JP Morgan Chase 2009 Annual Report Download - page 166

Notes to consolidated financial statements
JPMorgan Chase & Co./2009 Annual Report 164
Fair value hierarchy
December 31, 2008 (in millions) Level 1 Level 2 Level 3
Netting
adjustments
Total
fair value
Deposits $ — $ 4,370 $ 1,235 $ — $ 5,605
Federal funds purchased and securities loaned or
sold under repurchase agreements — 2,993 — — 2,993
Other borrowed funds — 14,612 101 — 14,713
Trading liabilities:
Debt and equity instruments 34,568 10,418 288 — 45,274
Derivative payables(e) 3,630 2,622,371 43,484 (2,547,881) 121,604
Total trading liabilities 38,198 2,632,789 43,772 (2,547,881) 166,878
Accounts payable and other liabilities — — — — —
Beneficial interests issued by consolidated VIEs — 1,735 — — 1,735
Long-term debt — 41,666 16,548 — 58,214
Total liabilities measured at fair value on a
recurring basis $ 38,198 $ 2,698,165 $ 61,656 $ (2,547,881) $ 250,138
(a) Includes total U.S. government-sponsored enterprise obligations of $195.8 billion and $182.1 billion at December 31, 2009 and 2008, respectively, which were pre-
dominantly mortgage-related.
(b) For further discussion of residential and commercial MBS, see the “Mortgage-related exposure carried at fair value” section of this Note on pages 169–170.
(c) Included within trading loans at December 31, 2009 and 2008, respectively, are $15.7 billion and $12.1 billion of residential first-lien mortgages and $2.7 billion and
$4.3 billion of commercial first-lien mortgages. For further discussion of residential and commercial loans carried at fair value or the lower of cost or fair value, see the
“Mortgage-related exposure carried at fair value” section of this Note on pages 169–170.
(d) Physical commodities inventories are accounted for at the lower of cost or fair value.
(e) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a
legally enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances
for this netting adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of
inputs to the valuation of an asset or liability. Therefore, the balances reported in the fair value hierarchy table are gross of any counterparty netting adjustments. How-
ever, if the Firm were to net such balances, the reduction in the level 3 derivative receivable and derivative payable balances would be $16.0 billion at December 31,
2009.
(f) Private equity instruments represent investments within the Corporate/Private Equity line of business. The cost basis of the private equity investment portfolio was $8.8
billion and $8.3 billion at December 31, 2009 and 2008, respectively.
(g) Includes assets within accrued interest receivable and other assets at December 31, 2009 and 2008.
(h) Balances include investments valued at NAV at December 31, 2009, of $16.8 billion, of which $9.0 billion is classified in level 1, $3.2 billion in level 2 and $4.6 billion
in level 3.
(i) Includes assets for which the Firm serves as an intermediary between two parties and does not bear market risk. The assets are predominantly reflected within derivative
receivables.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the activity for finan-
cial instruments classified by the Firm within level 3 of the fair value
hierarchy for the years ended December 31, 2009, 2008 and 2007
(including changes in fair value). Level 3 financial instruments
typically include, in addition to the unobservable or level 3 compo-
nents, observable components (that is, components that are ac-
tively quoted and can be validated to external sources); accordingly,
the gains and losses in the table below include changes in fair
value due in part to observable factors that are part of the valua-
tion methodology. Also, the Firm risk manages the observable
components of level 3 financial instruments using securities and
derivative positions that are classified within level 1 or 2 of the fair
value hierarchy; as these level 1 and level 2 risk management
instruments are not included below, the gains or losses in the
following tables do not reflect the effect of the Firm’s risk manage-
ment activities related to such level 3 instruments.