JP Morgan Chase 2006 Annual Report Download - page 62

60 JPMorgan Chase & Co. / 2006 Annual Report
Off–balance sheet lending-related financial
instruments and guarantees
JPMorgan Chase utilizes lending-related financial instruments (e.g., commitments
and guarantees) to meet the financing needs of its customers. The contractual
amount of these financial instruments represents the maximum possible credit
risk should the counterparty draw down the commitment or the Firm be
required to fulfill its obligation under the guarantee, and the counterparty
subsequently fail to perform according to the terms of the contract. Most of
these commitments and guarantees expire without a default occurring or
without being drawn. As a result, the total contractual amount of these
instruments is not, in the Firm’s view, representative of its actual future credit
exposure or funding requirements. Further, certain commitments, primarily
related to consumer financings, are cancelable, upon notice, at the option of
the Firm. For further discussion of lending-related commitments and guaran-
tees and the Firm’s accounting for them, see Credit risk management on
pages 64–76 and Note 29 on pages 132–134 of this Annual Report.
Contractual cash obligations
In the normal course of business, the Firm enters into various contractual
obligations that may require future cash payments. Commitments for future cash
expenditures primarily include contracts to purchase future services and capital
expenditures related to real estate–related obligations and equipment.
The accompanying table summarizes, by remaining maturity, JPMorgan Chase’s
off–balance sheet lending-related financial instruments and significant
contractual cash obligations at December 31, 2006. Contractual purchases
and capital expenditures in the table below reflect the minimum contractual
obligation under legally enforceable contracts with terms that are both fixed
and determinable. Excluded from the following table are a number of obliga-
tions to be settled in cash, primarily in under one year. These obligations are
reflected on the Firm’s Consolidated balance sheets and include Federal
funds purchased and securities sold under repurchase agreements; Other
borrowed funds; purchases of Debt and equity instruments; Derivative payables;
and certain purchases of instruments that resulted in settlement failures. For
discussion regarding Long-term debt and trust preferred capital securities, see
Note 19 on pages 124–125 of this Annual Report. For discussion regarding
operating leases, see Note 27 on page 130 of this Annual Report.
Off–balance sheet lending-related financial instruments and guarantees
2006
By remaining maturity at December 31, Under 1–<3 3–5 Over 2005
(in millions) 1 year years years 5 years Total Total
Lending-related
Consumer(a) $ 677,784 $ 3,807 $ 3,604 $ 62,340 $ 747,535 $ 655,596
Wholesale:
Other unfunded commitments to extend credit(b)(c)(d) 92,829 52,465 67,250 16,660 229,204 208,469
Asset purchase agreements(e) 20,847 38,071 7,186 1,425 67,529 31,095
Standby letters of credit and guarantees(c)(f)(g) 23,264 21,286 38,812 5,770 89,132 77,199
Other letters of credit(c) 4,628 823 101 7 5,559 4,346
Total wholesale 141,568 112,645 113,349 23,862 391,424 321,109
Total lending-related $ 819,352 $ 116,452 $ 116,953 $ 86,202 $ 1,138,959 $ 976,705
Other guarantees
Securities lending guarantees(h) $ 318,095 $ — $ — $ — $ 318,095 $ 244,316
Derivatives qualifying as guarantees(i) 13,542 10,656 24,414 22,919 71,531 61,759
Contractual cash obligations
Time deposits $ 195,187 $ 5,314 $ 2,329 $ 1,519 $ 204,349 $ 147,381
Long-term debt 28,272 41,015 28,189 35,945 133,421 108,357
Trust preferred capital debt securities — — — 12,209 12,209 11,529
FIN 46R long-term beneficial interests(j) 70 63 413 7,790 8,336 2,354
Operating leases(k) 1,058 1,995 1,656 6,320 11,029 9,734
Contractual purchases and capital expenditures 770 524 154 136 1,584 2,324
Obligations under affinity and co-brand programs 1,262 2,050 1,906 897 6,115 6,877
Other liabilities(l) 638 718 769 3,177 5,302 11,646
Total $ 227,257 $ 51,679 $ 35,416 $ 67,993 $ 382,345 $ 300,202
(a) Includes Credit card lending-related commitments of $657 billion and $579 billion at December 31, 2006 and 2005, respectively, that represent the total available credit to the Firm’s cardholders.
The Firm has not experienced, and does not anticipate, that all of its cardholders will utilize their entire available lines of credit at the same time. The Firm can reduce or cancel a credit card commit-
ment by providing the cardholder prior notice or, in some cases, without notice as permitted by law.
(b) Includes unused advised lines of credit totaling $39.0 billion and $28.3 billion at December 31, 2006 and 2005, respectively, which are not legally binding. In regulatory filings with the Federal
Reserve Board, unused advised lines are not reportable.
(c) Represents contractual amount net of risk participations totaling $32.8 billion and $29.3 billion at December 31, 2006 and 2005, respectively.
(d) Excludes unfunded commitments to private third-party equity funds of $589 million and $242 million at December 31, 2006 and 2005, respectively.
(e) The maturity is based upon the weighted-average life of the underlying assets in the SPE, which are primarily multi-seller asset-backed commercial paper conduits. Represents asset purchase agree-
ments with the Firm’s administered multi-seller asset-backed commercial paper conduits, which excludes $356 million and $32.4 billion at December 31, 2006 and 2005, respectively, related to con-
duits that were consolidated in accordance with FIN 46R, as the underlying assets of the conduits are reported in the Firm’s Consolidated balance sheets. It also includes $1.4 billion and $1.3 billion
of asset purchase agreements to other third-party entities at December 31, 2006 and 2005, respectively. Certain of the Firm’s administered multi-seller conduits were deconsolidated as of June
2006; the assets deconsolidated were approximately $33 billion.
(f) JPMorgan Chase held collateral relating to $13.5 billion and $9.0 billion of these arrangements at December 31, 2006 and 2005, respectively.
(g) Includes unused commitments to issue standby letters of credit of $45.7 billion and $37.5 billion at December 31, 2006 and 2005, respectively.
(h) Collateral held by the Firm in support of securities lending indemnification agreements was $317.9 billion and $245.0 billion at December 31, 2006 and 2005, respectively.
(i) Represents notional amounts of derivatives qualifying as guarantees. For further discussion of guarantees, see Note 29 on pages 132–134 of this Annual Report.
(j) Included on the Consolidated balance sheets in Beneficial interests issued by consolidated VIEs.
(k) Excludes benefit of noncancelable sublease rentals of $1.2 billion and $1.3 billion at December 31, 2006 and 2005, respectively.
(l) Includes deferred annuity contracts. Excludes contributions for pension and other postretirement benefits plans, if any, as these contributions are not reasonably estimatable at this time.
MANAGEMENT’S DISCUSSION AND ANALYSIS
JPMorgan Chase & Co.