JP Morgan Chase 2008 Annual Report Download - page 219

JPMorgan Chase & Co./ 2008 Annual Report 217
Total credit derivatives and credit-linked notes
Maximum payout/Notional amount
Protection purchased with Net protection Other protection
December 31, 2008 (in millions) Protection sold identical underlyings(b) (sold)/purchased(c) purchased(d)
Credit derivatives
Credit default swaps $ (4,194,707) $ 3,876,890 $ (317,817) $ 302,160
Other credit derivatives(a) (4,026) — (4,026) 10,096
Total credit derivatives (4,198,733) 3,876,890 (321,843) 312,256
Credit-linked notes (1,263) 141 (1,122) 1,792
Total $ (4,199,996) $ 3,877,031 $ (322,965) $ 314,048
(a) Primarily consists of total return swaps and options to enter into credit default swap contracts.
(b) Represents the notional amount of purchased credit derivatives where the underlying reference instrument is identical to the reference instrument on which the Firm has sold credit
protection.
(c) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the buyer of
protection in determining settlement value.
(d) Represents single-name and index CDS protection the Firm purchased primarily to risk manage the net protection sold.
The following table summarizes the notional and fair value amounts of credit derivatives and credit-linked notes as of December 31, 2008, where
JPMorgan Chase is the seller of protection. The maturity profile presents the years to maturity based upon the remaining contractual maturity of
the credit derivative contracts. The ratings profile is based on the rating of the reference entity on which the credit derivative contract is based.
The ratings and maturity profile of protection purchased is comparable to the profile reflected below.
Protection sold – credit derivatives and credit-linked notes ratings/maturity profile(a)
Total
December 31, 2008 (in millions) < 1 year 1-5 years > 5 years notional amount Fair value(c)
Risk rating of reference entity
Investment grade (AAA to BBB-)(b) $ (177,404) $ (1,767,004) $ (713,555) $ (2,657,963) $ (215,217)
Noninvestment grade (BB+ and below)(b) (121,040) (992,098) (428,895) (1,542,033) (244,975)
Total $ (298,444) $ (2,759,102) $ (1,142,450) $ (4,199,996) $ (460,192)
(a) The contractual maturity for single-name CDS contract generally ranges from three months to ten years and the contractual maturity for index CDS is generally five years.The contractual
maturity for CLNs typically ranges from three to five years.
(b) Ratings scale is based upon the Firm’s internal ratings, which generally correspond to ratings defined by S&P and Moody’s.
(c) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral held by the Firm.