JP Morgan Chase 2010 Annual Report Download - page 195

JPMorgan Chase & Co./2010 Annual Report 195
Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and the pretax
gains/(losses) recorded on such derivatives, for the years ended December 31, 2010 and 2009, respectively. The Firm includes the gain/(loss)
on the hedging derivative in the same line item as the offsetting change in cash flows on the hedged item in the Consolidated Statements of
Income.
Gains/(losses) recorded in income and other comprehensive income/(loss)
Year ended
December 31, 2010 (in millions)
Derivatives –
effective portion
reclassified from
AOCI to income
Hedge
ineffectiveness
recorded directly
in income(d)
Total income
statement impact
Derivatives –
effective portion
recorded in OCI
Total change
in OCI .
for period
Contract type
Interest rate
(a)
$ 288
(c)
$ 20 $ 308 $ 388 $ 100
Foreign exchange
(b)
(82) (3) (85) (141) (59)
Total
$
20
6
$
1
7
$
223
$
24
7
$
4
1
Gains/(losses) recorded in income and other comprehensive income/(loss)
Year ended
December 31, 2009 (in millions)
Derivatives –
effective portion
reclassified from
AOCI to income
Hedge
ineffectiveness
recorded directly
in income(d)
Total income
statement impact
Derivatives –
effective portion
recorded in OCI
Total change
in OCI .
for period
Contract type
Interest rate
(a)
$ (158)
(c)
$ (62) $ (220) $ 61 $ 219
Foreign exchange
(b)
282 — 282 706 424
Total
$ 124 $ (62) $ 62 $ 767 $ 643
(a) Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in net interest
income.
(b) Primarily consists of hedges of the foreign currency risk of non–U.S. dollar–denominated revenue and expense. The income statement classification of gains and losses
follows the hedged item – primarily net interest income, compensation expense and other expense.
(c) In 2010, the Firm reclassified a $25 million loss from accumulated other comprehensive income (“AOCI”) to earnings because the Firm determined that it is probable
that forecasted interest payment cash flows related to certain wholesale deposits will not occur. The Firm did not experience forecasted transactions that failed to
occur for the year ended December 31, 2009.
(d) Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected
change in cash flows on the hedged item attributable to the hedged risk. Hedge ineffectiveness recorded directly in income for cash flow hedges was a net gain of $18
million for the year ended December 31, 2008.
Over the next 12 months, the Firm expects that $282 million (after-tax) of net losses recorded in AOCI at December 31, 2010, related to cash
flow hedges will be recognized in income. The maximum length of time over which forecasted transactions are hedged is 10 years, and such
transactions primarily relate to core lending and borrowing activities.
Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting relationships, and the
pretax gains/(losses) recorded on such instruments for the years ended December 31, 2010 and 2009.
Gains/(losses) recorded in income and other comprehensive income/(loss)
Year ended
Hedging instruments
–
excluded components
recorded directly in income(a)
Hedging instruments – effective portion
recorded in OCI
December 31, (in millions) 2010 2009 2010 2009
Contract type
Foreign exchange derivatives $ (139) $ (112) $ (30) $ (259)
Foreign currency denominated debt — NA 41 NA
Total $ (139) $ (112) $ 11 $ (259)
(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on a futures or forward
contract. Amounts related to excluded components are recorded in current-period income. There was no ineffectiveness for net investment hedge accounting relation-
ships during 2010 and 2009.