JP Morgan Chase 2006 Annual Report Download - page 113

JPMorgan Chase & Co. / 2006 Annual Report 111
The following table presents the amortized cost, estimated fair value and average yield at December 31, 2006, of JPMorgan Chase’s AFS and HTM securities by
contractual maturity:
Available-for-sale securities Held-to-maturity securities
By remaining maturity at December 31, 2006 Amortized Fair Average Amortized Fair Average
(in millions, except rates) cost value yield(b) cost value yield(b)
Due in one year or less $ 7,067 $ 7,063 2.81% $ — $ — —%
Due after one year through five years 4,007 4,007 3.95 — — —
Due after five years through 10 years 1,224 1,211 4.73 44 46 6.91
Due after 10 years(a) 79,621 79,636 5.58 14 14 6.61
Total securities $ 91,919 $ 91,917 5.28% $ 58 $ 60 6.84%
(a) Includes securities with no stated maturity. Substantially all of the Firm’s MBSs and CMOs are due in 10 years or more based upon contractual maturity. The estimated duration, which reflects antici-
pated future prepayments based upon a consensus of dealers in the market, is approximately four years for MBSs and CMOs.
(b) 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.
Note 11 – 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, primarily U.S. and non-U.S. gov-
ernment and agency securities that it has received from its counterparties,
and requests additional collateral 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 Principal transactions 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.
December 31, (in millions) 2006 2005
Securities purchased under resale agreements $ 122,479 $ 129,570
Securities borrowed 73,688 74,604
Securities sold under repurchase agreements $ 143,253 $ 103,052
Securities loaned 8,637 14,072
JPMorgan Chase pledges certain financial instruments it owns to collateralize
repurchase agreements and other securities financings. Pledged securities that
can be sold or repledged by the secured party are identified as financial instru-
ments owned (pledged to various parties) on the Consolidated balance sheets.
At December 31, 2006, the Firm had received securities as collateral that
could be repledged, delivered or otherwise used with a fair value of approxi-
mately $317 billion. This collateral was generally obtained under resale or
securities-borrowing agreements. Of these securities, approximately $291 bil-
lion were repledged, delivered or otherwise used, generally as collateral under
repurchase agreements, securities lending agreements or to cover short sales.