JP Morgan Chase 2008 Annual Report Download - page 78

Management’s discussion and analysis
76 JPMorgan Chase & Co./ 2008 Annual Report
BALANCE SHEET ANALYSIS
Selected balance sheet data
December 31, (in millions) 2008 2007
Assets
Cash and due from banks $ 26,895 $ 40,144
Deposits with banks 138,139 11,466
Federal funds sold and securities purchased
under resale agreements 203,115 170,897
Securities borrowed 124,000 84,184
Trading assets:
Debt and equity instruments 347,357 414,273
Derivative receivables 162,626 77,136
Securities 205,943 85,450
Loans 744,898 519,374
Allowance for loan losses (23,164) (9,234)
Loans, net of allowance for loan losses 721,734 510,140
Accrued interest and accounts receivable 60,987 24,823
Goodwill 48,027 45,270
Other intangible assets 14,984 14,731
Other assets 121,245 83,633
Total assets $ 2,175,052 $1,562,147
Liabilities
Deposits $ 1,009,277 $ 740,728
Federal funds purchased and securities loaned
or sold under repurchase agreements 192,546 154,398
Commercial paper and other borrowed funds 170,245 78,431
Trading liabilities:
Debt and equity instruments 45,274 89,162
Derivative payables 121,604 68,705
Accounts payable and other liabilities 187,978 94,476
Beneficial interests issued by consolidated VIEs 10,561 14,016
Long-term debt and trust preferred capital
debt securities 270,683 199,010
Total liabilities 2,008,168 1,438,926
Stockholders’ equity 166,884 123,221
Total liabilities and stockholders’
equity $ 2,175,052 $1,562,147
Consolidated Balance Sheets overview
The following is a discussion of the significant changes in the
Consolidated Balance Sheets from December 31, 2007.
Deposits with banks; federal funds sold and securities pur-
chased under resale agreements; securities borrowed; fed-
eral funds purchased and securities loaned or sold under
repurchase agreements
The Firm utilizes deposits with banks, federal funds sold and securi-
ties purchased under resale agreements, securities borrowed, and
federal funds purchased and securities loaned or sold under repur-
chase agreements as part of its liquidity management activities to
manage the Firm’s cash positions and risk-based capital require-
ments and to support the Firm’s trading and risk management activi-
ties. In particular, the Firm uses securities purchased under resale
agreements and securities borrowed to provide funding or liquidity
to clients by purchasing and borrowing clients’ securities for the
short-term. Federal funds purchased and securities loaned or sold
under repurchase agreements are used as short-term funding sources
for the Firm and to make securities available to clients for their short-
term purposes. The increase from December 31, 2007, in deposits
with banks reflected a higher level of interbank lending; a reclassifi-
cation of deposits with the Federal Reserve Bank from cash and due
from banks to deposits with banks reflecting a policy change of the
Federal Reserve Bank to pay interest to depository institutions on
reserve balances, and assets acquired as a result of the Bear Stearns
merger. The increase in securities borrowed and securities purchased
under resale agreements was related to assets acquired as a result of
the Bear Stearns merger and growth in demand from clients for liq-
uidity. The increase in securities sold under repurchase agreements
reflected higher short-term funding requirements to fulfill clients’
demand for liquidity and finance the Firm’s AFS securities inventory,
and the effect of the liabilities assumed in connection with the Bear
Stearns merger. For additional information on the Firm’s Liquidity
Risk Management, see pages 88–92 of this Annual Report.
Trading assets and liabilities – debt and equity instruments
The Firm uses debt and equity trading instruments for both market-
making and proprietary risk-taking activities. These instruments con-
sist predominantly of fixed income securities, including government
and corporate debt; equity, including convertible securities; loans,
including certain prime mortgage and other loans warehoused by
RFS and IB for sale or securitization purposes and accounted for at
fair value under SFAS 159; and physical commodities inventories. The
decreases in trading assets and liabilities – debt and equity instru-
ments from December 31, 2007, reflected the effect of the challeng-
ing capital markets environment, particularly for debt securities, par-
tially offset by positions acquired as a result of the Bear Stearns
merger. For additional information, refer to Note 4 and Note 6 on
pages 141–155 and 158–160, respectively, of this Annual Report.
Trading assets and liabilities – derivative receivables and
payables
Derivative instruments enable end-users to increase, reduce or alter
exposure to credit or market risks. The value of a derivative is derived
from its reference to an underlying variable or combination of variables
such as interest rate, credit, foreign exchange, equity or commodity
prices or indices. JPMorgan Chase makes markets in derivatives for
customers, is an end-user of derivatives for its principal risk-taking
activities, and is also an end-user of derivatives to hedge or manage
risks of market and credit exposures, modify the interest rate character-
istics of related balance sheet instruments or meet longer-term invest-
ment objectives. The majority of the Firm’s derivatives are entered into
for market-making purposes. The increase in derivative receivables and
payables from December 31, 2007, was primarily related to the decline
in interest rates, widening credit spreads and volatile foreign exchange
rates reflected in interest rate, credit and foreign exchange derivatives,
respectively. The increase also included positions acquired in the Bear
Stearns merger. For additional information, refer to derivative contracts,
Note 4, Note 6 and Note 32 on pages 141–155, 158–160, and
214–217, respectively, of this Annual Report.