JP Morgan Chase 2009 Annual Report Download - page 240

Notes to consolidated financial statements
JPMorgan Chase & Co./2009 Annual Report
238
Note 30 – Commitments and contingencies
At December 31, 2009, JPMorgan Chase and its subsidiaries were
obligated under a number of noncancelable operating leases for
premises and equipment used primarily for banking purposes, and
for energy-related tolling service agreements. Certain leases contain
renewal options or escalation clauses providing for increased rental
payments based on maintenance, utility and tax increases, or they
require the Firm to perform restoration work on leased premises.
No lease agreement imposes restrictions on the Firm’s ability to pay
dividends, engage in debt or equity financing transactions or enter
into further lease agreements.
The following table presents required future minimum rental pay-
ments under operating leases with noncancelable lease terms that
expire after December 31, 2009.
Year ended December 31, (in millions)
2010 $ 1,652
2011 1,629
2012 1,550
2013 1,478
2014 1,379
After 2014 8,264
Total minimum payments required(a) 15,952
Less: Sublease rentals under noncancelable subleases (1,800)
Net minimum payment required $ 14,152
(a) Lease restoration obligations are accrued in accordance with U.S. GAAP, and
are not reported as a required minimum lease payment.
Total rental expense was as follows.
Year ended December 31,
(in millions) 2009 2008 2007
Gross rental expense $ 1,884 $ 1,917 $ 1,380
Sublease rental income (172) (415)
(175)
)
Net rental expense $ 1,712 $ 1,502 $ 1,205
At December 31, 2009, assets were pledged to secure public
deposits and for other purposes. The significant components of the
assets pledged were as follows.
December 31, (in billions) 2009 2008
Reverse repurchase/securities borrowing
agreements $ 392.9 $ 456.6
Securities 115.6 31.0
Loans 289.0 342.3
Trading assets and other 76.8 98.0
Total assets pledged(a) $ 874.3 $ 927.9
(a) Total assets pledged do not include assets of consolidated VIEs. These
assets are not generally used to satisfy liabilities to third parties. See Note
16 on pages 214–222 of this Annual Report for additional information on
assets and liabilities of consolidated VIEs.
In 2008, the Firm resolved with the IRS issues related to compliance
with reporting and withholding requirements for certain accounts
transferred to The Bank of New York Mellon Corporation
(“BNYM”) in connection with the Firm’s sale to BNYM of its corpo-
rate trust business. The resolution of these issues did not have a
material effect on the Firm.
Litigation reserve
The Firm maintains litigation reserves for certain of its outstanding
litigation. JPMorgan Chase accrues for a litigation-related liability
when it is probable that such a liability has been incurred and the
amount of the loss can be reasonably estimated. When the Firm is
named as a defendant in a litigation and may be subject to joint
and several liability, and a judgment-sharing agreement is in place,
the Firm recognizes expense and obligations net of amounts ex-
pected to be paid by other signatories to the judgment-sharing
agreement.
While the outcome of litigation is inherently uncertain, manage-
ment believes, in light of all information known to it at December
31, 2009, the Firm’s litigation reserves were adequate at such date.
Management reviews litigation reserves at least quarterly, and the
reserves may be increased or decreased in the future to reflect
further relevant developments. The Firm believes it has meritorious
defenses to the claims asserted against it in its currently out-
standing litigation and, with respect to such litigation, intends to
continue to defend itself vigorously, litigating or settling cases
according to management’s judgment as to what is in the best
interests of JPMorgan Chase stockholders.
Note 31 – Off–balance sheet lending-related
financial instruments, guarantees and other
commitments
JPMorgan Chase utilizes lending-related financial instruments (e.g.,
commitments and guarantees) to meet the financing needs of its
customers. The contractual amount of these financial instruments
represents the maximum possible credit risk should the counterpar-
ties draw down the commitment or the Firm fulfill its obligation
under the guarantee, and the counterparties subsequently fail to
perform according to the terms of the contract. Most of these
commitments and guarantees expire without a default occurring or
without being drawn. As a result, the total contractual amount of
these instruments is not, in the Firm’s view, representative of its
actual future credit exposure or funding requirements. Further,
certain commitments, predominantly related to consumer financ-
ings, are cancelable, upon notice, at the option of the Firm.
To provide for the risk of loss inherent in wholesale-related con-
tracts, an allowance for credit losses on lending-related commit-
ments is maintained. See Note 14 on pages 204–206 of this
Annual Report for further discussion of the allowance for credit
losses on lending-related commitments.
The following table summarizes the contractual amounts of off–
balance sheet lending-related financial instruments and guarantees
and the related allowance for credit losses on lending-related com-
mitments at December 31, 2009 and 2008. The amounts in the table
below for credit card and home equity lending-related commitments
represent the total available credit for these products. The Firm has
not experienced, and does not anticipate, that all available lines of
credit for these products will be utilized at the same time. The Firm
can reduce or cancel these lines of credit by providing the borrower
prior notice or, in some cases, without notice as permitted by law.