |
| | 4,533 |
| 4,794 |
| 4,629 |
| | 31,775 |
| 29,660 |
| 28,228 |
| | 10,118 |
| 10,891 |
| 9,849 |
| | 6,083 |
| 5,133 |
| 4,520 |
| | 3,379 |
| 3,033 |
| 2,556 |
|
| Total net revenue | 44,368 |
| 46,537 |
| 50,278 |
| | 34,633 |
| 34,786 |
| 34,762 |
| | 6,882 |
| 7,092 |
| 6,912 |
| | 46,485 |
| 44,915 |
| 43,820 |
| | 34,493 |
| 35,216 |
| 33,542 |
| | 8,605 |
| 7,453 |
| 6,885 |
| | 12,918 |
| 12,045 |
| 12,119 |
|
| Provision for credit losses | 3,520 |
| 335 |
| 3,774 |
| | (161 | ) | (232 | ) | (479 | ) | | (189 | ) | 85 |
| 41 |
| | 5,572 |
| 4,494 |
| 3,059 |
| | (45 | ) | 563 |
| 332 |
| | (276 | ) | 282 |
| 442 |
| | 39 |
| 26 |
| 4 |
|
| Noninterest expense | 25,609 |
| 27,842 |
| 28,827 |
| | 23,273 |
| 21,744 |
| 21,850 |
| | 2,695 |
| 2,610 |
| 2,389 |
| | 26,062 |
| 24,905 |
| 24,909 |
| | 19,243 |
| 18,992 |
| 21,361 |
| | 3,327 |
| 2,934 |
| 2,881 |
| | 9,301 |
| 8,478 |
| 8,886 |
|
| Income/(loss) before income tax expense/(benefit) | 15,239 |
| 18,360 |
| 17,677 |
| | 11,521 |
| 13,274 |
| 13,391 |
| | 4,376 |
| 4,397 |
| 4,482 |
| | 14,851 |
| 15,516 |
| 15,852 |
| | 15,295 |
| 15,661 |
| 11,849 |
| | 5,554 |
| 4,237 |
| 3,562 |
| | 3,578 |
| 3,541 |
| 3,229 |
|
| Income tax expense/(benefit) | 6,054 |
| 7,299 |
| 6,886 |
| | 4,596 |
| 4,387 |
| 4,719 |
| | 1,741 |
| 1,749 |
| 1,783 |
| | 5,456 |
| 5,802 |
| 6,063 |
| | 4,482 |
| 4,846 |
| 3,759 |
| | 2,015 |
| 1,580 |
| 1,371 |
| | 1,241 |
| 1,290 |
| 1,294 |
|
| Net income/(loss) | $ | 9,185 |
| $ | 11,061 |
| $ | 10,791 |
| | $ | 6,925 |
| $ | 8,887 |
| $ | 8,672 |
| | $ | 2,635 |
| $ | 2,648 |
| $ | 2,699 |
| | $ | 9,395 |
| $ | 9,714 |
| $ | 9,789 |
| | $ | 10,813 |
| $ | 10,815 |
| $ | 8,090 |
| | $ | 3,539 |
| $ | 2,657 |
| $ | 2,191 |
| | $ | 2,337 |
| $ | 2,251 |
| $ | 1,935 |
|
| Average common equity | $ | 51,000 |
| $ | 46,000 |
| $ | 43,000 |
| | $ | 61,000 |
| $ | 56,500 |
| $ | 47,500 |
| | $ | 14,000 |
| $ | 13,500 |
| $ | 9,500 |
| |
| Average equity | | | $ | 51,000 |
| $ | 51,000 |
| $ | 51,000 |
| | $ | 70,000 |
| $ | 64,000 |
| $ | 62,000 |
| | $ | 20,000 |
| $ | 16,000 |
| $ | 14,000 |
| | $ | 9,000 |
| $ | 9,000 |
| $ | 9,000 |
|
| Total assets | 455,634 |
| 452,929 |
| 467,282 |
| | 861,819 |
| 843,577 |
| 876,107 |
| | 195,267 |
| 190,782 |
| 181,502 |
| | 552,601 |
| 535,310 |
| 502,652 |
| | 826,384 |
| 803,511 |
| 748,691 |
| | 221,228 |
| 214,341 |
| 200,700 |
| | 151,909 |
| 138,384 |
| 131,451 |
|
| Return on common equity | 18 | % | 23 | % | 25 | % | | 10 | % | 15 | % | 18 | % | | 18 | % | 19 | % | 28 | % | |
| Return on equity | | | 17 | % | 18 | % | 18 | % | | 14 | % | 16 | % | 12 | % | | 17 | % | 16 | % | 15 | % | | 25 | % | 24 | % | 21 | % |
| Overhead ratio | 58 |
| 60 |
| 57 |
| | 67 |
| 63 |
| 63 |
| | 39 |
| 37 |
| 35 |
| | 56 |
| 55 |
| 57 |
| | 56 |
| 54 |
| 64 |
| | 39 |
| 39 |
| 42 |
| | 72 |
| 70 |
| 73 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (table continued from above) | | | | | | | | | | |
As of or for the year ended December 31, (in millions, except ratios) | | Corporate | | Reconciling Items(a) | | Total |
| | 2017 | 2016 | 2015 | | 2017 | | 2016 | 2015 | | 2017 | 2016 | 2015 |
| Noninterest revenue | | $ | 1,085 |
| $ | 938 |
| $ | 800 |
| | $ | (2,704 | ) | (b) | $ | (2,265 | ) | $ | (1,980 | ) | | $ | 49,527 |
| $ | 49,585 |
| $ | 50,033 |
|
| Net interest income | | 55 |
| (1,425 | ) | (533 | ) | | (1,313 | ) | | (1,209 | ) | (1,110 | ) | | 50,097 |
| 46,083 |
| 43,510 |
|
| Total net revenue | | 1,140 |
| (487 | ) | 267 |
| | (4,017 | ) | | (3,474 | ) | (3,090 | ) | | 99,624 |
| 95,668 |
| 93,543 |
|
| Provision for credit losses | | — |
| (4 | ) | (10 | ) | | — |
| | — |
| — |
| | 5,290 |
| 5,361 |
| 3,827 |
|
| Noninterest expense | | 501 |
| 462 |
| 977 |
| | — |
| | — |
| — |
| | 58,434 |
| 55,771 |
| 59,014 |
|
Income/(loss) before income tax expense/(benefit) | | 639 |
| (945 | ) | (700 | ) | | (4,017 | ) | | (3,474 | ) | (3,090 | ) | | 35,900 |
| 34,536 |
| 30,702 |
|
| Income tax expense/(benefit) | | 2,282 |
| (241 | ) | (3,137 | ) | | (4,017 | ) | (b) | (3,474 | ) | (3,090 | ) | | 11,459 |
| 9,803 |
| 6,260 |
|
| Net income/(loss) | | $ | (1,643 | ) | $ | (704 | ) | $ | 2,437 |
| | $ | — |
| | $ | — |
| $ | — |
| | $ | 24,441 |
| $ | 24,733 |
| $ | 24,442 |
|
| Average equity | | $ | 80,350 |
| $ | 84,631 |
| $ | 79,690 |
| | $ | — |
| | $ | — |
| $ | — |
| | $ | 230,350 |
| $ | 224,631 |
| $ | 215,690 |
|
| Total assets | | 781,478 |
| 799,426 |
| 768,204 |
| | NA |
| | NA |
| NA |
| | 2,533,600 |
| 2,490,972 |
| 2,351,698 |
|
| Return on equity | | NM |
| NM |
| NM |
| | NM |
| | NM |
| NM |
| | 10 | % | 10 | % | 11 | % |
| Overhead ratio | | NM |
| NM |
| NM |
| | NM |
| | NM |
| NM |
| | 59 |
| 58 |
| 63 |
|
| |
| (a) | Segment results on a managed resultsbasis reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments are eliminated in reconciling items to arrive at the Firm’s reported U.S. GAAP results. |
|
| | |
304(b) | | JPMorgan Chase & Co./2014 Annual ReportIncluded $375 million related to tax-oriented investments as a result of the enactment of the TCJA. |
On at least an annual basis, the Firm assesses the level of capital required for each line of business as well as the assumptions and methodologies used to allocate capital to its lines of business and updates equity allocations to its lines of business as refinements are implemented.
Preferred stock dividend allocation reporting change
As part of its funds transfer pricing process, the Firm allocates substantially all of the cost of its outstanding preferred stock to its reportable business segments, while retaining the balance of the cost in Corporate. Prior to the fourth quarter of 2014, this cost was allocated to the Firm’s reportable business segments as interest expense, with an offset recorded as interest income in Corporate. Effective with the fourth quarter of 2014, this cost is no longer included in interest income and interest expense in the
segments, but rather is now included in net income applicable to common equity to be consistent with the presentation of firmwide results. As a result of this reporting change, net interest income and net income in the reportable business segments increases; however, there was no impact to the segments’ return on common equity (“ROE”). The Firm’s net interest income, net income, Consolidated balance sheets and consolidated results of operations were not impacted by this reporting change, as preferred stock dividends have been and continue to be distributed from retained earnings and, accordingly, were never reported as a component of the Firm’s consolidated net interest income or net income. Prior period segment amounts have been revised to conform with the current period presentation.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (table continued from previous page) | | | | | | | | | |
| Asset Management | | Corporate | | Reconciling Items(a) | | Total |
| 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 | | 2014 | 2013 | 2012 |
| $ | 9,588 |
| $ | 9,029 |
| $ | 7,847 |
| | $ | 1,972 |
| $ | 3,093 |
| $ | 190 |
| | $ | (2,733 | ) | $ | (2,495 | ) | $ | (2,116 | ) | | $ | 50,571 |
| $ | 53,287 |
| $ | 52,121 |
|
| 2,440 |
| 2,376 |
| 2,163 |
| | (1,960 | ) | (3,115 | ) | (2,262 | ) | | (985 | ) | (697 | ) | (743 | ) | | 43,634 |
| 43,319 |
| 44,910 |
|
| 12,028 |
| 11,405 |
| 10,010 |
| | 12 |
| (22 | ) | (2,072 | ) | | (3,718 | ) | (3,192 | ) | (2,859 | ) | | 94,205 |
| 96,606 |
| 97,031 |
|
| 4 |
| 65 |
| 86 |
| | (35 | ) | (28 | ) | (37 | ) | | — |
| — |
| — |
| | 3,139 |
| 225 |
| 3,385 |
|
| 8,538 |
| 8,016 |
| 7,104 |
| | 1,159 |
| 10,255 |
| 4,559 |
| | — |
| — |
| — |
| | 61,274 |
| 70,467 |
| 64,729 |
|
| 3,486 |
| 3,324 |
| 2,820 |
| | (1,112 | ) | (10,249 | ) | (6,594 | ) | | (3,718 | ) | (3,192 | ) | (2,859 | ) | | 29,792 |
| 25,914 |
| 28,917 |
|
| 1,333 |
| 1,241 |
| 1,078 |
| | (1,976 | ) | (3,493 | ) | (3,974 | ) | | (3,718 | ) | (3,192 | ) | (2,859 | ) | | 8,030 |
| 7,991 |
| 7,633 |
|
| $ | 2,153 |
| $ | 2,083 |
| $ | 1,742 |
| | $ | 864 |
| $ | (6,756 | ) | $ | (2,620 | ) | | $ | — |
| $ | — |
| $ | — |
| | $ | 21,762 |
| $ | 17,923 |
| $ | 21,284 |
|
| $ | 9,000 |
| $ | 9,000 |
| $ | 7,000 |
| | $ | 72,400 |
| $ | 71,409 |
| $ | 77,352 |
| | $ | — |
| $ | — |
| $ | — |
| | $ | 207,400 |
| $ | 196,409 |
| $ | 184,352 |
|
| 128,701 |
| 122,414 |
| 108,999 |
| | 931,705 |
| 805,987 |
| 725,251 |
| | NA |
| NA |
| NA |
| | 2,573,126 |
| 2,415,689 |
| 2,359,141 |
|
| 23 | % | 23 | % | 24 | % | | NM |
| NM |
| NM |
| | NM |
| NM |
| NM |
| | 10 | % | 9 | % | 11 | % |
| 71 |
| 70 |
| 71 |
| | NM |
| NM |
| NM |
| | NM |
| NM |
| NM |
| | 65 |
| 73 |
| 67 |
|
|
| | |
JPMorgan Chase & Co./20142017 Annual Report | | 305275 |
Notes to consolidated financial statements
Note 3432 – Parent companyCompany
The following tables present Parent Company-only financial statements.
|
| | | | | | | | | | | | |
| Parent company – Statements of income and comprehensive income |
Year ended December 31, (in millions) | | 2014 |
| | 2013 |
| | 2012 |
|
| Income | | | | | | |
| Dividends from subsidiaries and affiliates: | | | | | | |
| Bank and bank holding company | | $ | — |
| | $ | 1,175 |
| | $ | 4,828 |
|
Nonbank(a) | | 14,716 |
| | 876 |
| | 1,972 |
|
| Interest income from subsidiaries | | 378 |
| | 757 |
| | 1,041 |
|
| Other interest income | | 284 |
| | 303 |
| | 293 |
|
Other income from subsidiaries, primarily fees: | | | | | | |
| Bank and bank holding company | | 779 |
| | 318 |
| | 939 |
|
| Nonbank | | 52 |
| | 2,065 |
| | 1,207 |
|
| Other income/(loss) | | 508 |
| | (1,380 | ) | | 579 |
|
| Total income | | 16,717 |
| | 4,114 |
| | 10,859 |
|
| Expense | | | | | | |
Interest expense to subsidiaries and affiliates(a) | | 169 |
| | 309 |
| | 836 |
|
| Other interest expense | | 3,645 |
| | 4,031 |
| | 4,679 |
|
| Other noninterest expense | | 827 |
| | 9,597 |
| | 2,399 |
|
| Total expense | | 4,641 |
| | 13,937 |
| | 7,914 |
|
| Income (loss) before income tax benefit and undistributed net income of subsidiaries | | 12,076 |
| | (9,823 | ) | | 2,945 |
|
| Income tax benefit | | 1,430 |
| | 4,301 |
| | 1,665 |
|
| Equity in undistributed net income of subsidiaries | | 8,256 |
| | 23,445 |
| | 16,674 |
|
| Net income | | $ | 21,762 |
| | $ | 17,923 |
| | $ | 21,284 |
|
| Other comprehensive income, net | | 990 |
| | (2,903 | ) | | 3,158 |
|
| Comprehensive income | | $ | 22,752 |
| | $ | 15,020 |
| | $ | 24,442 |
|
|
| | | | | | | | |
| Parent company – Balance sheets | | | | |
| December 31, (in millions) | | 2014 |
| | 2013 |
|
| Assets | | | | |
| Cash and due from banks | | $ | 211 |
| | $ | 264 |
|
| Deposits with banking subsidiaries | | 95,884 |
| | 64,843 |
|
| Trading assets | | 18,222 |
| | 13,727 |
|
| Available-for-sale securities | | 3,321 |
| | 15,228 |
|
| Loans | | 2,260 |
| | 2,829 |
|
| Advances to, and receivables from, subsidiaries: | | | | |
| Bank and bank holding company | | 33,810 |
| | 21,693 |
|
| Nonbank | | 52,626 |
| | 68,788 |
|
| Investments (at equity) in subsidiaries and affiliates: | | | | |
| Bank and bank holding company | | 216,070 |
| | 196,950 |
|
Nonbank(a) | | 41,173 |
| | 50,996 |
|
| Other assets | | 18,645 |
| | 18,877 |
|
| Total assets | | $ | 482,222 |
| | $ | 454,195 |
|
| Liabilities and stockholders’ equity | | | | |
Borrowings from, and payables to, subsidiaries and affiliates(a) | | $ | 17,442 |
| | $ | 14,328 |
|
| Other borrowed funds, primarily commercial paper | | 49,586 |
| | 55,454 |
|
| Other liabilities | | 11,918 |
| | 11,367 |
|
Long-term debt(b)(c) | | 171,211 |
| | 161,868 |
|
Total liabilities(c) | | 250,157 |
| | 243,017 |
|
| Total stockholders’ equity | | 232,065 |
| | 211,178 |
|
| Total liabilities and stockholders’ equity | | $ | 482,222 |
| | $ | 454,195 |
|
|
| | | | | | | | | | | | |
Statements of income and comprehensive income(a) |
Year ended December 31, (in millions) | | 2017 |
| | 2016 |
| | 2015 |
|
| Income | | | | | | |
| Dividends from subsidiaries and affiliates: | | | | | | |
| Bank and bank holding company | | $ | 13,000 |
| | $ | 10,000 |
| | $ | 10,653 |
|
Non-bank(b) | | 540 |
| | 3,873 |
| | 8,172 |
|
| Interest income from subsidiaries | | 72 |
| | 794 |
| | 443 |
|
| Other interest income | | 41 |
| | 207 |
| | 234 |
|
| Other income from subsidiaries, primarily fees: | | | | | | |
| Bank and bank holding company | | 1,553 |
| | 852 |
| | 1,438 |
|
| Non-bank | | (88 | ) | | 1,165 |
| | (1,402 | ) |
| Other income | | (623 | ) | | (846 | ) | | 1,773 |
|
| Total income | | 14,495 |
| | 16,045 |
| | 21,311 |
|
| Expense | | | | | | |
Interest expense to subsidiaries and affiliates(b) | | 400 |
| | 105 |
| | 98 |
|
| Other interest expense | | 5,202 |
| | 4,413 |
| | 3,720 |
|
| Noninterest expense | | (1,897 | ) | | 1,643 |
| | 2,611 |
|
| Total expense | | 3,705 |
| | 6,161 |
| | 6,429 |
|
| Income before income tax benefit and undistributed net income of subsidiaries | | 10,790 |
| | 9,884 |
| | 14,882 |
|
| Income tax benefit | | 1,007 |
| | 876 |
| | 1,640 |
|
| Equity in undistributed net income of subsidiaries | | 12,644 |
| | 13,973 |
| | 7,920 |
|
| Net income | | $ | 24,441 |
| | $ | 24,733 |
| | $ | 24,442 |
|
| Other comprehensive income, net | | 1,056 |
| | (1,521 | ) | | (1,997 | ) |
| Comprehensive income | | $ | 25,497 |
| | $ | 23,212 |
| | $ | 22,445 |
|
|
| | | | | | | | |
Balance sheets(a) | | | | |
| December 31, (in millions) | | 2017 |
| | 2016 |
|
| Assets | | | | |
| Cash and due from banks | | $ | 163 |
| | $ | 113 |
|
| Deposits with banking subsidiaries | | 5,306 |
| | 5,450 |
|
| Trading assets | | 4,773 |
| | 10,326 |
|
| Available-for-sale securities | | — |
| | 2,694 |
|
| Loans | | — |
| | 77 |
|
| Advances to, and receivables from, subsidiaries: | | | | |
| Bank and bank holding company | | 2,106 |
| | 524 |
|
| Non-bank | | 82 |
| | 46 |
|
| Investments (at equity) in subsidiaries and affiliates: | | | | |
| Bank and bank holding company | | 451,713 |
| | 422,028 |
|
Non-bank(b) | | 422 |
| | 13,103 |
|
| Other assets | | 10,458 |
| | 10,257 |
|
| Total assets | | $ | 475,023 |
| | $ | 464,618 |
|
| Liabilities and stockholders’ equity | | | | |
Borrowings from, and payables to, subsidiaries and affiliates(b) | | $ | 23,426 |
| | $ | 13,584 |
|
| Short-term borrowings | | 3,350 |
| | 3,831 |
|
| Other liabilities | | 8,302 |
| | 11,224 |
|
Long-term debt(c)(d) | | 184,252 |
| | 181,789 |
|
Total liabilities(d) | | 219,330 |
| | 210,428 |
|
| Total stockholders’ equity | | 255,693 |
| | 254,190 |
|
| Total liabilities and stockholders’ equity | | $ | 475,023 |
| | $ | 464,618 |
|
| | | Parent company – Statements of cash flows | | | |
Statements of cash flows(a) | | Statements of cash flows(a) | | |
Year ended December 31, (in millions) | | 2014 |
| | 2013 |
| | 2012 |
| | 2017 |
| | 2016 |
| | 2015 |
|
| Operating activities | | | | | | | | | | | | |
| Net income | | $ | 21,762 |
| | $ | 17,923 |
| | $ | 21,284 |
| | $ | 24,441 |
| | $ | 24,733 |
| | $ | 24,442 |
|
Less: Net income of subsidiaries and affiliates(a)(b) | | 22,972 |
| | 25,496 |
| | 23,474 |
| | 26,185 |
| | 27,846 |
| | 26,745 |
|
| Parent company net loss | | (1,210 | ) | | (7,573 | ) | | (2,190 | ) | | (1,744 | ) | | (3,113 | ) | | (2,303 | ) |
Cash dividends from subsidiaries and affiliates(a)(b) | | 14,714 |
| | 1,917 |
| | 6,798 |
| | 13,540 |
| | 13,873 |
| | 17,023 |
|
| Other operating adjustments | | (1,698 | ) | | 3,180 |
| | 2,376 |
| | 4,635 |
| | (18,166 | ) | | 2,483 |
|
| Net cash provided by/(used in) operating activities | | 11,806 |
| | (2,476 | ) | | 6,984 |
| | 16,431 |
| | (7,406 | ) | | 17,203 |
|
| Investing activities | | | | | | | | | | | | |
| Net change in: | | | | | | | | | | | | |
| Deposits with banking subsidiaries | | (31,040 | ) | | 10,679 |
| | 16,100 |
| | 144 |
| | 60,349 |
| | 30,085 |
|
| Available-for-sale securities: | | | | | | | | | | | | |
| Proceeds from paydowns and maturities | | 12,076 |
| | 61 |
| | 621 |
| | — |
| | 353 |
| | 120 |
|
| Purchases | | — |
| | (12,009 | ) | | (364 | ) | |
| Other changes in loans, net | | (319 | ) | | (713 | ) | | (350 | ) | | 78 |
| | 1,793 |
| | 321 |
|
| Advances to and investments in subsidiaries and affiliates, net | | 3,306 |
| | 14,469 |
| | 9,497 |
| | (280 | ) | | (51,967 | ) | | (81 | ) |
| All other investing activities, net | | 32 |
| | 22 |
| | 25 |
| | 17 |
| | 114 |
| | 153 |
|
| Net cash provided by/(used in) investing activities | | (15,945 | ) | | 12,509 |
| | 25,529 |
| | (41 | ) | | 10,642 |
| | 30,598 |
|
| Financing activities | | | | | | | | | | | | |
| Net change in: | | | | | | | | | | | | |
Borrowings from subsidiaries and affiliates(a) | | 4,454 |
| | (2,715 | ) | | (14,038 | ) | |
| Other borrowed funds | | (5,778 | ) | | (7,297 | ) | | 3,736 |
| |
| Proceeds from the issuance of long-term debt | | 40,284 |
| | 31,303 |
| | 28,172 |
| |
| Payments of long-term debt | | (31,050 | ) | | (21,510 | ) | | (44,240 | ) | |
| Excess tax benefits related to stock-based compensation | | 407 |
| | 137 |
| | 255 |
| |
Borrowings from subsidiaries and affiliates(b) | | | 13,862 |
| | 2,957 |
| | (4,062 | ) |
| Short-term borrowings | | | (481 | ) | | 109 |
| | (47,483 | ) |
| Proceeds from long-term borrowings | | | 25,855 |
| | 41,498 |
| | 42,121 |
|
| Payments of long-term borrowings | | | (29,812 | ) | | (29,298 | ) | | (30,077 | ) |
| Proceeds from issuance of preferred stock | | 8,847 |
| | 3,873 |
| | 1,234 |
| | 1,258 |
| | — |
| | 5,893 |
|
| Redemption of preferred stock | | — |
| | (1,800 | ) | | — |
| | (1,258 | ) | | — |
| | — |
|
| Treasury stock and warrants repurchased | | (4,760 | ) | | (4,789 | ) | | (1,653 | ) | |
| Treasury stock repurchased | | | (15,410 | ) | | (9,082 | ) | | (5,616 | ) |
| Dividends paid | | (6,990 | ) | | (6,056 | ) | | (5,194 | ) | | (8,993 | ) | | (8,476 | ) | | (7,873 | ) |
| All other financing activities, net | | (1,328 | ) | | (1,131 | ) | | (701 | ) | | (1,361 | ) | | (905 | ) | | (840 | ) |
| Net cash provided by/(used in) financing activities | | 4,086 |
| | (9,985 | ) | | (32,429 | ) | |
| Net cash used in financing activities | | | (16,340 | ) | | (3,197 | ) | | (47,937 | ) |
| Net increase/(decrease) in cash and due from banks | | (53 | ) | | 48 |
| | 84 |
| | 50 |
| | 39 |
| | (137 | ) |
| Cash and due from banks at the beginning of the year, primarily with bank subsidiaries | | 264 |
| | 216 |
| | 132 |
| |
| Cash and due from banks at the end of the year, primarily with bank subsidiaries | | $ | 211 |
| | $ | 264 |
| | $ | 216 |
| |
| Cash and due from banks at the beginning of the year | | | 113 |
| | 74 |
| | 211 |
|
| Cash and due from banks at the end of the year | | | $ | 163 |
| | $ | 113 |
| | $ | 74 |
|
| Cash interest paid | | $ | 3,921 |
| | $ | 4,409 |
| | $ | 5,690 |
| | $ | 5,426 |
| | $ | 4,550 |
| | $ | 3,873 |
|
| Cash income taxes paid, net | | 200 |
| | 2,390 |
| | 3,080 |
| | 1,775 |
| | 1,053 |
| | 8,251 |
|
| |
| (a) | In 2016, in connection with the Firm’s 2016 Resolution Submission, the Parent Company established the IHC, and contributed substantially all of its direct subsidiaries (totaling $55.4 billion) other than JPMorgan Chase Bank, N.A., as well as most of its other assets (totaling $160.5 billion) and intercompany indebtedness to the IHC. Total noncash assets contributed were $62.3 billion. In 2017, the Parent Company transferred $16.2 billion of noncash assets to the IHC to complete the contributions to the IHC. |
| |
| (b) | Affiliates include trusts that issued guaranteed capital debt securities (“issuer trusts”). The Parent received dividends of $2 million, $5 million and $12 million from the issuer trusts in 2014, 2013 and 2012, respectively. For further discussion on these issuer trusts, see Note 21. |
| |
(b) | At December 31, 2014, long-term debt that contractually matures in 2015 through 2019 totaled $24.4 billion, $25.5 billion, $23.0 billion, $19.3 billion and $11.3 billion, respectively.
