JP Morgan Chase 2005 Annual Report Download - page 96

Notes to consolidated financial statements
JPMorgan Chase & Co.
94 JPMorgan Chase & Co. /2005 Annual Report
JPMorgan Partners
On March 1, 2005, the Firm announced that the management team of JPMorgan
Partners, LLC, a private equity unit of the Firm, will become independent when it
completes the investment of the current $6.5 billion Global Fund, which it advises.
The buyout and growth equity professionals of JPMorgan Partners will form a
new independent firm, CCMP Capital, LLC, and the venture professionals will
separately form a new independent firm, Panorama Capital, LLC. JPMorgan Chase
has committed to invest the lesser of $875 million or 24.9% of the limited part-
nership interests in the fund to be raised by CCMP Capital, and has committed
to invest the lesser of $50 million or 24.9% of the limited partnership interests
in the fund to be raised by Panorama Capital. The investment professionals of
CCMP and Panorama will continue to manage the JPMP investments pursuant
to a management agreement with the Firm.
Cazenove
On February 28, 2005, JPMorgan Chase and Cazenove Group plc (“Cazenove”)
formed a business partnership which combined Cazenove’s investment banking
business and JPMorgan Chase’s U.K.-based investment banking business in
order to provide investment banking services in the United Kingdom and
Ireland. The new company is called JPMorgan Cazenove Holdings.
Other acquisitions
During 2004, JPMorgan Chase purchased the Electronic Financial Services
(“EFS”) business from Citigroup and acquired a majority interest in hedge
fund manager Highbridge Capital Management (“Highbridge”).
Note 3 – Trading activities
Trading assets include debt and equity securities held for trading purposes
that JPMorgan Chase owns (“long” positions). Trading liabilities include debt
and equity securities that the Firm has sold to other parties but does not own
(“short” positions). The Firm is obligated to purchase securities at a future
date to cover the short positions. Included in Trading assets and Trading liabil-
ities are the reported receivables (unrealized gains) and payables (unrealized
losses) related to derivatives. These amounts include the derivative assets and
liabilities net of cash received and paid, respectively, under legally enforceable
master netting agreements. At December 31, 2005, the amount of cash received
and paid was approximately $26.7 billion and $18.9 billion, respectively. At
December 31, 2004, the amount of cash received and paid was approximately
$32.2 billion and $22.0 billion, respectively. Trading positions are carried at
fair value on the Consolidated balance sheets.
Trading revenue
Year ended December 31,(a) (in millions) 2005 2004 2003
Fixed income and other(b) $ 4,554 $ 2,976 $ 4,046
Equities(c) 1,271 797 764
Credit portfolio(d) 35 (161) (383)
Total $ 5,860 $ 3,612 $ 4,427
(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.
(b) Includes bonds and commercial paper and various types of interest rate derivatives
as well as foreign exchange and commodities.
(c) Includes equity securities and equity derivatives.
(d) Includes credit derivatives.
Trading assets and liabilities
The following table presents the fair value of Trading assets and Trading
liabilities for the dates indicated:
December 31, (in millions) 2005 2004
Trading assets
Debt and equity instruments:
U.S. government and federal agency obligations $ 16,283 $ 16,867
U.S. government-sponsored enterprise obligations 24,172 23,513
Obligations of state and political subdivisions 9,887 3,486
Certificates of deposit, bankers’ acceptances
and commercial paper 5,652 7,341
Debt securities issued by non-U.S. governments 48,671 50,699
Corporate securities and other 143,925 120,926
Total debt and equity instruments 248,590 222,832
Derivative receivables:
Interest rate 30,416 45,892
Foreign exchange 2,855 7,939
Equity 5,575 6,120
Credit derivatives 3,464 2,945
Commodity 7,477 3,086
Total derivative receivables 49,787 65,982
Total trading assets $ 298,377 $ 288,814
Trading liabilities
Debt and equity instruments(a) $ 94,157 $ 87,942
Derivative payables:
Interest rate 28,488 41,075
Foreign exchange 3,453 8,969
Equity 11,539 9,096
Credit derivatives 2,445 2,499
Commodity 5,848 1,626
Total derivative payables 51,773 63,265
Total trading liabilities $ 145,930 $ 151,207
(a) Primarily represents securities sold, not yet purchased.
Average Trading assets and liabilities were as follows for the periods indicated:
Year ended December 31,(a) (in millions) 2005 2004 2003
Trading assets – debt and
equity instruments $237,370 $ 200,467 $154,597
Trading assets – derivative receivables 57,365 59,521 85,628
Trading liabilities – debt and
equity instruments(b) $ 93,102 $ 82,204 $ 72,877
Trading liabilities – derivative payables 55,723 52,761 67,783
(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.
(b) Primarily represents securities sold, not yet purchased.