JP Morgan Chase 2003 Annual Report Download - page 105

J.P. Morgan Chase & Co. / 2003 Annual Report 103
The table below presents information about delinquencies, net
credit losses and components of reported and securitized finan-
cial assets at December 31, 2003 and 2002:
Type of loan Loans 90 days or Net
Total loans more past due charge-offs
December 31, Year ended
(in millions) 2003 2002 2003 2002 2003 2002
Mortgage(a) $89,276 $ 81,570 $898 $ 956 $224 $ 272
Credit card 51,649 50,399 1,138 1,096 2,942 2,828
Automobile 45,010 37,980 132 130 196 184
Other(b) 7,221 7,524 87 98 180 189
Consumer loans 193,156 177,473 2,255 2,280 3,542 3,473
Commercial loans 85,205 92,866 2,064 3,749 816 1,881
Total loans reported
and securitized(c) 278,361 270,339 4,319 6,029 4,358 5,354
Less: Loans
securitized(a) (58,843) (53,975) (1,495) (1,306) (2,086) (1,678)
Reported $219,518 $216,364 $2,824 $ 4,723 $2,272 $ 3,676
(a) Includes $13.6 billion of outstanding principal balances on securitized sub-prime 1– 4 family
residential mortgage loans as of December 31, 2003.
(b) Includes non-U.S. consumer loans.
(c) Represents both loans on the Consolidated balance sheet and loans that have been securitized,
but excludes loans for which the Firm’s only continuing involvement is servicing of the assets.
Total assets held in securitization-related SPEs, as of December 31,
2003, w ere $104.0 billion (see table on page 101 of this
Annual
Report). The $58.8 billion of loans securitized at
December 31,
2003
, show n in the table above excludes: $37.1 billion of securi-
tized loans, in w hich the Firm’s only continuing involvement is
the servicing of the assets; $7.3 billion of seller’s interests in
credit card master trusts and subordinated accrued interest and
fees; and $0.8 billion of escrow accounts and other assets.
Variable interest entities
JPM organ Chase’s business segments are involved w ith VIEs in
the follow ing manner:
• Investment Bank – Utilizes VIEs, such as multi-seller conduits, to
assist clients in accessing the financial markets in a cost-efficient
manner, by providing clients the structural flexibility to meet the
needs of investors relating to factors such as price, yield and
desired risks. The Firm also acts as a financial intermediary to
tailor products for investors. Finally, the IB securitizes commer-
cial mortgages through QSPEs, which are not considered VIEs,
to create commercial mortgage-backed securities, as further
discussed in Note 13 on pages 100-103 of this Annual Report.
• Treasury & Securities Services – Provides trustee and custodial
services to a number of VIEs. These services are similar to those
provided to non-VIEs. TSS earns market-based fees for services
provided. Such relationships are not considered significant
interests under FIN 46 for disclosure purposes.
Note 14
• Investment M anagement & Private Banking – Provides invest-
ment management services to a limited number of the Firm’s
mutual funds deemed VIEs. The services provided are similar
to the services provided to non-VIEs, as asset manager to the
Firm’s mutual funds. IM PB earns a fixed fee based on assets
managed; such fee varies w ith each fund’s investment objec-
tive and is industry-competitive. The majority of the residual
returns and expected losses are for the account of the funds’
investors. The Firm generally does not hold an equity interest
in the funds, although in certain instances, it may hold a
nominal interest. For the limited number of funds that qualify
as VIEs, the Firm’s interest is not considered significant under
FIN 46 for disclosure purposes.
• JPM organ Partners – JPM P, the Firm’s private equity business,
is involved w ith entities that may be deemed VIEs. JPM P
accounts for its activities in accordance w ith the Investment
Company Audit Guide (“ Audit Guide” ). The FASB deferred
adoption of FIN 46 for non-registered investment companies
that apply the Audit Guide. See the FIN 46 Transition section
of this Note.
• Chase Financial Services – Primarily utilizes SPEs to securitize
consumer assets; these entities meet the QSPE criteria as dis-
cussed in Note 1 on pages 86–87 and Note 13 on pages
100–103 of this Annual Report, and they are not considered
VIEs. CFS is primarily involved w ith VIEs as part of its middle
market business. This involvement includes: (1) synthetic lease
transactions, in w hich the Firm provides financing to a VIE;
in turn, the VIE purchases assets, w hich are then leased by
the VIE to the Firm’s customer; and (2) structuring and admin-
istering independent, member-ow ned finance entities for
companies w ith dedicated distribution systems, w here the
Firm may also provide some liquidity, letters of credit and/or
derivative instruments. Chase M iddle M arket earns market-
based fees for providing such services. The VIEs that the Firm
either has an investment in or lends to neither meet the
requirements for consolidation nor are considered significant
for disclosure purposes, since the significant first-loss position
is held by third parties.
As noted above, there are tw o broad categories of transactions
involving VIEs w ith w hich the IB is involved: multi-seller conduits
and client intermediation. These are discussed more fully below.
Multi-seller conduits
JPM organ Chase serves as the administrator, and provides con-
tingent liquidity support and limited credit enhancement, for
several commercial paper conduits. These conduits give clients
access to liquidity in the commercial paper markets by allow ing
them to sell assets to the conduit, w hich then issues commercial
paper to investors to fund the purchases. The Firm does not sell
assets to or service the assets held by these commercial paper