JP Morgan Chase 2003 Annual Report Download - page 57

J.P. Morgan Chase & Co. / 2003 Annual Report 55
Commercial exposure – selected industry concentrations
During 2003, the Firm undertook a thorough analysis of industry
risk correlations. As a result, the Firm developed a new industry
structure, intended to provide stronger linkages betw een expo-
sures w ith common risk attributes. The Firm expects these
changes to enhance its ability to manage industry risks consis-
tently across regions and lines of business. The implementation
of the new industry structure resulted in shifts in credit exposure,
w ith increases in some industries due to consolidation and
decreases in others as a result of realignments. In managing
industry risk, the Firm recognizes customers that have multiple
industry affiliations in each industry category. How ever, the
following table ranks exposures only by a customer’s primary
industry affiliation to prevent double counting.
Commercial exposure
M at urit y profile(a) Rat ings profile
Total % of IG-
Investment-grade (“ IG” ) Noninvestment-grade Economic
As of December 31, 2003 AAA A+ BBB+ BB+ CCC+ Total % credit
(in billions, except ratios) < 1 year 1–5 years > 5 years Total to AA- to A- to BBB- to B- & below Total of IG exposure
Loans(b) 49% 37% 14% 100% $ 20 $ 13 $ 21 $ 23 $ 6 $ 83 65% 65%
Derivative receivables 20 41 39 100 47 15 12 9 1 84 88 91
Lending-related commitments(c)(d) 52 45 3 100 80 57 52 25 2 216 88 88
Total exposure(e) 44% 43% 13% 100% $147 $ 85 $ 85 $ 57 $ 9 $ 383 83% 80%
Credit derivative hedges notional(f) 16% 74% 10% 100% $ (10) $ (12) $ (12) $ (2) $ (1) $ (37) 92% 92%
Total % of IG-
Investment-grade (“ IG” ) Noninvestment-grade Economic
As of December 31, 2002 AAA A+ BBB+ BB+ CCC+ Total % credit
(in billions, except ratios) < 1 year 1–5 years > 5 years Total to AA- to A- to BBB- to B- & below Total of IG exposure
Loans 45% 39% 16% 100% $ 18 $ 10 $ 23 $ 30 $ 11 $ 92 55% 55%
Derivative receivables 29 40 31 100 42 16 14 9 2 83 87 85
Lending-related commitments 62 34 4 100 82 80 46 26 4 238 87 86
Total exposure 52% 36% 12% 100% $ 142 $106 $ 83 $ 65 $ 17 $ 413 80% 74%
Credit derivative hedges notional(f) 39% 55% 6% 100% $ (9) $ (10) $ (10) $ (4) $ (1) $ (34) 85% 85%
(a) The maturity profile of loans and lending-related commitments is based upon remaining contractual maturity. The maturity profile of derivative receivables is based upon the maturity
profile of Average exposure. See page 59 of this Annual Report for a further discussion.
(b) Includes $5.8 billion of exposure related to consolidated VIEs in accordance with FIN 46, of which $4.8 billion is associated with multi-seller asset-backed commercial paper conduits.
Excluding the impact of FIN 46, the total percentage of investment-grade would have been 62% .
(c) Based on Economic credit exposure, the maturity profile for the < 1 year, 1–5 years and > 5 years would have been 38% , 58% and 4% ,respectively. See page 53 of this Annual Report
for a further discussion of Economic credit exposure.
(d) Total commitments related to asset-backed commercial paper conduits consolidated in accordance with FIN 46 are $9.8 billion, of which $3.5 billion is included in Lending-related commitments. The
remaining $6.3 billion of commitments to these VIEs is excluded, as the underlying assets of the vehicles are reported as follows: $4.8 billion in Loans and $1.5 billion in Available-for-sale securities.
(e) Based on Economic credit exposure, the maturity profile for < 1 year, 1–5 years and > 5 years would have been 36% , 46% and 18%, respectively. See page 53 of this Annual Report
for a further discussion.
(f) Ratings are based on the underlying referenced assets.
Commercial credit portfolio
The follow ing table summarizes the maturity and ratings profiles
of the commercial portfolio as of December 31, 2003 and 2002.
The ratings scale is based on the Firm’s internal risk ratings, and
is presented on an S&P–equivalent basis.
At December 31, 2003, 83% of the total commercial credit
exposure of $383 billion w as considered investment-grade, an
improvement from 80% at year-end 2002. There w as improve-
ment across all components of credit exposure, most significantly
in loans, as commercial criticized exposure declined by 47% ,
w hile the total commercial loan balance declined by 9% .
Under the Firm’s Economic view of credit exposure, the portion
of the portfolio that w as deemed investment-grade improved to
80% as of December 31, 2003, from 74% at year-end 2002. In
addition to the improved credit quality of loans and lending-
related commitments, the investment-grade component of
Derivative receivables improved to 91% at year-end 2003 from
85% at the end of 2002.