19. |
| |
| (c) | At December 31, 2017, long-term debt that contractually matures in 2018 through 2022 totaled $20.6 billion, $13.3 billion, $22.4 billion, $20.6 billion and $10.5 billion, respectively. |
| |
| (d) | For information regarding the Firm’sParent Company’s guarantees of its subsidiaries’ obligations, see Note 21Notes 19 and Note 29.27. |
|
| | |
306276 | | JPMorgan Chase & Co./20142017 Annual Report |
Supplementary information
Selected quarterly financial data (unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (Table continued on next page) | | | | | | | | | |
| As of or for the period ended | 2014 | | 2013 |
| (in millions, except per share, ratio, headcount data and where otherwise noted) | 4th quarter | 3rd quarter | 2nd quarter | 1st quarter | | 4th quarter | 3rd quarter | 2nd quarter | 1st quarter |
| Selected income statement data | | | | | | | | | |
| Total net revenue | $ | 22,512 |
| $ | 24,246 |
| $ | 24,454 |
| $ | 22,993 |
| | $ | 23,156 |
| $ | 23,117 |
| $ | 25,211 |
| $ | 25,122 |
|
| Total noninterest expense | 15,409 |
| 15,798 |
| 15,431 |
| 14,636 |
| | 15,552 |
| 23,626 |
| 15,866 |
| 15,423 |
|
| Pre-provision profit/(loss) | 7,103 |
| 8,448 |
| 9,023 |
| 8,357 |
| | 7,604 |
| (509 | ) | 9,345 |
| 9,699 |
|
| Provision for credit losses | 840 |
| 757 |
| 692 |
| 850 |
| | 104 |
| (543 | ) | 47 |
| 617 |
|
| Income before income tax expense | 6,263 |
| 7,691 |
| 8,331 |
| 7,507 |
| | 7,500 |
| 34 |
| 9,298 |
| 9,082 |
|
| Income tax expense | 1,332 |
| 2,119 |
| 2,346 |
| 2,233 |
| | 2,222 |
| 414 |
| 2,802 |
| 2,553 |
|
| Net income/(loss) | $ | 4,931 |
| $ | 5,572 |
| $ | 5,985 |
| $ | 5,274 |
| | $ | 5,278 |
| $ | (380 | ) | $ | 6,496 |
| $ | 6,529 |
|
| Per common share data | | | | | | | | | |
| Net income/(loss): Basic | $ | 1.20 |
| $ | 1.37 |
| $ | 1.47 |
| $ | 1.29 |
| | $ | 1.31 |
| $ | (0.17 | ) | $ | 1.61 |
| $ | 1.61 |
|
| Diluted | 1.19 |
| 1.36 |
| 1.46 |
| 1.28 |
| | 1.30 |
| (0.17 | ) | 1.60 |
| 1.59 |
|
| Average shares: Basic | 3,730.9 |
| 3,755.4 |
| 3,780.6 |
| 3,787.2 |
| | 3,762.1 |
| 3,767.0 |
| 3,782.4 |
| 3,818.2 |
|
| Diluted | 3,765.2 |
| 3,788.7 |
| 3,812.5 |
| 3,823.6 |
| | 3,797.1 |
| 3,767.0 |
| 3,814.3 |
| 3,847.0 |
|
| Market and per common share data | | | | | | | | | |
| Market capitalization | $ | 232,472 |
| $ | 225,188 |
| $ | 216,725 |
| $ | 229,770 |
| | $ | 219,657 |
| $ | 194,312 |
| $ | 198,966 |
| $ | 179,863 |
|
| Common shares at period-end | 3,714.8 |
| 3,738.2 |
| 3,761.3 |
| 3,784.7 |
| | 3,756.1 |
| 3,759.2 |
| 3,769.0 |
| 3,789.8 |
|
Share price(a): | | | | | | | | | |
| High | $ | 63.49 |
| $ | 61.85 |
| $ | 61.29 |
| $ | 61.48 |
| | $ | 58.55 |
| $ | 56.93 |
| $ | 55.90 |
| $ | 51.00 |
|
| Low | 54.26 |
| 54.96 |
| 52.97 |
| 54.20 |
| | 50.25 |
| 50.06 |
| 46.05 |
| 44.20 |
|
| Close | 62.58 |
| 60.24 |
| 57.62 |
| 60.71 |
| | 58.48 |
| 51.69 |
| 52.79 |
| 47.46 |
|
| Book value per share | 57.07 |
| 56.50 |
| 55.53 |
| 54.05 |
| | 53.25 |
| 52.01 |
| 52.48 |
| 52.02 |
|
Tangible book value per share (“TBVPS”)(b) | 44.69 |
| 44.13 |
| 43.17 |
| 41.73 |
| | 40.81 |
| 39.51 |
| 39.97 |
| 39.54 |
|
| Cash dividends declared per share | 0.40 |
| 0.40 |
| 0.40 |
| 0.38 |
| | 0.38 |
| 0.38 |
| 0.38 |
| 0.30 |
|
| Selected ratios and metrics | | | | | | | | | |
| Return on common equity (“ROE”) | 9 | % | 10 | % | 11 | % | 10 | % | | 10 | % | (1 | )% | 13 | % | 13 | % |
Return on tangible common equity (“ROTCE”)(b) | 11 |
| 13 |
| 14 |
| 13 |
| | 14 |
| (2 | ) | 17 |
| 17 |
|
| Return on assets (“ROA”) | 0.78 |
| 0.90 |
| 0.99 |
| 0.89 |
| | 0.87 |
| (0.06 | ) | 1.09 |
| 1.14 |
|
| Overhead ratio | 68 |
| 65 |
| 63 |
| 64 |
| | 67 |
| 102 |
| 63 |
| 61 |
|
| Loans-to-deposits ratio | 56 |
| 56 |
| 57 |
| 57 |
| | 57 |
| 57 |
| 60 |
| 61 |
|
High quality liquid assets (“HQLA”)(in billions)(c) | $ | 600 |
| $ | 572 |
| $ | 576 |
| $ | 538 |
| | $ | 522 |
| $ | 538 |
| $ | 454 |
| $ | 413 |
|
Common equity tier 1 (“CET1”) capital ratio(d) | 10.2 | % | 10.2 | % | 9.8 | % | 10.9 | % | | 10.7 | % | 10.5 | % | 10.4 | % | 10.2 | % |
Tier 1 capital ratio(d) | 11.6 |
| 11.5 |
| 11.1 |
| 12.1 |
| | 11.9 |
| 11.7 |
| 11.6 |
| 11.6 |
|
Total capital ratio(d) | 13.1 |
| 12.8 |
| 12.5 |
| 14.5 |
| | 14.3 |
| 14.3 |
| 14.1 |
| 14.1 |
|
| Tier 1 leverage ratio | 7.6 |
| 7.6 |
| 7.6 |
| 7.4 |
| | 7.1 |
| 6.9 |
| 7.0 |
| 7.3 |
|
| Selected balance sheet data (period-end) | | | | | | | | | |
| Trading assets | $ | 398,988 |
| $ | 410,657 |
| $ | 392,543 |
| $ | 375,204 |
| | $ | 374,664 |
| $ | 383,348 |
| $ | 401,470 |
| $ | 430,991 |
|
Securities(e) | 348,004 |
| 366,358 |
| 361,918 |
| 351,850 |
| | 354,003 |
| 356,556 |
| 354,725 |
| 365,744 |
|
| Loans | 757,336 |
| 743,257 |
| 746,983 |
| 730,971 |
| | 738,418 |
| 728,679 |
| 725,586 |
| 728,886 |
|
| Total assets | 2,573,126 |
| 2,527,005 |
| 2,520,336 |
| 2,476,986 |
| | 2,415,689 |
| 2,463,309 |
| 2,439,494 |
| 2,389,349 |
|
| Deposits | 1,363,427 |
| 1,334,534 |
| 1,319,751 |
| 1,282,705 |
| | 1,287,765 |
| 1,281,102 |
| 1,202,950 |
| 1,202,507 |
|
Long-term debt(f) | 276,836 |
| 268,721 |
| 269,929 |
| 274,512 |
| | 267,889 |
| 263,372 |
| 266,212 |
| 268,361 |
|
| Common stockholders’ equity | 212,002 |
| 211,214 |
| 208,851 |
| 204,572 |
| | 200,020 |
| 195,512 |
| 197,781 |
| 197,128 |
|
| Total stockholders’ equity | 232,065 |
| 231,277 |
| 227,314 |
| 219,655 |
| | 211,178 |
| 206,670 |
| 209,239 |
| 207,086 |
|
| Headcount | 241,359 |
| 242,388 |
| 245,192 |
| 246,994 |
| | 251,196 |
| 255,041 |
| 254,063 |
| 255,898 |
|
|
| | |
JPMorgan Chase & Co./2014 Annual Report | | 307 |
Supplementary information
| | | (Table continued from previous page) | | | | |
| As of or for the period ended | 2014 | | 2013 | 2017 | | | 2016 |
| (in millions, except ratio data) | 4th quarter | 3rd quarter | 2nd quarter | 1st quarter | | 4th quarter | 3rd quarter | 2nd quarter | 1st quarter | |
| (in millions, except per share, ratio, headcount data and where otherwise noted) | | 4th quarter | 3rd quarter | | 2nd quarter | | 1st quarter | | 4th quarter | | 3rd quarter | 2nd quarter | 1st quarter |
| Selected income statement data | | | | | | | | | | |
| Total net revenue | | $ | 24,153 |
| $ | 25,326 |
| | $ | 25,470 |
| | $ | 24,675 |
| | $ | 23,376 |
| | $ | 24,673 |
| $ | 24,380 |
| $ | 23,239 |
|
| Total noninterest expense | | 14,591 |
| 14,318 |
| | 14,506 |
| | 15,019 |
| | 13,833 |
| | 14,463 |
| 13,638 |
| 13,837 |
|
| Pre-provision profit | | 9,562 |
| 11,008 |
| | 10,964 |
| | 9,656 |
| | 9,543 |
| | 10,210 |
| 10,742 |
| 9,402 |
|
| Provision for credit losses | | 1,308 |
| 1,452 |
| | 1,215 |
| | 1,315 |
| | 864 |
| | 1,271 |
| 1,402 |
| 1,824 |
|
| Income before income tax expense | | 8,254 |
| 9,556 |
| | 9,749 |
| | 8,341 |
| | 8,679 |
| | 8,939 |
| 9,340 |
| 7,578 |
|
| Income tax expense | | 4,022 |
| 2,824 |
| | 2,720 |
| | 1,893 |
| | 1,952 |
| | 2,653 |
| 3,140 |
| 2,058 |
|
Net income(a) | | $ | 4,232 |
| $ | 6,732 |
| | $ | 7,029 |
| | $ | 6,448 |
| | $ | 6,727 |
| | $ | 6,286 |
| $ | 6,200 |
| $ | 5,520 |
|
| Per common share data | | | | | | | | | | |
| Net income: Basic | | $ | 1.08 |
| $ | 1.77 |
| | $ | 1.83 |
| | $ | 1.66 |
| | $ | 1.73 |
| | $ | 1.60 |
| $ | 1.56 |
| $ | 1.36 |
|
| Diluted | | 1.07 |
| 1.76 |
| | 1.82 |
| | 1.65 |
| | 1.71 |
| | 1.58 |
| 1.55 |
| 1.35 |
|
| Average shares: Basic | | 3,489.7 |
| 3,534.7 |
| | 3,574.1 |
| | 3,601.7 |
| | 3,611.3 |
| | 3,637.7 |
| 3,675.5 |
| 3,710.6 |
|
| Diluted | | 3,512.2 |
| 3,559.6 |
| | 3,599.0 |
| | 3,630.4 |
| | 3,646.6 |
| | 3,669.8 |
| 3,706.2 |
| 3,737.6 |
|
| Market and per common share data | | | | | | | | | | |
| Market capitalization | | $ | 366,301 |
| $ | 331,393 |
| | $ | 321,633 |
| | $ | 312,078 |
| | $ | 307,295 |
| | $ | 238,277 |
| $ | 224,449 |
| $ | 216,547 |
|
| Common shares at period-end | | 3,425.3 |
| 3,469.7 |
| | 3,519.0 |
| | 3,552.8 |
| | 3,561.2 |
| | 3,578.3 |
| 3,612.0 |
| 3,656.7 |
|
Share price:(b) | | | | | | | | | | |
| High | | $ | 108.46 |
| $ | 95.88 |
| | $ | 92.65 |
| | $ | 93.98 |
| | $ | 87.39 |
| | $ | 67.90 |
| $ | 66.20 |
| $ | 64.13 |
|
| Low | | 94.96 |
| 88.08 |
| | 81.64 |
| | 83.03 |
| | 66.10 |
| | 58.76 |
| 57.05 |
| 52.50 |
|
| Close | | 106.94 |
| 95.51 |
| | 91.40 |
| | 87.84 |
| | 86.29 |
| | 66.59 |
| 62.14 |
| 59.22 |
|
| Book value per share | | 67.04 |
| 66.95 |
| | 66.05 |
| | 64.68 |
| | 64.06 |
| | 63.79 |
| 62.67 |
| 61.28 |
|
TBVPS(c) | | 53.56 |
| 54.03 |
| | 53.29 |
| | 52.04 |
| | 51.44 |
| | 51.23 |
| 50.21 |
| 48.96 |
|
| Cash dividends declared per share | | 0.56 |
| 0.56 |
| | 0.50 |
| | 0.50 |
| | 0.48 |
| | 0.48 |
| 0.48 |
| 0.44 |
|
| Selected ratios and metrics | | | | | | | | | | |
| ROE | | 7 | % | 11 | % | | 12 | % | | 11 | % | | 11 | % | | 10 | % | 10 | % | 9 | % |
ROTCE(c) | | 8 |
| 13 |
| | 14 |
| | 13 |
| | 14 |
| | 13 |
| 13 |
| 12 |
|
| ROA | | 0.66 |
| 1.04 |
| | 1.10 |
| | 1.03 |
| | 1.06 |
| | 1.01 |
| 1.02 |
| 0.93 |
|
| Overhead ratio | | 60 |
| 57 |
| | 57 |
| | 61 |
| | 59 |
| | 59 |
| 56 |
| 60 |
|
| Loans-to-deposits ratio | | 64 |
| 63 |
| | 63 |
| | 63 |
| | 65 |
| | 65 |
| 66 |
| 64 |
|
HQLA (in billions)(d) | | $ | 560 |
| $ | 568 |
| | $ | 541 |
| | $ | 528 |
| | $ | 524 |
| | $ | 539 |
| $ | 516 |
| $ | 505 |
|
| LCR (average) | | 119 | % | 120 | % | | 115 | % | | NA% |
| | NA% |
| | NA% |
| NA% |
| NA% |
|
CET1 capital ratio(e) | | 12.2 |
| 12.5 |
| (i) | 12.5 |
| (i) | 12.4 |
| (i) | | 12.3 |
| (i) | 12.0 |
| 12.0 |
| 11.9 |
|
Tier 1 capital ratio(e) | | 13.9 |
| 14.1 |
| (i) | 14.2 |
| (i) | 14.1 |
| (i) | | 14.0 |
| (i) | 13.6 |
| 13.6 |
| 13.5 |
|
Total capital ratio(e) | | 15.9 |
| 16.1 |
| | 16.0 |
| | 15.6 |
| | 15.5 |
| | 15.1 |
| 15.2 |
| 15.1 |
|
Tier 1 leverage ratio(e) | | 8.3 |
| 8.4 |
| | 8.5 |
| | 8.4 |
| | 8.4 |
| | 8.5 |
| 8.5 |
| 8.6 |
|
| Selected balance sheet data (period-end) | | Selected balance sheet data (period-end) | | | | | | | | | |
| Trading assets | | $ | 381,844 |
| $ | 420,418 |
| | $ | 407,064 |
| | $ | 402,513 |
| | $ | 372,130 |
| | $ | 374,837 |
| $ | 380,793 |
| $ | 366,153 |
|
| Securities | | 249,958 |
| 263,288 |
| | 263,458 |
| | 281,850 |
| | $ | 289,059 |
| | 272,401 |
| 278,610 |
| 285,323 |
|
| Loans | | 930,697 |
| 913,761 |
| | 908,767 |
| | 895,974 |
| | $ | 894,765 |
| | 888,054 |
| 872,804 |
| 847,313 |
|
| Core loans | | 863,683 |
| 843,432 |
| | 834,935 |
| | 812,119 |
| | 806,152 |
| | 795,077 |
| 775,813 |
| 746,196 |
|
| Average core loans | | 850,166 |
| 837,522 |
| | 824,583 |
| | 805,382 |
| | 799,698 |
| | 779,383 |
| 760,721 |
| 737,297 |
|
| Total assets | | 2,533,600 |
| 2,563,074 |
| | 2,563,174 |
| | 2,546,290 |
| | 2,490,972 |
| | 2,521,029 |
| 2,466,096 |
| 2,423,808 |
|
| Deposits | | 1,443,982 |
| 1,439,027 |
| | 1,439,473 |
| | 1,422,999 |
| | 1,375,179 |
| | 1,376,138 |
| 1,330,958 |
| 1,321,816 |
|
Long-term debt(f) | | 284,080 |
| 288,582 |
| | 292,973 |
| | 289,492 |
| | 295,245 |
| | 309,418 |
| 295,627 |
| 290,754 |
|
| Common stockholders’ equity | | 229,625 |
| 232,314 |
| | 232,415 |
| | 229,795 |
| | 228,122 |
| | 228,263 |
| 226,355 |
| 224,089 |
|
| Total stockholders’ equity | | 255,693 |
| 258,382 |
| | 258,483 |
| | 255,863 |
| | 254,190 |
| | 254,331 |
| 252,423 |
| 250,157 |
|
| Headcount | | 252,539 |
| 251,503 |
| | 249,257 |
| | 246,345 |
| | 243,355 |
| | 242,315 |
| 240,046 |
| 237,420 |
|
| Credit quality metrics | | | | | | | | | | | | |
| Allowance for credit losses | $ | 14,807 |
| $ | 15,526 |
| $ | 15,974 |
| $ | 16,485 |
| | $ | 16,969 |
| $ | 18,248 |
| $ | 20,137 |
| $ | 21,496 |
| $ | 14,672 |
| $ | 14,648 |
| | $ | 14,480 |
| | $ | 14,490 |
| | $ | 14,854 |
| | $ | 15,304 |
| $ | 15,187 |
| $ | 15,008 |
|
| Allowance for loan losses to total retained loans | 1.90 | % | 2.02 | % | 2.08 | % | 2.20 | % | | 2.25 | % | 2.43 | % | 2.69 | % | 2.88 | % | 1.47 | % | 1.49 | % | | 1.49 | % | | 1.52 | % | | 1.55 | % | | 1.61 | % | 1.64 | % | 1.66 | % |
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(g) | 1.55 |
| 1.63 |
| 1.69 |
| 1.75 |
| | 1.80 |
| 1.89 |
| 2.06 |
| 2.27 |
| 1.27 |
| 1.29 |
| | 1.28 |
| | 1.31 |
| | 1.34 |
| | 1.37 |
| 1.40 |
| 1.40 |
|
| Nonperforming assets | $ | 7,967 |
| $ | 8,390 |
| $ | 9,017 |
| $ | 9,473 |
| | $ | 9,706 |
| $ | 10,380 |
| $ | 11,041 |
| $ | 11,739 |
| $ | 6,426 |
| $ | 6,154 |
| | $ | 6,432 |
| | $ | 6,826 |
| | $ | 7,535 |
| | $ | 7,779 |
| $ | 7,757 |
| $ | 8,023 |
|
| Net charge-offs | 1,218 |
| 1,114 |
| 1,158 |
| 1,269 |
| | 1,328 |
| 1,346 |
| 1,403 |
| 1,725 |
| |
| Net charge-off rate | 0.65 | % | 0.60 | % | 0.64 | % | 0.71 | % | | 0.73 | % | 0.74 | % | 0.78 | % | 0.97 | % | |
Net charge-offs(h) | | 1,264 |
| 1,265 |
| | 1,204 |
| | 1,654 |
| | 1,280 |
| | 1,121 |
| 1,181 |
| 1,110 |
|
Net charge-off rate(h) | | 0.55 | % | 0.56 | % | | 0.54 | % | | 0.76 | % | | 0.58 | % | | 0.51 | % | 0.56 | % | 0.53 | % |
| |
| (a) | ShareThe Firm’s results for the three months ended December 31, 2017, included a $2.4 billion decrease to net income as a result of the enactment of the TCJA. For additional information related to the impact of the TCJA, see Note 24. |
| |
| (b) | Based on daily prices shown for JPMorgan Chase’s common stock are fromreported by the New York Stock Exchange. JPMorgan Chase’s common stock is also listed and traded on the London Stock Exchange and the Tokyo Stock Exchange. |
| |
(b)(c) | TBVPS and ROTCE are non-GAAP financial measures. TBVPS represents the Firm’s tangible common equity divided by common shares at period-end. ROTCE measures the Firm’s annualized earnings as a percentage of tangible common equity. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial Performance Measures on pages 77–78. 52–54. |
| |
(c)(d) | HQLA represents the Firm’s estimate of the amount of assets that qualify for inclusion in the liquidity coverage ratio under the final U.S. rule (“U.S. LCR”) as ofratio. For December 31, 2014,2017, September 30,2017 and underJune 30, 2017 the Basel III liquidity coverage ratio (“Basel III LCR”)balance represents the average of quarterly reported results per the U.S. LCR public disclosure requirements effective April 1, 2017 and period-end balances for priorthe remaining periods. For additional information, see HQLA on page 157.93. |
| |
(d)(e) | Basel III Transitional rules became effective on January 1, 2014; December 31, 2013 data is based on Basel I rules. As of December 31, 2014, September 30, 2014, and June 30, 2014, the ratiosRatios presented are calculated under the Basel III Advanced Transitional Approach. As of March 31, 2014,rules and for the capital ratios presented are calculated underrepresent the Basel III Standardized Transitional Approach. CET1 capital under Basel III replaced Tier 1 common capital under Basel I. Prior to Basel III becoming effective on January 1, 2014, Tier 1 common capital under Basel I was a non-GAAP financial measure.Collins Floor. See Regulatory capitalCapital Risk Management on pages 146–15382–91 for additional information on Basel III and non-GAAP financial measures of regulatory capital. |
| |
(e) | Included held-to-maturity securities of $49.3 billion, $48.8 billion, $47.8 billion, $47.3 billion, $24.0 billion and $4.5 billion at December 31, 2014, September 30, 2014, June 30, 2014, March 31, 2014, December 31, 2013 and September 30, 2013, respectively. Held-to-maturity balances for the other periods were not material.III. |
| |
| (f) | IncludedIncluded unsecured long-term debt of $207.5$218.8 billion, $204.7$221.7 billion, $205.6$221.0 billion, $206.1$212.0 billion, $199.4$212.6 billion, $199.2$226.8 billion, $199.1$220.6 billion, and $206.1$216.1 billion respectively, for the periods presented.
|
| |
| (g) | Excludes the impact of residential real estate PCI loans.loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 52–54, and the Allowance for credit losses on pages 128–130117–119. |
| |
| (h) | Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rates for the three months ended March 31, 2017 would have been 0.54%. |
| |
| (i) | The prior period ratios have been revised to conform with the current period presentation. |
|
| | |
308277 | | JPMorgan Chase & Co./20142017 Annual Report |
Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differentials
Consolidated average balance sheet, interest and rates
Provided below is a summary of JPMorgan Chase’s consolidated average balances, interest rates and interest differentials on a taxable-equivalent basis for the years 2015 through 2017. Income computed on a taxable-equivalent basis is the income reported in the Consolidated
statements of income, adjusted to present interest income and average rates earned on assets exempt from income taxes (i.e. federal taxes) on a basis comparable with other taxable investments. The incremental tax rate used for calculating the taxable-equivalent adjustment was approximately 37% in 2017, and 38% in 2016 and 2015.
