JP Morgan Chase 2008 Annual Report Download - page 177

JPMorgan Chase & Co./ 2008 Annual Report 175JPMorgan Chase & Co. / 2008 Annual Report 175JPMorgan Chase & Co. / 2008 Annual Report 175JPMorgan Chase & Co. / 2008 Annual Report 175JPMorgan Chase & Co. / 2008 Annual Report 175
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 moni-
tors the market value of the securities borrowed and lent on a daily
basis and calls for additional collateral when appropriate. Fees
received or paid in connection with securities borrowed and lent are
recorded in interest income or interest expense.
The following table details the components of collateralized financings.
December 31, (in millions) 2008 2007
Securities purchased under resale agreements(a) $ 200,265 $ 169,305
Securities borrowed(b) 124,000 84,184
Securities sold under repurchase agreements(c) $ 174,456 $ 126,098
Securities loaned 6,077 10,922
(a) Includes resale agreements of $20.8 billion and $19.1 billion accounted for at fair
value at December 31, 2008 and 2007, respectively.
(b) Includes securities borrowed of $3.4 billion accounted for at fair value at December
31, 2008.
(c) Includes repurchase agreements of $3.0 billion and $5.8 billion accounted for at fair
value at December 31, 2008 and 2007, respectively.
JPMorgan Chase pledges certain financial instruments it owns to col-
lateralize repurchase agreements and other securities financings.
Pledged securities that can be sold or repledged by the secured party
are identified as financial instruments owned (pledged to various
parties) on the Consolidated Balance Sheets.
At December 31, 2008, the Firm received securities as collateral that
could be repledged, delivered or otherwise used with a fair value of
approximately $511.9 billion. This collateral was generally obtained
under resale or securities borrowing agreements. Of these securities,
approximately $456.6 billion were repledged, delivered or otherwise
used, generally as collateral under repurchase agreements, securities
lending agreements or to cover short sales.
Note 14 – Loans
The accounting for a loan may differ based upon whether it is origi-
nated or purchased and as to whether the loan is used in an invest-
ing or trading strategy. For purchased loans held-for-investment, the
accounting also differs depending on whether a loan is credit-
impaired at the date of acquisition. Purchased loans with evidence of
credit deterioration since the origination date and for which it is
probable, at acquisition, that all contractually required payments
receivable will not be collected are considered to be credit-impaired.
The measurement framework for loans in the Consolidated Financial
Statements is one of the following:
• At the principal amount outstanding, net of the allowance for
loan losses, unearned income and any net deferred loan fees or
costs, for loans held for investment (other than purchased credit-
impaired loans);
• At the lower of cost or fair value, with valuation changes record-
ed in noninterest revenue, for loans that are classified as held-
for-sale; or
• At fair value, with changes in fair value recorded in noninterest
revenue, for loans classified as trading assets or risk managed on
a fair value basis;
• Purchased credit-impaired loans held for investment are account-
ed for under SOP 03-3 and initially measured at fair value, which
includes estimated future credit losses. Accordingly, an allowance
for loan losses related to these loans is not recorded at the
acquisition date.
See Note 5 on pages 156–158 of this Annual Report for further
information on the Firm’s elections of fair value accounting under
SFAS 159. See Note 6 on pages 158–160 of this Annual Report for
further information on loans carried at fair value and classified as
trading assets.
For loans held for investment, other than purchased credit-impaired
loans, interest income is recognized using the interest method or on a
basis approximating a level rate of return over the term of the loan.
Loans within the held-for-investment portfolio that management
decides to sell are transferred to the held-for-sale portfolio. Transfers
to held-for-sale are recorded at the lower of cost or fair value on the
date of transfer. Credit-related losses are charged off to the
allowance for loan losses and losses due to changes in interest rates,
or exchange rates, are recognized in noninterest revenue.
Loans within the held-for-sale portfolio that management decides to
retain are transferred to the held-for-investment portfolio at the
lower of cost or fair value. These loans are subsequently assessed for
impairment based on the Firm’s allowance methodology. For a fur-
ther discussion of the methodologies used in establishing the Firm’s
allowance for loan losses, see Note 15 on pages 178–180 of this
Annual Report.
Nonaccrual loans are those on which the accrual of interest is dis-
continued. Loans (other than certain consumer and purchased credit-
impaired loans discussed below) are placed on nonaccrual status
immediately if, in the opinion of management, full payment of princi-
pal or interest is in doubt, or when principal or interest is 90 days or
more past due and collateral, if any, is insufficient to cover principal
and interest. Loans are charged off to the allowance for loan losses
when it is highly certain that a loss has been realized. Interest
accrued but not collected at the date a loan is placed on nonaccrual
status is reversed against interest income. In addition, the amortiza-
tion of net deferred loan fees is suspended. Interest income on
nonaccrual loans is recognized only to the extent it is received in
cash. However, where there is doubt regarding the ultimate col-
lectibility of loan principal, all cash thereafter received is applied to
reduce the carrying value of such loans (i.e., the cost recovery
method). Loans are restored to accrual status only when future pay-
ments of interest and principal are reasonably assured.
Consumer loans, other than purchased credit-impaired loans, are
generally charged to the allowance for loan losses upon reaching
specified stages of delinquency, in accordance with the Federal
Financial Institutions Examination Council policy. For example, credit
card loans are charged off by the end of the month in which the
account becomes 180 days past due or within 60 days from receiv-
ing notification of the filing of bankruptcy, whichever is earlier.
Residential mortgage products are generally charged off to net real-
izable value at no later than 180 days past due. Other consumer