JP Morgan Chase 2010 Annual Report Download - page 179

JPMorgan Chase & Co./2010 Annual Report 179
Fair value hierarchy
December 31, 2009 (in millions) Level 1 Level 2 Level 3
Netting
adjustments
Total
fair value
Deposits
$
—
$
3,979
$
476
$
—
$ 4,455
Federal funds purchased and securities loaned or
sold under repurchase agreements — 3,396 — — 3,396
Other borrowed funds
—
5,095
542
—
5,637
Trading liabilities:
Debt and equity instruments
(d)
50,577 14,359 10 — 64,946
Derivative payables
(
e
)
(f)
2,038 1,481,813 35,332 (1,459,058) 60,125
Total trading liabiliti
es
52,615 1,496,172 35,342 (1,459,058) 125,071
Accounts payable and other liabilities
—
2
355
—
357
Beneficial interests issued by consolidated VIEs
—
785
625
—
1,410
Long
-
term debt
—
30,685
18,287
—
48
,972
Total liabilities measured at fair value on a
recurring basis $ 52,615 $ 1,540,114 $ 55,627 $ (1,459,058) $ 189,298
(a) At December 31, 2010 and 2009, included total U.S. government-sponsored enterprise obligations of $137.3 billion and $195.8 billion respectively, which were
predominantly mortgage-related.
(b) At December 31, 2010 and 2009, included within trading loans were $22.7 billion and $20.7 billion, respectively, of residential first-lien mortgages and $2.6 billion and
$2.7 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S.
government agencies of $13.1 billion and $11.1 billion, respectively, and reverse mortgages of $4.0 billion and $4.5 billion, respectively.
(c) Physical commodities inventories are generally accounted for at the lower of cost or fair value.
(d) Balances reflect the reduction of securities owned (long positions) by the amount of securities sold but not yet purchased (short positions) when the long and short
positions have identical Committee on Uniform Security Identification Procedures (“CUSIPs”).
(e) The level 3 amounts for derivative receivables and derivative payables related to credit primarily include structured credit derivative instruments. For further information
on the classification of instruments within the valuation hierarchy, see pages 171–175 of this Note.
(f) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a
legally enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances
for this netting adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of
inputs to the valuation of an asset or liability. Therefore, the balances reported in the fair value hierarchy table above are gross of any counterparty netting adjustments.
However, if the Firm were to net such balances within level 3, the reduction in the level 3 derivative receivable and derivative payable balances would be $12.7 billion
and $16.0 billion at December 31, 2010 and 2009, respectively, exclusive of the netting benefit associated with cash collateral, which would further reduce the level 3
balances.
(g) Private equity instruments represent investments within the Corporate/Private Equity line of business. The cost basis of the private equity investment portfolio totaled
$10.0 billion and $8.8 billion at December 31, 2010 and 2009, respectively.
(h) At December 31, 2010 and 2009, balances included investments valued at net asset value of $12.1 billion and $16.8 billion, respectively, of which $5.9 billion and
$9.0 billion, respectively, were classified in level 1, $2.0 billion and $3.2 billion, respectively, in level 2 and $4.2 billion and $4.6 billion in level 3.
(i) For the year ended December 31, 2010, there were no significant transfers between levels 1 and 2. Transfers from level 3 into level 2 included $1.2 billion of trading
loans due to increased price transparency. There were no significant transfers into level 3.
(j) Included assets within accrued interest receivable and other assets at December 31, 2009.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the balance sheet
amounts (including changes in fair value) for financial instruments
classified by the Firm within level 3 of the fair value hierarchy for
the years ended December 31, 2010, 2009 and 2008. When a
determination is made to classify a financial instrument within level
3, the determination is based on the significance of the unobserv-
able parameters to the overall fair value measurement. However,
level 3 financial instruments typically include, in addition to the
unobservable or level 3 components, observable components (that
is, components that are actively quoted and can be validated to
external sources); accordingly, the gains and losses in the table
below include changes in fair value due in part to observable fac-
tors that are part of the valuation methodology. Also, the Firm risk-
manages the observable components of level 3 financial instru-
ments using securities and derivative positions that are classified
within level 1 or 2 of the fair value hierarchy; as these level 1 and
level 2 risk management instruments are not included below, the
gains or losses in the following tables do not reflect the effect of
the Firm’s risk management activities related to such level 3 in-
struments.