|
| | | | | | | | | | | |
| (Table continued on next page) | | | | | | |
| | 2017 |
Year ended December 31,
(Taxable-equivalent interest and rates; in millions, except rates) | Average
balance | | Interest(g) | | Average
rate |
| Assets | | | | | | |
| Deposits with banks | $ | 438,240 |
| | $ | 4,219 |
| | 0.96 | % | |
| Federal funds sold and securities purchased under resale agreements | 191,819 |
| | 2,327 |
| | 1.21 |
| |
| Securities borrowed | 95,324 |
| | (37 | ) | (h) | (0.04 | ) | |
| Trading assets – debt instruments | 237,206 |
| | 7,714 |
| | 3.25 |
| |
| Taxable securities | 223,592 |
| | 5,534 |
| | 2.48 |
| |
Non-taxable securities(a) | 45,086 |
| | 2,769 |
| | 6.14 |
| |
| Total securities | 268,678 |
| | 8,303 |
| | 3.09 |
| (j) |
| Loans | 906,397 |
| | 41,296 |
| (i) | 4.56 |
| |
All other interest-earning assets(b) | 42,928 |
| | 1,863 |
| | 4.34 |
| |
| Total interest-earning assets | 2,180,592 |
| | 65,685 |
| | 3.01 |
| |
| Allowance for loan losses | (13,453 | ) | | | | | |
| Cash and due from banks | 20,364 |
| | | | | |
| Trading assets – equity instruments | 115,913 |
| | | | | |
| Trading assets – derivative receivables | 59,588 |
| | | | | |
| Goodwill, MSRs and other intangible assets | 53,999 |
| | | | | |
| Other assets | 139,059 |
| | | | | |
| Total assets | $ | 2,556,062 |
| | | | | |
| Liabilities | | | | | | |
| Interest-bearing deposits | $ | 1,013,221 |
| | $ | 2,857 |
| | 0.28 | % | |
| Federal funds purchased and securities loaned or sold under repurchase agreements | 187,386 |
| | 1,611 |
| | 0.86 |
| |
Short-term borrowings(c) | 46,532 |
| | 481 |
| | 1.03 |
| |
Trading liabilities – debt and other interest-bearing liabilities(d)(e) | 171,814 |
| | 2,070 |
| | 1.21 |
| |
| Beneficial interests issued by consolidated VIEs | 32,457 |
| | 503 |
| | 1.55 |
| |
| Long-term debt | 291,489 |
| | 6,753 |
| | 2.32 |
| |
| Total interest-bearing liabilities | 1,742,899 |
| | 14,275 |
| | 0.82 |
| |
| Noninterest-bearing deposits | 404,165 |
| | | | | |
Trading liabilities – equity instruments(e) | 21,022 |
| | | | | |
| Trading liabilities – derivative payables | 44,122 |
| | | | | |
| All other liabilities, including the allowance for lending-related commitments | 87,292 |
| | | | | |
| Total liabilities | 2,299,500 |
| | | | | |
| Stockholders’ equity | | | | | | |
| Preferred stock | 26,212 |
| | | | | |
| Common stockholders’ equity | 230,350 |
| | | | | |
| Total stockholders’ equity | 256,562 |
| (f) | | | | |
| Total liabilities and stockholders’ equity | $ | 2,556,062 |
| | | | | |
| Interest rate spread | | | | | 2.19 | % | |
| Net interest income and net yield on interest-earning assets | | | $ | 51,410 |
| | 2.36 |
| |
| |
| (a) | Represents securities that are tax-exempt for U.S. federal income tax purposes. |
| |
| (b) | Includes held-for-investment margin loans, which are classified in accrued interest and accounts receivable, and all other interest-earning assets included in other assets. |
| |
| (c) | Includes commercial paper. |
| |
| (d) | Other interest-bearing liabilities include brokerage customer payables. |
| |
| (e) | Included trading liabilities – debt and equity instruments of $90.7 billion, $92.8 billion and $81.4 billion for the twelve months ended December 31, 2017, 2016 and 2015, respectively. |
| |
| (f) | The ratio of average stockholders’ equity to average assets was 10.0% for 2017, 10.2% for 2016, and 9.7% for 2015. The return on average stockholders’ equity, based on net income, was 9.5% for 2017, 9.9% for 2016, and 10.2% for 2015. |
| |
| (g) | Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. |
| |
| (h) | Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities – debt, short-term and other liabilities. |
| |
| (i) | Fees and commissions on loans included in loan interest amounted to $1.0 billion in 2017, $808 million in 2016, and $936 million in 2015. |
| |
| (j) | The annualized rate for securities based on amortized cost was 3.13% in 2017, 2.99% in 2016, and 2.94% in 2015, and does not give effect to changes in fair value that are reflected in AOCI. |
|
| | |
| 278 | | JPMorgan Chase & Co./2017 Annual Report |
Within the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans have been included in the average loan balances used to determine the average interest rate earned on loans. For additional information on nonaccrual loans, including interest accrued, see Note 12.
|
| | | | | | | | | | | | | | | | | | | | | | |
| (Table continued from previous page) | | | | | | | | | | |
| 2016 | | 2015 | |
Average balance | | Interest(g) | | Average rate | | Average balance | | Interest(g) | | Average rate | |
| | | | | | | | | | | | | |
| $ | 392,160 |
| | $ | 1,863 |
| | 0.48 | % | | | $ | 427,963 |
| | $ | 1,250 |
| | 0.29 | % | |
| 205,368 |
| | 2,265 |
| | 1.10 |
| | | 206,637 |
| | 1,592 |
| | 0.77 |
| |
| 102,964 |
| | (332 | ) | (h) | (0.32 | ) | | | 105,273 |
| | (532 | ) | (h) | (0.50 | ) | |
| 215,565 |
| | 7,373 |
| | 3.42 |
| | | 206,385 |
| | 6,694 |
| | 3.24 |
| |
| 235,211 |
| | 5,538 |
| | 2.35 |
| | | 273,730 |
| | 6,550 |
| | 2.39 |
| |
| 44,176 |
| | 2,662 |
| | 6.03 |
| | | 42,125 |
| | 2,556 |
| | 6.07 |
| |
| 279,387 |
| | 8,200 |
| | 2.94 |
| (j) | | 315,855 |
| | 9,106 |
| | 2.88 |
| (j) |
| 866,378 |
| | 36,866 |
| (i) | 4.26 |
| | | 787,318 |
| | 33,321 |
| (i) | 4.23 |
| |
| 39,782 |
| | 875 |
| | 2.20 |
| | | 38,811 |
| | 652 |
| | 1.68 |
| |
| 2,101,604 |
| | 57,110 |
| | 2.72 |
| | | 2,088,242 |
| | 52,083 |
| | 2.49 |
| |
| (13,965 | ) | | | | | | | (13,885 | ) | | | | | |
| 18,660 |
| | | | | | | 22,042 |
| | | | | |
| 95,528 |
| | | | | | | 105,489 |
| | | | | |
| 70,897 |
| | | | | | | 73,290 |
| | | | | |
| 53,752 |
| | | | | | | 55,439 |
| | | | | |
| 135,143 |
| | | | | | | 138,792 |
| | | | | |
| $ | 2,461,619 |
| | | | | | | $ | 2,469,409 |
| | | | | |
| | | | | | | | | | | | | |
| $ | 925,270 |
| | $ | 1,356 |
| | 0.15 | % | | | $ | 876,840 |
| | $ | 1,252 |
| | 0.14 | % | |
| 178,720 |
| | 1,089 |
| | 0.61 |
| | | 192,510 |
| | 609 |
| | 0.32 |
| |
| 36,140 |
| | 203 |
| | 0.56 |
| | | 66,956 |
| | 175 |
| | 0.26 |
| |
| 177,765 |
| | 1,102 |
| | 0.62 |
| | | 178,994 |
| | 557 |
| | 0.31 |
| |
| 40,180 |
| | 504 |
| | 1.25 |
| | | 49,200 |
| | 435 |
| | 0.88 |
| |
| 295,573 |
| | 5,564 |
| | 1.88 |
| | | 284,940 |
| | 4,435 |
| | 1.56 |
| |
| 1,653,648 |
| | 9,818 |
| | 0.59 |
| | | 1,649,440 |
| | 7,463 |
| | 0.45 |
| |
| 402,698 |
| | | | | | | 418,948 |
| | | | | |
| 20,737 |
| | | | | | | 17,282 |
| | | | | |
| 55,927 |
| | | | | | | 64,716 |
| | | | | |
| 77,910 |
| | | | | | | 79,293 |
| | | | | |
| 2,210,920 |
| | | | | | | 2,229,679 |
| | | | | |
| | | | | | | | | | | | | |
| 26,068 |
| | | | | | | 24,040 |
| | | | | |
| 224,631 |
| | | | | | | 215,690 |
| | | | | |
| 250,699 |
| (f) | | | | | | 239,730 |
| (f) | | | | |
| $ | 2,461,619 |
| | | | | | | $ | 2,469,409 |
| | | | | |
| | | | | 2.13 | % | | | | | | | 2.04 | % | |
| | | $ | 47,292 |
| | 2.25 |
| | | | | $ | 44,620 |
| | 2.14 |
| |
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 279 |
Interest rates and interest differential analysis of net interest income – U.S. and non-U.S.
Presented below is a summary of interest rates and interest differentials segregated between U.S. and non-U.S. operations for the years 2015 through 2017. The segregation of U.S. and non-U.S. components is based on
the location of the office recording the transaction. Intercompany funding generally consists of dollar-denominated deposits originated in various locations that are centrally managed by Treasury and CIO.
|
| | | | | | | | | |
| (Table continued on next page) | | | | |
| | 2017 |
Year ended December 31,
(Taxable-equivalent interest and rates; in millions, except rates) | Average balance | Interest | | Average rate |
| Interest-earning assets | | | | |
| Deposits with banks: | | | | |
| U.S. | $ | 366,177 |
| $ | 4,091 |
| | 1.12 | % |
| Non-U.S. | 72,063 |
| 128 |
| | 0.18 |
|
| Federal funds sold and securities purchased under resale agreements: | | | | |
| U.S. | 90,878 |
| 1,360 |
| | 1.50 |
|
| Non-U.S. | 100,941 |
| 967 |
| | 0.96 |
|
| Securities borrowed: | | | | |
| U.S. | 68,110 |
| (66 | ) | (c) | (0.10 | ) |
| Non-U.S. | 27,214 |
| 29 |
| | 0.11 |
|
| Trading assets – debt instruments: | | | | |
| U.S. | 128,293 |
| 4,186 |
| | 3.26 |
|
| Non-U.S. | 108,913 |
| 3,528 |
| | 3.24 |
|
| Securities: | | | | |
| U.S. | 223,140 |
| 7,490 |
| | 3.36 |
|
| Non-U.S. | 45,538 |
| 813 |
| | 1.79 |
|
| Loans: | | | | |
| U.S. | 832,608 |
| 39,439 |
| | 4.74 |
|
| Non-U.S. | 73,789 |
| 1,857 |
| | 2.52 |
|
| All other interest-earning assets, predominantly U.S. | 42,928 |
| 1,863 |
| | 4.34 |
|
| Total interest-earning assets | 2,180,592 |
| 65,685 |
| | 3.01 |
|
| Interest-bearing liabilities | | | | |
| Interest-bearing deposits: | | | | |
| U.S. | 776,049 |
| 2,223 |
| | 0.29 |
|
| Non-U.S. | 237,172 |
| 634 |
| | 0.27 |
|
| Federal funds purchased and securities loaned or sold under repurchase agreements: | | | | |
| U.S. | 115,574 |
| 1,349 |
| | 1.17 |
|
| Non-U.S. | 71,812 |
| 262 |
| | 0.37 |
|
Trading liabilities – debt, short-term and all other interest-bearing liabilities:(a) | | | | |
| U.S. | 138,470 |
| 1,271 |
|
| 0.92 |
|
| Non-U.S. | 79,876 |
| 1,280 |
| | 1.60 |
|
| Beneficial interests issued by consolidated VIEs, predominantly U.S. | 32,457 |
| 503 |
| | 1.55 |
|
| Long-term debt: | | | | |
| U.S. | 276,750 |
| 6,745 |
| | 2.44 |
|
| Non-U.S. | 14,739 |
| 8 |
| | 0.05 |
|
| Intercompany funding: | | | | |
| U.S. | (2,874 | ) | (25 | ) | | — |
|
| Non-U.S. | 2,874 |
| 25 |
| | — |
|
| Total interest-bearing liabilities | 1,742,899 |
| 14,275 |
| | 0.82 |
|
Noninterest-bearing liabilities(b) | 437,693 |
| | | |
| Total investable funds | $ | 2,180,592 |
| $ | 14,275 |
| | 0.65 | % |
| Net interest income and net yield: | | $ | 51,410 |
| | 2.36 | % |
| U.S. | | 46,059 |
| | 2.68 |
|
| Non-U.S. | | 5,351 |
| | 1.15 |
|
| Percentage of total assets and liabilities attributable to non-U.S. operations: | | | | |
| Assets | | | | 22.5 |
|
| Liabilities | | | | 21.1 |
|
| |
| (a) | Includes commercial paper. |
| |
| (b) | Represents the amount of noninterest-bearing liabilities funding interest-earning assets. |
| |
| (c) | Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities – debt, short-term and other liabilities. |
|
| | |
| 280 | | JPMorgan Chase & Co./2017 Annual Report |
For further information, see the “Net interest income” discussion in Consolidated Results of Operations on pages 44–46.
|
| | | | | | | | | | | | | | | | | | | | |
| (Table continued from previous page) | | | | | | | | |
| 2016 | | 2015 | |
| Average balance | Interest | | Average rate | | | Average balance | Interest | | Average rate | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| $ | 328,831 |
| $ | 1,708 |
| | 0.52 | % | | | $ | 388,833 |
| $ | 1,021 |
| | 0.26 | % | |
| 63,329 |
| 155 |
| | 0.25 |
| | | 39,130 |
| 229 |
| | 0.59 |
| |
| | | | | | | | | | | |
| 112,902 |
| 1,166 |
| | 1.03 |
| | | 118,945 |
| 900 |
| | 0.76 |
| |
| 92,466 |
| 1,099 |
| | 1.19 |
| | | 87,692 |
| 692 |
| | 0.79 |
| |
| | | | | | | | | | | |
| 73,297 |
| (341 | ) | (c) | (0.46 | ) | | | 78,815 |
| (562 | ) | (c) | (0.71 | ) | |
| 29,667 |
| 9 |
| | 0.03 |
| | | 26,458 |
| 30 |
| | 0.11 |
| |
| |
| | | | | | | | | | |
| 116,211 |
| 3,825 |
| | 3.29 |
| | | 106,465 |
| 3,572 |
| | 3.35 |
| |
| 99,354 |
| 3,548 |
| | 3.57 |
| | | 99,920 |
| 3,122 |
| | 3.12 |
| |
| | | | | | | | | | | |
| 216,726 |
| 6,971 |
| | 3.22 |
| | | 200,240 |
| 6,676 |
| | 3.33 |
| |
| 62,661 |
| 1,229 |
| | 1.97 |
| | | 115,615 |
| 2,430 |
| | 2.10 |
| |
| | | | | | | | | | | |
| 788,213 |
| 35,110 |
| | 4.45 |
| | | 699,664 |
| 31,468 |
| | 4.50 |
| |
| 78,165 |
| 1,756 |
| | 2.25 |
| | | 87,654 |
| 1,853 |
| | 2.11 |
| |
| 39,782 |
| 875 |
| | 2.20 |
| | | 38,811 |
| 652 |
| | 1.68 |
| |
| 2,101,604 |
| 57,110 |
| | 2.72 |
| | | 2,088,242 |
| 52,083 |
| | 2.49 |
| |
| |
| | | | | | | | | | |
| |
| | | | | | | | | | |
| 703,738 |
| 1,029 |
| | 0.15 |
| | | 638,756 |
| 761 |
| | 0.12 |
| |
| 221,532 |
| 327 |
| | 0.15 |
| | | 238,084 |
| 491 |
| | 0.21 |
| |
| | | | | | | | | | | |
| 121,945 |
| 773 |
| | 0.63 |
| | | 140,609 |
| 366 |
| | 0.26 |
| |
| 56,775 |
| 316 |
| | 0.56 |
| | | 51,901 |
| 243 |
| | 0.47 |
| |
| |
| | | | | | | | | | |
| 133,788 |
| 86 |
| | 0.06 |
| | | 166,838 |
| (394 | ) | (c) | (0.24 | ) | |
| 80,117 |
| 1,219 |
| | 1.52 |
| | | 79,112 |
| 1,126 |
| | 1.42 |
| |
| 40,180 |
| 504 |
| | 1.25 |
| | | 49,200 |
| 435 |
| | 0.88 |
| |
| | | | | | | | | | | |
| 283,169 |
| 5,533 |
| | 1.95 |
| | | 273,033 |
| 4,386 |
| | 1.61 |
| |
| 12,404 |
| 31 |
| | 0.25 |
| | | 11,907 |
| 49 |
| | 0.41 |
| |
| |
| | | | | | | | | | |
| (20,405 | ) | 10 |
| | — |
| | | (50,517 | ) | 7 |
| | — |
| |
| 20,405 |
| (10 | ) | | — |
| | | 50,517 |
| (7 | ) | | — |
| |
| 1,653,648 |
| 9,818 |
| | 0.59 |
| | | 1,649,440 |
| 7,463 |
| | 0.45 |
| |
| 447,956 |
| | | | | | 438,802 |
| | | | |
| $ | 2,101,604 |
| $ | 9,818 |
| | 0.47 | % | | | $ | 2,088,242 |
| $ | 7,463 |
| | 0.36 | % | |
| | $ | 47,292 |
| | 2.25 | % | | | | $ | 44,620 |
| | 2.14 | % | |
| | 40,705 |
| | 2.49 |
| | | | 38,033 |
| | 2.34 |
| |
| | 6,587 |
| | 1.42 |
| | | | 6,587 |
| | 1.42 |
| |
| | | | | | | | | | | |
| | | | 23.1 |
| | | | | | 24.7 |
| |
| | | | 20.7 |
| | | | | | 21.1 |
| |
|
| | |
| JPMorgan Chase & Co./2017 Annual Report | | 281 |
Changes in net interest income, volume and rate analysis
The table below presents an attribution of net interest income between volume and rate. The attribution between volume and rate is calculated using annual average balances for each category of assets and liabilities shown in the table and the corresponding annual average rates (see pages 278-282 for more information on average balances and rates). In this analysis, when the change cannot be isolated to either volume or rate, it has been allocated to volume. The average annual rates include the impact of changes in market rates as well as the impact of any change in composition of the various products within each category of asset or liability. This analysis is calculated separately for each category without consideration of the relationship between categories (for example, the net spread between the rates earned on assets and the rates paid on liabilities that fund those assets). As a result, changes in the granularity or groupings considered in this analysis would produce a different attribution result, and due to the complexities involved, precise allocation of changes in interest rates between volume and rates is inherently complex and judgmental. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 versus 2016 | | 2016 versus 2015 |
| | Increase/(decrease) due to change in: | | | | Increase/(decrease) due to change in: | | |
Year ended December 31,
(On a taxable-equivalent basis; in millions) | Volume | | Rate | | Net
change | | Volume | | Rate | | Net
change |
| Interest-earning assets | | | | | | | | | | | |
| Deposits with banks: | | | | | | | | | | | |
| U.S. | $ | 410 |
| | $ | 1,973 |
| | $ | 2,383 |
| | $ | (324 | ) | | $ | 1,011 |
| | $ | 687 |
|
| Non-U.S. | 17 |
| | (44 | ) | | (27 | ) | | 59 |
| | (133 | ) | | (74 | ) |
| Federal funds sold and securities purchased under resale agreements: | | | | | | | | |
| | |
| U.S. | (337 | ) | | 531 |
| | 194 |
| | (55 | ) | | 321 |
| | 266 |
|
| Non-U.S. | 81 |
| | (213 | ) | | (132 | ) | | 56 |
| | 351 |
| | 407 |
|
| Securities borrowed: | | | | | | | | |
| | |
| U.S. | 11 |
| | 264 |
| | 275 |
| | 24 |
| | 197 |
| | 221 |
|
| Non-U.S. | (4 | ) | | 24 |
| | 20 |
| | — |
| | (21 | ) | | (21 | ) |
| Trading assets – debt instruments: | | | | | | | | |
| | |
| U.S. | 396 |
| | (35 | ) | | 361 |
| | 317 |
| | (64 | ) | | 253 |
|
| Non-U.S. | 308 |
| | (328 | ) | | (20 | ) | | (24 | ) | | 450 |
| | 426 |
|
| Securities: | | | | | | | | |
| | |
| U.S. | 216 |
| | 303 |
| | 519 |
| | 515 |
| | (220 | ) | | 295 |
|
| Non-U.S. | (303 | ) | | (113 | ) | | (416 | ) | | (1,051 | ) | | (150 | ) | | (1,201 | ) |
| Loans: | | | | | | | | |
| | |
| U.S. | 2,043 |
| | 2,286 |
| | 4,329 |
| | 3,992 |
| | (350 | ) | | 3,642 |
|
| Non-U.S. | (110 | ) | | 211 |
| | 101 |
| | (220 | ) | | 123 |
| | (97 | ) |
| All other interest-earning assets, predominantly U.S. | 137 |
| | 851 |
| | 988 |
| | 21 |
| | 202 |
| | 223 |
|
| Change in interest income | 2,865 |
| | 5,710 |
| | 8,575 |
| | 3,310 |
| | 1,717 |
| | 5,027 |
|
| Interest-bearing liabilities | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | |
| U.S. | 209 |
| | 985 |
| | 1,194 |
| | 76 |
| | 192 |
| | 268 |
|
| Non-U.S. | 41 |
| | 266 |
| | 307 |
| | (21 | ) | | (143 | ) | | (164 | ) |
| Federal funds purchased and securities loaned or sold under repurchase agreements: | | | | | | |
| |
| | |
| U.S. | (83 | ) | | 659 |
| | 576 |
| | (113 | ) | | 520 |
| | 407 |
|
| Non-U.S. | 54 |
| | (108 | ) | | (54 | ) | | 26 |
| | 47 |
| | 73 |
|
Trading liabilities – debt, short-term and other interest-bearing liabilities: (a) | | | | | | |
| |
| | |
| U.S. | 45 |
| | 1,140 |
| | 1,185 |
| | (24 | ) | | 504 |
| | 480 |
|
| Non-U.S. | (3 | ) | | 64 |
| | 61 |
| | 14 |
| | 79 |
| | 93 |
|
| Beneficial interests issued by consolidated VIEs, predominantly U.S. | (122 | ) | | 121 |
| | (1 | ) | | (113 | ) | | 182 |
| | 69 |
|
| Long-term debt: | | | | | | |
|
| |
|
| |
|
|
| U.S. | (176 | ) | | 1,388 |
| | 1,212 |
| | 219 |
| | 928 |
| | 1,147 |
|
| Non-U.S. | 2 |
| | (25 | ) | | (23 | ) | | 1 |
| | (19 | ) | | (18 | ) |
| Intercompany funding: | | | | | | | | | | | |
| U.S. | 151 |
| | (186 | ) | | (35 | ) | | (17 | ) | | 20 |
| | 3 |
|
| Non-U.S. | (151 | ) | | 186 |
| | 35 |
| | 17 |
| | (20 | ) | | (3 | ) |
| Change in interest expense | (33 | ) | | 4,490 |
| | 4,457 |
| | 65 |
| | 2,290 |
| | 2,355 |
|
| Change in net interest income | $ | 2,898 |
| | $ | 1,220 |
| | $ | 4,118 |
| | $ | 3,245 |
| | $ | (573 | ) | | $ | 2,672 |
|
| |
| (a) | Includes commercial paper. |
|
| | |
| 282 | | JPMorgan Chase & Co./2017 Annual Report |
Glossary of Terms and Acronyms
2017 Annual Report or 2017 Form 10-K: Annual report on Form 10-K for year ended December 31, 2017, filed with the U.S. Securities and Exchange Commission.
ABS: Asset-backed securities
Active foreclosures: Loans referred to foreclosure where formal foreclosure proceedings are ongoing. Includes both judicial and non-judicial states.
Active online customers:AFS: Users of all internet browsers and mobile platforms who have logged in within the past 90 days.Available-for-sale
Active mobile customers:ALCO: Users of all mobile platforms, which include: SMS, mobile smartphone and tablet, who have logged in within the past 90 days.Asset Liability Committee
Allowance for loan losses to total loans: Represents period-end allowance for loan losses divided by retained loans.
Alternative assetsassets: - The following types of assets constitute alternative investments -– hedge funds, currency, real estate, private equity and other investment funds designed to focus on nontraditional strategies.
