JP Morgan Chase 2009 Annual Report Download - page 86

Management’s discussion and analysis
JPMorgan Chase & Co./2009 Annual Report 84
BALANCE SHEET ANALYSIS
Selected Consolidated Balance Sheets data
December 31, (in millions) 2009
2008
Assets
Cash and due from banks $ 26,206 $ 26,895
Deposits with banks 63,230
138,139
Federal funds sold and securities pur-
chased under resale agreements 195,404 203,115
Securities borrowed 119,630
124,000
Trading assets:
Debt and equity instruments 330,918
347,357
Derivative receivables 80,210
162,626
Securities 360,390 205,943
Loans 633,458
744,898
Allowance for loan losses (31,602)
(23,164)
Loans, net of allowance for loan losses 601,856
721,734
Accrued interest and accounts receivable 67,427 60,987
Premises and equipment 11,118 10,045
Goodwill 48,357
48,027
Mortgage servicing rights 15,531
9,403
Other intangible assets 4,621 5,581
Other assets 107,091
111,200
Total assets $ 2,031,989
$ 2,175,052
Liabilities
Deposits $ 938,367 $ 1,009,277
Federal funds purchased and securities
loaned or sold under repurchase agree-
ments 261,413
192,546
Commercial paper 41,794 37,845
Other borrowed funds 55,740
132,400
Trading liabilities:
Debt and equity instruments 64,946 45,274
Derivative payables 60,125
121,604
Accounts payable and other liabilities 162,696
187,978
Beneficial interests issued by consolidated
VIEs 15,225
10,561
Long-term debt 266,318
270,683
Total liabilities 1,866,624
2,008,168
Stockholders’ equity 165,365 166,884
Total liabilities and stockholders’
equity $ 2,031,989
$ 2,175,052
Consolidated Balance Sheets overview
The following is a discussion of the significant changes in the
Consolidated Balance Sheets from December 31, 2008.
Deposits with banks; federal funds sold and securities
purchased under resale agreements; and securities
borrowed
The Firm uses these instruments as part of its liquidity management
activities, to manage the Firm’s cash positions and risk-based capital
requirements, and to support the Firm’s trading and risk management
activities. In particular, the Firm uses securities purchased under resale
agreements and securities borrowed to provide funding or liquidity to
clients by purchasing and borrowing their securities for the short-term.
The decrease in deposits with banks primarily reflected lower demand
for interbank lending and lower deposits with the Federal Reserve Bank
relative to the elevated levels at the end of 2008. The decrease in
securities purchased under resale agreements was largely due to a shift
by the Firm of its excess cash to the available-for-sale (“AFS”) securities
portfolio, offset partially by higher securities purchased under resale
agreements in IB due to improved and more liquid market conditions.
For additional information on the Firm’s Liquidity Risk Management, see
pages 96–100 of this Annual Report.
Trading assets and liabilities – debt and equity
instruments
Debt and equity trading instruments are used for both market-making
and, to a limited extent, proprietary risk-taking activities. These
instruments consist predominantly of fixed-income securities, includ-
ing government and corporate debt; equity securities, including
convertible securities; loans, including prime mortgage and other
loans warehoused by RFS and IB for sale or securitization purposes
and accounted for at fair value; and physical commodities inventories
carried at the lower of cost or fair value. The decrease in trading
assets – debt and equity instruments reflected the effect of balance
sheet management activities and the impact of the challenging
capital markets environment that existed during the latter part of
2008, which continued into the first half of 2009, partially offset by
stabilization in the capital markets during the second half of 2009.
Trading liabilities – debt and equity instruments increased as market
conditions improved and capital markets stabilized from the prior
year. For additional information, refer to Note 3 on pages 156–173
of this Annual Report.
Trading assets and liabilities – derivative receivables and
payables
Derivative instruments enable end-users to transform or mitigate
exposure to credit or market risks. The value of a derivative is
derived from its reference to an underlying variable or combination
of variables, such as interest rate, credit, foreign exchange, equity
or commodity prices or indices. JPMorgan Chase makes markets in
derivatives for customers and also uses derivatives to hedge or
manage risks of market exposures and to make investments. The
majority of the Firm’s derivatives are entered into for market-
making purposes. The decrease in derivative receivables and pay-
ables was primarily related to tightening credit spreads, volatile
foreign exchange rates and rising rates on interest rate swaps. For
additional information, refer to Derivative contracts on pages 110–
112, and Note 3 and Note 5 on pages 156–173 and 175–183,
respectively, of this Annual Report.
Securities
Substantially all of the securities portfolio is classified as AFS and is
used primarily to manage the Firm’s exposure to interest rate
movements and to invest cash resulting from excess funding posi-
tions. The increase in the securities portfolio was due to elevated
levels of excess cash, which was used to purchase mortgage-
backed securities guaranteed by U.S. government agencies, corpo-
rate debt securities, U.S. Treasury and government agency securi-
ties and other asset-backed securities. The increase in securities
was partially offset by sales of higher-coupon instruments, as part
of positioning of the portfolio, as well as prepayments and maturi-
ties. For additional information related to securities, refer to the
Corporate/Private Equity segment on pages 82–83, and Note 3 and
Note 11 on pages 156–173 and 195–199, respectively, of this
Annual Report.