JP Morgan Chase 2009 Annual Report Download - page 144

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Management’s discussion and analysis
JPMorgan Chase & Co./2009 Annual Report
142
Measuring fair value of certain alternative investments
In September 2009, the FASB issued guidance which amends the
guidance on fair value measurements and offers a practical expedi-
ent for measuring the fair value of investments in certain entities
that calculate net asset value (“NAV”) per share when the fair
value is not readily determinable. This guidance is effective for the
first interim or annual reporting period ending after December 15,
2009. The Firm adopted the guidance in the fourth quarter of
2009, and it did not have a material impact on the Firm’s Consoli-
dated Balance Sheets or results of operations.
Fair value measurements and disclosures
In January 2010, the FASB issued guidance that requires new disclo-
sures, and clarifies existing disclosure requirements, about fair value
measurements. The clarifications and the requirement to separately
disclose transfers of instruments between level 1 and level 2 of the
fair value hierarchy are effective for interim reporting periods begin-
ning after December 15, 2009; however, the requirement to provide
purchases, sales, issuances and settlements in the level 3 rollforward
on a gross basis is effective for fiscal years beginning after December
15, 2010. Early adoption of the guidance is permitted.
NONEXCHANGE-TRADED COMMODITY DERIVATIVE CONTRACTS AT FAIR VALUE
In the normal course of business, JPMorgan Chase trades nonex-
change-traded commodity derivative contracts. To determine the
fair value of these contracts, the Firm uses various fair value esti-
mation techniques, primarily based on internal models with signifi-
cant observable market parameters. The Firm’s nonexchange-
traded commodity derivative contracts are primarily energy-related.
The following table summarizes the changes in fair value for nonex-
change-traded commodity derivative contracts for the year ended
December 31, 2009.
For the year ended
December 31, 2009
(in millions) Asset position Liability position
Net fair value of contracts outstanding
at January 1, 2009 $ 7,432 $ 5,139
Effect of legally enforceable master netting
agreements 48,091 48,726
Gross fair value of contracts
outstanding at January 1, 2009 55,523 53,865
Contracts realized or otherwise settled (31,444) (30,248)
Fair value of new contracts 12,050 10,192
Changes in fair values attributable to
changes in valuation techniques and
assumptions — —
Other changes in fair value (5,820) (5,582)
Gross fair value of contracts
outstanding at December 31, 2009 30,309 28,227
Effect of legally enforceable master netting
agreements (25,282) (26,490)
Net fair value of contracts
outstanding at December 31, 2009 $ 5,027 $ 1,737
The following table indicates the maturities of nonexchange-traded
commodity derivative contracts at December 31, 2009.
December 31, 2009 (in millions) Asset position Liability position
Maturity less than 1 year $ 14,130 $ 11,544
Maturity 1–3 years 12,352 9,962
Maturity 4–5 years 2,787 1,960
Maturity in excess of 5 years 1,040 4,761
Gross fair value of contracts
outstanding at December 31, 2009
30,309 28,227
Effect of legally enforceable master
netting agreements (25,282)
(26,490)
Net fair value of contracts
outstanding at December 31, 2009
$ 5,027 $ 1,737