AWM: Asset & Wealth Management
AOCI: Accumulated other comprehensive income/(loss)
ARM: Adjustable rate mortgage(s)
AUC: Assets under management:custody
AUM: “Assets under management”: Represent assets actively managed by AMAWM on behalf of its Private Banking, Institutional and Retail clients. Includes “Committed capital not Called,Called.” on which AM earns fees.
Auto loan and lease origination volume: Dollar amount of auto loans and leases originated.
Beneficial interests issued by consolidated VIEs: Represents the interest of third-party holders of debt, equity securities, or other obligations, issued by VIEs that JPMorgan Chase consolidates.
Benefit obligation: Refers to the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for OPEB plans.
Central counterparty (“CCP”):BHC: A CCPBank holding company
Card Services includes the Credit Card and Merchant Services businesses.
CB: Commercial Banking
CBB: Consumer & Business Banking
CCAR: Comprehensive Capital Analysis and Review
CCB: Consumer & Community Banking
CCO: Chief Compliance Officer
CCP: “Central counterparty” is a clearing house that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the future performance of open contracts. A CCP becomes counterparty to trades with market participants
through novation, an open offer system, or another legally binding arrangement.
Chase LiquidCDS: SM cards: Refers to a prepaid, reloadable card product.Credit default swaps
Client advisors:CEO: Chief Executive Officer
CET1 Capital: Common equity Tier 1 Capital
CFTC: Commodity Futures Trading Commission
CFO: Chief Financial Officer
Chase Bank USA, N.A.: Chase Bank USA, National Association
CIB: Corporate & Investment product specialists, including private client advisors, financial advisors, financial advisor associates, senior financial advisors, independent financial advisors and financial advisor associate trainees, who advise clients on investment options, including annuities, mutual funds, stock trading services, etc., sold by the Firm or by third-party vendors through retail branches, Chase Private Client locations and other channels.Bank
CIO: Chief Investment Office
Client assets: Represent assets under management as well as custody, brokerage, administration and deposit accounts.
Client deposits and other third partythird-party liabilities: Deposits, as well as deposits that are swept to on-balance sheet liabilities (e.g., commercial paper, federal funds purchased and securities loaned or sold under repurchase agreements) as part of client cash management programs.
Client investment managed accounts:CLO: Assets actively managedCollateralized loan obligations
CLTV: Combined loan-to-value
Collateral-dependent: A loan is considered to be collateral-dependent when repayment of the loan is expected to be provided solely by Chase Wealth Management on behalfthe underlying collateral, rather than by cash flows from the borrower’s operations, income or other resources.
Merchant Services: isa business that primarily processes transactions for merchants.
Commercial Card: provides a wide range of clients. The percentage of managed accounts is calculated by dividing managed accountpayment services to corporate and public sector clients worldwide through the commercial card products. Services include procurement, corporate travel and entertainment, expense management services, and business-to-business payment solutions.
COO: Chief Operating Officer
Core loans: Represents loans considered central to the Firm’s ongoing businesses; core loans exclude loans classified as trading assets, by total client investment assets.runoff portfolios, discontinued portfolios and portfolios the Firm has an intent to exit.
Credit cycle: A period of time over which credit quality improves, deteriorates and then improves again (or vice versa). The duration of a credit cycle can vary from a couple of years to several years.
Credit derivatives: Financial instruments whose value is derived from the credit risk associated with the debt of a third partythird-party issuer (the reference entity) which allow one party (the protection purchaser) to transfer that risk to another party (the protection seller). Upon the occurrence of a credit event by the reference entity, which may include, among other events, the bankruptcy or failure to pay its
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Glossary of Terms and Acronyms
obligations, or certain restructurings of the debt of the reference entity, neither party has recourse to the reference entity. The protection purchaser has recourse to the protection seller for the difference between the face value of the CDS contract and the fair value at the time of settling the credit derivative contract. The determination as to whether a credit event has occurred is generally made by the relevant International Swaps and Derivatives Association (“ISDA”) Determinations Committee.
CUSIP number:Criticized: A CUSIP (i.e., Committee on Uniform Securities Identification Procedures) number consistsCriticized loans, lending-related commitments and derivative receivables that are classified as special mention, substandard and doubtful categories for regulatory purposes and are generally consistent with a rating of nine characters (including lettersCCC+/Caa1 and numbers) that uniquely identify a company or issuerbelow, as defined by S&P and the typeMoody’s.
CRO: Chief Risk Officer
CTC: CIO, Treasury and Corporate
CVA: Credit valuation adjustments
Debit and credit card sales volume: Dollar amount of security and is assigned by the American Bankers Association and operated by Standard & Poor’s. This system facilitates the clearing and settlement processcard member purchases, net of securities. A similar system is used to identify non-U.S. securities (CUSIP International Numbering System).returns.
Deposit margin/deposit spread: Represents net interest income expressed as a percentage of average deposits.
Distributed denial-of-service attack: The use of a large number of remote computer systems to electronically send a high volume of traffic to a target website to create a service outage at the target. This is a form of cyberattack.
Exchange-tradedDFAST: Dodd-Frank Act Stress Test
Dodd-Frank Act: Wall Street Reform and Consumer Protection Act
DOJ: U.S. Department of Justice
DOL: U.S.Department of Labor
DRPC: Board of Directors’ Risk Policy Committee
DVA: Debit valuation adjustment
E&P: Exploration & Production
EC: European Commission
Eligible LTD: Long-term debt satisfying certain eligibility criteria
Embedded derivatives:are implicit or explicit terms or features of a financial instrument that affect some or all of the cash flows or the value of the instrument in a manner similar to a derivative. An instrument containing such terms or features is referred to as a “hybrid.” The component of the hybrid that is the non-derivative instrument is referred to as the “host.” For example, callable debt is a hybrid instrument that contains a plain vanilla debt instrument (i.e., the host) and an embedded option that allows the issuer to redeem the debt issue at a specified date for a specified amount (i.e., the embedded derivative). However, a floating rate instrument is not a hybrid composed of a fixed-rate instrument and an interest rate swap.
ERISA: Employee Retirement Income Security Act of 1974
EPS: Earnings per share
ETD: “Exchange-traded derivatives”: Derivative contracts that are executed on an exchange and settled via a central clearing house.
EU: European Union
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCA: Financial Conduct Authority
FCC: Firmwide Control Committee
FDIA: Federal Depository Insurance Act
FDIC: Federal Deposit Insurance Corporation
Federal Reserve: The Board of the Governors of the Federal Reserve System
Fee share: Proportion of fee revenue based on estimates of investment banking fees generated across the industry from investment banking transactions in M&A, equity and debt underwriting, and loan syndications. Source: Dealogic, a third-party provider of investment banking fee competitive analysis and volume-based league tables for the above noted industry products.
FFELP: Federal Family Education Loan Program
FFIEC: Federal Financial Institutions Examination Council
FHA: Federal Housing Administration
FHLB: Federal Home Loan Bank
FICO score: A measure of consumer credit risk provided by credit bureaus, typically produced from statistical models by Fair Isaac Corporation utilizing data collected by the credit bureaus.
Firm: JPMorgan Chase & Co.
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Forward points: Represents the interest rate differential between two currencies, which is either added to or subtracted from the current exchange rate (i.e., “spot rate”) to determine the forward exchange rate.
FRC: Firmwide Risk Committee
Freddie Mac: Federal Home Loan Mortgage Corporation
Free standing derivatives: a derivative contract entered into either separate and apart from any of the Firm’s other financial instruments or equity transactions. Or, in conjunction with some other transaction and is legally detachable and separately exercisable.
FSB: Financial Stability Board
FTE: Fully taxable equivalent
FVA: Funding valuation adjustment
FX: Foreign exchange
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Glossary of Terms and Acronyms
G7: Group of Seven (“G7”) nations: Countries in the G7 are Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
G7 government bonds: Bonds issued by the government of one of the G7 nations.
Ginnie Mae:Government National Mortgage Association
GSE: Fannie Mae and Freddie Mac
GSIB: Global systemically important banks
HAMP: Home affordable modification program
Headcount-related expense: Includes salary and benefits (excluding performance-based incentives), and other noncompensation costs related to employees.
HELOAN: Home equity -loan
HELOC: Home equity line of credit
Home equity – senior lien: Represents loans and commitments where JPMorgan Chase holds the first security interest on the property.
Home equity -– junior lien: Represents loans and commitments where JPMorgan Chase holds a security interest that is subordinate in rank to other liens.
Households: A household is a collection of individuals or entities aggregated together by name, address, tax identifier and phone. Reported on a one-month lag.
HQLA: High quality liquid assets
HTM: Held-to-maturity
ICAAP: Internal capital adequacy assessment process
IDI: Insured depository institutions
IHC: JPMorgan Chase Holdings LLC, an intermediate holding company
Impaired loan: Impaired loans are loans measured at amortized cost, for which it is probable that the Firm will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. Impaired loans include the following:
All wholesale nonaccrual loans
All TDRs (both wholesale and consumer), including ones that have returned to accrual status
Interchange income: A fee paid to a credit card issuer in the clearing and settlement of a sales or cash advance transaction.
Investment-grade: An indication of credit quality based on JPMorgan Chase’s internal risk assessment system. “Investment grade” generally represents a risk profile similar to a rating of a “BBB-”/“Baa3” or better, as defined by independent rating agencies.
ISDA: International Swaps and Derivatives Association
JPMorgan Chase: JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank, National Association
JPMorgan Clearing: J.P. Morgan Clearing Corp.
JPMorgan Securities: J.P. Morgan Securities LLC
Loan-equivalent: Represents the portion of the unused commitment or other contingent exposure that is expected, based on historical portfolio experience, to become drawn prior to an event of a default by an obligor.
LCR: Liquidity coverage ratio
LDA: Loss Distribution Approach
LGD: Loss given default
LIBOR: London Interbank Offered Rate
LLC: Limited Liability Company.Company
Loan-to-value (“LTV”) ratio:LOB: Line of business
Loss emergence period: Represents the time period between the date at which the loss is estimated to have been incurred and the ultimate realization of that loss.
LTIP: Long-term incentive plan
LTV: “Loan-to-value”: For residential real estate loans, the relationship, expressed as a percentage, between the principal amount of a loan and the appraised value of the collateral (i.e., residential real estate) securing the loan.
Origination date LTV ratio
The LTV ratio at the origination date of the loan. Origination date LTV ratios are calculated based on the actual appraised values of collateral (i.e., loan-level data) at the origination date.
Current estimated LTV ratio
An estimate of the LTV as of a certain date. The current estimated LTV ratios are calculated using estimated collateral values derived from a nationally recognized home
price index measured at the metropolitan statistical area (“MSA”) level. These MSA-level home price indices compriseconsist of actual data to the extent available and forecasted data where actual data is not available. As a result, the estimated collateral values used to calculate these ratios do not represent actual appraised loan-level collateral values; as such, the resulting LTV ratios are necessarily imprecise and should therefore be viewed as estimates.
Combined LTV ratio
The LTV ratio considering all available lien positions, as well as unused lines, related to the property. Combined LTV ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of financial results that includes reclassifications to present revenue on a fully taxable-equivalent basis. Management uses this non- GAAP financial measure at the segment level, because it believes this provides information to enable investors to understand the underlying operational performance and
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Glossary of Terms and Acronyms
trends of the particular business segment and facilitates a comparison of the business segment with the performance of competitors.
Master netting agreement: AnA single agreement between two counterparties who havewith a counterparty that permits multiple contracts with each othertransactions governed by that provides for the net settlement of all contracts, as well as cash collateral,agreement to be terminated or accelerated and settled through a single payment in a single currency in the event of a default on(e.g., bankruptcy, failure to make a required payment or termination of any one contract.securities transfer or deliver collateral or margin when due).
MBS: Mortgage-backed securities
MD&A: Management’s discussion and analysis
MMDA: Money Market Deposit Accounts
Moody’s: Moody’s Investor Services
Mortgage origination channels:
Retail -– Borrowers who buy or refinance a home through direct contact with a mortgage banker employed by the Firm using a branch office, the Internet or by phone. Borrowers are frequently referred to a mortgage banker by a banker in a Chase branch, real estate brokers, home builders or other third parties.
Correspondent -– Banks, thrifts, other mortgage banks and other financial institutions that sell closed loans to the Firm.
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality than subprime loans but have characteristics that would disqualify the borrower from a traditional prime loan. Alt-A lending characteristics may include one or more of the following: (i) limited documentation; (ii) a high combined loan-to-value (“CLTV”)CLTV ratio; (iii) loans secured by non-owner occupied properties; or (iv) a debt-to-income ratio above normal limits. A substantial proportion of the Firm’s Alt-A loans are those where a borrower does not provide complete documentation of his or her assets or the amount or source of his or her income.
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Option ARMs
The option ARM real estate loan product is an adjustable-rate mortgage loan that provides the borrower with the option each month to make a fully amortizing, interest-only or minimum payment. The minimum payment on an option ARM loan is based on the interest rate charged during the introductory period. This introductory rate is usually significantly below the fully indexed rate. The fully indexed rate is calculated using an index rate plus a margin. Once the introductory period ends, the contractual interest rate charged on the loan increases to the fully indexed rate and adjusts monthly to reflect movements in the index. The minimum payment is typically insufficient to cover interest accrued in the prior month, and any unpaid interest is deferred and added to the principal balance of the loan. Option ARM loans are subject to payment recast, which converts the loan to a variable-rate fully amortizing loan
upon meeting specified loan balance and anniversary date triggers.
Prime
Prime mortgage loans are made to borrowers with good credit records who meet specific underwriting requirements, including prescriptive requirements related to income and a monthly income at least three to four times greater than their monthly housing expense (mortgage payments plus taxes and otheroverall debt payments). Theselevels. New prime mortgage borrowers provide full documentation and generally have reliable payment histories.
Subprime
Subprime loans are loans that, prior to mid-2008, were offered to certain customers with one or more high risk characteristics, including but not limited to: (i) unreliable or poor payment histories; (ii) a high LTV ratio of greater than 80% (without borrower-paid mortgage insurance); (iii) a high debt-to-income ratio; (iv) an occupancy type for the loan is other than the borrower’s primary residence; or (v) a history of delinquencies or late payments on the loan.
MSA: Metropolitan statistical areas
MSR: Mortgage servicing rights
Multi-asset: Any fund or account that allocates assets under management to more than one asset class.
N/A:NA: Data is not applicable or available for the period presented.
NAV: Net Asset Value
Net Capital Rule: Rule 15c3-1 under the Securities Exchange Act of 1934.
Net charge-off/(recovery) rate: Represents net charge-offs/(recoveries) (annualized) divided by average retained loans for the reporting period.
Net production revenue: Includes net gains or losses on originations and sales of mortgage loans, other production-related fees and losses related to the repurchase of previously-sold loans.
Net mortgage servicing revenue includes the following components:
Operating revenue predominantly represents the return on MortgageHome Lending Servicing’s MSR asset and includes:
– Actual gross income earned from servicing third-party mortgage loans, such as contractually specified servicing fees and ancillary income; and
– The change in the fair value of the MSR asset due to the collection or realization of expected cash flows.
Risk management represents the components of
MortgageHome Lending Servicing’s MSR asset that are subject to ongoing risk management activities, together with derivatives and other instruments used in those risk management activities.
Net production revenue: Includes net gains or losses on originations and sales of mortgage loans, other production-related fees and losses related to the repurchase of previously sold loans.
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Glossary of Terms and Acronyms
Net revenue rate: Represents Card Services net revenue (annualized) expressed as a percentage of average loans for the period.
Net yield on interest-earning assets: The average rate for interest-earning assets less the average rate paid for all sources of funds.
NM: Not meaningful.meaningful
NOL: Net operating loss
Nonaccrual loans: Loans for which interest income is not recognized on an accrual basis. Loans (other than credit card loans and certain consumer loans insured by U.S. government agencies) are placed on nonaccrual status when full payment of principal and interest is not expected, regardless of delinquency status, or when principal and interest hashave been in default for a period of 90 days or more unless the loan is both well-secured and in the process of collection. Collateral-dependent loans are typically maintained on nonaccrual status.
Nonperforming assets: Nonperforming assets include nonaccrual loans, nonperforming derivatives and certain assets acquired in loan satisfaction, predominantly real estate owned and other commercial and personal property.
NOW: Negotiable Order of Withdrawal
NSFR: Net stable funding ratio
OAS: Option-adjusted spread
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income/(loss)
OEP: One Equity Partners
OIS: Overnight index swap
OPEB: Other postretirement employee benefit
ORMF: Operational Risk Management Framework
OTTI: Other-than-temporary impairment
Over-the-counter (“OTC”) derivatives: Derivative contracts that are negotiated, executed and settled bilaterally between two derivative counterparties, where one or both counterparties is a derivatives dealer.
Over-the-counter cleared (“OTC-cleared”) derivatives: Derivative contracts that are negotiated and executed bilaterally, but subsequently settled via a central clearing house, such that each derivative counterparty is only exposed to the default of that clearing house.
Overhead ratio: Noninterest expense as a percentage of total net revenue.
Parent Company: JPMorgan Chase & Co.
Participating securities: Represents unvested stock-basedshare-based compensation awards containing nonforfeitable rights to dividends or dividend equivalents (collectively, “dividends”), which are included in the earnings per share calculation
using the two-class method. JPMorgan Chase grants restricted stock and RSUs to certain employees under its
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stock-based share-based compensation programs, which entitle the recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These unvested awards meet the definition of participating securities. Under the two-class method, all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities, based on their respective rights to receive dividends.
Personal bankers:PCA: Retail branch office personnel who acquire, retain and expand new and existing customer relationships by assessing customer needs and recommending and selling appropriate banking products and services.Prompt corrective action
Portfolio activity:PCI: “Purchased credit-impaired” loans Describes changesrepresents certain loans that were acquired and deemed to the risk profile of existing lending-related exposures and their impactbe credit-impaired on the allowanceacquisition date in accordance with the guidance of the FASB. The guidance allows purchasers to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans have common risk characteristics(e.g., product type, LTV ratios, FICO scores, past due status, geographic location). A pool is then accounted for credit losses from changes in customer profilesas a single asset with a single composite interest rate and inputs used to estimate the allowances.an aggregate expectation of cash flows.
PD: Probability of default
PRA: Prudential Regulatory Authority
Pre-provision profit/(loss): Represents total net revenue less noninterest expense. The Firm believes that this financial measure is useful in assessing the ability of a lending institution to generate income in excess of its provision for credit losses.
Pretax margin: Represents income before income tax expense divided by total net revenue, which is, in management’s view, a comprehensive measure of pretax performance derived by measuring earnings after all costs are taken into consideration. It is one basis upon which management evaluates the performance of AMAWM against the performance of their respective competitors.
Principal transactions revenue: Principal transactions revenue includesis driven by many factors, including the bid-offer spread, which is the difference between the price at which the Firm is willing to buy a financial or other instrument and the price at which the Firm is willing to sell that instrument. It also consists of realized (as a result of closing out or termination of transactions, or interim cash payments) and unrealized (as a result of changes in valuation) gains and losses recorded on financial and other instruments (including those accounted for under the fair value option) primarily used in client-driven market-making activities and on private equity investments. In connection with its client-driven market-making activities, the Firm transacts in debt and equity instruments, derivatives otherand commodities (including physical commodities inventories and financial instruments private equity investments, and physical commodities used in market making and client-driven activities. In addition, that reference commodities).
Principal transactions revenue also includes certain realized and unrealized gains and losses related to hedge accounting and specified risk managementrisk-management activities, including: (a)
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Glossary of Terms and Acronyms
certain derivatives designated in qualifying hedge accounting relationships (primarily fair value hedges of commodity and foreign exchange risk), (b) certain derivatives used for specifiedspecific risk management purposes, primarily to mitigate credit risk, foreign exchange risk and commodity risk, and (c) other derivatives.
Purchased credit-impaired (“PCI”) loans: PSU(s):Represents loans that were acquired in the Washington Mutual transaction Performance share units
RCSA: Risk and deemed to be credit-impaired on the acquisition date in accordance with the guidance of the Financial Accounting Standards Board (“FASB”). The guidance allows purchasers to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans have common risk characteristics (e.g., product type, LTV ratios, FICO scores, past due status, geographic location). A pool is then accounted for as a single asset withControl Self-Assessment
a single composite interest rate and an aggregate expectation of cash flows.
Real assets: Real assets include investments in productive assets such as agriculture, energy rights, mining and timber properties and exclude raw land to be developed for real estate purposes.
RealREIT: “Real estate investment trust (“REIT”)trust”: A special purpose investment vehicle that provides investors with the ability to participate directly in the ownership or financing of real-estate related assets by pooling their capital to purchase and manage income property (i.e., equity REIT) and/or mortgage loans (i.e., mortgage REIT). REITs can be publicly-or privately-heldpublicly or privately held and they also qualify for certain favorable tax considerations.
Receivables from customers: Primarily represents margin loans to prime and retail brokerage customers whichthat are includedcollateralized through assets maintained in the clients’ brokerage accounts, as such no allowance is held against these receivables. These receivables are reported within accrued interest and accounts receivable on the Firm’s Consolidated balance sheets.
Regulatory VaR: Daily aggregated VaR calculated in accordance with regulatory rules.
REO: Real estate owned
Reported basis: Financial statements prepared under U.S. GAAP, which excludes the impact of taxable-equivalent adjustments.
Retained loans: Loans that are held-for-investment (i.e., excludes loans held-for-sale and loans at fair value).
Revenue wallet: Proportion of fee revenuesrevenue based on estimates of investment banking fees generated across the industry (i.e., the revenue wallet) from investment banking transactions in M&A, equity and debt underwriting, and loan syndications. Source: Dealogic, a third partythird-party provider of investment banking competitive analysis and volume-based league tables for the above noted industry products.
Risk-weightedRHS: Rural Housing Service of the U.S. Department of Agriculture
Risk-rated portfolio: Credit loss estimates are based on estimates of the probability of default (“PD”) and loss severity given a default. The probability of default is the likelihood that a borrower will default on its obligation; the loss given default (“LGD”) is the estimated loss on the loan that would be realized upon the default and takes intoconsideration collateral and structural support for each credit facility.
ROA: Return on assets (“RWA”)
ROE: Return on equity
ROTCE: Return on tangible common equity
RSU(s): Risk-weighted assets consist of on-Restricted stock units
RWA: “Risk-weighted assets”: Basel III establishes two comprehensive methodologies for calculating RWA (a Standardized approach and off-balance sheet assets that are assigned to one of several broadan Advanced approach) which include capital requirements for credit risk, categories and weighted by factors representing theirmarket risk, and potentialin the case of Basel III Advanced, also operational risk. Key differences in the calculation of credit risk RWA between the Standardized and Advanced approaches are that for default. On-balance sheet assets are risk-weightedBasel III Advanced, credit risk RWA is based on risk-sensitive approaches which largely rely on the perceiveduse of internal credit models and parameters, whereas for Basel III Standardized, credit risk associated with the obligor or counterparty, the nature of any collateral, and the guarantor, if any. Off-balance sheet assets such as lending-related commitments, guarantees, derivatives and other applicable off-balance sheet positions are risk-weighted by multiplying the contractual amount by the appropriate credit conversion factor to determine the on-balance sheet credit equivalent amount, whichRWA is then risk-weightedgenerally based on the same factors used for on-balance sheet assets. Risk-weighted assets also incorporatesupervisory risk-weightings which vary primarily by counterparty type and asset class. Market risk RWA is calculated on a measure for market risk related to applicable trading assets-debtgenerally consistent basis between Basel III Standardized and equity instruments, and foreign exchange and commodity derivatives. The resulting risk-weighted values for each of the risk categories are then aggregated to determine total risk-weighted assets.Basel III Advanced.
Sales specialists:S&P: Retail branch officeStandard and field personnel, including relationship managersPoor’s 500 Index
SAR(s): Stock appreciation rights
SCCL: single-counterparty credit limits
Scored portfolio: The scored portfolio predominantly includes residential real estate loans, credit card loans and loan officers, who specialize in marketingcertain auto and sales of various business
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banking products (i.e., business loans letterswhere credit loss estimates are based on statistical analysis of credit deposit accounts, Chase Paymentech, etc.)losses over discrete periods of time. The statistical analysis uses portfolio modeling, credit scoring and mortgage products to existingdecision-support tools.
SEC: Securities and new clients.Exchange Commission
Seed capital: Initial JPMorgan capital invested in products, such as mutual funds, with the intention of ensuring the fund is of sufficient size to represent a viable offering to clients, enabling pricing of its shares, and allowing the manager to develop a track record. After these goals are achieved, the intent is to remove the Firm’s capital from the investment.
Short sale: A short sale is a sale of real estate in which proceeds from selling the underlying property are less than the amount owed the Firm under the terms of the related mortgage, and the related lien is released upon receipt of such proceeds.
Single-name: Single reference-entities
SLR: Supplementary leverage ratio
SMBS: Stripped mortgage-backed securities
SOA: Society of Actuaries
SPEs: Special purpose entities
Structural interest rate risk: Represents interest rate risk of the non-trading assets and liabilities of the Firm.
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Glossary of Terms and Acronyms
Structured notes: Structured notes are predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk.
