JP Morgan Chase 2009 Annual Report Download - page 90

Management’s discussion and analysis
JPMorgan Chase & Co./2009 Annual Report 88
Off–balance sheet lending-related financial
instruments and guarantees
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 in-
struments represents the maximum possible credit risk should the
counterparty draw upon the commitment or the Firm be required
to fulfill its obligation under the guarantee, and the counterparty
subsequently fail to perform according to the terms of the con-
tract. These commitments and guarantees often expire without
being drawn and even higher proportions expire without a de-
fault. As a result, the total contractual amount of these instru-
ments is not, in the Firm’s view, representative of its actual future
credit exposure or funding requirements. For further discussion of
lending-related commitments and guarantees and the Firm’s
accounting for them, see page 113 and Note 31 on pages 238–
242 of this Annual Report.
The accompanying table on the next page presents, as of December
31, 2009, the contractual maturity amounts of off–balance sheet
lending-related financial instruments and guarantees. The amounts
in the table for credit card and home equity lending-related com-
mitments 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 would be utilized at the same
time. The Firm can reduce or cancel these lines of credit by provid-
ing the borrower prior notice or, in some cases, without notice as
permitted by law. The accompanying table excludes certain com-
mitments and guarantees that do not have a contractual maturity
date (e.g., loan sale and securitization-related indemnifications).
For further discussion, see Note 31 on pages 238–242 of this
Annual Report. Asset purchase agreements are agreements with
the Firm’s administered multi-seller, asset-backed commercial
paper conduits, and other third-party entities. In 2009, the Firm
consolidated a multi-seller conduit due to the redemption of the
expected loss note. As a result, asset purchase agreements, in the
following table, exclude $7.9 billion at December 31, 2009, related
to this consolidated multi-seller conduit. The maturities, in the
accompanying table, are based on the weighted-average life of the
underlying assets in the SPE, which are based on the remainder of
each conduit transaction’s committed liquidity facility plus either
the expected weighted average life of the assets should the com-
mitted liquidity facility expire without renewal, or the expected time
to sell the underlying assets in the securitization market.
Contractual cash obligations
In the normal course of business, the Firm enters into various
contractual obligations that may require future cash payments.
Commitments for future cash expenditures primarily include con-
tracts to purchase future services and capital expenditures related
to real estate–related obligations and equipment.
The accompanying table on the next page summarizes, by remaining
maturity, JPMorgan Chase’s off–balance sheet lending-related finan-
cial instruments and significant contractual cash obligations at De-
cember 31, 2009. Contractual purchases and capital expenditures in
the table below reflect the minimum contractual obligation under
legally enforceable contracts with terms that are both fixed and
determinable. Excluded from the following table are a number of
obligations to be settled in cash, primarily in under one year. These
obligations are reflected on the Firm’s Consolidated Balance Sheets
and include federal funds purchased and securities loaned or sold
under repurchase agreements; commercial paper; other borrowed
funds; purchases of debt and equity instruments; derivative payables;
and certain purchases of instruments that resulted in settlement
failures. Also excluded are contingent payments associated with
certain acquisitions that could not be estimated. For discussion re-
garding long-term debt (including trust preferred capital debt securi-
ties), see Note 22 on pages 228–229 of this Annual Report. For
discussion regarding operating leases, see Note 30 on page 238 of
this Annual Report.