JP Morgan Chase 2008 Annual Report Download - page 162

Notes to consolidated financial statements
160 JPMorgan Chase & Co./ 2008 Annual Report
value are reported in principal transactions revenue in the
Consolidated Statements of Income in the period that the gains or
losses are recognized. For a discussion of the valuation of private equi-
ty investments, see Note 5 on pages 156–158 of this Annual Report.
Note 7 – Other noninterest revenue
Investment banking fees
This revenue category includes advisory and equity and debt under-
writing fees. Advisory fees are recognized as revenue when the related
services have been performed. Underwriting fees are recognized as
revenue when the Firm has rendered all services to the issuer and is
entitled to collect the fee from the issuer, as long as there are no other
contingencies associated with the fee (e.g., the fee is not contingent
upon the customer obtaining financing). Underwriting fees are net of
syndicate expense; the Firm recognizes credit arrangement and syndi-
cation fees as revenue after satisfying certain retention, timing and
yield criteria.
The following table presents the components of Investment banking fees.
Year ended December 31, (in millions) 2008 2007 2006
Underwriting:
Equity $ 1,477 $ 1,713 $ 1,179
Debt 2,094 2,650 2,703
Total underwriting 3,571 4,363 3,882
Advisory 1,955 2,272 1,638
Total investment banking fees $ 5,526 $ 6,635 $ 5,520
Lending & deposit-related fees
This revenue category includes fees from loan commitments, stand-
by letters of credit, financial guarantees, deposit-related fees in lieu
of compensating balances, cash management-related activities or
transactions, deposit accounts and other loan-servicing activities.
These fees are recognized over the period in which the related
service is provided.
Asset management, administration and commissions
This revenue category includes fees from investment management
and related services, custody, brokerage services, insurance premiums
and commissions, and other products. These fees are recognized over
the period in which the related service is provided. Performance-
based fees, which are earned based upon exceeding certain bench-
marks or other performance targets, are accrued and recognized at
the end of the performance period in which the target is met.
The following table presents components of asset management,
administration and commissions.
Year ended December 31,
(in millions) 2008 2007 2006
Asset management:
Investment management fees
$ 5,562 $ 6,364 $ 4,429
All other asset management fees 432 639 567
Total
asset management fees 5,994 7,003 4,996
Total
administration fees
(a) 2,452 2,401 2,430
Commission and other
fees:
Brokerage commissions 3,141 2,702 2,184
All other commissions and fees 2,356 2,250 2,245
Total commissions and fees 5,497 4,952 4,429
Total
asset management,
administration and commissions $13,943 $14,356 $11,855
(a) Includes fees for custody, securities lending, funds services and broker-dealer clearance.
Mortgage fees and related income
This revenue category primarily reflects Retail Financial Services’
mortgage banking revenue, including: fees and income derived from
mortgages originated with the intent to sell; mortgage sales and
servicing; the impact of risk management activities associated with
the mortgage pipeline, warehouse loans and MSRs; and revenue
related to any residual interests held from mortgage securitizations.
This revenue category also includes gains and losses on sales and
lower of cost or fair value adjustments for mortgage loans held-for-
sale, as well as changes in fair value for mortgage loans originated
with the intent to sell and measured at fair value under SFAS 159.
For loans measured at fair value under SFAS 159, origination costs
are recognized in the associated expense category as incurred.
Costs to originate loans held-for-sale and accounted for at the
lower of cost or fair value are deferred and recognized as a compo-
nent of the gain or loss on sale. Net interest income from mortgage
loans and securities gains and losses on available-for-sale (“AFS”)
securities used in mortgage-related risk management activities are
recorded in interest income and securities gains (losses), respectively.
For a further discussion of MSRs, see Note 18 on pages 199–200 of
this Annual Report.
Credit card income
This revenue category includes interchange income from credit and
debit cards and servicing fees earned in connection with securitiza-
tion activities. Volume-related payments to partners and expense for
rewards programs are netted against interchange income; expense
related to rewards programs are recorded when the rewards are
earned by the customer, as more fully described below. Other fee rev-
enue is recognized as earned, except for annual fees, which are
deferred and recognized on a straight-line basis over the 12-month
period to which they pertain. Direct loan origination costs are also
deferred and recognized over a 12-month period. In addition, due to
the consolidation of Chase Paymentech Solutions in the fourth quar-
ter of 2008, this category now includes net fees earned for process-
ing card transactions for merchants.