Suspended foreclosures: Loans referred to foreclosure where formal foreclosure proceedings have started but are currently on hold, which could be due to bankruptcy or loss mitigation. Includes both judicial and non-judicial states.
Taxable-equivalent basis: In presenting results on a managed results,basis, the total net revenue for each of the business segments and the Firm is presented on a tax-equivalent basis. Accordingly, revenue from investments that receive tax credits and tax-exempt securities is presented in the managed basis results on a basislevel comparable to taxable investments and securities; the corresponding income tax impact related to tax-exempt items is recorded within income tax expense.
Trade-date and settlement-date:TBVPS: For financial instruments, the trade-date is the date that an order to purchase, sell or otherwise acquire an instrument is executed in the market. The trade-date may differ from the settlement-date, which is the date on which the actual transfer of a financial instrument between two parties is executed. The amount of time that passes between the trade-date and the settlement-date differs depending on the financial instrument. For repurchases under theTangible book value per share
TCE: Tangible common equity repurchase program, except where the trade-date is specified, the amounts disclosed are presented on a settlement-date basis. In the Capital Management section on pages 146–155, and where otherwise specified, repurchases under the common equity repurchase program are presented on a trade-date basis because the trade-date is used to calculate the Firm’s regulatory capital.
TDR:“Troubled debt restructuring (“TDR”):restructuring” A TDR is deemed to occur when the Firm modifies the original terms of a loan agreement by granting a concession to a borrower that is experiencing financial difficulty.
TLAC: Total Loss Absorbing Capacity
U.K.: United Kingdom
Unaudited: Financial statements and information that have not been subjected to auditing procedures sufficient to permit an independent certified public accountant to express an opinion.
U.S.: United States of America
U.S. GAAP: Accounting principles generally accepted in the U.S.
U.S. government-sponsored enterpriseenterprises (“U.S. GSEs”) and U.S. GSE obligations: ObligationsIn the U.S., GSEs are quasi-governmental, privately held entities established by Congress to improve the flow of agencies originally established or charteredcredit to specific sectors of the economy and provide certain essential services to the public. U.S. GSEs include Fannie Mae and Freddie Mac, but do not include Ginnie Mae, which is directly owned by the U.S. government to serve public purposes as specified by theDepartment of Housing and Urban Development. U.S. Congress; theseGSE obligations are not explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government.
U.S. LCR: Liquidity coverage ratio under the final U.S. rule.
U.S. Treasury: U.S. Department of the Treasury.Treasury
Value-at-risk (“VaR”):VA: AU.S. Department of Veterans Affairs
VaR: “Value-at-risk” is a measure of the dollar amount of potential loss from adverse market moves in an ordinary market environment.
VCG: Valuation Control Group
VGF: Valuation Governance Forum
VIEs: Variable interest entities
Warehouse loans: Consist of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets.
Washington Mutual transaction: On September 25, 2008, JPMorgan Chase acquired certain of the assets of the banking operations of Washington Mutual Bank (“Washington Mutual”) from the FDIC.
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Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differentials
Consolidated average balance sheet, interest and rates
Provided below is a summary of JPMorgan Chase's consolidated average balances, interest rates and interest differentials on a taxable-equivalent basis for the years 2012 through 2014. Income computed on a taxable-equivalent basis is the income reported in the Consolidated statements of income, adjusted to present interest income
and average rates earned on assets exempt from income taxes (primarily federal taxes) on a basis comparable with other taxable investments. The incremental tax rate used for calculating the taxable-equivalent adjustment was approximately 38% in 2014, 2013 and 2012. A substantial portion of JPMorgan Chase’s securities are taxable.
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| (Table continued on next page) | 2014 |
Year ended December 31, (Taxable-equivalent interest and rates; in millions, except rates) | Average balance | | Interest(e) | | Average rate |
| Assets | | | | | | |
| Deposits with banks | $ | 358,072 |
| | $ | 1,157 |
| | 0.32 | % | |
| Federal funds sold and securities purchased under resale agreements | 230,489 |
| | 1,642 |
| | 0.71 |
| |
| Securities borrowed | 116,540 |
| | (501 | ) | (f) | (0.43 | ) | |
| Trading assets | 210,609 |
| | 7,386 |
| | 3.51 |
| |
| Taxable securities | 318,970 |
| | 7,617 |
| | 2.39 |
| |
Non-taxable securities(a) | 34,359 |
| | 2,158 |
| | 6.28 |
| |
| Total securities | 353,329 |
| | 9,775 |
| | 2.77 |
| (h) |
| Loans | 739,175 |
| | 32,394 |
| (g) | 4.38 |
| |
Other assets(b) | 40,879 |
| | 663 |
| | 1.62 |
| |
| Total interest-earning assets | 2,049,093 |
| | 52,516 |
| | 2.56 |
| |
| Allowance for loan losses | (15,418 | ) | | | | | |
| Cash and due from banks | 25,650 |
| | | | | |
| Trading assets – equity instruments | 116,650 |
| | | | | |
| Trading assets – derivative receivables | 67,123 |
| | | | | |
| Goodwill | 48,029 |
| | | | | |
| Mortgage servicing rights | 8,387 |
| | | | | |
| Other intangible assets: | | | | | | |
| Purchased credit card relationships | 62 |
| | | | | |
| Other intangibles | 1,316 |
| | | | | |
| Other assets | 146,841 |
| | | | | |
| Total assets | $ | 2,447,733 |
| | | | | |
| Liabilities | | | | | | |
| Interest-bearing deposits | $ | 868,838 |
| | $ | 1,633 |
| | 0.19 | % | |
| Federal funds purchased and securities loaned or sold under repurchase agreements | 208,560 |
| | 604 |
| | 0.29 |
| |
| Commercial paper | 59,916 |
| | 134 |
| | 0.22 |
| |
Trading liabilities – debt, short-term and other liabilities(c) | 220,137 |
| | 712 |
| | 0.32 |
| |
| Beneficial interests issued by consolidated VIEs | 48,017 |
| | 405 |
| | 0.84 |
| |
| Long-term debt | 270,269 |
| | 4,409 |
| | 1.63 |
| |
| Total interest-bearing liabilities | 1,675,737 |
| | 7,897 |
| | 0.47 |
| |
| Noninterest-bearing deposits | 395,463 |
| | | | | |
| Trading liabilities – equity instruments | 16,246 |
| | | | | |
| Trading liabilities – derivative payables | 54,758 |
| | | | | |
| All other liabilities, including the allowance for lending-related commitments | 81,111 |
| | | | | |
| Total liabilities | 2,223,315 |
| | | | | |
| Stockholders’ equity | | | | | | |
| Preferred stock | 17,018 |
| | | | | |
| Common stockholders’ equity | 207,400 |
| | | | | |
| Total stockholders’ equity | 224,418 |
| (d) | | | | |
| Total liabilities and stockholders’ equity | $ | 2,447,733 |
| | | | | |
| Interest rate spread | | | | | 2.09 | % | |
| Net interest income and net yield on interest-earning assets | | | $ | 44,619 |
| | 2.18 |
| |
| |
(a) | Represents securities which are tax exempt for U.S. Federal Income Tax purposes. |
| |
(b) | Includes margin loans. |
| |
(c) | Includes brokerage customer payables. |
| |
(d) | The ratio of average stockholders’ equity to average assets was 9.2% for 2014, 8.7% for 2013, and 8.5% for 2012. The return on average stockholders’ equity, based on net income, was 9.7% for 2014, 8.6% for 2013, and 11.1% for 2012. |
| |
(e) | Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. |
| |
(f) | Negative interest income and yield for the years ended December 31, 2014, 2013 and 2012, is the result of increased client-driven demand for certain securities combined with the impact of low interest rates; the offset of this stock borrow activity is reflected as lower net interest expense reported within short-term and other liabilities. |
| |
(g) | Fees and commissions on loans included in loan interest amounted to $1.1 billion in 2014, $1.3 billion in 2013, and $1.3 billion in 2012. |
| |
(h) | The annualized rate for securities based on amortized cost was 2.82% in 2014, 2.37% in 2013, and 2.35% in 2012, and does not give effect to changes in fair value that are reflected in accumulated other comprehensive income/(loss). |
| |
(i) | Prior period amounts and have been reclassified to conform with the current period presentation. |
Within the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans have been included in the average loan balances used to determine the average interest rate earned on loans. For additional information on nonaccrual loans, including interest accrued, see Note 14.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (Table continued from previous page) | | | | | | | | | | |
| 2013 | | 2012 |
Average balance | | | Interest(e) | | Average rate | | Average balance | | Interest(e) | | Average rate |
| | | | | | | | | | | | | | |
| $ | 268,968 |
| | | $ | 918 |
| | 0.34 | % | | | $ | 118,463 |
| | $ | 555 |
| | 0.47 | % | |
| 231,567 |
| | | 1,940 |
| | 0.84 |
| | | 239,703 |
| | 2,442 |
| | 1.02 |
| |
| 118,300 |
| | | (127 | ) | (f) | (0.11 | ) | | | 131,446 |
| | (3 | ) | (f) | — |
| |
| 227,769 |
| | | 8,191 |
| (i) | 3.60 |
| (i) | | 234,224 |
| | 9,175 |
| (i) | 3.92 |
| (i) |
| 333,285 |
| | | 6,916 |
| | 2.07 |
| | | 345,238 |
| | 7,231 |
| | 2.09 |
| |
| 23,558 |
| | | 1,369 |
| | 5.81 |
| | | 17,992 |
| | 1,091 |
| | 6.06 |
| |
| 356,843 |
| | | 8,285 |
| | 2.32 |
| (h) | | 363,230 |
| | 8,322 |
| | 2.29 |
| (h) |
| 726,450 |
| | | 33,621 |
| (g) | 4.63 |
| | | 722,384 |
| | 35,946 |
| (g) | 4.98 |
| |
| 40,334 |
| | | 538 |
| | 1.33 |
| | | 32,967 |
| | 259 |
| | 0.79 |
| |
| 1,970,231 |
| | | 53,366 |
| (i) | 2.71 |
| (i) | | 1,842,417 |
| | 56,696 |
| (i) | 3.08 |
| (i) |
| (19,819 | ) | | | | | | | | (24,906 | ) | | | | | |
| 35,919 |
| | | | | | | | 51,410 |
| | | | | |
| 112,680 |
| | | | | | | | 115,113 |
| | | | | |
| 72,629 |
| | | | | | | | 85,744 |
| | | | | |
| 48,102 |
| | | | | | | | 48,176 |
| | | | | |
| 8,840 |
| | | | | | | | 7,133 |
| | | | | |
| | | | | | | | | | | | | | |
| 214 |
| | | | | | | | 470 |
| | | | | |
| 1,736 |
| | | | | | | | 2,363 |
| | | | | |
| 149,572 |
| | | | | | | | 144,061 |
| | | | | |
| $ | 2,380,104 |
| | | | | | | | $ | 2,271,981 |
| | | | | |
| | | | | | | | | | | | | | |
| $ | 822,781 |
| | | $ | 2,067 |
| | 0.25 | % | | | $ | 751,098 |
| | $ | 2,655 |
| | 0.35 | % | |
| 238,551 |
| | | 582 |
| | 0.24 |
| | | 248,561 |
| | 535 |
| | 0.22 |
| |
| 53,717 |
| | | 112 |
| | 0.21 |
| | | 50,780 |
| | 91 |
| | 0.18 |
| |
| 202,894 |
| | | 1,104 |
| (i) | 0.54 |
| (i) | | 193,459 |
| | 1,052 |
| (i) | 0.54 |
| (i) |
| 54,832 |
| | | 478 |
| | 0.87 |
| | | 60,234 |
| | 648 |
| | 1.08 |
| |
| 264,083 |
| | | 5,007 |
| | 1.90 |
| | | 245,662 |
| | 6,062 |
| | 2.47 |
| |
| 1,636,858 |
| | | 9,350 |
| (i) | 0.57 |
| (i) | | 1,549,794 |
| | 11,043 |
| (i) | 0.71 |
| (i) |
| 366,361 |
| | | | | | | | 354,785 |
| | | | | |
| 14,218 |
| | | | | | | | 14,172 |
| | | | | |
| 64,553 |
| | | | | | | | 76,162 |
| | | | | |
| 90,745 |
| | | | | | | | 84,480 |
| | | | | |
| 2,172,735 |
| | | | | | | | 2,079,393 |
| | | | | |
| | | | | | | | | | | | | | |
| 10,960 |
| | | | | | | | 8,236 |
| | | | | |
| 196,409 |
| | | | | | | | 184,352 |
| | | | | |
| 207,369 |
| | (d) | | | | | | 192,588 |
| (d) | | | | |
| $ | 2,380,104 |
| | | | | | | | $ | 2,271,981 |
| | | | | |
| | | | | | 2.14 | % | | | | | | | 2.37 | % | |
| | | | $ | 44,016 |
| | 2.23 |
| | | | | $ | 45,653 |
| | 2.48 |
| |
Interest rates and interest differential analysis of net interest income – U.S. and non-U.S.
Presented below is a summary of interest rates and interest differentials segregated between U.S. and non-U.S. operations for the years 2012 through 2014. The segregation of U.S. and non-U.S. components is based on
the location of the office recording the transaction. Intracompany funding generally comprises dollar-denominated deposits originated in various locations that are centrally managed by JPMorgan Chase’s Treasury unit.
|
| | | | | | | | | | |
| (Table continued on next page) | | | | | |
| | 2014 |
Year ended December 31, (Taxable-equivalent interest and rates; in millions, except rates) | Average balance | Interest | | Average rate |
| Interest-earning assets | | | | | |
| Deposits with banks: | | | | | |
| U.S. | $ | 328,145 |
| $ | 825 |
| | 0.25 | % | |
| Non-U.S. | 29,927 |
| 332 |
| | 1.11 |
| |
| Federal funds sold and securities purchased under resale agreements: | | | | | |
| U.S. | 125,812 |
| 719 |
| | 0.57 |
| |
| Non-U.S. | 104,677 |
| 923 |
| | 0.88 |
| |
| Securities borrowed: | | | | | |
| U.S. | 77,228 |
| (573 | ) | (b) | (0.74 | ) | |
| Non-U.S. | 39,312 |
| 72 |
| | 0.18 |
| |
| Trading assets – debt instruments: | | | | | |
| U.S. | 109,678 |
| 4,045 |
| | 3.69 |
| |
| Non-U.S. | 100,931 |
| 3,341 |
| | 3.31 |
| |
| Securities: | | | | | |
| U.S. | 193,856 |
| 6,586 |
| | 3.40 |
| |
| Non-U.S. | 159,473 |
| 3,189 |
| | 2.00 |
| |
| Loans: | | | | | |
| U.S. | 635,846 |
| 30,165 |
| | 4.74 |
| |
| Non-U.S. | 103,329 |
| 2,229 |
| | 2.16 |
| |
| Other assets, predominantly U.S. | 40,879 |
| 663 |
| | 1.62 |
| |
| Total interest-earning assets | 2,049,093 |
| 52,516 |
| | 2.56 |
| |
| Interest-bearing liabilities | | | | | |
| Interest-bearing deposits: | | | | | |
| U.S. | 620,708 |
| 813 |
| | 0.13 |
| |
| Non-U.S. | 248,130 |
| 820 |
| | 0.33 |
| |
| Federal funds purchased and securities loaned or sold under repurchase agreements: | | | | | |
| U.S. | 146,025 |
| 130 |
| (c) | 0.09 |
| (c) |
| Non-U.S. | 62,535 |
| 474 |
| | 0.76 |
| |
| Trading liabilities - debt, short-term and other liabilities: | | | | | |
| U.S. | 194,771 |
| (284 | ) | (b) | (0.15 | ) | |
| Non-U.S. | 85,282 |
| 1,130 |
| | 1.33 |
| |
| Beneficial interests issued by consolidated VIEs, predominantly U.S. | 48,017 |
| 405 |
| | 0.84 |
| |
| Long-term debt: | | | | | |
| U.S. | 257,181 |
| 4,366 |
| | 1.70 |
| |
| Non-U.S. | 13,088 |
| 43 |
| | 0.33 |
| |
| Intracompany funding: | | | | | |
| U.S. | (122,467 | ) | (176 | ) | | — |
| |
| Non-U.S. | 122,467 |
| 176 |
| | — |
| |
| Total interest-bearing liabilities | 1,675,737 |
| 7,897 |
| | 0.47 |
| |
Noninterest-bearing liabilities(a) | 373,356 |
| | | | |
| Total investable funds | $ | 2,049,093 |
| $ | 7,897 |
| | 0.39 | % | |
| Net interest income and net yield: | | $ | 44,619 |
| | 2.18 | % | |
| U.S. | | 37,018 |
| | 2.46 |
| |
| Non-U.S. | | 7,601 |
| | 1.39 |
| |
| Percentage of total assets and liabilities attributable to non-U.S. operations: | | | | | |
| Assets | | | | 28.9 |
| |
| Liabilities | | | | 22.6 |
| |
| |
(a) | Represents the amount of noninterest-bearing liabilities funding interest-earning assets. |
| |
(b) | Negative interest income and yield, for the years ended December 31, 2014, 2013 and 2012 is a result of increased client-driven demand for certain securities combined with the impact of low interest rates; the offset of this stock borrow activity is reflected as lower net interest expense reported within trading liabilities - debt, short-term and other liabilities. |
| |
(c) | Reflects a benefit from the favorable market environments for dollar-roll financings. |
| |
(d) | Prior period amounts have been reclassified to conform with the current period presentation. |
U.S. net interest income was $37.0 billion in 2014, a increase of $1.5 billion from the prior year. Net interest income from non-U.S. operations was $7.6 billion for 2014, a decrease of $902 million from $8.5 billion in 2013.
For further information, see the “Net interest income” discussion in Consolidated Results of Operations on pages 68–71.
|
| | | | | | | | | | | | | | | | | | | | |
| (Table continued from previous page) | | | | | | | | |
| 2013 | | 2012 | |
| Average balance | Interest | | Average rate | | | Average balance | Interest | | Average rate | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| $ | 233,850 |
| $ | 572 |
| | 0.24 | % | | | $ | 79,992 |
| $ | 168 |
| | 0.21 | % | |
| 35,118 |
| 346 |
| | 0.99 |
| | | 38,471 |
| 387 |
| | 1.01 |
| |
| | | | | | | | | | | |
| 129,600 |
| 793 |
| | 0.61 |
| | | 137,874 |
| 872 |
| | 0.63 |
| |
| 101,967 |
| 1,147 |
| | 1.13 |
| | | 101,829 |
| 1,570 |
| | 1.54 |
| |
| | | | | | | | | | | |
| 69,377 |
| (376 | ) | (b) | (0.54 | ) | | | 70,084 |
| (407 | ) | (b) | (0.58 | ) | |
| 48,923 |
| 249 |
| | 0.51 |
| | | 61,362 |
| 404 |
| | 0.66 |
| |
| |
| | | | | | | | | | |
| 120,985 |
| 4,301 |
| (d) | 3.56 |
| (d) | | 119,854 |
| 4,562 |
| (d) | 3.81 |
| (d) |
| 106,784 |
| 3,890 |
| (d) | 3.64 |
| (d) | | 114,370 |
| 4,613 |
| (d) | 4.03 |
| (d) |
| | | | | | | | | | | |
| 170,473 |
| 4,795 |
| | 2.81 |
| | | 161,727 |
| 3,991 |
| | 2.47 |
| |
| 186,370 |
| 3,490 |
| | 1.87 |
| | | 201,503 |
| 4,331 |
| | 2.15 |
| |
| | | | | | | | | | | |
| 617,043 |
| 31,235 |
| | 5.06 |
| | | 620,615 |
| 33,167 |
| | 5.34 |
| |
| 109,407 |
| 2,386 |
| | 2.18 |
| | | 101,769 |
| 2,779 |
| | 2.73 |
| |
| 40,334 |
| 538 |
| | 1.33 |
| | | 32,967 |
| 259 |
| | 0.79 |
| |
| 1,970,231 |
| 53,366 |
| (d) | 2.71 |
| (d) | | 1,842,417 |
| 56,696 |
| (d) | 3.08 |
| (d) |
| |
| | | | | | | | | | |
| |
| | | | | | | | | | |
| 582,282 |
| 1,067 |
| | 0.18 |
| | | 512,589 |
| 1,345 |
| | 0.26 |
| |
| 240,499 |
| 1,000 |
| | 0.42 |
| | | 238,509 |
| 1,310 |
| | 0.55 |
| |
| | | | | | | | | | | |
| 161,256 |
| 103 |
| (c) | 0.06 |
| (c) | | 181,460 |
| 4 |
| (c) | — |
| (c) |
| 77,295 |
| 479 |
| | 0.62 |
| | | 67,101 |
| 531 |
| | 0.79 |
| |
| |
| | | | | | | | | | |
| 176,870 |
| 5 |
| (b)(d) | — |
| (d) | | 176,755 |
| (150 | ) | (b)(d) | (0.08 | ) | (d) |
| 79,741 |
| 1,211 |
| (d) | 1.52 |
| (d) | | 67,484 |
| 1,293 |
| (d) | 1.92 |
| (d) |
| 54,832 |
| 478 |
| | 0.87 |
| | | 60,234 |
| 648 |
| | 1.08 |
| |
| | | | | | | | | | | |
| 250,957 |
| 4,949 |
| | 1.97 |
| | | 230,101 |
| 5,998 |
| | 2.61 |
| |
| 13,126 |
| 58 |
| | 0.45 |
| | | 15,561 |
| 64 |
| | 0.41 |
| |
| |
| | | | | | | | | | |
| (181,109 | ) | (339 | ) | | — |
| | | (253,906 | ) | (551 | ) | | — |
| |
| 181,109 |
| 339 |
| | — |
| | | 253,906 |
| 551 |
| | — |
| |
| 1,636,858 |
| 9,350 |
| (d) | 0.57 |
| (d) | | 1,549,794 |
| 11,043 |
| (d) | 0.71 |
| (d) |
| 333,373 |
| | | | | | 292,623 |
| | | | |
| $ | 1,970,231 |
| $ | 9,350 |
| (d) | 0.47 | % | (d) | | $ | 1,842,417 |
| $ | 11,043 |
| (d) | 0.60 | % | (d) |
| | 44,016 |
| | 2.23 | % | | | | 45,653 |
| | 2.48 | % | |
| | 35,492 |
| | 2.59 |
| | | | 35,353 |
| | 2.91 |
| |
| | 8,524 |
| | 1.42 |
| | | | 10,300 |
| | 1.65 |
| |
| | | | | | | | | | | |
| | | | 32.6 |
| | | | | | 36.2 |
| |
| | | | 23.5 |
| | | | | | 23.4 |
| |
Changes in net interest income, volume and rate analysis
The table below presents an analysis of the effect on net interest income of volume and rate changes for the periods 2014 versus 2013 and 2013 versus 2012. In this analysis, when the change cannot be isolated to either volume or rate, it has been allocated to volume. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 versus 2013 | | 2013 versus 2012 | |
| | Increase/(decrease) due to change in: | | | | Increase/(decrease) due to change in: | | | |
Year ended December 31, (On a taxable-equivalent basis: in millions) | Volume | | Rate | | Net change | | Volume | | Rate | | Net change | |
| Interest-earning assets | | | | | | | | | | | | |
| Deposits with banks: | | | | | | | | | | | | |
| U.S. | $ | 230 |
| | $ | 23 |
| | $ | 253 |
| | $ | 380 |
| | $ | 24 |
| | $ | 404 |
| |
| Non-U.S. | (56 | ) | | 42 |
| | (14 | ) | | (33 | ) | | (8 | ) | | (41 | ) | |
| Federal funds sold and securities purchased under resale agreements: | | | | | | |
| |
| | | |
| U.S. | (22 | ) | | (52 | ) | | (74 | ) | | (51 | ) | | (28 | ) | | (79 | ) | |
| Non-U.S. | 31 |
| | (255 | ) | | (224 | ) | | (6 | ) | | (417 | ) | | (423 | ) | |
| Securities borrowed: | | | | | | |
| |
| | | |
| U.S. | (58 | ) | | (139 | ) | | (197 | ) | | 3 |
| | 28 |
| | 31 |
| |
| Non-U.S. | (16 | ) | | (161 | ) | | (177 | ) | | (63 | ) | | (92 | ) | | (155 | ) | |
| Trading assets – debt instruments: | | | | | | |
| |
| | | |
| U.S. | (413 | ) | | 157 |
| | (256 | ) | | 34 |
| (a) | (295 | ) | (a) | (261 | ) | (a) |
| Non-U.S. | (197 | ) | | (352 | ) | | (549 | ) | | (273 | ) | (a) | (450 | ) | (a) | (723 | ) | (a) |
| Securities: | | | | | | |
| | | | | |
| U.S. | 785 |
| | 1,006 |
| | 1,791 |
| | 254 |
| | 550 |
| | 804 |
| |
| Non-U.S. | (543 | ) | | 242 |
| | (301 | ) | | (277 | ) | | (564 | ) | | (841 | ) | |
| Loans: | | | | | | | | |
| | | |
| U.S. | 905 |
| | (1,975 | ) | | (1,070 | ) | | (194 | ) | | (1,738 | ) | | (1,932 | ) | |
| Non-U.S. | (135 | ) | | (22 | ) | | (157 | ) | | 167 |
| | (560 | ) | | (393 | ) | |
| Other assets, predominantly U.S. | 8 |
| | 117 |
| | 125 |
| | 101 |
| | 178 |
| | 279 |
| |
| Change in interest income | 519 |
| | (1,369 | ) | | (850 | ) | | 42 |
| (a) | (3,372 | ) | (a) | (3,330 | ) | (a) |
| Interest-bearing liabilities | | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | | |
| U.S. | 37 |
| | (291 | ) | | (254 | ) | | 132 |
| | (410 | ) | | (278 | ) | |
| Non-U.S. | 36 |
| | (216 | ) | | (180 | ) | | — |
| | (310 | ) | | (310 | ) | |
| Federal funds purchased and securities loaned or sold under repurchase agreements: | | | | | | |
| |
| | | |
| U.S. | (21 | ) | | 48 |
| | 27 |
| | (10 | ) | | 109 |
| | 99 |
| |
| Non-U.S. | (113 | ) | | 108 |
| | (5 | ) | | 62 |
| | (114 | ) | | (52 | ) | |
| Trading liabilities - debt, short-term and other liabilities | | | | | | | | |
| | | |
| U.S. | (27 | ) | | (262 | ) | | (289 | ) | | (5 | ) | (a) | 160 |
| (a) | 155 |
| (a) |
| Non-U.S. | 71 |
| | (152 | ) | | (81 | ) | | 185 |
| (a) | (267 | ) | (a) | (82 | ) | (a) |
| Beneficial interests issued by consolidated VIEs, predominantly U.S. | (57 | ) | | (16 | ) | | (73 | ) | | (44 | ) | | (126 | ) | | (170 | ) | |
| Long-term debt: | | | | | | |
|
| |
|
| |
|
| |
| U.S. | 95 |
| | (678 | ) | | (583 | ) | | 424 |
| | (1,473 | ) | | (1,049 | ) | |
| Non-U.S. | 1 |
| | (16 | ) | | (15 | ) | | (12 | ) | | 6 |
| | (6 | ) | |
| Intercompany funding: | | | | | | | | | | | | |
| U.S. | 72 |
| | 91 |
| | 163 |
| | 136 |
| | 76 |
| | 212 |
| |
| Non-U.S. | (72 | ) | | (91 | ) | | (163 | ) | | (136 | ) | | (76 | ) | | (212 | ) | |
| Change in interest expense | 22 |
| | (1,475 | ) | | (1,453 | ) | | 732 |
| (a) | (2,425 | ) | (a) | (1,693 | ) | (a) |
| Change in net interest income | $ | 497 |
| | $ | 106 |
| | $ | 603 |
| | $ | (690 | ) | (a) | $ | (947 | ) | (a) | $ | (1,637 | ) | |
(a) Prior period amounts have been reclassified to conform with the current period presentation.
