JP Morgan Chase 2014 Annual Report Download - page 162

Management’s discussion and analysis
160 JPMorgan Chase & Co./2014 Annual Report
The Firm’s wholesale businesses also securitize loans for
client-driven transactions; those client-driven loan
securitizations are not considered to be a source of funding
for the Firm and are not included in the table above. For
further description of the client-driven loan securitizations,
see Note 16.
Credit ratings
The cost and availability of financing are influenced by
credit ratings. Reductions in these ratings could have an
adverse effect on the Firm’s access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. Additionally,
the Firm’s funding requirements for VIEs and other third
party commitments may be adversely affected by a decline
in credit ratings. For additional information on the impact of
a credit ratings downgrade on the funding requirements for
VIEs, and on derivatives and collateral agreements, see
Special-purpose entities on page 74, and Credit risk,
liquidity risk and credit-related contingent features in
Note 6.
The credit ratings of the parent holding company and the Firm’s principal bank and nonbank subsidiaries as of December 31,
2014, were as follows.
JPMorgan Chase & Co. JPMorgan Chase Bank, N.A. Chase Bank USA, N.A. J.P. Morgan Securities LLC
December 31, 2014 Long-term issuer Short-term issuer Outlook Long-term issuer Short-term issuer Outlook Long-term issuer Short-term issuer Outlook
Moody’s Investor Services A3 P-2 Stable Aa3 P-1 Stable Aa3 P-1 Stable
Standard & Poor’s A A-1 Negative A+ A-1 Stable A+ A-1 Stable
Fitch Ratings A+ F1 Stable A+ F1 Stable A+ F1 Stable
Downgrades of the Firm’s long-term ratings by one or two
notches could result in a downgrade of the Firm’s short-
term ratings. If this were to occur, the Firm believes its cost
of funds could increase and access to certain funding
markets could be reduced as noted above. The nature and
magnitude of the impact of ratings downgrades depends on
numerous contractual and behavioral factors (which the
Firm believes are incorporated in its liquidity risk and stress
testing metrics). The Firm believes it maintains sufficient
liquidity to withstand a potential decrease in funding
capacity due to ratings downgrades.
JPMorgan Chase’s unsecured debt does not contain
requirements that would call for an acceleration of
payments, maturities or changes in the structure of the
existing debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm’s credit ratings, financial ratios,
earnings, or stock price.
Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital ratios,
strong credit quality and risk management controls, diverse
funding sources, and disciplined liquidity monitoring
procedures. Rating agencies continue to evaluate economic
and geopolitical trends, regulatory developments, rating
uplift assumptions surrounding government support, future
profitability, risk management practices, and litigation
matters, as well as their broader ratings methodologies.
Changes in any of these factors could lead to changes in the
Firm’s credit ratings.
On September 18, 2014, S&P revised its ratings
methodology for hybrid capital securities issued by financial
institutions, and on September 29, 2014, the ratings of the
Firm’s hybrid capital securities (including trust preferred
securities and preferred stock) were lowered by 1 notch
from BBB to BBB-, reflecting the new methodology.
Furthermore, S&P has announced a Request for Comment
on a proposed change to rating criteria related to additional
loss absorbing capacity. In addition, Moody’s and Fitch are
in the process of reviewing their ratings methodologies:
Moody’s has announced a Request for Comment on the
revision to its Bank Rating Methodology and Fitch has
announced a review of the ratings differential that it applies
between bank holding companies and their bank
subsidiaries.
Although the Firm closely monitors and endeavors to
manage, to the extent it is able, factors influencing its credit
ratings, there is no assurance that its credit ratings will not
be changed in the future.