JP Morgan Chase 2008 Annual Report Download - page 220

Notes to consolidated financial statements
218 JPMorgan Chase & Co./ 2008 Annual Report
Note 33 – 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 counterpar-
ties draw down on these commitments or the Firm fulfills its obliga-
tion under these guarantees, and the counterparties subsequently fail
to perform according to the terms of these contracts. 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, cer-
tain commitments, predominantly related to consumer financings, are
cancelable, upon notice, at the option of the Firm.
To provide for the risk of loss inherent in wholesale related contracts,
an allowance for credit losses on lending-related commitments is
maintained. See Note 15 on pages 178–180 of this Annual Report
for further discussion of the allowance for credit losses on lending-
related commitments.
The following table summarizes the contractual amounts of off-balance sheet lending-related financial instruments and guarantees and the relat-
ed allowance for credit losses on lending-related commitments at December 31, 2008 and 2007.
Off-balance sheet lending-related financial instruments and guarantees
Allowance for
Contractual amount lending-related commitments
December 31, (in millions) 2008 2007 2008 2007
Lending-related
Consumer(a) $ 741,507 $ 815,936 $25 $15
Wholesale:
Other unfunded commitments to extend credit(b)(c)(d)(e) 225,863 250,954 349 571
Asset purchase agreements(f) 53,729 90,105 99
Standby letters of credit and financial guarantees(c)(g)(h) 95,352 100,222 274 254
Other letters of credit(c) 4,927 5,371 21
Total wholesale 379,871 446,652 634 835
Total lending-related $ 1,121,378 $ 1,262,588 $ 659 $ 850
Other guarantees
Securities lending guarantees(i) $ 169,281 $ 385,758 NA NA
Residual value guarantees 670 NA NA NA
Derivatives qualifying as guarantees(j) 83,835 85,262 NA NA
(a) Includes credit card and home equity lending-related commitments of $623.7 billion and $95.7 billion, respectively, at December 31, 2008; and $714.8 billion and $74.2 billion,
respectively, at December 31, 2007. These amounts for credit card and home equity lending-related commitments represent the total available credit for these products.The Firm has
not experienced, and does not anticipate, that all available lines of credit for these products will be utilized at the same time. The Firm can reduce or cancel these lines of credit by pro-
viding the borrower prior notice or, in some cases, without notice as permitted by law.
(b) Includes unused advised lines of credit totaling $36.3 billion and $38.4 billion at December 31, 2008 and 2007, respectively, which are not legally binding. In regulatory filings with
the Federal Reserve, unused advised lines are not reportable.
(c) Represents contractual amount net of risk participations totaling $28.3 billion at both December 31, 2008 and 2007.
(d) Excludes unfunded commitments to third-party private equity funds of $1.4 billion and $881 million at December 31, 2008 and 2007, respectively. Also excludes unfunded commit-
ments for other equity investments of $1.0 billion and $903 million at December 31, 2008 and 2007, respectively.
(e) Includes commitments to investment and noninvestment grade counterparties in connection with leveraged acquisitions of $3.6 billion and $8.2 billion at December 31, 2008 and
2007, respectively.
(f) Largely represents asset purchase agreements with the Firm’s administered multi-seller, asset-backed commercial paper conduits. It also includes $96 million and $1.1 billion of asset
purchase agreements to other third-party entities at December 31, 2008 and 2007, respectively.
(g) JPMorgan Chase held collateral relating to $31.0 billion and $31.5 billion of these arrangements at December 31, 2008 and 2007, respectively. Prior periods have been revised to con-
form to the current presentation.
(h) Includes unissued standby letters of credit commitments of $39.5 billion and $50.7 billion at December 31, 2008 and 2007, respectively.
(i) Collateral held by the Firm in support of securities lending indemnification agreements was $170.1 billion and $390.5 billion at December 31, 2008 and 2007, respectively. Securities
lending collateral comprises primarily cash, securities issued by governments that are members of the Organisation for Economic Co-operation and Development and U.S. government
agencies.
(j) Represents notional amounts of derivatives qualifying as guarantees.