JP Morgan Chase 2005 Annual Report Download - page 105

JPMorgan Chase & Co. /2005 Annual Report 103
Note 9 – Securities and
private equity investments
Securities are classified as AFS, Held-to-maturity (“HTM”) or Trading. Trading
securities are discussed in Note 3 on page 94 of this Annual Report. Securities
are classified as AFS when, in management’s judgment, they may be sold in
response to or in anticipation of changes in market conditions, or as part of
the Firm’s management of its structural interest rate risk. AFS securities are
carried at fair value on the Consolidated balance sheets. Unrealized gains and
losses after SFAS 133 valuation adjustments are reported as net increases or
decreases to Accumulated other comprehensive income (loss). The specific
identification method is used to determine realized gains and losses on AFS
securities, which are included in Securities /private equity gains on the
Consolidated statements of income. Securities that the Firm has the positive
intent and ability to hold to maturity are classified as HTM and are carried at
amortized cost on the Consolidated balance sheets.
The following table presents realized gains and losses from AFS securities and
private equity gains (losses):
Year ended December 31,(a)
(in millions) 2005 2004 2003
Realized gains $ 302 $ 576 $2,123
Realized losses (1,638) (238) (677)
Net realized securities gains (losses) (1,336) 338 1,446
Private equity gains 1,809 1,536 33
Total Securities/private
equity gains $ 473 $ 1,874 $1,479
(a) 2004 results include six months of the combined Firm’s results and six months of heritage
JPMorgan Chase results. 2003 reflects the results of heritage JPMorgan Chase only.
Note 8 – Noninterest expense
Merger costs
Costs associated with the Merger were reflected in the Merger costs caption
of the Consolidated statements of income. A summary of such costs, by
expense category, is shown in the following table for 2005 and 2004. There
were no such costs in 2003.
Year ended December 31, (in millions) 2005 2004(a)
Expense category
Compensation $ 238 $ 467
Occupancy (77) 448
Technology and communications and other 561 450
Total(b) $ 722 $ 1,365
(a) 2004 results include six months of the combined Firm’s results and six months of heritage
JPMorgan Chase results.
(b) With the exception of occupancy-related write-offs, all of the costs in the table require the
expenditure of cash.
The table below shows the change in the liability balance related to the costs
associated with the Merger.
Year ended December 31, (in millions) 2005 2004(a)
Liability balance, beginning of period $ 952 $—
Recorded as merger costs 722 1,365
Recorded as goodwill 26 1,028
Liability utilized (903) (1,441)
Total $ 797 $ 952
(a) 2004 results include six months of the combined Firm’s results and six months of heritage
JPMorgan Chase results.
The amortized cost and estimated fair value of AFS and held-to-maturity securities were as follows for the dates indicated:
2005 2004
Gross Gross Gross Gross
Amortized unrealized unrealized Fair Amortized unrealized unrealized Fair
December 31, (in millions) cost gains losses value cost gains losses value
Available-for-sale securities
U.S. government and federal agency obligations:
U.S. treasuries $ 4,245 $ 24 $ 2 $ 4,267 $ 13,621 $ 7 $ 222 $ 13,406
Mortgage-backed securities 80 3 — 83 2,405 41 17 2,429
Agency obligations 165 16 — 181 12 — — 12
Collateralized mortgage obligations 4—— 4 71 4 4 71
U.S. government-sponsored enterprise obligations 22,604 9 596 22,017 46,143 142 593 45,692
Obligations of state and political subdivisions 712 21 7 726 2,748 126 8 2,866
Debt securities issued by non-U.S. governments 5,512 12 18 5,506 7,901 59 38 7,922
Corporate debt securities 5,754 39 74 5,719 7,007 127 18 7,116
Equity securities 3,179 110 7 3,282 5,810 39 14 5,835
Other, primarily asset-backed securities(a) 5,738 23 23 5,738 9,103 25 75 9,053
Total available-for-sale securities $ 47,993 $ 257 $ 727 $ 47,523 $ 94,821 $ 570 $ 989 $ 94,402
Held-to-maturity securities(b)
Total held-to-maturity securities $77 $3 $—$80$ 110 $ 7 $ — $ 117
(a) Includes collateralized mortgage obligations of private issuers, which generally have underlying collateral consisting of obligations of the U.S. government and federal agencies and corporations.
(b) Consists primarily of mortgage-backed securities.