JP Morgan Chase 2008 Annual Report Download - page 96

Management’s discussion and analysis
94 JPMorgan Chase & Co./ 2008 Annual Report
CREDIT PORTFOLIO
The following table presents JPMorgan Chase’s credit portfolio as of
December 31, 2008 and 2007. Total credit exposure at December 31,
2008, increased $198.8 billion from December 31, 2007, reflecting an
increase of $115.0 billion in the consumer credit portfolio and $83.8
billion in the wholesale credit portfolio. The increase in total credit
exposure from the prior year reflects $319.2 billion and $54.3 billion
of additional credit exposure acquired in connection with the
Washington Mutual and Bear Stearns transactions, respectively. The
exposure from the Washington Mutual transaction consisted of $271.7
billion in the consumer portfolio and $47.5 billion in the wholesale
portfolio, which was primarily commercial lending. The exposure from
the Bear Stearns acquisition was included in the wholesale portfolio.
Excluding these two transactions, there was a decrease of $174.7 bil-
lion in overall credit exposure, which was largely driven by decreases in
lending-related commitments, partly offset by increases in derivative
receivables and managed loans.
While overall portfolio exposure declined when excluding the
Washington Mutual and Bear Stearns transactions, the Firm provided
over $150 billion in new loans and lines of credit to retail and whole-
sale clients in the fourth quarter of 2008, including individual con-
sumers, small businesses, large corporations, not-for-profit organiza-
tions, states and municipalities, and other financial institutions.
In the table below, reported loans include loans accounted for at fair value and loans held-for-sale, which are carried at lower of cost or fair value,
with changes in value recorded in noninterest revenue. However, these held-for-sale loans and loans accounted for at fair value are excluded from the
average loan balances used for the net charge-off rate calculations.
Total credit portfolio
Credit Nonperforming 90 days past due Average annual
As of or for the year ended December 31,
exposure assets(h)(i)(j)(k) and still accruing Net charge-offs net charge-off rate
(in millions, except ratios) 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
Total credit portfolio
Loans retained(a) $ 728,915 $ 491,736 $ 8,921(j) $ 3,232(j) $3,275 $ 2,043 $ 9,835 $ 4,538 1.73% 1.00%
Loans held-for-sale 8,287 18,899 12 45 ——NA NA NA NA
Loans at fair value 7,696 8,739 20 5——NA NA NA NA
Loans – reported(a) $ 744,898 $ 519,374 $ 8,953 $ 3,282 $3,275 $ 2,043 $ 9,835 $ 4,538 1.73% 1.00%
Loans – securitized(b) 85,571 72,701 ——1,802 1,050 3,612 2,380 4.53 3.43
Total managed loans 830,469 592,075 8,953 3,282 5,077 3,093 13,447 6,918 2.08 1.33
Derivative receivables 162,626 77,136 1,079 29 ——NA NA NA NA
Receivables from customers(c) 16,141 —————NA NA NA NA
Total managed credit-related assets 1,009,236 669,211 10,032 3,311 5,077 3,093 13,447 6,918 2.08 1.33
Lending-related commitments(d)(e) 1,121,378 1,262,588 NA NA NA NA NA NA NA NA
Assets acquired in loan satisfactions
Real estate owned NA NA 2,533(k) 546 NA NA NA NA NA NA
Other NA NA 149(k) 76 NA NA NA NA NA NA
Total assets acquired in loan
satisfactions NA NA 2,682 622 NA NA NA NA NA NA
Total credit portfolio $ 2,130,614 $1,931,799 $12,714 $ 3,933 $5,077 $ 3,093 $ 13,447 $ 6,918 2.08% 1.33%
Net credit derivative hedges notional(f) $ (91,451) $ (67,999) $—$ (3) NA NA NA NA NA NA
Collateral held against derivatives(g) (19,816) (9,824) NA NA NA NA NA NA NA NA
(a) Loans (other than those for which the SFAS 159 fair value option has been elected) are presented net of unearned income and net deferred loan fees of $694 million and $1.0 billion at
December 31, 2008 and 2007, respectively.
(b) Represents securitized credit card receivables. For further discussion of credit card securitizations, see Card Services on pages 63–65 of this Annual Report.
(c) Primarily represents margin loans to prime and retail brokerage customers included in accrued interest and accounts receivable on the Consolidated Balance Sheets.
(d) 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, respec-
tively, 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 experi-
enced, nor does it anticipate, all available lines of credit being used at the same time. The Firm can reduce or cancel these lines of credit by providing the borrower prior notice or, in some
cases, without notice as permitted by law.
(e) 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. See the Glossary of Terms on page 230 of this Annual Report for the Firm’s definition of advised lines of credit.
(f) Represents the net notional amount of protection purchased and sold of single-name and portfolio credit derivatives used to manage the credit exposures; these derivatives do not qualify
for hedge accounting under SFAS 133. For additional information, see page 101 of this Annual Report.
(g) Represents other liquid securities collateral held by the Firm as of December 31, 2008 and 2007, respectively.
(h) Excludes nonperforming assets related to (1) loans eligible for repurchase as well as loans repurchased from GNMA pools that are insured by U.S. government agencies of $3.3 billion
and $1.5 billion at December 31, 2008, and 2007, respectively, and (2) student loans that are 90 days past due and still accruing, which are insured by U.S. government agencies under
the Federal Family Education Loan Program, of $437 million and $417 million at December 31, 2008 and 2007, respectively. These amounts for GNMA and student loans are excluded, as
reimbursement is proceeding normally.
(i) During the second quarter of 2008, the policy for classifying subprime mortgage and home equity loans as nonperforming was changed to conform to all other home lending products.
Amounts for 2007 have been revised to reflect this change.
(j) Excludes home lending purchased credit-impaired home loans accounted for under SOP 03-3 that were acquired as part of the Washington Mutual transaction.These loans are accounted
for on a pool basis and the pools are considered to be performing under SOP 03-3. Also excludes loans held-for-sale and loans at fair value.
(k) Includes $1.5 billion of assets acquired in the Washington Mutual transaction.