JP Morgan Chase 2009 Annual Report Download - page 213

JPMorgan Chase & Co./2009 Annual Report 211
Year ended December 31, 2007 Residential mortgage
(in millions, except for ratios and where
otherwise noted) Credit card Prime(h) Subprime Option ARMs
Commercial
and other
Student
loans Auto
Principal securitized $ 21,160 $ 32,084 $ 6,763 $ — $ 12,797 $ 1,168 $ —
Pretax gains 177 28(i) 43 — — 51 —
All cash flows during the period:
Proceeds from new securitizations $ 21,160 $ 31,791 $ 6,844 $ — $ 13,038 $ 1,168 $ —
Servicing fees collected 1,005 124 246 — 7 2 36
Other cash flows received(a) 4,963 — — — — — —
Proceeds from collections reinvested in
revolving securitizations 148,946 — — — — — —
Purchases of previously transferred financial
assets (or the underlying collateral)(b) — 58 598 — — — 431
Cash flows received on the interests that
continue to be held by the Firm(c) 18 140 278 — 256 — 89
Key assumptions used to measure
retained interests originated during
the year (rates per annum):
Prepayment rate(d) 20.4% 13.7-37.2% 30.0-48.0% 0.0-8.0% 1.0-8.0%
PPR CPR CPR CPR CPR
Weighted-average life (in years) 0.4 1.3-5.4 2.3-2.8 1.3-10.2 9.3
Expected credit losses 3.7% 0.0-1.6%(k) 1.2-2.2% 0.0-1.0%(k) —%(k)
Discount rate 12.0% 5.8-20.0% 12.1-26.7%
10.0-14.0% 9.0%
(a) Includes excess servicing fees and other ancillary fees received.
(b) Includes cash paid by the Firm to reacquire assets from the QSPEs – for example, servicer clean-up calls.
(c) Includes cash flows received on retained interests including – for example, principal repayments, and interest payments.
(d) PPR: principal payment rate; CPR: constant prepayment rate; CPY: constant prepayment yield.
(e) Includes $12.8 billion and $5.5 billion of securities in credit cards; and $47 million and zero of securities in commercial and other; retained by the Firm for the years
ended December 31, 2009 and 2008, respectively.
(f) As required under the terms of the transaction documents, $1.6 billion of proceeds from new securitizations were deposited to cash escrow accounts during the year
ended December 31, 2009.
(g) Includes securitizations sponsored by Bear Stearns and Washington Mutual as of their respective acquisition dates.
(h) Includes Alt-A loans.
(i) As of January 1, 2007, the Firm elected the fair value option for IB warehouse and the RFS prime mortgage warehouse. The carrying value of these loans accounted for
at fair value approximates the proceeds received from securitization.
(j) Represents a senior interest-only security that is expected to prepay in full as soon as permitted, as such there is no expected credit loss on this security. Market conven-
tion is to utilize a 100% prepayment rate for this type of interest.
(k) Expected credit losses for consumer prime residential mortgage, and student and certain other securitizations are incorporated into other assumptions.
JPMorgan Chase’s interest in securitized assets held at fair value
The following table summarizes the Firm’s retained securitization interests, which are carried at fair value on the Firm’s Consolidated Balance
Sheets. The risk ratings are periodically reassessed as information becomes available. As of December 31, 2009 and 2008, 59% and 55%,
respectively, of the Firm’s retained securitization interests, which are carried at fair value, were risk rated “A” or better.
Ratings profile of interests held (c)(d)(e)
2009 2008
December 31,
(in billions)
Investment
grade
Noninvestment
grade
Retained
interests
Investment
grade
Noninvestment
grade
Retained
interests
Asset types:
Credit card(a) $ 15.6 $ 5.0 $ 20.6 $ 5.8 $ 3.8 $ 9.6
Residential mortgage:
Prime(b) 0.7 0.4 1.1 2.0 0.4 2.4
Subprime — — — — 0.1 0.1
Option ARMs 0.1 — 0.1 0.4 — 0.4
Commercial and other 2.2 0.2 2.4 2.2 0.3 2.5
Student loans — 0.1 0.1 — 0.1 0.1
Auto — — — — — —
Total $ 18.6 $ 5.7 $ 24.3 $ 10.4 $ 4.7 $ 15.1
(a) Includes retained subordinated interests carried at fair value, including CS’s accrued interests and fees, escrow accounts, and other residual interests. Excludes at
December 31, 2009 and 2008, undivided seller interest in the trusts of $16.7 billion and $33.3 billion, respectively, and unencumbered cash amounts and deposits of
$6.6 billion and $2.1 billion, respectively, which are carried at historical cost.
(b) Includes Alt-A loans.
(c) The ratings scale is presented on an S&P-equivalent basis.
(d) Includes $2.0 billion and $1.8 billion of investments acquired in the secondary market, but predominantly held for investment purposes, as of December 31, 2009 and
2008, respectively. Of these amounts, $2.0 billion and $1.7 billion were classified as investment-grade as of December 31, 2009 and 2008, respectively.
(e) Excludes senior and subordinated securities of $875 million and $1.0 billion at December 31, 2009 and 2008, respectively, which the Firm purchased in connection with
IB’s secondary market-making activities.