JP Morgan Chase 2005 Annual Report Download - page 111

JPMorgan Chase & Co. /2005 Annual Report 109
Year ended December 31, 2005 2004(a)
Residential Wholesale Residential Wholesale
(in millions) mortgage Credit card Automobile activities(e) mortgage Credit card Automobile activities(e)
Principal securitized $ 18,125 $ 15,145 $ 3,762 $22,691 $ 6,529 $ 8,850 $ 1,600 $ 8,756
Pre-tax gains (losses) 21 101 9(c) 131 47 52 (3) 135
Cash flow information:
Proceeds from securitizations $ 18,093 $ 14,844 $ 2,622 $ 22,892 $ 6,608 $ 8,850 $ 1,597 $ 8,430
Servicing fees collected 17 94 4 — 12 69 1 3
Other cash flows received —298 — 3 25 225 — 16
Proceeds from collections reinvested
in revolving securitizations — 129,696 — — — 110,697 — —
Key assumptions (rates per annum):
Prepayment rate(b) 9.1–12.1% 16.7–20.0% 1.5% 0–50% 23.8–37.6% 15.5–16.7% 1.5% 17.0–50.0%
CPR PPR ABS CPR PPR ABS
Weighted-average life (in years) 5.6–6.7 0.4–0.5 1.4–1.5 1.0–4.4 1.9–3.0 0.5–0.6 1.8 2.0–4.0
Expected credit losses —(d) 4.7–5.7% 0.6–0.7% 0–2.0%(d) 1.0–2.3% 5.5–5.8% 0.6% 0.0–3.0%(d)
Discount rate 13.0–13.3% 12.0% 6.3–7.3% 0.6–18.5% 15.0–30.0% 12.0% 4.1% 0.6–5.0%
(a) 2004 results include six months of the combined Firm’s results and six months of heritage JPMorgan Chase results.
(b) CPR: constant prepayment rate; ABS: absolute prepayment speed; PPR: principal payment rate.
(c) The auto securitization gain of $9 million does not include the write-down of loans transferred to held-for-sale in 2005 and risk management activities intended to protect the economic value
of the loans while held-for-sale.
(d) Expected credit losses for prime residential mortgage and certain wholesale securitizations are minimal and are incorporated into other assumptions.
(e) Wholesale activities consist of wholesale loans (primarily commercial real estate) originated by the Investment Bank as well as $11.4 billion and $1.8 billion of consumer loans purchased from the
market in 2005 and 2004, respectively, and then packaged and securitized by the Investment Bank.
assets. Assets held by securitization-related SPEs as of December 31, 2005
and 2004, were as follows:
December 31, (in billions) 2005 2004
Credit card receivables $ 96.0 $ 106.3
Residential mortgage receivables 29.8 19.1
Wholesale activities(a) 72.9 44.8
Automobile loans 5.5 4.9
Total $ 204.2 $ 175.1
(a) Co-sponsored securitizations include non-JPMorgan Chase originated assets.
The following table summarizes new securitization transactions that were
completed during 2005 and 2004, the resulting gains arising from such
securitizations, certain cash flows received from such securitizations, and the
key economic assumptions used in measuring the retained interests, as of the
dates of such sales:
In addition to securitization transactions, the Firm sold residential mortgage
loans totaling $52.5 billion, $65.7 billion and $123.2 billion during 2005,
2004 and 2003, respectively, primarily as GNMA, FNMA and Freddie Mac
mortgage-backed securities; these sales resulted in pre-tax gains of $293
million, $58.1 million and $564.3 million, respectively.
At both December 31, 2005 and 2004, the Firm had, with respect to its
credit card master trusts, $24.8 billion and $35.2 billion, respectively, related
to undivided interests, and $2.2 billion and $2.1 billion, respectively, related
to subordinated interests in accrued interest and fees on the securitized
receivables, net of an allowance for uncollectible amounts. Credit card
securitization trusts require the Firm to maintain a minimum undivided interest
of 4% to 12% of the principal receivables in the trusts. The Firm maintained an
average undivided interest in principal receivables in the trusts of approximately
23% for both 2005 and 2004, respectively.
The Firm also maintains escrow accounts up to predetermined limits for some
credit card and automobile securitizations, in the unlikely event of deficiencies
in cash flows owed to investors. The amounts available in such escrow accounts
are recorded in Other assets and, as of December 31, 2005, amounted to
$754 million and $76 million for credit card and automobile securitizations,
respectively; as of December 31, 2004, these amounts were $395 million and
$132 million for credit card and automobile securitizations, respectively.
The table below summarizes other retained securitization interests, which are
primarily subordinated or residual interests and are carried at fair value on
the Firm’s Consolidated balance sheets:
December 31, (in millions) 2005 2004
Residential mortgage(a) $ 182 $ 433
Credit card(a) 808 494
Automobile(a)(b) 150 85
Wholesale activities(c) 265 23
Total $ 1,405 $ 1,035
(a) Pre-tax unrealized gains (losses) recorded in Stockholders’ equity that relate to retained
securitization interests totaled $60 million and $118 million for Residential mortgage;
$6 million and $(3) million for Credit card; and $5 million and $11 million for Automobile
at December 31, 2005 and 2004, respectively.
(b) In addition to the automobile retained interest amounts noted above, the Firm also retained
senior securities totaling $490 million at December 31, 2005, from 2005 auto securitizations
that are classified as AFS securities.These securities are valued using quoted market prices
and are therefore not included in the key economic assumption and sensitivities table that
follows.
(c) In addition to the wholesale retained interest amounts noted above, the Firm also retained
subordinated securities totaling $51 million at December 31, 2005, from re-securitization
activities.These securities are valued using quoted market prices and are therefore not
included in the key assumptions and sensitivities table that follows.