For information regarding the securities portfolio as of December 31, 20142017 and 20132016, and for the years ended December 31, 20142017 and 20132016, see Note 12. For the available–for–sale securities portfolio, at December 31, 2012, the fair value and amortized cost of U.S. Treasury and government agency obligations was $110.5 billion and $105.7 billion, respectively; the fair value and amortized cost of all other available–for–sale securities was $260.6 billion and $254.2 billion, respectively; and the total fair value and amortized cost of the total available–for–sale securities portfolio was $371.1 billion and $359.9 billion respectively.10.
At December 31, 2012, the fair value and amortized cost of U.S. Treasury and government agency obligations in the held-to-maturity securities portfolio was $8 million and $7 million, respectively. There were no other held-to-maturity securities at December 31, 2012.
|
| | | | | | | |
| | 2015 |
| December 31, (in millions) | Amortized
cost | | Fair
value |
| Available-for-sale debt securities | | | |
| Mortgage-backed securities: U.S Government agencies | $ | 53,689 |
| | $ | 55,066 |
|
| U.S. Treasury and government agencies | 11,202 |
| | 11,036 |
|
| All other AFS securities | 172,567 |
| | 175,652 |
|
| Total available-for-sale debt securities | $ | 237,458 |
| | $ | 241,754 |
|
| | | | |
| Held-to-maturity securities | | | |
| Mortgage-backed securities: U.S Government agencies | 36,271 |
| | 37,081 |
|
| All other HTM securities | 12,802 |
| | 13,506 |
|
| Total held-to-maturity debt securities | $ | 49,073 |
| | $ | 50,587 |
|
| Total securities | $ | 286,531 |
| | $ | 292,341 |
|
The table below presents loans by portfolio segment and loan class that are presented in Credit and Investment Risk Management on page 112,101, pages 113–119102-107 and page 120,108, and in Note 14,12, at the periods indicated.
| | | December 31, (in millions) | 2014 | 2013 | 2012 | 2011 | 2010 | 2017 |
| 2016(b) |
| 2015 |
| 2014 |
| 2013 |
|
| U.S. consumer, excluding credit card loans | | |
| Residential mortgage | | $ | 236,157 |
| $ | 215,178 |
| $ | 192,714 |
| $ | 139,973 |
| $ | 129,008 |
|
| Home equity | $ | 69,837 |
| $ | 76,790 |
| $ | 88,356 |
| $ | 100,497 |
| $ | 112,844 |
| 44,249 |
| 51,965 |
| 60,548 |
| 69,837 |
| 76,790 |
|
| Mortgage | 139,973 |
| 129,008 |
| 123,277 |
| 128,709 |
| 134,284 |
| |
| Auto | 54,536 |
| 52,757 |
| 49,913 |
| 47,426 |
| 48,367 |
| 66,242 |
| 65,814 |
| 60,255 |
| 54,536 |
| 52,757 |
|
| Other | 31,028 |
| 30,508 |
| 31,074 |
| 31,795 |
| 32,123 |
| 26,033 |
| 31,687 |
| 31,304 |
| 31,028 |
| 30,508 |
|
| Total U.S. consumer, excluding credit card loans | 295,374 |
| 289,063 |
| 292,620 |
| 308,427 |
| 327,618 |
| 372,681 |
| 364,644 |
| 344,821 |
| 295,374 |
| 289,063 |
|
| Credit card Loans | | |
| U.S. credit card loans | 129,067 |
| 125,308 |
| 125,277 |
| 129,587 |
| 134,781 |
| 149,107 |
| 141,447 |
| 131,132 |
| 129,067 |
| 125,308 |
|
| Non-U.S. credit card loans | 1,981 |
| 2,483 |
| 2,716 |
| 2,690 |
| 2,895 |
| 404 |
| 369 |
| 331 |
| 1,981 |
| 2,483 |
|
| Total credit card loans | 131,048 |
| 127,791 |
| 127,993 |
| 132,277 |
| 137,676 |
| 149,511 |
| 141,816 |
| 131,463 |
| 131,048 |
| 127,791 |
|
| Total consumer loans | 426,422 |
| 416,854 |
| 420,613 |
| 440,704 |
| 465,294 |
| 522,192 |
| 506,460 |
| 476,284 |
| 426,422 |
| 416,854 |
|
| U.S. wholesale loans | | |
| Commercial and industrial | 78,664 |
| 79,436 |
| 77,900 |
| 65,958 |
| 50,912 |
| 93,522 |
| 91,393 |
| 83,739 |
| 78,664 |
| 79,436 |
|
| Real estate | 77,022 |
| 67,815 |
| 59,369 |
| 53,230 |
| 51,734 |
| 112,562 |
| 104,268 |
| 90,836 |
| 77,022 |
| 67,815 |
|
| Financial institutions | 13,735 |
| 11,087 |
| 10,708 |
| 8,489 |
| 12,120 |
| 23,819 |
| 20,499 |
| 12,708 |
| 13,743 |
| 11,087 |
|
| Government agencies | 7,574 |
| 8,316 |
| 7,962 |
| 7,236 |
| 6,408 |
| 12,603 |
| 12,655 |
| 9,838 |
| 7,574 |
| 8,316 |
|
| Other | 49,846 |
| 48,158 |
| 50,948 |
| 52,126 |
| 38,298 |
| 69,602 |
| 66,363 |
| 67,925 |
| 49,838 |
| 48,158 |
|
| Total U.S. wholesale loans | 226,841 |
| 214,812 |
| 206,887 |
| 187,039 |
| 159,472 |
| 312,108 |
| 295,178 |
| 265,046 |
| 226,841 |
| 214,812 |
|
| Non-U.S. wholesale loans | | |
| Commercial and industrial | 34,782 |
| 36,447 |
| 36,674 |
| 31,108 |
| 19,053 |
| 29,233 |
| 31,340 |
| 30,385 |
| 34,782 |
| 36,447 |
|
| Real estate | 2,224 |
| 1,621 |
| 1,757 |
| 1,748 |
| 1,973 |
| 3,302 |
| 3,975 |
| 4,577 |
| 2,224 |
| 1,621 |
|
| Financial institutions | 21,099 |
| 22,813 |
| 26,564 |
| 30,262 |
| 20,043 |
| 16,845 |
| 15,196 |
| 17,188 |
| 21,099 |
| 22,813 |
|
| Government agencies | 1,122 |
| 2,146 |
| 1,586 |
| 583 |
| 870 |
| 2,906 |
| 3,726 |
| 1,788 |
| 1,122 |
| 2,146 |
|
| Other | 44,846 |
| 43,725 |
| 39,715 |
| 32,276 |
| 26,222 |
| 44,111 |
| 38,890 |
| 42,031 |
| 44,846 |
| 43,725 |
|
| Total non-U.S. wholesale loans | 104,073 |
| 106,752 |
| 106,296 |
| 95,977 |
| 68,161 |
| 96,397 |
| 93,127 |
| 95,969 |
| 104,073 |
| 106,752 |
|
| Total wholesale loans | | |
| Commercial and industrial | 113,446 |
| 115,883 |
| 114,574 |
| 97,066 |
| 69,965 |
| 122,755 |
| 122,733 |
| 114,124 |
| 113,446 |
| 115,883 |
|
| Real estate | 79,246 |
| 69,436 |
| 61,126 |
| 54,978 |
| 53,707 |
| 115,864 |
| 108,243 |
| 95,413 |
| 79,246 |
| 69,436 |
|
| Financial institutions | 34,834 |
| 33,900 |
| 37,272 |
| 38,751 |
| 32,163 |
| 40,664 |
| 35,695 |
| 29,896 |
| 34,842 |
| 33,900 |
|
| Government agencies | 8,696 |
| 10,462 |
| 9,548 |
| 7,819 |
| 7,278 |
| 15,509 |
| 16,381 |
| 11,626 |
| 8,696 |
| 10,462 |
|
| Other | 94,692 |
| 91,883 |
| 90,663 |
| 84,402 |
| 64,520 |
| 113,713 |
| 105,253 |
| 109,956 |
| 94,684 |
| 91,883 |
|
| Total wholesale loans | 330,914 |
| 321,564 |
| 313,183 |
| 283,016 |
| 227,633 |
| 408,505 |
| 388,305 |
| 361,015 |
| 330,914 |
| 321,564 |
|
Total loans(a) | $ | 757,336 |
| $ | 738,418 |
| $ | 733,796 |
| $ | 723,720 |
| $ | 692,927 |
| $ | 930,697 |
| $ | 894,765 |
| $ | 837,299 |
| $ | 757,336 |
| $ | 738,418 |
|
| Memo: | | |
| Loans held-for-sale | $ | 7,217 |
| $ | 12,230 |
| $ | 4,406 |
| $ | 2,626 |
| $ | 5,453 |
| $ | 3,351 |
| $ | 2,628 |
| $ | 1,646 |
| $ | 7,217 |
| $ | 12,230 |
|
| Loans at fair value | 2,611 |
| 2,011 |
| 2,555 |
| 2,097 |
| 1,976 |
| 2,508 |
| 2,230 |
| 2,861 |
| 2,611 |
| 2,011 |
|
| Total loans held-for-sale and loans at fair value | $ | 9,828 |
| $ | 14,241 |
| $ | 6,961 |
| $ | 4,723 |
| $ | 7,429 |
| $ | 5,859 |
| $ | 4,858 |
| $ | 4,507 |
| $ | 9,828 |
| $ | 14,241 |
|
| |
| (a) | Loans (other than purchased credit-impaired loans and those for which the fair value option have been elected) are presented net of unearned income, unamortized discounts and premiums and net deferred loan costsfees or costs. These amounts were not material as of $1.3 billion, $1.9 billion, $2.5 billion, $2.7 billion and $1.9 billion at December 31, 2017, 2016, 2015, 2014, 2013, 2012, 2011 and 2010, respectively. 2013. |
| |
| (b) | Certain prior period amounts have been revised to conform with the current period presentation. |
Maturities and sensitivity to changes in interest rates
The table below sets forth, at December 31, 20142017, wholesale loan maturity and distribution between fixed and floating interest rates based on the stated terms of the loan agreements. The table below also presents loans by loan class that are presented in Wholesale credit portfolio on pages 120–127108–116 and Note 14.12. The table does not include the impact of derivative instruments.
| | | December 31, 2014 (in millions) | Within 1 year (a) | 1-5 years | After 5 years | Total | |
| December 31, 2017 (in millions) | | Within 1 year (a) | | 1-5 years | | After 5 years | | Total |
| U.S. | | | | | | | | |
| Commercial and industrial | $ | 13,106 |
| $ | 52,053 |
| $ | 13,505 |
| $ | 78,664 |
| $ | 15,403 |
| | $ | 67,056 |
| | $ | 11,063 |
| | $ | 93,522 |
|
| Real estate | 5,238 |
| 18,523 |
| 53,261 |
| 77,022 |
| 8,044 |
| | 25,054 |
| | 79,464 |
| | 112,562 |
|
| Financial institutions | 7,015 |
| 6,229 |
| 491 |
| 13,735 |
| 15,176 |
| | 7,699 |
| | 944 |
| | 23,819 |
|
| Government agencies | 970 |
| 2,411 |
| 4,193 |
| 7,574 |
| 1,644 |
| | 4,182 |
| | 6,777 |
| | 12,603 |
|
| Other | 20,897 |
| 27,272 |
| 1,677 |
| 49,846 |
| 23,274 |
| | 42,702 |
| | 3,626 |
| | 69,602 |
|
| Total U.S. | 47,226 |
| 106,488 |
| 73,127 |
| 226,841 |
| 63,541 |
| | 146,693 |
| | 101,874 |
| | 312,108 |
|
| Non-U.S. | | | | | | | | |
| Commercial and industrial | 12,329 |
| 16,644 |
| 5,809 |
| 34,782 |
| 11,648 |
| | 14,708 |
| | 2,877 |
| | 29,233 |
|
| Real estate | 781 |
| 1,324 |
| 119 |
| 2,224 |
| 834 |
| | 2,460 |
| | 8 |
| | 3,302 |
|
| Financial institutions | 16,805 |
| 3,947 |
| 347 |
| 21,099 |
| 12,716 |
| | 4,109 |
| | 20 |
| | 16,845 |
|
| Government agencies | 29 |
| 320 |
| 773 |
| 1,122 |
| 149 |
| | 1,955 |
| | 802 |
| | 2,906 |
|
| Other | 35,571 |
| 8,707 |
| 568 |
| 44,846 |
| 33,383 |
| | 9,788 |
| | 940 |
| | 44,111 |
|
| Total non-U.S. | 65,515 |
| 30,942 |
| 7,616 |
| 104,073 |
| 58,730 |
| | 33,020 |
| | 4,647 |
| | 96,397 |
|
| Total wholesale loans | $ | 112,741 |
| $ | 137,430 |
| $ | 80,743 |
| $ | 330,914 |
| $ | 122,271 |
| | $ | 179,713 |
| | $ | 106,521 |
| | $ | 408,505 |
|
| Loans at fixed interest rates | | $ | 10,387 |
| $ | 54,847 |
| | | | $ | 13,561 |
| | $ | 13,310 |
| | |
| Loans at variable interest rates | | 127,043 |
| 25,896 |
| | | | 166,152 |
| | 93,211 |
| | |
| Total wholesale loans | | $ | 137,430 |
| $ | 80,743 |
| | | | $ | 179,713 |
| | $ | 106,521 |
| | |
| |
| (a) | Includes demand loans and overdrafts. |
Risk elements
The following tables set forth nonperforming assets, contractually past-due assets, and accruing restructured loans by portfolio segment and loan class that are presented in Credit and Investment Risk Management on page 112101, pages 113–114page 103 and page 120108, at the periods indicated.
| | | December 31, (in millions) | 2014 | 2013 | 2012 | 2011 | 2010 | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Nonperforming assets | | | | | | | | | | |
| U.S. nonaccrual loans: | | | | | | | | | | |
| Consumer, excluding credit card loans | $ | 6,509 |
| $ | 7,496 |
| $ | 9,174 |
| $ | 7,411 |
| $ | 8,833 |
| $ | 4,209 |
| | $ | 4,820 |
| | $ | 5,413 |
| | $ | 6,509 |
| | $ | 7,496 |
|
| Credit card loans | — |
| — |
| 1 |
| 1 |
| 2 |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Total U.S. nonaccrual consumer loans | 6,509 |
| 7,496 |
| 9,175 |
| 7,412 |
| 8,835 |
| 4,209 |
| | 4,820 |
| | 5,413 |
| | 6,509 |
| | 7,496 |
|
| Wholesale: | | | | | | | | | | |
| Commercial and industrial | 184 |
| 317 |
| 702 |
| 936 |
| 1,745 |
| 703 |
| | 1,145 |
| | 315 |
| | 184 |
| | 317 |
|
| Real estate | 237 |
| 338 |
| 520 |
| 886 |
| 2,390 |
| 95 |
| | 148 |
| | 175 |
| | 237 |
| | 338 |
|
| Financial institutions | 12 |
| 19 |
| 60 |
| 76 |
| 111 |
| 2 |
| | 4 |
| | 4 |
| | 12 |
| | 19 |
|
| Government agencies | — |
| 1 |
| — |
| — |
| — |
| — |
| | — |
| | — |
| | — |
| | 1 |
|
| Other | 59 |
| 97 |
| 153 |
| 234 |
| 267 |
| 137 |
| | 198 |
| | 86 |
| | 59 |
| | 97 |
|
| Total U.S. wholesale nonaccrual loans | 492 |
| 772 |
| 1,435 |
| 2,132 |
| 4,513 |
| 937 |
| | 1,495 |
| | 580 |
| | 492 |
| | 772 |
|
| Total U.S. nonaccrual loans | 7,001 |
| 8,268 |
| 10,610 |
| 9,544 |
| 13,348 |
| 5,146 |
| | 6,315 |
| | 5,993 |
| | 7,001 |
| | 8,268 |
|
| Non-U.S. nonaccrual loans: | | | | | | | | | | |
| Consumer, excluding credit card loans | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Credit card loans | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Total non-U.S. nonaccrual consumer loans | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Wholesale: | | | | | | | | | | |
| Commercial and industrial | 21 |
| 116 |
| 131 |
| 79 |
| 234 |
| 654 |
| | 454 |
| | 314 |
| | 21 |
| | 116 |
|
| Real estate | 23 |
| 88 |
| 89 |
| — |
| 585 |
| 41 |
| | 52 |
| | 63 |
| | 23 |
| | 88 |
|
| Financial institutions | 7 |
| 8 |
| — |
| — |
| 30 |
| — |
| | 5 |
| | 6 |
| | 7 |
| | 8 |
|
| Government agencies | — |
| — |
| 5 |
| 16 |
| 22 |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Other | 81 |
| 60 |
| 57 |
| 354 |
| 622 |
| 102 |
| | 57 |
| | 53 |
| | 81 |
| | 60 |
|
| Total non-U.S. wholesale nonaccrual loans | 132 |
| 272 |
| 282 |
| 449 |
| 1,493 |
| 797 |
| | 568 |
| | 436 |
| | 132 |
| | 272 |
|
| Total non-U.S. nonaccrual loans | 132 |
| 272 |
| 282 |
| 449 |
| 1,493 |
| 797 |
| | 568 |
| | 436 |
| | 132 |
| | 272 |
|
| Total nonaccrual loans | 7,133 |
| 8,540 |
| 10,892 |
| 9,993 |
| 14,841 |
| 5,943 |
| | 6,883 |
| | 6,429 |
| | 7,133 |
| | 8,540 |
|
| Derivative receivables | 275 |
| 415 |
| 239 |
| 297 |
| 159 |
| 130 |
| | 223 |
| | 204 |
| | 275 |
| | 415 |
|
| Assets acquired in loan satisfactions | 559 |
| 751 |
| 775 |
| 1,025 |
| 1,682 |
| 353 |
| | 429 |
| | 401 |
| | 559 |
| | 751 |
|
| Nonperforming assets | $ | 7,967 |
| $ | 9,706 |
| $ | 11,906 |
| $ | 11,315 |
| $ | 16,682 |
| $ | 6,426 |
| | $ | 7,535 |
| | $ | 7,034 |
| | $ | 7,967 |
| | $ | 9,706 |
|
| Memo: | | | | | | | | | | |
| Loans held-for-sale | $ | 95 |
| $ | 26 |
| $ | 18 |
| $ | 110 |
| $ | 341 |
| $ | — |
| | $ | 162 |
| | $ | 101 |
| | $ | 95 |
| | $ | 26 |
|
Loans at fair value(a) | 21 |
| 197 |
| 265 |
| 73 |
| 155 |
| — |
| | — |
| | 25 |
| | 21 |
| | 197 |
|
| Total loans held-for-sale and loans at fair value | $ | 116 |
| $ | 223 |
| $ | 283 |
| $ | 183 |
| $ | 496 |
| $ | — |
| | $ | 162 |
| | $ | 126 |
| | $ | 116 |
| | $ | 223 |
|
| |
(a) | In 2013 certain loans that resulted from restructurings that were previously classified as performing were reclassified as nonperforming loans. Prior periods were revised to conform with the current presentation. |
| | | December 31, (in millions) | 2014 | 2013 | 2012 | 2011 | 2010 | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Contractually past-due loans(a) | | | | | | | | | | |
| U.S. loans: | | | | | | | | | | |
| Consumer, excluding credit card loans | $ | 367 |
| $ | 428 |
| $ | 525 |
| $ | 551 |
| $ | 625 |
| |
Consumer, excluding credit card loans(b) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Credit card loans | 893 |
| 997 |
| 1,268 |
| 1,867 |
| 3,015 |
| 1,378 |
| | 1,143 |
| | 944 |
| | 893 |
| | 997 |
|
| Total U.S. consumer loans | 1,260 |
| 1,425 |
| 1,793 |
| 2,418 |
| 3,640 |
| 1,378 |
| | 1,143 |
| | 944 |
| | 893 |
| | 997 |
|
| Wholesale: | | | | | | | | | | |
| Commercial and industrial | 14 |
| 14 |
| 19 |
| — |
| 7 |
| 107 |
| | 86 |
| | 6 |
| | 14 |
| | 14 |
|
| Real estate | 33 |
| 14 |
| 69 |
| 84 |
| 109 |
| 12 |
| | 2 |
| | 15 |
| | 33 |
| | 14 |
|
| Financial institutions | — |
| — |
| 6 |
| 2 |
| 2 |
| 14 |
| | 12 |
| | 1 |
| | — |
| | — |
|
| Government agencies | — |
| — |
| — |
| — |
| — |
| 4 |
| | 4 |
| | 6 |
| | — |
| | — |
|
| Other | 26 |
| 16 |
| 30 |
| 6 |
| 171 |
| 2 |
| | 19 |
| | 28 |
| | 26 |
| | 16 |
|
| Total U.S. wholesale loans | 73 |
| 44 |
| 124 |
| 92 |
| 289 |
| 139 |
| | 123 |
| | 56 |
| | 73 |
| | 44 |
|
| Total U.S. loans | 1,333 |
| 1,469 |
| 1,917 |
| 2,510 |
| 3,929 |
| 1,517 |
| | 1,266 |
| | 1,000 |
| | 966 |
| | 1,041 |
|
| Non-U.S. loans: | | | | | | | | | | |
| Consumer, excluding credit card loans | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Credit card loans | 2 |
| 25 |
| 34 |
| 36 |
| 38 |
| 1 |
| | 2 |
| | — |
| | 2 |
| | 25 |
|
| Total non-U.S. consumer loans | 2 |
| 25 |
| 34 |
| 36 |
| 38 |
| 1 |
| | 2 |
| | — |
| | 2 |
| | 25 |
|
| Wholesale: | | | | | | | | | | |
| Commercial and industrial | — |
| — |
| — |
| — |
| — |
| 1 |
| | — |
| | 1 |
| | — |
| | — |
|
| Real estate | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Financial institutions | — |
| 6 |
| — |
| — |
| — |
| 1 |
| | 9 |
| | 10 |
| | — |
| | 6 |
|
| Government agencies | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Other | 3 |
| — |
| 14 |
| 8 |
| 70 |
| — |
| | — |
| | — |
| | 3 |
| | — |
|
| Total non-U.S. wholesale loans | 3 |
| 6 |
| 14 |
| 8 |
| 70 |
| 2 |
| | 9 |
| | 11 |
| | 3 |
| | 6 |
|
| Total non-U.S. loans | 5 |
| 31 |
| 48 |
| 44 |
| 108 |
| 3 |
| | 11 |
| | 11 |
| | 5 |
| | 31 |
|
| Total contractually past due loans | $ | 1,338 |
| $ | 1,500 |
| $ | 1,965 |
| $ | 2,554 |
| $ | 4,037 |
| $ | 1,520 |
| | $ | 1,277 |
| | $ | 1,011 |
| | $ | 971 |
| | $ | 1,072 |
|
| |
| (a) | Represents accruing loans past-due 90 days or more as to principal and interest, which are not characterized as nonaccrual loans. Excludes PCI loans which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of individual loans within the pools, is not meaningful. The Firm is recognizing interest income on each pool of loans as each of the pools is performing. |
| |
| (b) | At December 31, 2017, 2016, 2015, 2014 and 2013, excluded loans 90 or more days past due and still accruing as follows: (1) mortgage loans insured by U.S. government agencies of $2.7 billion, $2.7 billion, $2.8 billion, $3.4 billion and $3.2 billion, respectively; and (2) student loans insured by U.S. government agencies under the FFELP of zero, $263 million, $290 million, $367 million and $428 million, respectively. These amounts have been excluded from the nonaccrual loans based upon the government guarantee. Prior period amounts have been revised to conform with current period presentation. |
| | | December 31, (in millions) | 2014 | 2013 | 2012 | 2011 | 2010 | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Accruing restructured loans(a) | | | | | | | | | | |
| U.S.: | | | | | | | | | | |
| Consumer, excluding credit card loans | $ | 7,814 |
| $ | 9,173 |
| $ | 9,033 |
| $ | 7,310 |
| $ | 4,256 |
| $ | 4,993 |
| | $ | 5,561 |
| | $ | 5,980 |
| | $ | 7,814 |
| | $ | 9,173 |
|
Credit card loans(b) | 2,029 |
| 3,115 |
| 4,762 |
| 7,214 |
| 10,005 |
| 1,215 |
| | 1,240 |
| | 1,465 |
| | 2,029 |
| | 3,115 |
|
| Total U.S. consumer loans | 9,843 |
| 12,288 |
| 13,795 |
| 14,524 |
| 14,261 |
| 6,208 |
| | 6,801 |
| | 7,445 |
| | 9,843 |
| | 12,288 |
|
| Wholesale: | | | | | | | | | | |
| Commercial and industrial | 10 |
| — |
| 29 |
| 68 |
| — |
| 32 |
| | 34 |
| | 12 |
| | 10 |
| | — |
|
| Real estate | 31 |
| 27 |
| 7 |
| 48 |
| 76 |
| 5 |
| | 11 |
| | 28 |
| | 31 |
| | 27 |
|
| Financial institutions | — |
| — |
| — |
| 2 |
| — |
| 79 |
| | — |
| | — |
| | — |
| | — |
|
| Other | 1 |
| 3 |
| — |
| 6 |
| — |
| — |
| | 4 |
| | — |
| | 1 |
| | 3 |
|
| Total U.S. wholesale loans | 42 |
| 30 |
| 36 |
| 124 |
| 76 |
| 116 |
| | 49 |
| | 40 |
| | 42 |
| | 30 |
|
| Total U.S. | 9,885 |
| 12,318 |
| 13,831 |
| 14,648 |
| 14,337 |
| 6,324 |
| | 6,850 |
| | 7,485 |
| | 9,885 |
| | 12,318 |
|
| Non-U.S.: | | | | | | | | | | |
| Consumer, excluding credit card loans | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Credit card loans(b) | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Total non-U.S. consumer loans | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Wholesale: | | | | | | | | | | |
| Commercial and industrial | — |
| — |
| 24 |
| 48 |
| 49 |
| 10 |
| | 17 |
| | — |
| | — |
| | — |
|
| Real estate | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Financial institutions | | 11 |
| | — |
| | — |
| | — |
| | — |
|
| Other | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| | — |
| | — |
| | — |
|
| Total non-U.S. wholesale loans | — |
| — |
| 24 |
| 48 |
| 49 |
| 21 |
| | 17 |
| | — |
| | — |
| | — |
|
| Total non-U.S. | — |
| — |
| 24 |
| 48 |
| 49 |
| 21 |
| | 17 |
| | — |
| | — |
| | — |
|
| Total accruing restructured notes | $ | 9,885 |
| $ | 12,318 |
| $ | 13,855 |
| $ | 14,696 |
| $ | 14,386 |
| $ | 6,345 |
| | $ | 6,867 |
| | $ | 7,485 |
| | $ | 9,885 |
| | $ | 12,318 |
|
| |
| (a) | Represents performing loans modified in troubled debt restructuringsTDRs in which an economic concession was granted by the Firm and the borrower has demonstrated its ability to repay the loans according to the terms of the restructuring. As defined in U.S. GAAP, concessions include the reduction of interest rates or the deferral of interest or principal payments, resulting from deterioration in the borrowers’ financial condition. Excludes nonaccrual assets and contractually past-due assets, which are included in the sections above. |
| |
| (b) | Includes credit card loans that have been modified in a troubled debt restructuring.TDR. |
For a discussion of nonaccrual loans, past-due loan accounting policies, and accruing restructured loans see Credit and Investment Risk Management on pages 110–11199–120, and Note 14.12.
