JP Morgan Chase 2008 Annual Report Download - page 187

JPMorgan Chase & Co./ 2008 Annual Report 185
Retained securitization interests
The following table summarizes the Firm’s retained securitization interests, which are carried at fair value on the Firm’s Consolidated Balance Sheets
at December 31, 2008. As of December 31, 2008, 55% of the Firm’s retained securitization interests, which are carried at fair value, were risk rated
“A” or better.
Ratings profile of retained interests(c)(d)
2008
Investment Noninvestment Retained
December 31, (in billions) Grade grade interest
Asset types:
Credit card(a) $ 5.5 $ 3.8 $ 9.3
Residential mortgage:
Prime(b) 1.1 0.3 1.4
Subprime —0.10.1
Option ARMs 0.4 — 0.4
Commercial and other 1.7 0.3 2.0
Student loans —0.10.1
Auto ———
Total $ 8.7 $ 4.6 $ 13.3
(a) Includes retained subordinated interests carried at fair value, including CS’ accrued interests and fees, escrow accounts, and other residual interests. Excludes undivided seller interest in
the trusts of $33.3 billion at December 31, 2008, which is carried at historical cost, and unencumbered cash amounts on deposit of $2.1 billion at December 31, 2008.
(b) Includes Alt-A loans.
(c) The ratings scale is presented on an S&P-equivalent basis.
(d) Excludes $1.8 billion of investments acquired in the secondary market, but predominantly held for investment purposes. Of this amount $1.7 billion is classified as investment grade.
The table below outlines the key economic assumptions used at December 31, 2008 and 2007, to determine the fair value as of December 31, 2008
and 2007, respectively, of the Firm’s retained interests, other than MSRs, that are valued using modeling techniques; it excludes securities that are
valued using quoted market prices.The table below also outlines the sensitivities of those fair values to immediate 10% and 20% adverse changes
in assumptions used to determine fair value. For a discussion of residential MSRs, see Note 18 on pages 199–200 of this Annual Report.
December 31, 2008 Residential mortgage
(in millions, except rates and where Option Commercial Student
otherwise noted) Credit card Prime(c) Subprime ARMs and other loans Auto
Retained interests $ 3,463(b) $ 1,420 $ 68 $ 436 $ 1,966 $ 55 $ 40
Weighted-average life (in years) 0.5 5.3 1.5 7.3 3.5 8.2 0.7
Prepayment rates(a) 15.4-16.7% 0.0-50.6%(d) 1.0-53.1% 5.0-15.0% 0.0-100.0%(g) 5.0% 1.2-1.4%
Weighted-average prepayment
rate 16.6 17.7 25.1 7.6 0.7 5.0 1.3
PPR CPR CPR CPR CPR CPR ABS
Impact of 10% adverse change $ (42) $ (31) $ (5) $ (4) $ (1) $ (1) $ —
Impact of 20% adverse change (85) (57) (6) (11) (1) (2) (1)
Loss assumptions 4.7-7.6% 0.0-78.1%(d) 0.0-78.1%(f) 0.0-26.3% 0.0-5.0% —%(e) 0.4-0.7%
Weighted-average loss assumption 7.0 4.4 3.4 0.3 0.3 — 0.5
Impact of 10% adverse change $ (235) $ (25) $ (7) $ — $ (12) $ — $ —
Impact of 20% adverse change (426) (49) (13) (1) (24) — (1)
Discount rates 18.0% 9.9-67.7%(d) 10.6-30.0% 3.6-71.7% 3.3-47.8%(g) 9.0% 4.1-4.2%
Weighted-average discount rate 18.0 14.5 21.5 17.3 12.4 9.0 4.1
Impact of 10% adverse change $ (10) $ (52) $ (3) $ (16) $ (26) $ (2) $ —
Impact of 20% adverse change (20) (102) (5) (28) (49) (4) —