JP Morgan Chase 2010 Annual Report Download - page 94

Management’s discussion and analysis
JPMorgan Chase & Co./2010 Annual Report
94
Deposits
Deposits represent a liability to customers, both retail and
wholesale, related to non-brokerage funds held on their behalf.
Deposits are classified by location (U.S. and non-U.S.), whether
they are interest- or noninterest-bearing, and by type (i.e., demand,
money-market, savings, time or negotiable order of withdrawal
accounts). Deposits provide a stable and consistent source of
funding for the Firm. Deposits decreased, reflecting a decline in
wholesale funding due to the Firm’s lower funding needs, and
lower deposit levels in TSS. These factors were offset partially by
net inflows from existing customers and new business in CB, RFS
and AM. For more information on deposits, refer to the RFS and
AM segment discussions on pages 72–78 and 86–88, respectively;
the Liquidity Risk Management discussion on pages 110–115; and
Note 3 and Note 19 on pages 170–187 and 263–264, respectively,
of this Annual Report. For more information on wholesale liability
balances, which includes deposits, refer to the CB and TSS segment
discussions on pages 82–83 and 84–85, respectively, of this
Annual Report.
Federal funds purchased and securities loaned or sold
under repurchase agreements
The Firm uses these instruments as part of its liquidity management
activities and to support its trading and risk management activities.
In particular, federal funds purchased and securities loaned or sold
under repurchase agreements are used as short-term funding
sources and to make securities available to clients for their short-
term liquidity purposes. Securities sold under repurchase
agreements increased, largely due to increased levels of activity in
IB, partially offset by a decrease in CIO repositioning activities. For
additional information on the Firm’s Liquidity Risk Management,
see pages 110–115 of this Annual Report.
Commercial paper and other borrowed funds
The Firm uses commercial paper and other borrowed funds in its
liquidity management activities to meet short-term funding needs,
and in connection with a TSS liquidity management product,
whereby excess client funds are transferred into commercial paper
overnight sweep accounts. Commercial paper and other borrowed
funds, which includes advances from Federal Home Loan Banks
(“FHLBs”), decreased due to lower funding requirements. For
additional information on the Firm’s Liquidity Risk Management
and other borrowed funds, see pages 110–115, and Note 20 on
page 264 of this Annual Report.
Accounts payable and other liabilities
Accounts payable and other liabilities consist of payables to
customers (primarily from activities related to IB’s Prime Services
business); payables to brokers, dealers and clearing organizations;
payables from failed securities purchases; accrued expense,
including interest-bearing liabilities; and all other liabilities,
including litigation reserves and obligations to return securities
received as collateral. Accounts payable and other liabilities
increased due to additional litigation reserves, largely for mortgage-
related matters.
Beneficial interests issued by consolidated VIEs
Beneficial interests issued by consolidated VIEs represent interest-
bearing beneficial-interest liabilities, which increased,
predominantly due to the Firm’s adoption of accounting guidance
related to VIEs, partially offset by maturities of $24.9 billion related
to Firm-sponsored credit card securitization trusts. For additional
information on Firm-sponsored VIEs and loan securitization trusts,
see Off–Balance Sheet Arrangements and Contractual Cash
Obligations below, and Note 16 and Note 22 on pages 244–259
and 265–266, respectively, of this Annual Report.
Long-term debt
The Firm uses long-term debt (including trust-preferred capital debt
securities) to provide cost-effective and diversified sources of funds
and as critical components of the Firm's liquidity and capital
management activities. Long-term debt decreased, due to lower
funding requirements. Maturities and redemptions totaled $53.4
billion during 2010 and were partially offset by new issuances of
$36.0 billion. For additional information on the Firm’s long-term
debt activities, see the Liquidity Risk Management discussion on
pages 110–115, and Note 22 on pages 265–266 of this Annual
Report.
Stockholders’ equity
Total stockholders’ equity increased, predominantly due to net
income, and net issuances and commitments to issue under the
Firm’s employee stock-based compensation plans. The increase was
partially offset by the impact of the adoption of the new accounting
guidance related to VIEs, which resulted in a reduction of $4.5 billion,
driven by the establishment of an allowance for loan losses of $7.5
billion (pretax) related to receivables predominantly held in credit
card securitization trusts that were consolidated at the adoption
date. Also partially offsetting the increase were stock repurchases;
the purchase of the remaining interest in a consolidated subsidiary
from noncontrolling shareholders; and the declaration of cash
dividends on common and preferred stock. For a more detailed
discussion of the adoption of new consolidated guidance related to
VIEs, see Notes 1 and 16 on pages 164–165 and 244–259,
respectively, of this Annual Report.