Impact of nonaccrual loans and accruing restructured loans on interest income
The negative impact on interest income from nonaccrual loans represents the difference between the amount of interest income that would have been recorded on such nonaccrual loans according to their original contractual terms had they been performing and the amount of interest that actually was recognized on a cash basis. The negative impact on interest income from accruing restructured loans represents the difference between the amount of interest income that would have been recorded on such loans according to their original contractual terms and the amount of interest that actually was recognized under the modified terms. The following table sets forth this data for the years specified. The change in foregoneforgone interest income from 20122015 through 20142017 was primarily driven by the change in the levels of nonaccrual loans.
| | | Year ended December 31, (in millions) | 2014 | 2013 | 2012 | 2017 | 2016 | 2015 |
| Nonaccrual loans | | |
| U.S.: | | |
| Consumer, excluding credit card: | | |
| Gross amount of interest that would have been recorded at the original terms | $ | 563 |
| $ | 719 |
| $ | 804 |
| $ | 367 |
| $ | 464 |
| $ | 513 |
|
| Interest that was recognized in income | (268 | ) | (298 | ) | (302 | ) | (175 | ) | (207 | ) | (225 | ) |
| Total U.S. consumer, excluding credit card | 295 |
| 421 |
| 502 |
| 192 |
| 257 |
| 288 |
|
| Credit card: | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
| — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
| — |
| — |
| — |
|
| Total U.S. credit card | — |
| — |
| — |
| — |
| — |
| — |
|
| Total U.S. consumer | 295 |
| 421 |
| 502 |
| 192 |
| 257 |
| 288 |
|
| Wholesale: | | |
| Gross amount of interest that would have been recorded at the original terms | 28 |
| 29 |
| 54 |
| 46 |
| 56 |
| 24 |
|
| Interest that was recognized in income | (9 | ) | (9 | ) | (4 | ) | (30 | ) | (5 | ) | (10 | ) |
| Total U.S. wholesale | 19 |
| 20 |
| 50 |
| 16 |
| 51 |
| 14 |
|
| Negative impact - U.S. | 314 |
| 441 |
| 552 |
| |
Negative impact — U.S. | | 208 |
| 308 |
| 302 |
|
| Non-U.S.: | | |
| Consumer, excluding credit card: | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
| — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
| — |
| — |
| — |
|
| Total non-U.S. consumer, excluding credit card | — |
| — |
| — |
| — |
| — |
| — |
|
| Credit card: | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
| — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
| — |
| — |
| — |
|
| Total non-U.S. credit card | — |
| — |
| — |
| — |
| — |
| — |
|
| Total non-U.S. consumer | — |
| — |
| — |
| — |
| — |
| — |
|
Wholesale: (a) | | |
| Gross amount of interest that would have been recorded at the original terms | 7 |
| 36 |
| 14 |
| 24 |
| 25 |
| 13 |
|
| Interest that was recognized in income | — |
| — |
| — |
| (12 | ) | (2 | ) | (6 | ) |
| Total non-U.S. wholesale | 7 |
| 36 |
| 14 |
| 12 |
| 23 |
| 7 |
|
| Negative impact — non-U.S. | 7 |
| 36 |
| 14 |
| 12 |
| 23 |
| 7 |
|
| Total negative impact on interest income | $ | 321 |
| $ | 477 |
| $ | 566 |
| $ | 220 |
| $ | 331 |
| $ | 309 |
|
|
| | |
(a)294 | During 2013, certain loans that resulted from restructurings that were previously classified as performing were reclassified as nonperforming loans. The gross amount of interest that would have been recorded at the original terms has been adjusted accordingly. Prior periods were revised to conform with the current presentation. | |
|
| | | | | | | | | |
| Year ended December 31, (in millions) | 2017 | 2016 | 2015 |
| Accruing restructured loans | | | |
| U.S.: | | | |
| Consumer, excluding credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | $ | 401 |
| $ | 451 |
| $ | 485 |
|
| Interest that was recognized in income | (245 | ) | (256 | ) | (286 | ) |
| Total U.S. consumer, excluding credit card | 156 |
| 195 |
| 199 |
|
| Credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | 202 |
| 207 |
| 260 |
|
| Interest that was recognized in income | (59 | ) | (63 | ) | (82 | ) |
| Total U.S. credit card | 143 |
| 144 |
| 178 |
|
| Total U.S. consumer | 299 |
| 339 |
| 377 |
|
| Wholesale: | | | |
| Gross amount of interest that would have been recorded at the original terms | 13 |
| 2 |
| 2 |
|
| Interest that was recognized in income | (13 | ) | (2 | ) | (2 | ) |
| Total U.S. wholesale | — |
| — |
| — |
|
| Negative impact — U.S. | 299 |
| 339 |
| 377 |
|
| Non-U.S.: | | | |
| Consumer, excluding credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
|
| Total non-U.S. consumer, excluding credit card | — |
| — |
| — |
|
| Credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
|
| Total non-U.S. credit card | — |
| — |
| — |
|
| Total non-U.S. consumer | — |
| — |
| — |
|
| Wholesale: | | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
|
| Total non-U.S. wholesale | — |
| — |
| — |
|
| Negative impact — non-U.S. | — |
| — |
| — |
|
| Total negative impact on interest income | $ | 299 |
| $ | 339 |
| $ | 377 |
|
|
| | | | | | | | | |
| Year ended December 31, (in millions) | 2014 | 2013 | 2012 |
| Accruing restructured loans | | | |
| U.S.: | | | |
| Consumer, excluding credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | $ | 629 |
| $ | 758 |
| $ | 729 |
|
| Interest that was recognized in income | (339 | ) | (395 | ) | (417 | ) |
| Total U.S. consumer, excluding credit card | 290 |
| 363 |
| 312 |
|
| Credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | 377 |
| 602 |
| 805 |
|
| Interest that was recognized in income | (123 | ) | (198 | ) | (308 | ) |
| Total U.S. credit card | 254 |
| 404 |
| 497 |
|
| Total U.S. consumer | 544 |
| 767 |
| 809 |
|
Wholesale:(a) | | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| 1 |
| 1 |
|
| Interest that was recognized in income | — |
| (1 | ) | (2 | ) |
| Total U.S. wholesale | — |
| — |
| (1 | ) |
| Negative impact — U.S. | 544 |
| 767 |
| 808 |
|
| Non-U.S.: | | | |
| Consumer, excluding credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
|
| Total non-U.S. consumer, excluding credit card | — |
| — |
| — |
|
| Credit card: | | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| — |
|
| Interest that was recognized in income | — |
| — |
| — |
|
| Total non-U.S. credit card | — |
| — |
| — |
|
| Total non-U.S. consumer | — |
| — |
| — |
|
Wholesale:(a) | | | |
| Gross amount of interest that would have been recorded at the original terms | — |
| — |
| 1 |
|
| Interest that was recognized in income | — |
| — |
| (1 | ) |
| Total non-U.S. wholesale | — |
| — |
| — |
|
| Negative impact — non-U.S. | — |
| — |
| — |
|
| Total negative impact on interest income | $ | 544 |
| $ | 767 |
| $ | 808 |
|
| |
(a) | Predominantly real estate-related. |
Cross-border outstandings
Cross-border disclosure is based on the Federal Financial Institutions Examination Council’s (“FFIEC”)FFIEC guidelines governing the determination of cross-border risk.
The reporting of country exposure under the FFIEC bank regulatory requirements provides information on the distribution, by country and sector, of claims on, and liabilities to, foreign residents held by U.S. banks and bank holding companies and is used by the regulatory agencies to determine the presence of credit and related risks,
including transfer and country risk. Country location under the FFIEC bank regulatory reporting is based on where the entity or counterparty is legally established.
JPMorgan Chase’s total cross-border exposure tends to fluctuate greatly, and the amount of exposure at year-end tends to be a function of timing rather than representing a consistent trend. For a further discussion of JPMorgan Chase’s country risk exposure, see Country Risk Management on pages 137–138129–130.
The following table lists all countries in which JPMorgan Chase’s cross-border outstandings exceed 0.75% of consolidated assets as of the dates specified.
| | Cross-border outstandings exceeding 0.75% of total assets(b) | | (in millions) | December 31, | Governments | Banks | Other(c) | Net local country assets | Total cross-border outstandings(d) | Commitments(e) | Total exposure | December 31, | Governments | Banks | Other(a) | Net local country assets | Total cross-border outstandings(b) | Commitments(c) | Total exposure |
| Germany | | 2017 | $ | 17,166 |
| $ | 5,357 |
| $ | 19,504 |
| $ | 20,117 |
| $ | 62,144 |
| $ | 65,333 |
| $ | 127,477 |
|
| | | 2016 | 22,332 |
| 2,118 |
| 14,310 |
| 25,269 |
| 64,029 |
| 71,981 |
| 136,010 |
|
| | | 2015 | 19,817 |
| 2,028 |
| 8,455 |
| — |
| 30,300 |
| 106,104 |
| 136,404 |
|
| Cayman Islands | 2014 | $ | 2 |
| $ | 199 |
| $ | 67,810 |
| $ | 115 |
| $ | 68,126 |
| $ | 25,886 |
| $ | 94,012 |
| 2017 | $ | 5 |
| $ | 462 |
| $ | 61,302 |
| $ | 58 |
| $ | 61,827 |
| $ | 12,361 |
| $ | 74,188 |
|
| | | 2016 | 18 |
| 107 |
| 74,810 |
| 84 |
| 75,019 |
| 10,708 |
| 85,727 |
|
| | | 2015 | — |
| 153 |
| 76,160 |
| 35 |
| 76,348 |
| 12,708 |
| 89,056 |
|
| Japan | | 2017 | $ | 606 |
| $ | 17,617 |
| $ | 12,256 |
| $ | 25,229 |
| $ | 55,708 |
| $ | 52,928 |
| $ | 108,636 |
|
| | 2013 | 9 |
| 232 |
| 70,006 |
| — |
| 70,247 |
| 21,928 |
| 92,175 |
| 2016 | 865 |
| 16,522 |
| 5,209 |
| 48,505 |
| 71,101 |
| 52,448 |
| 123,549 |
|
| | 2012 | 234 |
| 35 |
| 68,588 |
| — |
| 68,857 |
| 2,645 |
| 71,502 |
| 2015 | 367 |
| 12,556 |
| 3,972 |
| 29,348 |
| 46,243 |
| 47,069 |
| 93,312 |
|
| France | 2014 | $ | 13,544 |
| $ | 8,670 |
| $ | 23,254 |
| $ | 2,222 |
| $ | 47,690 |
| $ | 188,703 |
| $ | 236,393 |
| 2017 | $ | 11,982 |
| $ | 6,828 |
| $ | 15,399 |
| $ | 2,471 |
| $ | 36,680 |
| $ | 83,572 |
| $ | 120,252 |
|
| | 2013 | 10,512 |
| 12,448 |
| 38,415 |
| 2,486 |
| 63,861 |
| 235,173 |
| 299,034 |
| 2016 | 10,871 |
| 4,076 |
| 26,195 |
| 3,723 |
| 44,865 |
| 88,256 |
| 133,121 |
|
| | 2012 | 10,706 |
| 18,979 |
| 26,796 |
| 1,714 |
| 58,195 |
| 91,632 |
| 149,827 |
| 2015 | 9,139 |
| 5,780 |
| 21,199 |
| 2,890 |
| 39,008 |
| 127,159 |
| 166,167 |
|
| Japan | 2014 | $ | 522 |
| $ | 11,211 |
| $ | 3,922 |
| $ | 24,257 |
| $ | 39,912 |
| $ | 67,480 |
| $ | 107,392 |
| |
| | 2013 | 957 |
| 16,286 |
| 12,972 |
| 30,811 |
| 61,026 |
| 60,310 |
| 121,336 |
| |
| | 2012 | 2,016 |
| 30,616 |
| 7,708 |
| 23,680 |
| 64,020 |
| 57,023 |
| 121,043 |
| |
| Germany | 2014 | $ | 22,772 |
| $ | 4,524 |
| $ | 8,522 |
| $ | — |
| $ | 35,818 |
| $ | 173,121 |
| $ | 208,939 |
| |
| | 2013 | 25,514 |
| 4,078 |
| 7,057 |
| — |
| 36,649 |
| 214,375 |
| 251,024 |
| |
| | 2012 | 11,376 |
| 21,944 |
| 11,674 |
| 321 |
| 45,315 |
| 92,597 |
| 137,912 |
| |
| Netherlands | 2014 | $ | 1,551 |
| $ | 3,157 |
| $ | 24,792 |
| $ | — |
| $ | 29,500 |
| $ | 86,039 |
| $ | 115,539 |
| |
| | 2013 | 1,024 |
| 4,349 |
| 32,765 |
| — |
| 38,138 |
| 97,797 |
| 135,935 |
| |
| | 2012 | 48 |
| 5,947 |
| 36,625 |
| — |
| 42,620 |
| 41,481 |
| 84,101 |
| |
| Italy | 2014 | $ | 14,297 |
| $ | 5,293 |
| $ | 5,221 |
| $ | 550 |
| $ | 25,361 |
| $ | 128,269 |
| $ | 153,630 |
| 2017 | $ | 11,376 |
| $ | 4,628 |
| $ | 4,526 |
| $ | 611 |
| $ | 21,141 |
| $ | 61,005 |
| $ | 82,146 |
|
| | 2013 | 10,302 |
| 4,440 |
| 5,643 |
| 1,524 |
| 21,909 |
| 135,711 |
| 157,620 |
| |
| | 2012 | 9,939 |
| 3,703 |
| 2,786 |
| 1,254 |
| 17,682 |
| 73,190 |
| 90,872 |
| |
| Brazil | 2014 | $ | 2,650 |
| $ | 2,874 |
| $ | 5,258 |
| $ | 7,804 |
| $ | 18,586 |
| $ | 10,644 |
| $ | 29,230 |
| |
| | 2013 | 2,332 |
| 3,521 |
| 4,899 |
| 4,384 |
| 15,136 |
| 10,148 |
| 25,284 |
| 2016 | 12,290 |
| 4,760 |
| 4,487 |
| 848 |
| 22,385 |
| 62,382 |
| 84,767 |
|
| | 2012 | 4,951 |
| 4,373 |
| 6,456 |
| 9,463 |
| 25,243 |
| 8,841 |
| 34,084 |
| 2015 | 12,313 |
| 3,618 |
| 6,331 |
| 732 |
| 22,994 |
| 89,712 |
| 112,706 |
|
| Ireland | 2014 | $ | 131 |
| $ | 4,007 |
| $ | 13,613 |
| $ | — |
| $ | 17,751 |
| $ | 12,734 |
| $ | 30,485 |
| 2017 | $ | 630 |
| $ | 318 |
| $ | 19,669 |
| $ | — |
| $ | 20,617 |
| $ | 5,728 |
| $ | 26,345 |
|
| | 2013 | 99 |
| 4,175 |
| 13,878 |
| — |
| 18,152 |
| 11,709 |
| 29,861 |
| 2016 | 148 |
| 664 |
| 18,916 |
| — |
| 19,728 |
| 5,469 |
| 25,197 |
|
| | 2012 | 97 |
| 2,818 |
| 12,598 |
| — |
| 15,513 |
| 8,912 |
| 24,425 |
| 2015 | 67 |
| 952 |
| 12,436 |
| — |
| 13,455 |
| 8,024 |
| 21,479 |
|
| Spain | 2014 | $ | 1,887 |
| $ | 6,290 |
| $ | 4,458 |
| $ | 79 |
| $ | 12,714 |
| $ | 71,501 |
| $ | 84,215 |
| |
| | 2013 | 2,549 |
| 9,332 |
| 9,543 |
| 217 |
| 21,641 |
| 80,137 |
| 101,778 |
| |
| | 2012 | 1,204 |
| 8,458 |
| 6,643 |
| 129 |
| 16,434 |
| 46,299 |
| 62,733 |
| |
| Switzerland | 2014 | $ | 28 |
| $ | 1,417 |
| $ | 3,291 |
| $ | 660 |
| $ | 5,396 |
| $ | 71,900 |
| $ | 77,296 |
| |
| | 2013 | 73 |
| 1,419 |
| 4,657 |
| 11,587 |
| 17,736 |
| 88,530 |
| 106,266 |
| |
| | 2012 | 103 |
| 4,196 |
| 3,638 |
| 13,874 |
| 21,811 |
| 32,408 |
| 54,219 |
| |
| |
| (a) | Prior periods were revised to conform with the current presentation. |
| |
(b) | Excluded from the table is $915.5 billion at December 31, 2012, substantially all of which represent notional amounts related to credit protection sold on indices representing baskets of exposures from multiple European countries, which had previously been reported within the U.K. Effective with the fourth quarter of 2013, these exposures are reported within individual countries as required by revised regulatory guidance. |
| |
(c) | Consists primarily of commercial and industrial. |
| |
(d)(b) | Outstandings includesinclude loans and accrued interest receivable, interest-bearing deposits with banks, acceptances, resale agreements, other monetary assets, cross-border trading debt and equity instruments, fair value of foreign exchange and derivative contracts, and local country assets, net of local country liabilities. The amounts associated with foreign exchange and derivative contracts are presented after taking into account the impact of legally enforceable master netting agreements. |
| |
(e)(c) | Commitments include outstanding letters of credit, undrawn commitments to extend credit, and the gross notional value of credit derivatives where JPMorgan Chase is a protection seller. |
Summary of loan and lending-related commitments loss experience
The tables below summarize the changes in the allowance for loan losses and the allowance for lending-related commitments during the periods indicated. For a further discussion, see Allowance for credit losses on pages 128–130117–119, and Note 15.13. | | | Allowance for loan losses | | |
| Year ended December 31, (in millions) | 2014 | 2013 | 2012 | 2011 | 2010 | 2017 | 2016 | 2015 | 2014 | 2013 |
| Balance at beginning of year | $ | 16,264 |
| $ | 21,936 |
| $ | 27,609 |
| $ | 32,266 |
| $ | 31,602 |
| $ | 13,776 |
| $ | 13,555 |
| $ | 14,185 |
| $ | 16,264 |
| $ | 21,936 |
|
| U.S. charge-offs | | |
| U.S. consumer, excluding credit card | 2,132 |
| 2,754 |
| 4,805 |
| 5,419 |
| 8,383 |
| 1,779 |
| 1,500 |
| 1,658 |
| 2,132 |
| 2,754 |
|
| U.S. credit card | 3,682 |
| 4,358 |
| 5,624 |
| 8,017 |
| 15,247 |
| 4,521 |
| 3,799 |
| 3,475 |
| 3,682 |
| 4,358 |
|
| Total U.S. consumer charge-offs | 5,814 |
| 7,112 |
| 10,429 |
| 13,436 |
| 23,630 |
| 6,300 |
| 5,299 |
| 5,133 |
| 5,814 |
| 7,112 |
|
| U.S. wholesale: | | |
| Commercial and industrial | 44 |
| 150 |
| 131 |
| 197 |
| 467 |
| 87 |
| 240 |
| 63 |
| 44 |
| 150 |
|
| Real estate | 14 |
| 51 |
| 114 |
| 221 |
| 698 |
| 3 |
| 7 |
| 6 |
| 14 |
| 51 |
|
| Financial institutions | 14 |
| 1 |
| 8 |
| 102 |
| 146 |
| — |
| — |
| 5 |
| 14 |
| 1 |
|
| Government agencies | 25 |
| 1 |
| — |
| — |
| 3 |
| 5 |
| — |
| — |
| 25 |
| 1 |
|
| Other | 22 |
| 9 |
| 56 |
| 149 |
| 102 |
| 19 |
| 13 |
| 6 |
| 22 |
| 9 |
|
| Total U.S. wholesale charge-offs | 119 |
| 212 |
| 309 |
| 669 |
| 1,416 |
| 114 |
| 260 |
| 80 |
| 119 |
| 212 |
|
| Total U.S. charge-offs | 5,933 |
| 7,324 |
| 10,738 |
| 14,105 |
| 25,046 |
| 6,414 |
| 5,559 |
| 5,213 |
| 5,933 |
| 7,324 |
|
| Non-U.S. charge-offs | | |
| Non-U.S. consumer, excluding credit card | — |
| — |
| — |
| — |
| — |
|
|
| — |
| — |
| — |
| — |
|
| Non-U.S. credit card | 149 |
| 114 |
| 131 |
| 151 |
| 163 |
| — |
| — |
| 13 |
| 149 |
| 114 |
|
| Total non-U.S. consumer charge-offs | 149 |
| 114 |
| 131 |
| 151 |
| 163 |
| — |
| — |
| 13 |
| 149 |
| 114 |
|
| Non-U.S. wholesale: | | |
| Commercial and industrial | 27 |
| 5 |
| 8 |
| 1 |
| 23 |
| 89 |
| 134 |
| 5 |
| 27 |
| 5 |
|
| Real estate | 4 |
| 11 |
| 6 |
| 142 |
| 239 |
| — |
| 1 |
| — |
| 4 |
| 11 |
|
| Financial institutions | — |
| — |
| — |
| 6 |
| — |
| 7 |
| 1 |
| — |
| — |
| — |
|
| Government agencies | — |
| — |
| 4 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Other | 1 |
| 13 |
| 19 |
| 98 |
| 311 |
| 2 |
| 2 |
| 10 |
| 1 |
| 13 |
|
| Total non-U.S. wholesale charge-offs | 32 |
| 29 |
| 37 |
| 247 |
| 573 |
| 98 |
| 138 |
| 15 |
| 32 |
| 29 |
|
| Total non-U.S. charge-offs | 181 |
| 143 |
| 168 |
| 398 |
| 736 |
| 98 |
| 138 |
| 28 |
| 181 |
| 143 |
|
| Total charge-offs | 6,114 |
| 7,467 |
| 10,906 |
| 14,503 |
| 25,782 |
| 6,512 |
| 5,697 |
| 5,241 |
| 6,114 |
| 7,467 |
|
| U.S. recoveries | | |
| U.S. consumer, excluding credit card | (814 | ) | (847 | ) | (508 | ) | (547 | ) | (474 | ) | (634 | ) | (591 | ) | (704 | ) | (814 | ) | (847 | ) |
