JP Morgan Chase 2008 Annual Report Download - page 175

JPMorgan Chase & Co./ 2008 Annual Report 173
Securities with gross unrealized losses
Less than 12 months 12 months or more Total
Gross Gross Total Gross
Fair unrealized Fair unrealized Fair unrealized
December 31, 2007 (in millions) value losses value losses value losses
Available-for-sale securities
U.S. government and federal agency obligations:
U.S. treasuries $ 175 $ 2 $ — $ — $ 175 $ 2
Mortgage-backed securities — — — — — —
Agency obligations — — — — — —
Collateralized mortgage obligations — — — — — —
U.S. government-sponsored enterprise obligations:
Mortgage-backed securities — — 1,345 55 1,345 55
Direct obligations — — — — — —
Obligations of state and political subdivisions 21 2 — — 21 2
Certificates of deposit 1,102 — — — 1,102 —
Debt securities issued by non-U.S. governments 335 3 1,928 25 2,263 28
Corporate debt securities 1,126 3 183 1 1,309 4
Equity securities — — 4 1 4 1
Mortgage-backed securities:
Prime 1,313 5 — — 1,313 5
Subprime 306 28 — — 306 28
Alt-A — — — — — —
Non-U.S. residential — — — — — —
Commercial — — — — — —
Asset-backed securities:
Credit card receivables 443 31 285 16 728 47
Other consumer loans — — — — — —
Commercial and industrial loans — — — — — —
Other 29 — — — 29 —
Total securities with gross unrealized losses $ 4,850 $ 74 $ 3,745 $ 98 $ 8,595 $ 172
AFS securities in unrealized loss positions are analyzed in depth as
part of the Firm’s ongoing assessment of other-than-temporary
impairment. Potential other-than-temporary impairment of AFS secu-
rities is considered using a variety of factors, including the length of
time and extent to which the market value has been less than cost;
the financial condition and near-term prospects of the issuer or
underlying collateral of a security; and the Firm’s intent and ability to
retain the security in order to allow for an anticipated recovery in fair
value. Where applicable under EITF Issue 99-20, the Firm estimates
the cash flows over the life of the security to determine if any
adverse changes have occurred that require an other-than-temporary
impairment charge. The Firm applies EITF Issue 99-20 to beneficial
interests in securitizations that are rated below “AA” at acquisition
or that can be contractually prepaid or otherwise settled in such a
way that the Firm would not recover substantially all of its recorded
investment. The Firm considers a decline in fair value to be other-
than-temporary if it is probable that the Firm will not recover its
recorded investment, including as applicable under EITF Issue 99-20,
when an adverse change in cash flows has occurred.
The Firm’s analysis of the financial condition and near term prospects
of the issuer or underlying collateral of a security noted above
includes analysis of performance indicators relevant to the specific
investment. For asset-backed investments, such relevant performance
indicators may include ratings, valuation of subordinated positions in
current and/or stress scenarios, excess spread or overcollateralization
levels, and whether certain protective triggers have been reached.
For mortgage-backed investments, such relevant performance indica-
tors may include ratings, prepayment speeds, delinquencies, default
rates, loss severities, geographic concentration, and forecasted per-
formance under various home price decline stress scenarios.
As of December 31, 2008, approximately $438 million of the unreal-
ized losses relate to securities that have been in an unrealized loss
position for longer than 12 months, and primarily relate to prime mort-
gage-backed securities and credit card-related asset-backed securities.
The prime mortgage-backed securities are primarily rated “AAA”, while
the credit card-related asset-backed securities are rated “BBB”. Based
upon the analyses described above, which have been applied to these
securities, the Firm believes that the unrealized losses result from liq-
uidity conditions in the current market environment and not from con-
cerns regarding the credit of the issuers or underlying collateral.The
Firm does not believe it is probable that it will not recover its invest-
ments, given the current levels of collateral and credit enhancements
that exist to protect the investments. For securities analyzed for impair-
ment under EITF 99-20, the collateral and credit enhancement features
are at levels sufficient to ensure that an adverse change in expected
future cash flows has not occurred.
As of December 31, 2008, approximately $6.2 billion of the unreal-
ized losses relate to securities that have been in an unrealized loss
position for less than 12 months; these losses largely relate to credit