JP Morgan Chase 2003 Annual Report Download - page 100

Download and view the complete annual report

Please find page 100 of the 2003 JP Morgan Chase annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 140

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140

Notes to consolidated financial statements
J.P. M organ Chase & Co.
98 J.P. Morgan Chase & Co. / 2003 Annual Report
Securities financing activities
JPM organ Chase enters into resale agreements, repurchase
agreements, securities borrowed transactions and securities
loaned transactions primarily to finance the Firm’s inventory
positions, acquire securities to cover short positions and settle
other securities obligations. The Firm also enters into these
transactions to accommodate customers’ needs.
Securities purchased under resale agreements (“ resale
agreements” ) and securities sold under repurchase agreements
(“ repurchase agreements” ) are generally treated as collateralized
financing transactions and are carried on the Consolidated bal-
ance sheet at the amounts the securities w ill be subsequently
sold or repurchased, plus accrued interest. Where appropriate,
resale and repurchase agreements w ith the same counterparty
are reported on a net basis in accordance w ith FIN 41.
JPM organ Chase takes possession of securities purchased under
resale agreements. On a daily basis, JPM organ Chase monitors
the market value of the underlying collateral received from its
counterparties, consisting primarily of U.S. and non-U.S. govern-
ment and agency securities, and requests additional collateral
from its counterparties w hen necessary.
Similar transactions that do not meet the SFAS 140 definition
of a repurchase agreement are accounted for as “ buys” and
“ sells” rather than financing transactions. These transactions are
accounted for as a purchase (sale) of the underlying securities
w ith a forw ard obligation to sell (purchase) the securities. The
forw ard purchase (sale) obligation, a derivative, is recorded on
the Consolidated balance sheet at its fair value, w ith changes in
fair value recorded in Trading revenue. Notional amounts of
these transactions accounted for as purchases under SFAS 140
w ere $15 billion and $8 billion at December 31, 2003 and
2002, respectively. Notional amounts of these transactions
accounted for as sales under SFAS 140 were $8 billion and
$13 billion at December 31, 2003 and 2002, respectively. Based
on the short-term duration of these contracts, the unrealized
gain or loss is insignificant.
Securities borrow ed and securities lent are recorded at the
amount of cash collateral advanced or received. Securities bor-
row ed consist primarily of government and equity securities.
JPM organ Chase monitors the market value of the securities
borrowed and lent on a daily basis and calls for additional col-
lateral w hen appropriate. Fees received or paid are recorded in
Interest income or Interest expense.
December 31, (in millions) 2003 2002
Securities purchased under resale agreements $62,801 $57,645
Securities borrowed 41,834 34,143
Securities sold under repurchase agreements $105,409 $161,394
Securities loaned 2,461 1,661
Note 10 JPM organ Chase pledges certain financial instruments it ow ns to
collateralize repurchase agreements and other securities financ-
ings. Pledged securities that can be sold or repledged by the
secured party are identified as financial instruments ow ned
(pledged to various parties) on the Consolidated balance sheet.
At December 31, 2003, the Firm had received securities as col-
lateral that can be repledged, delivered or otherw ise used w ith a
fair value of approximately $210 billion. This collateral w as gen-
erally obtained under resale or securities-borrow ing agreements.
Of these securities, approximately $197 billion w as repledged,
delivered or otherw ise used, generally as collateral under repur-
chase agreements, securities-lending agreements or to cover
short sales.
Notes to consolidated financial statements
J.P. M organ Chase & Co.
Loans
Loans are reported at the principal amount outstanding, net of
the allowance for loan losses, unearned income and any net
deferred loan fees. Loans held for sale are carried at the low er
of aggregate cost or fair value. Loans are classified as “ trading”
for secondary market trading activities where positions are
bought and sold to make profits from short-term movements
in price. Loans held for trading purposes are included in Trading
assets and are carried at fair value, with the gains and losses
included in Trading revenue. Interest income is recognized using
the interest method, or on a basis approximating a level rate of
return over the term of the loan.
Nonaccrual loans are those on w hich the accrual of interest
is discontinued. Loans (other than certain consumer loans
discussed below ) are placed on nonaccrual status immediately
if, in the opinion of management, full payment of principal or
interest is in doubt, or w hen principal or interest is 90 days or
more past due and collateral, if any, is insufficient to cover prin-
cipal and interest. Interest accrued but not collected at the date
a loan is placed on nonaccrual status is reversed against Interest
income. In addition, the amortization of net deferred loan fees
is suspended. Interest income on nonaccrual loans is recognized
only to the extent it is received in cash. How ever, w here there
is doubt regarding the ultimate collectibility of loan principal,
all cash thereafter received is applied to reduce the carrying
value of the loan. Loans are restored to accrual status only w hen
interest and principal payments are brought current and future
payments are reasonably assured.
Consumer loans are generally charged to the Allow ance for loan
losses upon reaching specified stages of delinquency, in accor-
dance w ith the Federal Financial Institutions Examination Council
(“ FFIEC” ) policy. For example, credit card loans are charged off
at the earlier of 180 days past due or w ithin 60 days from
receiving notification of the filing of bankruptcy. Residential
mortgage products are generally charged off to net realizable
value at 180 days past due. Other consumer products are gener-
ally charged off (to net realizable value if collateralized) at 120
days past due. Accrued interest on residential mortgage products,
automobile financings and certain other consumer loans are
accounted for in accordance with the nonaccrual loan policy
Note 11