JP Morgan Chase 2005 Annual Report Download - page 107

JPMorgan Chase & Co. /2005 Annual Report 105
The following table presents the amortized cost, estimated fair value and average yield at December 31, 2005, of JPMorgan Chase’s AFS and HTM securities by
contractual maturity:
Available-for-sale securities Held-to-maturity securities
Maturity schedule of securities Amortized Fair Average Amortized Fair Average
December 31, 2005 (in millions) cost value yield(a) cost value yield(a)
Due in one year or less $ 6,723 $ 6,426 2.77% $ — $ — —%
Due after one year through five years 7,740 8,009 3.72 — — —
Due after five years through 10 years 5,346 5,366 4.70 30 31 6.96
Due after 10 years(b) 28,184 27,722 4.69 47 49 6.73
Total securities $ 47,993 $ 47,523 4.27% $ 77 $ 80 6.82%
(a) The average yield is based upon amortized cost balances at year-end.Yields are derived by dividing interest income by total amortized cost. Taxable-equivalent yields are used where applicable.
(b) Includes securities with no stated maturity. Substantially all of JPMorgan Chase’s MBSs and CMOs are due in 10 years or more based upon contractual maturity. The estimated duration, which
reflects anticipated future prepayments based upon a consensus of dealers in the market, is approximately four years for MBSs and CMOs.
Private equity investments are primarily held by the Private Equity business
within Corporate (which includes JPMorgan Partners and ONE Equity Partners
businesses). The Private Equity business invests in buyouts, growth equity and
venture opportunities in the normal course of business. These investments
are accounted for under investment company guidelines. Accordingly, these
investments, irrespective of the percentage of equity ownership interest held
by Private Equity, are carried on the Consolidated balance sheets at fair value.
Realized and unrealized gains and losses arising from changes in value are
reported in Securities/private equity gains in the Consolidated statements of
income in the period that the gains or losses occur.
Privately-held investments are initially valued based upon cost. The carrying
values of privately-held investments are adjusted from cost to reflect both
positive and negative changes evidenced by financing events with third-party
capital providers. In addition, these investments are subject to ongoing
impairment reviews by Private Equity’s senior investment professionals.A
variety of factors are reviewed and monitored to assess impairment including,
but not limited to, operating performance and future expectations of the
particular portfolio investment, industry valuations of comparable public com-
panies, changes in market outlook and the third-party financing environment
over time. The Valuation Control Group within the Finance area is responsible
for reviewing the accuracy of the carrying values of private investments held
by Private Equity.
Private Equity also holds publicly-held equity investments, generally obtained
through the initial public offering of privately-held equity investments. Publicly-
held investments are marked to market at the quoted public value. To determine
the carrying values of these investments, Private Equity incorporates the use
of discounts to take into account the fact that it cannot immediately realize
or risk-manage the quoted public values as a result of regulatory and/or
contractual sales restrictions imposed on these holdings.
The following table presents the carrying value and cost of the Private Equity
investment portfolio for the dates indicated:
2005 2004
Carrying Carrying
December 31, (in millions) value Cost value Cost
Total private
equity investments $ 6,374 $ 8,036 $ 7,735 $ 9,103
Note 10 – Securities financing activities
JPMorgan Chase enters into resale agreements, repurchase agreements,
securities borrowed transactions and securities loaned transactions primarily
to finance the Firm’s inventory positions, acquire securities to cover short
positions and settle other securities obligations. The Firm also enters into
these transactions to accommodate customers’ needs.
Securities purchased under resale agreements (“resale agreements”) and
securities sold under repurchase agreements (“repurchase agreements”) are
generally treated as collateralized financing transactions and are carried on
the Consolidated balance sheets at the amounts the securities will be subse-
quently sold or repurchased, plus accrued interest. Where appropriate, resale
and repurchase agreements with the same counterparty are reported on a net
basis in accordance with FIN 41. JPMorgan Chase takes possession of securities
purchased under resale agreements. On a daily basis, JPMorgan Chase monitors
the market value of the underlying collateral received from its counterparties,
consisting primarily of U.S. and non-U.S. government and agency securities,
and requests additional collateral from its counterparties when necessary.
Transactions similar to financing activities that do not meet the SFAS 140
definition of a repurchase agreement are accounted for as “buys” and “sells”
rather than financing transactions. These transactions are accounted for as a
purchase (sale) of the underlying securities with a forward obligation to sell
(purchase) the securities. The forward purchase (sale) obligation, a derivative,
is recorded on the Consolidated balance sheets at its fair value, with changes
in fair value recorded in Trading revenue.
Securities borrowed and securities lent are recorded at the amount of cash
collateral advanced or received. Securities borrowed consist primarily of
government and equity securities. JPMorgan Chase monitors the market value
of the securities borrowed and lent on a daily basis and calls for additional
collateral when appropriate. Fees received or paid are recorded in Interest
income or Interest expense.