JP Morgan Chase 2010 Annual Report Download - page 112

Management’s discussion and analysis
112 JPMorgan Chase & Co./2010 Annual Report
The Firm’s short-term secured sources of funding consist of securi-
ties loaned or sold under agreements to repurchase and borrowings
from the Chicago, Pittsburgh and San Francisco FHLBs. Secured
long-term funding sources include asset-backed securitizations, and
borrowings from the Chicago, Pittsburgh and San Francisco FHLBs.
Funding markets are evaluated on an ongoing basis to achieve an
appropriate global balance of unsecured and secured funding at
favorable rates.
Short-term funding
The Firm’s reliance on short-term unsecured funding sources such
as federal funds and Eurodollars purchased, certificates of deposit,
time deposits, commercial paper and bank notes is limited.
Total commercial paper liabilities for the Firm were $35.4 billion as
of December 31, 2010, compared with $41.8 billion as of Decem-
ber 31, 2009. However, of those totals, $29.2 billion and $28.7
billion as of December 31, 2010 and 2009, respectively, originated
from deposits that customers chose to sweep into commercial
paper liabilities as a cash management product offered by the Firm.
Therefore, commercial paper liabilities sourced from wholesale
funding markets were $6.2 billion as of December 31, 2010, com-
pared with $13.1 billion as of December 31, 2009. There were no
material differences between the average and year-end balances of
commercial paper outstanding for the year ended and as of De-
cember 31, 2010.
Securities loaned or sold under agreements to repurchase are
secured predominantly by high quality securities collateral, includ-
ing government-issued debt, agency debt and agency MBS. The
balances of securities loaned or sold under agreements to repur-
chase, which constitute a significant portion of the federal funds
purchased and securities loaned or sold under repurchase agree-
ments, was $273.3 billion as of December 31, 2010, compared
with $253.5 billion as of December 31, 2009. There were no mate-
rial differences between the average and year-end balances of
securities loaned or sold under agreements to repurchase for the
year ended and as of December 31, 2010. The balances associated
with securities loaned or sold under agreements to repurchase
fluctuate over time due to customers’ investment and financing
activities; the Firm’s demand for financing; the Firm’s matched
book activity; the ongoing management of the mix of the Firm’s
liabilities, including its secured and unsecured financing (for both
the investment and trading portfolios); and other market and
portfolio factors. For additional information, see the Balance Sheet
Analysis on pages 92–94, Note 13 on page 219 and Note 20 on page
264 of this Annual Report.
The short-term portion of total other borrowed funds for the Firm
was $34.3 billion as of December 31, 2010, compared with $32.9
billion as of December 31, 2009. There were no material differ-
ences between the average and year-end balances of other bor-
rowed funds for the year ended and as of December 31, 2010.
For additional information, see the table for Short-term and other
borrowed funds on page 299 of this Annual Report.
Long-term funding and issuance
During 2010, the Firm issued $36.1 billion of long-term debt,
including $17.1 billion of senior notes issued in the U.S. market,
$2.9 billion of senior notes issued in the non-U.S. markets, $1.5
billion of trust preferred capital debt securities, and $14.6 billion
of IB structured notes. In addition, in January 2011, the Firm
issued $4.3 billion of long-term debt, including $3.5 billion of
senior notes in the U.S. market and $800 million of senior notes
issued in non-U.S. markets. During 2009, the Firm issued $19.7
billion of FDIC-guaranteed long-term debt under the Temporary
Liquidity Guarantee Program. During 2009, the Firm also issued
non-FDIC-guaranteed debt of $16.1 billion (including $11.0
billion of senior notes and $2.5 billion of trust preferred capital
debt securities issued in the U.S. market, and $2.6 billion of
senior notes issued in non-U.S. markets) and $15.5 billion of IB
structured notes. During 2010, $53.4 billion of long-term debt
matured or were redeemed, including $907 million of trust pre-
ferred capital debt securities redeemed on December 28, 2010,
through a tender offer, and $22.8 billion of IB structured notes.
During 2009, $55.7 billion of long-term debt (including trust
preferred capital debt securities) matured or were redeemed,
including $27.2 billion of IB structured notes.
In addition to the unsecured long-term funding and issuances
discussed above, the Firm securitizes consumer credit card loans,
residential mortgages, auto loans and student loans for funding
purposes. Loans securitized by the Firm’s wholesale businesses are
related to client-driven transactions and are not considered to be a
source of funding for the Firm. Effective January 1, 2010, certain
Firm-sponsored credit card loan, student loan and auto loan securi-
tization trusts were consolidated as a result of the accounting
guidance related to VIEs. As a result of consolidating these securiti-
zation trusts, the maturities or redemptions of the beneficial inter-
ests issued by the securitization trusts are reported as a component
of the Firm’s cash flows from financing activities. During 2010, the
Firm did not securitize any credit card loans, residential mortgage
loans, auto loans or student loans through consolidated or noncon-
solidated securitization trusts. During 2009, the Firm securitized
$26.5 billion of credit card loans via nonconsolidated securitization
trusts. During 2010, $25.8 billion of loan securitizations matured or
were redeemed, including $24.9 billion of credit card loan securiti-
zations, $210 million of auto loan securitizations, $294 million of
residential mortgage loan securitizations and $326 million of stu-
dent loan securitizations. For further discussion of loan securitiza-
tions, see Note 16 on pages 244–259 in this Annual Report.