| U.S. credit card | (383 | ) | (568 | ) | (782 | ) | (1,211 | ) | (1,345 | ) | (398 | ) | (357 | ) | (364 | ) | (383 | ) | (568 | ) |
| Total U.S. consumer recoveries | (1,197 | ) | (1,415 | ) | (1,290 | ) | (1,758 | ) | (1,819 | ) | (1,032 | ) | (948 | ) | (1,068 | ) | (1,197 | ) | (1,415 | ) |
| U.S. wholesale: | | |
| Commercial and industrial | (49 | ) | (27 | ) | (335 | ) | (60 | ) | (86 | ) | (55 | ) | (10 | ) | (32 | ) | (49 | ) | (27 | ) |
| Real estate | (27 | ) | (56 | ) | (64 | ) | (93 | ) | (75 | ) | (6 | ) | (15 | ) | (20 | ) | (27 | ) | (56 | ) |
| Financial institutions | (12 | ) | (90 | ) | (37 | ) | (207 | ) | (74 | ) | — |
| (3 | ) | (8 | ) | (12 | ) | (90 | ) |
| Government agencies | — |
| — |
| (2 | ) | — |
| (1 | ) | — |
| (1 | ) | (8 | ) | — |
| — |
|
| Other | (36 | ) | (6 | ) | (21 | ) | (36 | ) | (25 | ) | (15 | ) | (3 | ) | (3 | ) | (36 | ) | (6 | ) |
| Total U.S. Wholesale recoveries | (124 | ) | (179 | ) | (459 | ) | (396 | ) | (261 | ) | |
| Total U.S. wholesale recoveries | | (76 | ) | (32 | ) | (71 | ) | (124 | ) | (179 | ) |
| Total U.S. recoveries | (1,321 | ) | (1,594 | ) | (1,749 | ) | (2,154 | ) | (2,080 | ) | (1,108 | ) | (980 | ) | (1,139 | ) | (1,321 | ) | (1,594 | ) |
| Non-U.S. recoveries | | |
| Non-U.S. consumer, excluding credit card | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Non-U.S. credit card | (19 | ) | (25 | ) | (29 | ) | (32 | ) | (28 | ) | — |
| — |
| (2 | ) | (19 | ) | (25 | ) |
| Total non-U.S. consumer recoveries | (19 | ) | (25 | ) | (29 | ) | (32 | ) | (28 | ) | — |
| — |
| (2 | ) | (19 | ) | (25 | ) |
| Non-U.S. wholesale: | | |
| Commercial and industrial | — |
| (29 | ) | (16 | ) | (14 | ) | (1 | ) | (4 | ) | (18 | ) | (10 | ) | — |
| (29 | ) |
| Real estate | — |
| — |
| (2 | ) | (14 | ) | — |
| (1 | ) | — |
| — |
| — |
| — |
|
| Financial institutions | (14 | ) | (10 | ) | (7 | ) | (38 | ) | — |
| (1 | ) | — |
| (2 | ) | (14 | ) | (10 | ) |
| Government agencies | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Other | (1 | ) | (7 | ) | (40 | ) | (14 | ) | — |
| (11 | ) | (7 | ) | (2 | ) | (1 | ) | (7 | ) |
| Total non-U.S. wholesale recoveries | (15 | ) | (46 | ) | (65 | ) | (80 | ) | (1 | ) | (17 | ) | (25 | ) | (14 | ) | (15 | ) | (46 | ) |
| Total non-U.S. recoveries | (34 | ) | (71 | ) | (94 | ) | (112 | ) | (29 | ) | (17 | ) | (25 | ) | (16 | ) | (34 | ) | (71 | ) |
| Total recoveries | (1,355 | ) | (1,665 | ) | (1,843 | ) | (2,266 | ) | (2,109 | ) | (1,125 | ) | (1,005 | ) | (1,155 | ) | (1,355 | ) | (1,665 | ) |
| Net charge-offs | 4,759 |
| 5,802 |
| 9,063 |
| 12,237 |
| 23,673 |
| 5,387 |
| 4,692 |
| 4,086 |
| 4,759 |
| 5,802 |
|
Write-offs of PCI loans(a) | 533 |
| 53 |
| — |
| — |
| — |
| 86 |
| 156 |
| 208 |
| 533 |
| 53 |
|
| Provision for loan losses | 3,224 |
| 188 |
| 3,387 |
| 7,612 |
| 16,822 |
| 5,300 |
| 5,080 |
| 3,663 |
| 3,224 |
| 188 |
|
Change in accounting principles(b) | — |
| — |
| — |
| — |
| 7,494 |
| |
| Other | (11 | ) | (5 | ) | 3 |
| (32 | ) | 21 |
| 1 |
| (11 | ) | 1 |
| (11 | ) | (5 | ) |
| Balance at year-end | $ | 14,185 |
| $ | 16,264 |
| $ | 21,936 |
| $ | 27,609 |
| $ | 32,266 |
| $ | 13,604 |
| $ | 13,776 |
| $ | 13,555 |
| $ | 14,185 |
| $ | 16,264 |
|
| |
| (a) | Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation). During the fourth quarter of 2014 the Firm recorded a $291 million adjustment to reduce the PCI allowance and the recorded investment in the Firm’s PCI loan portfolio, primarily reflecting the cumulative effect of interest forgiveness modifications. This adjustment had no impact to the Firm’s Consolidated statements of income. |
| |
(b) | Effective January 1, 2010, the Firm adopted accounting guidance related to variable interest entities (“VIEs”). Upon adoption of the guidance, the Firm consolidated its Firm-sponsored credit card securitization trusts, its Firm-administered multi-seller conduits and certain other consumer loan securitization entities, primarily mortgage-related. As a result, $7.4 billion, $14 million and $127 million, respectively, of allowance for loan losses were recorded on-balance sheet with the consolidation of these entities. |
Summary of loan and lending-related commitments loss experience
Allowance for lending-related commitments
| | | Year ended December 31, (in millions) | 2014 | 2013 | 2012 | 2011 | 2010 | 2017 | 2016 | 2015 | 2014 | 2013 |
| Balance at beginning of year | $ | 705 |
| $ | 668 |
| $ | 673 |
| $ | 717 |
| $ | 939 |
| $ | 1,078 |
| $ | 786 |
| $ | 622 |
| $ | 705 |
| $ | 668 |
|
| Provision for lending-related commitments | (85 | ) | 37 |
| (2 | ) | (38 | ) | (183 | ) | (10 | ) | 281 |
| 164 |
| (85 | ) | 37 |
|
| Net charge-offs | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Change in accounting principles(a) | — |
| — |
| — |
| — |
| (18 | ) | |
| Other | 2 |
| — |
| (3 | ) | (6 | ) | (21 | ) | — |
| 11 |
| — |
| 2 |
| — |
|
| Balance at year-end | $ | 622 |
| $ | 705 |
| $ | 668 |
| $ | 673 |
| $ | 717 |
| $ | 1,068 |
| $ | 1,078 |
| $ | 786 |
| $ | 622 |
| $ | 705 |
|
| |
(a) | Relates to the adoption of the new accounting guidance related to VIEs. |
| | | Loan loss analysis | | |
As of or for the year ended December 31, (in millions, except ratios) | 2014 | 2013 | 2012 | 2011 | 2010 | 2017 | 2016 | 2015 | 2014 | 2013 |
| Balances | | |
| Loans – average | $ | 739,175 |
| $ | 726,450 |
| $ | 722,384 |
| $ | 693,523 |
| $ | 703,540 |
| $ | 906,397 |
| $ | 866,378 |
| $ | 787,318 |
| $ | 739,175 |
| $ | 726,450 |
|
| Loans – year-end | 757,336 |
| 738,418 |
| 733,796 |
| 723,720 |
| 692,927 |
| 930,697 |
| 894,765 |
| 837,299 |
| 757,336 |
| 738,418 |
|
Net charge-offs(a) | 4,759 |
| 5,802 |
| 9,063 |
| 12,237 |
| 23,673 |
| 5,387 |
| 4,692 |
| 4,086 |
| 4,759 |
| 5,802 |
|
| Allowance for loan losses: | | |
| U.S. | $ | 13,472 |
| $ | 15,382 |
| $ | 20,946 |
| $ | 26,621 |
| $ | 31,111 |
| $ | 12,552 |
| $ | 12,738 |
| $ | 12,704 |
| $ | 13,472 |
| $ | 15,382 |
|
| Non-U.S. | 713 |
| 882 |
| 990 |
| 988 |
| 1,155 |
| 1,052 |
| 1,038 |
| 851 |
| 713 |
| 882 |
|
| Total allowance for loan losses | $ | 14,185 |
| $ | 16,264 |
| $ | 21,936 |
| $ | 27,609 |
| $ | 32,266 |
| $ | 13,604 |
| $ | 13,776 |
| $ | 13,555 |
| $ | 14,185 |
| $ | 16,264 |
|
| Nonaccrual loans | $ | 7,133 |
| $ | 8,540 |
| $ | 10,892 |
| $ | 9,993 |
| $ | 14,841 |
| $ | 5,943 |
| $ | 6,883 |
| $ | 6,429 |
| $ | 7,133 |
| $ | 8,540 |
|
| Ratios | | |
| Net charge-offs to: | | |
| Loans retained – average | 0.65 | % | 0.81 | % | 1.26 | % | 1.78 | % | 3.39 | % | 0.60 | % | 0.54 | % | 0.52 | % | 0.65 | % | 0.81 | % |
| Allowance for loan losses | 33.55 |
| 35.67 |
| 41.32 |
| 44.32 |
| 73.37 |
| 39.60 |
| 34.06 |
| 30.14 |
| 33.55 |
| 35.67 |
|
| Allowance for loan losses to: | | |
Loans retained – year-end(b) | 1.90 |
| 2.25 |
| 3.02 |
| 3.84 |
| 4.71 |
| 1.47 |
| 1.55 |
| 1.63 |
| 1.90 |
| 2.25 |
|
| Nonaccrual loans retained | 202 |
| 196 |
| 207 |
| 281 |
| 225 |
| 229 |
| 205 |
| 215 |
| 202 |
| 196 |
|
| |
| (a) | There were no net charge-offs/(recoveries) on lending-related commitments in 20142017, 20132016, 20122015, 20112014 or 20102013. |
| |
| (b) | The allowance for loan losses as a percentage of retained loans declined from 20102013 to 20142017, due to an improvement in credit quality of the consumer and wholesale credit portfolios. For a more detailed discussion of the 20122015 through 20142017 provision for credit losses, see Provision for credit losses on page 130119. |
Deposits
The following table provides a summary of the average balances and average interest rates of JPMorgan Chase’s various deposits for the years indicated.
| | | Year ended December 31, | Average balances | | Average interest rates | Average balances | | Average interest rates |
| (in millions, except interest rates) | 2014 |
| | 2013 |
| | 2012 |
| | 2014 |
| | 2013 |
| | 2012 |
| 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| U.S. offices | | | | | | | | | | | | | | | | | | | | | | |
| Noninterest-bearing | $ | 376,947 |
| | $ | 346,765 |
| | $ | 338,652 |
| | — | % | | — | % | | — | % | $ | 387,424 |
| | $ | 386,528 |
| | $ | 403,143 |
| | — | % | | — | % | | — | % |
| Interest-bearing | | | | | | | | | | | | | | | | | | | | | | |
| Demand | 75,553 |
| | 63,045 |
| | 43,124 |
| | 0.10 |
| | 0.09 |
| | 0.08 |
| |
| Savings | 459,186 |
| | 429,289 |
| | 383,777 |
| | 0.10 |
| | 0.13 |
| | 0.18 |
| |
Demand(a)(c) | | 162,985 |
| | 128,046 |
| | 78,516 |
| | 0.50 |
| | 0.18 |
| | 0.11 |
|
Savings(b) | | 559,654 |
| | 515,982 |
| | 475,142 |
| | 0.15 |
| | 0.09 |
| | 0.07 |
|
| Time | 86,007 |
| | 89,948 |
| | 85,688 |
| | 0.35 |
| | 0.51 |
| | 0.74 |
| 53,410 |
| | 59,710 |
| | 85,098 |
| | 1.02 |
| | 0.59 |
| | 0.38 |
|
| Total interest-bearing deposits | 620,746 |
| | 582,282 |
| | 512,589 |
| | 0.13 |
| | 0.18 |
| | 0.26 |
| |
Total interest-bearing deposits(c) | | 776,049 |
| | 703,738 |
| | 638,756 |
| | 0.29 |
| | 0.15 |
| | 0.12 |
|
Total deposits in U.S. offices | 997,693 |
| | 929,047 |
| | 851,241 |
| | 0.08 |
| | 0.11 |
| | 0.16 |
| 1,163,473 |
| | 1,090,266 |
| | 1,041,899 |
| | 0.19 |
| | 0.09 |
| | 0.07 |
|
| Non-U.S. offices | | | | | | | | | | | | | | | | | | | | | | |
| Noninterest-bearing | 18,516 |
| | 19,596 |
| | 16,133 |
| | — |
| | — |
| | — |
| 16,741 |
| | 16,170 |
| | 15,805 |
| | — |
| | — |
| | — |
|
| Interest-bearing | | | | | | | | | | | | | | | | | | | | | | |
| Demand | 208,364 |
| | 196,300 |
| | 184,366 |
| | 0.22 |
| | 0.22 |
| | 0.35 |
| |
Demand(c) | | 213,733 |
| | 198,919 |
| | 197,572 |
| | 0.18 |
| | 0.10 |
| | 0.12 |
|
| Savings | 2,179 |
| | 1,374 |
| | 846 |
| | 0.13 |
| | 0.11 |
| | 0.23 |
| — |
| | — |
| | — |
| | NM |
| | NM |
| | NM |
|
| Time | 37,549 |
| | 42,825 |
| | 53,297 |
| | 0.97 |
| | 1.32 |
| | 1.23 |
| |
| Total interest-bearing deposits | 248,092 |
| | 240,499 |
| | 238,509 |
| | 0.33 |
| | 0.42 |
| | 0.55 |
| |
Time(c) | | 23,439 |
| | 22,613 |
| | 40,512 |
| | 1.08 |
| | 0.56 |
| | 0.60 |
|
Total interest-bearing deposits(c) | | 237,172 |
| | 221,532 |
| | 238,084 |
| | 0.27 |
| | 0.15 |
| | 0.21 |
|
Total deposits in non-U.S. offices | 266,608 |
| | 260,095 |
| | 254,642 |
| | 0.31 |
| | 0.38 |
| | 0.51 |
| 253,913 |
| | 237,702 |
| | 253,889 |
| | 0.25 |
| | 0.14 |
| | 0.19 |
|
| Total deposits | $ | 1,264,301 |
| | $ | 1,189,142 |
| | $ | 1,105,883 |
| | 0.13 | % | | 0.17 | % | | 0.24 | % | $ | 1,417,386 |
| | $ | 1,327,968 |
| | $ | 1,295,788 |
| | 0.20 | % | | 0.10 | % | | 0.10 | % |
| |
| (a) | Includes Negotiable Order of Withdrawal (“NOW”) accounts, and certain trust accounts. |
| |
| (b) | Includes Money Market Deposit Accounts (“MMDAs”). |
| |
| (c) | Prior periods have been revised to conform with the current period presentation. |
At December 31, 2014,2017, other U.S. time deposits in denominations of $100,000 or more totaled $45.7$23.1 billion, substantially all of which mature in three months or less. In addition, the table below presents the maturities for U.S. time certificates of deposit in denominations of $100,000 or more.
| | By remaining maturity at December 31, 2014 (in millions) | Three months or less | | Over three months but within six months | | Over six months but within 12 months | | Over 12 months | | Total | |
By remaining maturity at December 31, 2017 (in millions) | | Three months or less | | Over three months but within six months | | Over six months but within 12 months | | Over 12 months | | Total |
| U.S. time certificates of deposit ($100,000 or more) | $ | 12,460 |
| | $ | 4,865 |
| | $ | 2,442 |
| | $ | 6,163 |
| | $ | 25,930 |
| $ | 6,425 |
| | $ | 2,174 |
| | $ | 2,095 |
| | $ | 6,207 |
| | $ | 16,901 |
|
Short-term and other borrowed funds
The following table provides a summary of JPMorgan Chase’s short-term and other borrowed funds for the years indicated.
| | | As of or for the year ended December 31, (in millions, except rates) | 2014 | | 2013 | | 2012 | | 2017 | | 2016 | | 2015 |
| Federal funds purchased and securities loaned or sold under repurchase agreements: | | | | | | | | | | | |
| Balance at year-end | $ | 192,101 |
| | $ | 181,163 |
| | $ | 240,103 |
| | $ | 158,916 |
| | $ | 165,666 |
| | $ | 152,678 |
|
| Average daily balance during the year | 208,560 |
| | 238,551 |
| | 248,561 |
| | 187,386 |
| | 178,720 |
| | 192,510 |
|
| Maximum month-end balance | 228,162 |
| | 272,718 |
| | 268,931 |
| | 205,286 |
| | 207,211 |
| | 212,112 |
|
| Weighted-average rate at December 31 | 0.27 | % | | 0.31 | % | | 0.23 | % | | 1.03 | % | | 0.50 | % | | 0.39 | % |
| Weighted-average rate during the year | 0.29 |
| | 0.24 |
| | 0.22 |
| | 0.86 |
| | 0.61 |
| | 0.32 |
|
| | | | | | | | | | | | |
| Commercial paper: | | | | | | | | | | | |
| Balance at year-end | $ | 66,344 |
| | $ | 57,848 |
| | $ | 55,367 |
| | $ | 24,186 |
| | $ | 11,738 |
| | $ | 15,562 |
|
| Average daily balance during the year | 59,916 |
| | 53,717 |
| | 50,780 |
| | 19,920 |
| | 15,001 |
| | 38,140 |
|
| Maximum month-end balance | 66,344 |
| | 58,835 |
| | 62,875 |
| | 24,934 |
| | 19,083 |
| | 64,012 |
|
| Weighted-average rate at December 31 | 0.22 | % | | 0.22 | % | | 0.21 | % | | 1.59 | % | | 1.13 | % | | 0.55 | % |
| Weighted-average rate during the year | 0.22 |
| | 0.21 |
| | 0.18 |
| | 1.39 |
| | 0.90 |
| | 0.29 |
|
| | | | | | | | | | | | |
Other borrowed funds:(a) | | | | | | | | | | | |
| Balance at year-end | $ | 96,455 |
| | $ | 92,774 |
| | $ | 79,258 |
| | $ | 87,652 |
| | $ | 89,154 |
| | $ | 80,126 |
|
| Average daily balance during the year | 100,189 |
| | 93,937 |
| | 79,003 |
| | 96,331 |
| | 93,252 |
| | 93,001 |
|
| Maximum month-end balance | 107,950 |
| | 103,526 |
| | 87,815 |
| | 107,157 |
| | 102,310 |
| | 99,226 |
|
| Weighted-average rate at December 31 | 1.73 | % | | 2.49 | % | | 1.83 | % | | 2.09 | % | | 1.79 | % | | 1.89 | % |
| Weighted-average rate during the year | 1.89 |
| | 2.27 |
| | 2.49 |
| | 1.98 |
| | 1.93 |
| | 1.84 |
|
| | | | | | | | | | | | |
Short-term beneficial interests:(b) | | | | | | | | | | | |
| Commercial paper and other borrowed funds: | | | | | | | | | | | |
| Balance at year-end | $ | 16,953 |
| | $ | 17,786 |
| | $ | 28,219 |
| | $ | 4,310 |
| | $ | 5,688 |
| | $ | 11,322 |
|
| Average daily balance during the year | 14,073 |
| | 22,245 |
| | 25,653 |
| | 5,327 |
| | 8,296 |
| | 15,608 |
|
| Maximum month-end balance | 17,026 |
| | 28,559 |
| | 30,043 |
| | 7,573 |
| | 10,494 |
| | 17,137 |
|
| Weighted-average rate at December 31 | 0.23 | % | | 0.29 | % | | 0.18 | % | | 1.50 | % | | 0.83 | % | | 0.41 | % |
| Weighted-average rate during the year | 0.30 |
| | 0.26 |
| | 0.16 |
| | 1.07 |
| | 0.67 |
| | 0.32 |
|
| |
| (a) | Includes interest-bearing securities sold but not yet purchased. |
| |
| (b) | Included on the Consolidated balance sheets in beneficial interests issued by consolidated variable interest entities.VIEs. |
Federal funds purchased represent overnight funds. Securities loaned or sold under repurchase agreements generally mature between one day and three months.ninety days. Commercial paper generally is issued in amounts not less than $100,000, and with maturities of 270 days or less. Other borrowed funds consist of demand notes, term federal funds purchased, and various other borrowings that generally have maturities of one year or less.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf of the undersigned, thereunto duly authorized.
|
| |
| | JPMorgan Chase & Co. (Registrant) |
| | By: /s/ JAMES DIMON |
| | (James Dimon Chairman and Chief Executive Officer) |
| | February 24, 201527, 2018 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the date indicated. JPMorgan Chase & Co. does not exercise the power of attorney to sign on behalf of any Director.
|
| | | | |
| | | Capacity | | Date |
| /s/ JAMES DIMON | | Director, Chairman and Chief Executive Officer (Principal Executive Officer) | | |
| (James Dimon) | | | |
| | | | | |
| /s/ LINDA B. BAMMANN | | Director | | |
| (Linda B. Bammann) | | | | |
| | | | | |
| /s/ JAMES A. BELL | | Director | | |
| (James A. Bell) | | | | |
| | | | | |
| /s/ CRANDALL C. BOWLES | | Director | | |
| (Crandall C. Bowles) | | | | |
| | | | | |
| /s/ STEPHEN B. BURKE | | Director | | |
| (Stephen B. Burke) | | | | |
| | | | | |
| /s/ TODD A. COMBS | | Director | | |
| (Todd A. Combs) | | | | |
| | | | |
| /s/ JAMES S. CROWN | | Director | | February 24, 201527, 2018 |
| (James S. Crown) | | | | |
| | | | | |
| /s/ TIMOTHY P. FLYNN | | Director | | |
| (Timothy P. Flynn) | | | | |
| | | | | |
| /s/ LABAN P. JACKSON, JR. | | Director | | |
| (Laban P. Jackson, Jr.) | | | | |
| | | | | |
| /s/ MICHAEL A. NEAL | | Director | | |
| (Michael A. Neal) | | | | |
| | | | | |
| /s/ LEE R. RAYMOND | | Director | | |
| (Lee R. Raymond) | | | | |
| | | | | |
| /s/ WILLIAM C. WELDON | | Director | | |
| (William C. Weldon) | | | | |
| | | | | |
| /s/ MARIANNE LAKE | | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | | |
| (Marianne Lake) | | | |
| | | | | |
/s/ MARK W. O’DONOVANNICOLE GILES | | Managing Director and Corporate Controller (Principal Accounting Officer) | | |
(Mark W. O’Donovan)Nicole Giles) | | | |
