JP Morgan Chase 2003 Annual Report Download - page 53

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J.P. Morgan Chase & Co. / 2003 Annual Report 51
Credit risk management
Credit risk is the risk of loss from obligor or counterparty
default. The Firm is exposed to credit risk through its lending
(e.g., loans and lending-related commitments), trading and capi-
tal markets activities. Credit risk management practices are
designed to preserve the independence and integrity of the risk-
assessment process. Processes in place are intended to ensure
that credit risks are adequately assessed, properly approved,
continually monitored and actively managed. Risk is managed at
both the individual transaction and portfolio levels. The Firm
assesses and manages all credit exposures, w hether they arise
from transactions recorded on- or off–balance sheet.
Credit risk organization
In early 2003, the Credit Risk Policy and Global Credit
M anagement functions w ere combined to form Global Credit
Risk M anagement consisting of the five primary functions
listed in the organizational chart below.
JPM organ
Partners
Policy and
Strategy Group
•Actively manages the
risk in the Firm’s credit
positions from traditional
lending and derivative
trading activities, through
the purchase or sale of
credit derivative hedges,
other market instruments
and secondary market
loan sales
•Manages derivatives
collateral risk
Credit risk organization
Credit
Portfolio Group
•Approves all credit expo-
sure; approval authority
varies based on aggregate
size of client’s credit
exposure and the size,
maturity and risk level
of a transaction
•Assigns risk ratings
•Collaborates with client
executives to monitor
credit quality via ongoing
and periodic reviews
of client documentation,
financial data and
industry trends
Credit Risk
Management
CFS Consumer
Credit Risk
Management
Special Credits
Group
• Formulates credit policies,
limits, allowance appropri-
ateness and guidelines
•Independently audits,
monitors and assesses
risk ratings and risk
management processes
•Addresses country risk,
counterparty risk and
capital allocation method-
ologies with Market Risk
Management
•Actively manages
criticized commercial
exposures in workouts
and restructurings
•Approves and
monitors credit risk
•Monitors external economic
trends to predict emerging
risks in the consumer
portfolio
• Formulates credit policies,
limits, allowance appropri-
ateness and guidelines
Consumer
Commercial
Chief Risk Officer
Oversees risk management
Global Credit
Risk Management
Chief Credit Risk Officer
Business strategy and risk management
Commercial
The Firm’s business strategy for its large corporate commercial
portfolio remains primarily one of origination for distribution.
The majority of the Firm’s wholesale loan originations in IB con-
tinue to be distributed into the marketplace, w ith residual holds
by the Firm averaging less than 10% . The commercial loan port-
folio declined by 9% in 2003, reflecting a combination of con-
tinued w eak loan demand, the Firm’s ongoing goal of reducing
commercial credit concentrations and refinancings into more liq-
uid capital markets. The Firm’s SVA discipline discourages the
retention of loan assets that do not generate a positive return
above the cost of risk-adjusted capital. SVA remains a critical
discipline in making loans and commitments, particularly w hen
combined w ith other credit and capital management disciplines.