JP Morgan Chase 2008 Annual Report Download - page 192

Notes to consolidated financial statements
190 JPMorgan Chase & Co./ 2008 Annual Report
The Firm also provides the multi-seller conduit vehicles with pro-
gram-wide liquidity facilities in the form of uncommitted short-term
revolving facilities that can be accessed by the conduits to handle
funding increments too small to be funded by commercial paper and
in the form of uncommitted liquidity facilities that can be accessed
by the conduits only in the event of short-term disruptions in the
commercial paper market.
Because the majority of the deal-specific liquidity facilities will only
fund nondefaulted assets, program-wide credit enhancement is
required to absorb losses on defaulted receivables in excess of loss-
es absorbed by any deal-specific credit enhancement. Program-wide
credit enhancement may be provided by JPMorgan Chase in the
form of standby letters of credit or by third-party surety bond
providers. The amount of program-wide credit enhancement
required varies by conduit and ranges between 5% and 10% of
applicable commercial paper outstanding.
The following table presents information on the commitments and assets held by JPMorgan Chase’s administered multi-seller conduits as of
December 31, 2008 and 2007.
Summary of exposure to Firm-administered nonconsolidated multi-seller conduits
2008 2007
Unfunded Commercial Liquidity Liquidity Unfunded Commercial Liquidity Liquidity
December 31, commitments to paper funded provided by provided commitments to paper funded provided by provided
(in billions) Firm’s clients assets third parties by Firm Firm’s clients assets third parties by Firm
Asset types:
Credit card $ 3.0 $ 8.9 $ 0.1 $ 11.8 $ 3.3 $ 14.2 $ — $ 17.5
Vehicle loans and leases 1.4 10.0 — 11.4 4.5 10.2 — 14.7
Trade receivables 3.8 5.5 — 9.3 6.0 6.6 — 12.6
Student loans 0.7 4.6 5.3 0.8 9.2 — 10.0
Commercial 1.5 4.0 0.4 5.1 2.1 4.8 0.4 6.5
Residential mortgage — 0.7 — 0.7 4.6 3.1 — 7.7
Capital commitments 1.3 3.9 0.6 4.6 2.0 5.1 0.6 6.5
Rental car finance 0.2 0.4 — 0.6 0.6 0.7 — 1.3
Equipment loans and leases 0.7 1.6 — 2.3 1.1 2.5 — 3.6
Floorplan – vehicle 0.7 1.8 — 2.5 1.3 1.3 — 2.6
Floorplan – other ———— — 0.5 — 0.5
Consumer 0.1 0.7 0.1 0.7 0.7 1.7 0.2 2.2
Other 0.6 0.8 0.3 1.1 0.7 1.3 0.4 1.6
Total $ 14.0 $ 42.9 $ 1.5 $ 55.4 $ 27.7 $ 61.2 $ 1.6 $ 87.3
The following table summarizes the Firm’s involvement with nonconsolidated Firm-administered multi-seller conduits. There were no consolidated
Firm-administered multi-seller conduits as of December 31, 2008 or 2007.
December 31, (in billions) 2008 2007
Total assets held by conduits $ 42.9 $ 61.2
Total commercial paper issued by conduits 43.1 62.6
Liquidity and credit enhancements(a)
Deal-specific liquidity facilities (primary asset purchase agreements) 55.4 87.3
Program-wide liquidity facilities 17.0 13.2
Program-wide credit enhancements 3.0 2.5
Maximum exposure to loss(b) 56.9 88.9
(a) The accounting for these agreements is further discussed in Note 33 on pages 218–222. The carrying value related to asset purchase agreements was $147 million at December 31,
2008, of which $138 million represented the remaining fair value of the guarantee under FIN 45. The Firm has recognized this guarantee in other liabilities with an offsetting entry rec-
ognized in other assets for the net present value of the future premium receivable under the contracts.
(b) The Firm’s maximum exposure to loss is limited to the amount of drawn commitments (i.e., sellers’ assets held by the multi-seller conduits for which the Firm provides liquidity support)
of $42.9 billion and $61.2 billion at December 31, 2008 and 2007, respectively, plus contractual but undrawn commitments of $14.0 billion and $27.7 billion at December 31, 2008
and 2007, respectively. Since the Firm provides credit enhancement and liquidity to Firm-administered, multi-seller conduits, the maximum exposure is not adjusted to exclude exposure
that would be absorbed by third-party liquidity providers.
Assets funded by the multi-seller conduits
JPMorgan Chase’s administered multi-seller conduits fund a variety
of asset types for the Firm’s clients. Asset types primarily include
credit card receivables, auto loans, trade receivables, student loans,
commercial loans, residential mortgages, capital commitments (e.g.,
loans to private equity, mezzanine and real estate opportunity funds
secured by capital commitments of highly rated institutional
investors), and various other asset types. It is the Firm’s intention
that the assets funded by its administered multi-seller conduits be
sourced only from the Firm’s clients and not originated by, or trans-
ferred from, JPMorgan Chase.