JP Morgan Chase 2005 Annual Report Download - page 113

JPMorgan Chase & Co. /2005 Annual Report 111
The table below presents information about delinquencies, net credit losses and components of reported and securitized financial assets at December 31, 2005 and 2004:
Nonaccrual and 90 days or Net loan charge-offs(a)
Total Loans more past due Year ended
December 31, (in millions) 2005 2004 2005 2004 2005 2004
Home finance $ 133,453 $ 124,653 $ 863 $ 673 $ 154 $ 573
Auto & education finance 49,047 62,712 195 193 277 263
Consumer & small business and other 14,799 15,107 280 295 141 154
Credit card receivables 71,738 64,575 1,091 1,006 3,324 1,923
Total consumer loans 269,037 267,047 2,429 2,167 3,896 2,913
Total wholesale loans 150,111 135,067 1,042 1,582 (77) 186
Total loans reported 419,148 402,114 3,471 3,749 3,819 3,099
Securitized loans:
Residential mortgage(b) 8,061 11,533 370 460 105 150
Automobile 5,439 4,763 11 12 15 24
Credit card 70,527 70,795 730 1,337 3,776 2,898
Total consumer loans securitized 84,027 87,091 1,111 1,809 3,896 3,072
Securitized wholesale activities 9,049 1,401 4———
Total loans securitized(c) 93,076 88,492 1,115 1,809 3,896 3,072
Total loans reported and securitized(d) $ 512,224 $ 490,606 $ 4,586 $ 5,558 $ 7,715 $ 6,171
(a) 2004 results include six months of the combined Firm’s results and six months of heritage JPMorgan Chase results.
(b) Includes $5.9 billion and $10.3 billion of outstanding principal balances on securitized sub-prime 1–4 family residential mortgage loans as of December 31, 2005 and 2004, respectively.
(c) Total assets held in securitization-related SPEs were $204.2 billion and $175.1 billion at December 31, 2005 and 2004, respectively. The $93.1 billion and $88.5 billion of loans securitized
at December 31, 2005 and 2004, respectively, excludes: $85.6 billion and $50.8 billion of securitized loans, in which the Firm’s only continuing involvement is the servicing of the assets;
$24.8 billion and $35.2 billion of seller’s interests in credit card master trusts; and $0.7 billion and $0.6 billion of escrow accounts and other assets, respectively.
(d) Represents both loans on the Consolidated balance sheets and loans that have been securitized, but excludes loans for which the Firm’s only continuing involvement is servicing of the assets.
Note 14 – Variable interest entities
Refer to Note 1 on page 91 of this Annual Report for a further description of
JPMorgan Chase’s policies regarding consolidation of variable interest entities.
JPMorgan Chase’s principal involvement with VIEs occurs in the following
business segments:
• Investment Bank: Utilizes VIEs to assist clients in accessing the financial
markets in a cost-efficient manner by providing the structural flexibility to
meet their needs pertaining to price, yield and desired risk.There are two
broad categories of transactions involving VIEs in the IB: (1) multi-seller
conduits and (2) client intermediation; both are discussed below. The IB
also securitizes loans through QSPEs which are not considered VIEs, to
create asset-backed securities, as further discussed in Note 13 on pages
108–111 of this Annual Report.
• Asset & Wealth Management: Provides investment management services
to a limited number of the Firm’s mutual funds deemed VIEs. AWM earns
a fixed fee based upon assets managed; the fee varies with each fund’s
investment objective and is competitively priced. For the limited number
of funds that qualify as VIEs, AWM’s relationships with such funds are not
considered significant interests under FIN 46R.
• 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 46R.
• Commercial Banking: Utilizes VIEs to assist clients in accessing the financial
markets in a cost-efficient manner. This is often accomplished through the
use of products similar to those offered in the Investment Bank.
Commercial Banking may assist in the structuring and/or on-going admin-
istration of these VIEs and may provide liquidity, letters of credit and/or
derivative instruments in support of the VIE.
• The Firm’s Private Equity business, included in Corporate, is involved with
entities that may be deemed VIEs. Private equity activities are accounted for
in accordance with the Investment Company Audit Guide (“Audit Guide”).
The FASB deferred adoption of FIN 46R for non-registered investment
companies that apply the Audit Guide until the proposed Statement of
Position on the clarification of the scope of the Audit Guide is finalized.
The Firm continues to apply this deferral provision; had FIN 46R been
applied to VIEs subject to this deferral, the impact would have had an
insignificant impact on the Firm’s Consolidated financial statements as
of December 31, 2005.
As noted above, there are two broad categories of transactions involving VIEs
with which the IB is involved: multi-seller conduits and client intermediation.
These categories are discussed more fully below.
Multi-seller conduits
The Firm is an active participant in the asset-backed securities business, helping
meet customers’ financing needs by providing access to the commercial paper
markets through VIEs known as multi-seller conduits. These entities are separate
bankruptcy-remote corporations in the business of purchasing interests in,
and making loans secured by, receivable pools and other financial assets
pursuant to agreements with customers. The entities fund their purchases and
loans through the issuance of highly-rated commercial paper. The primary
source of repayment of the commercial paper is the cash flow from the pools
of assets.