JP Morgan Chase 2008 Annual Report Download - page 160

Notes to consolidated financial statements
158 JPMorgan Chase & Co./ 2008 Annual Report
The contractual amount of unfunded lending-related commitments
for which the fair value option was elected was negligible at
December 31, 2008. At December 31, 2007, the contractual amount
of unfunded lending-related commitments for which the fair value
option was elected was $1.0 billion with a corresponding fair value
of $25 million. Such commitments are reflected as liabilities and
included in accounts payable and other liabilities.
Note 6 – Principal transactions
Principal transactions revenue consists of realized and unrealized
gains and losses from trading activities (including physical commodi-
ties inventories that are accounted for at the lower of cost or fair
value), changes in fair value associated with financial instruments
held by the Investment Bank for which the SFAS 159 fair value option
was elected, and loans held-for-sale within the wholesale lines of
business. For loans measured at fair value under SFAS 159, origina-
tion costs are recognized in the associated expense category as
incurred. Principal transactions revenue also includes private equity
gains and losses.
The following table presents principal transactions revenue.
Year ended December 31, (in millions) 2008 2007 2006
Trading revenue $ (9,791) $ 4,736 $ 9,418
Private equity gains (losses)(a) (908) 4,279 1,360
Principal transactions $ (10,699) $ 9,015 $10,778
(a) Includes revenue on private equity investments held in the Private Equity business
within Corporate/Private Equity and those held in other business segments.
Trading assets and liabilities
Trading assets include debt and equity instruments held for trading
purposes that JPMorgan Chase owns (“long” positions), certain
loans for which the Firm manages on a fair value basis and has
elected the SFAS 159 fair value option, and physical commodities
inventories that are accounted for at the lower of cost or fair value.
Trading liabilities include debt and equity instruments that the Firm
has sold to other parties but does not own (“short” positions). The
Firm is obligated to purchase instruments at a future date to cover
the short positions. Included in trading assets and trading liabilities
are the reported receivables (unrealized gains) and payables (unreal-
ized losses) related to derivatives. Trading assets and liabilities are
carried at fair value on the Consolidated Balance Sheets. For a dis-
cussion of the valuation of trading assets and trading liabilities, see
Note 5 on pages 156–158 of this Annual Report.
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstand-
ing as of December 31, 2008 and 2007, for loans and long-term debt for which the SFAS 159 fair value option has been elected. The loans were
classified in trading assets – debt and equity instruments or in loans.
2008 2007
Fair value Fair value
Remaining over (under) Remaining over (under)
aggregate remaining aggregate remaining
contractual aggregate contractual aggregate
principal contractual principal contractual
amount principal amount amount principal amount
December 31, (in millions) outstanding Fair value outstanding outstanding Fair value outstanding
Loans
Performing loans 90 days or more past due
Loans reported as trading assets $—$— $— $— $ — $—
Loans —— — 11 11 —
Nonaccrual loans
Loans reported as trading assets 7,454 1,519 (5,935) 3,044 1,176 (1,868)
Loans 189 51 (138) 15 5 (10)
Subtotal 7,643 1,570 (6,073) 3,070 1,192 (1,878)
All other performing loans
Loans reported as trading assets 34,038 30,283 (3,755) 56,164 56,638 474
Loans 10,206 7,441 (2,765) 9,011 8,580 (431)
Total loans $ 51,887 $ 39,294 $(12,593) $ 68,245 $ 66,410 $ (1,835)
Long-term debt
Principal protected debt $ (27,043)(b) $ (26,241) $ (802) $ (24,262)(b) $ (24,033) $ (229)
Nonprincipal protected debt(a) NA (31,973) NA NA (46,423) NA
Total long-term debt NA $ (58,214) NA NA $ (70,456) NA
FIN 46R long-term beneficial interests
Principal protected debt $—$— $— $ (58) $ (58) $ —
Nonprincipal protected debt(a) NA (1,735) NA NA (2,946) NA
Total FIN 46R long-term beneficial interests NA $ (1,735) NA NA $ (3,004) NA
(a) Remaining contractual principal is not applicable to nonprincipal protected notes. Unlike principal protected notes for which the Firm is obligated to return a stated amount of princi-
pal at the maturity of the note, nonprincipal protected notes do not obligate the Firm to return a stated amount of principal at maturity but to return an amount based upon the per-
formance of an underlying variable or derivative feature embedded in the note.
(b) Where the Firm issues principal protected zero coupon or discount notes, the balance reflected as the remaining contractual principal is the final principal payment at maturity.