JP Morgan Chase 2008 Annual Report Download - page 199

JPMorgan Chase & Co./ 2008 Annual Report 197
VIEs sponsored by third parties
Investment in a third-party credit card securitization trust
The Firm holds a note in a third-party-sponsored VIE, which is a credit
card securitization trust (the “Trust”), that owns credit card receivables
issued by a national retailer. The note is structured so that the principal
amount can float up to 47% of the principal amount of the receivables
held by the Trust not to exceed $4.2 billion. The Firm is not the primary
beneficiary of the Trust and accounts for its investment as an AFS secu-
rity, which is recorded at fair value. At December 31, 2008, the amor-
tized cost of the note was $3.6 billion and the fair value was $2.6 bil-
lion. For more information on accounting for AFS securities, see Note
12 on pages 170–174 of this Annual Report.
VIE used in FRBNY transaction
In conjunction with the Bear Stearns merger, in June 2008, the
FRBNY took control, through an LLC formed for this purpose, of a
portfolio of $30.0 billion in assets, based upon the value of the port-
folio as of March 14, 2008. The assets of the LLC were funded by a
$28.85 billion term loan from the FRBNY, and a $1.15 billion subor-
dinated loan from JPMorgan Chase. The JPMorgan Chase loan is
subordinated to the FRBNY loan and will bear the first $1.15 billion
of any losses of the portfolio. Any remaining assets in the portfolio
after repayment of the FRBNY loan, the JPMorgan Chase loan and
the expense of the LLC, will be for the account of the FRBNY.
Other VIEs sponsored by third parties
The Firm enters into transactions with VIEs structured by other par-
ties. These transactions include, for example, acting as a derivative
counterparty, liquidity provider, investor, underwriter, placement
agent, trustee or custodian. These transactions are conducted at
arm’s length, and individual credit decisions are based upon the
analysis of the specific VIE, taking into consideration the quality of
the underlying assets. Where these activities do not cause JPMorgan
Chase to absorb a majority of the expected losses of the VIEs or to
receive a majority of the residual returns of the VIEs, JPMorgan
Chase records and reports these positions on its Consolidated
Balance Sheets similar to the way it would record and report posi-
tions from any other third-party transaction. These transactions are
not considered significant for disclosure purposes under FIN 46(R).
Exposures to CDO warehouse VIEs at December 31, 2008 and 2007, were as follows.
December 31, 2008 Funded Unfunded Maximum
(in billions) loans commitments(a) exposure(b)
CDO warehouse VIEs
Consolidated $ 0.4 $ — $ 0.4
Nonconsolidated 0.4 0.7 1.1
Total $ 0.8 $ 0.7 $ 1.5
December 31, 2007 Funded Unfunded Maximum
(in billions) loans commitments(a) exposure(b)
CDO warehouse VIEs
Consolidated $ 2.4 $ 1.9 $ 4.3
Nonconsolidated 2.7 3.4 6.1
Total $ 5.1 $ 5.3 $ 10.4
Ratings profile of VIE assets(c)
December 31, Investment-grade Noninvestment-grade Total
(in billions) AAA to AAA- AA+ to AA- A+ to A- BBB to BBB- BB+ and below exposure
Nonconsolidated CDO warehouse VIEs
2008 $ — $ — $ — $ — $ 0.4 $ 0.4
2007 — — — — 2.7 2.7
(a) Typically contingent upon certain asset-quality conditions being met by asset managers.
(b) The aggregate of the fair value of loan exposure and any unfunded, contractually committed financing.
(c) The ratings scale is based upon JPMorgan Chase’s internal risk ratings and presented on an S&P equivalent basis.