JP Morgan Chase 2005 Annual Report Download - page 106

Notes to consolidated financial statements
JPMorgan Chase & Co.
104 JPMorgan Chase & Co. /2005 Annual Report
The following table presents the fair value and unrealized losses for AFS securities by aging category at December 31:
Securities with unrealized losses
Less than 12 months 12 months or more Total
Gross Gross Total Gross
Fair unrealized Fair unrealized Fair unrealized
2005 (in millions) value losses value losses value losses
Available-for-sale securities
U.S. government and federal agency obligations:
U.S. treasuries $ 3,789 $ 1 $ 85 $ 1 $ 3,874 $ 2
Mortgage-backed securities —— 47 — 47 —
Agency obligations 7— 13 — 20 —
Collateralized mortgage obligations 15 — 30 — 45 —
U.S. government-sponsored enterprise obligations 10,607 242 11,007 354 21,614 596
Obligations of state and political subdivisions 237 3 107 4 344 7
Debt securities issued by non-U.S. governments 2,380 17 71 1 2,451 18
Corporate debt securities 3,076 52 678 22 3,754 74
Equity securities 1,838 7 2 — 1,840 7
Other, primarily asset-backed securities 778 14 370 9 1,148 23
Total securities with unrealized losses $ 22,727 $ 336 $12,410 $ 391 $ 35,137 $ 727
Securities with unrealized losses
Less than 12 months 12 months or more Total
Gross Gross Total Gross
Fair unrealized Fair unrealized Fair unrealized
2004 (in millions) value losses value losses value losses
Available-for-sale securities
U.S. government and federal agency obligations:
U.S. treasuries $ 10,186 $ 154 $ 940 $ 68 $ 11,126 $ 222
Mortgage-backed securities 344 1 1,359 16 1,703 17
Agency obligations 5 — 3 — 8 —
Collateralized mortgage obligations 278 4 2 — 280 4
U.S. government-sponsored enterprise obligations 34,760 282 10,525 311 45,285 593
Obligations of state and political subdivisions 678 6 96 2 774 8
Debt securities issued by non-U.S. governments 3,395 17 624 21 4,019 38
Corporate debt securities 1,103 13 125 5 1,228 18
Equity securities 1,804 14 23 — 1,827 14
Other, primarily asset-backed securities 1,896 41 321 34 2,217 75
Total securities with unrealized losses $ 54,449 $ 532 $ 14,018 $ 457 $ 68,467 $ 989
Impairment is evaluated considering numerous factors, and their relative
significance varies case to case. Factors considered include the length of time
and extent to which the market value has been less than cost; the financial
condition and near-term prospects of the issuer of the securities; and the
Firm’s intent and ability to retain the security in order to allow for an antici-
pated recovery in market value. If, based upon the analysis, it is determined
that the impairment is other-than-temporary, the security is written down to
fair value, and a loss is recognized through earnings.
Included in the $727 million of gross unrealized losses on AFS securities at
December 31, 2005, was $391 million of unrealized losses that have existed
for a period greater than 12 months. These securities are predominately rated
AAA and the unrealized losses are due to overall increases in market interest
rates and not due to underlying credit concerns of the issuers. Substantially
all of the securities with unrealized losses aged greater than 12 months have
a market value at December 31, 2005, that is within 4% of their amortized
cost basis.
In calculating the effective yield for mortgage-backed securities (“MBS”)
and collateralized mortgage obligations (“CMO”), JPMorgan Chase includes
the effect of principal prepayments. Management regularly performs simulation
testing to determine the impact that market conditions would have on its
MBS and CMO portfolios. MBSs and CMOs that management believes have
prepayment risk are included in the AFS portfolio and are reported at fair value.