JP Morgan Chase 2008 Annual Report Download - page 97

JPMorgan Chase & Co. / 2008 Annual Report 95
WHOLESALE CREDIT PORTFOLIO
As of December 31, 2008, wholesale exposure (IB, CB, TSS and AM)
increased $83.8 billion from December 31, 2007, primarily due to
the Bear Stearns merger, which added $54.3 billion of wholesale
exposure in the second quarter of 2008 ($26.0 billion of receivables
from customers, $18.9 billion of derivative receivables, $5.0 billion of
lending-related commitments and $4.4 billion of loans) and the
Washington Mutual transaction (which added $47.5 billion of whole-
sale exposure in the third quarter of 2008, mainly consisting of
loans). Excluding these two transactions, the portfolio decreased
$18.0 billion, largely driven by decreases of $73.7 billion in lending-
related commitments and $9.9 billion in receivables from customers.
Partly offsetting these decreases was an increase of $65.5 billion in
derivative receivables. The decrease in lending-related commitments
was largely related to a reduction in multi-seller conduit-related com-
mitments. The increase in derivative receivables 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. For additional information regard-
ing conduit-related commitments, see Note 17 on pages 189–198 of
this Annual Report.
Excluding the Washington Mutual and Bear Stearns transactions,
retained loans increased $11.0 billion reflecting increases in traditional
lending activity while loans held-for-sale and loans at fair value
decreased reflecting sales, reduced carrying values and lower volumes
in the syndication market.
Wholesale
90 days past due
As of or for the year ended December 31,
Credit exposure Nonperforming loans(f) and accruing
(in millions) 2008 2007 2008 2007 2008 2007
Loans retained(a) $ 248,089 $ 189,427 $ 2,350 $ 464 $ 163 $75
Loans held-for-sale 6,259 14,910 12 45 ——
Loans at fair value 7,696 8,739 20 5——
Loans – reported $ 262,044 $ 213,076 $ 2,382 $ 514 $ 163 $75
Derivative receivables 162,626 77,136 1,079 29 ——
Receivables from customers(b) 16,141 —————
Total wholesale credit-related assets 440,811 290,212 3,461 543 163 75
Lending-related commitments(c) 379,871 446,652 NA NA NA NA
Total wholesale credit exposure $ 820,682 $ 736,864 $ 3,461 $ 543 $ 163 $75
Credit derivative hedges notional(d) $ (91,451) $ (67,999) $— $ (3) NA NA
Collateral held against derivatives(e) (19,816) (9,824) NA NA NA NA
(a) Includes $224 million of purchased credit-impaired loans at December 31, 2008, which are accounted for in accordance with SOP 03-3. They are considered nonperforming loans
because the timing and amount of expected future cash flows is not reasonably estimable. For additional information, see Note 14 on pages 175–178 of this Annual Report.
(b) Primarily represents margin loans to prime and retail brokerage customers, which are included in accrued interest and accounts receivable on the Consolidated Balance Sheets.
(c) Includes unused advised lines of credit totaling $36.3 billion and $38.4 billion at December 31, 2008 and 2007, respectively, which are not legally binding. In regulatory filings with
the Federal Reserve, unused advised lines are not reportable.
(d) Represents the net notional amount of protection purchased and sold of single-name and portfolio credit derivatives used to manage the credit exposures; these derivatives do not
qualify for hedge accounting under SFAS 133. For additional information, see page 101 of this Annual Report.
(e) Represents other liquid securities collateral held by the Firm as of December 31, 2008 and 2007, respectively.
(f) Assets acquired in loan satisfactions have been excluded in this presentation. See the wholesale nonperforming assets by line of business segment table for additional information.
The following table presents net charge-offs (excluding gains from
sales of nonperforming loans), for the years ended December 31,
2008 and 2007.
Net charge-offs
Wholesale
Year ended December 31,
(in millions, except ratios) 2008 2007
Loans – reported
Net charge-offs $ 402 $72
Average annual net charge-off rate(a) 0.18% 0.04%
(a) Excludes average wholesale loans held-for-sale and loans at fair value of $18.9 billion
and $18.6 billion for the years ended December 31, 2008 and 2007, respectively.
The following table presents the change in the wholesale nonperform-
ing loan portfolio for the years ended December 31, 2008 and 2007.
Nonperforming loan activity
Wholesale
Year ended December 31,
(in millions) 2008 2007
Beginning balance $ 514 $ 391
Additions 3,381 1,107
Reductions:
Paydowns and other 859 576
Charge-offs 521 185
Returned to performing 93 136
Sales 40 87
Total reductions 1,513 984
Net additions 1,868 123
Ending balance $ 2,382 $ 514