JP Morgan Chase 2010 Annual Report Download - page 219

JPMorgan Chase & Co./2010 Annual Report 219
Note 13 – Securities financing activities
JPMorgan Chase enters into resale agreements, repurchase
agreements, securities borrowed transactions and securities
loaned transactions (collectively, “securities financing agree-
ments”) primarily to finance the Firm’s inventory positions, ac-
quire securities to cover short positions, accommodate customers’
financing needs, and settle other securities obligations.
Securities financing agreements are treated as collateralized
financings on the Firm’s Consolidated Balance Sheets. Resale and
repurchase agreements are generally carried at the amounts at
which the securities will be subsequently sold or repurchased,
plus accrued interest. Securities borrowed and securities loaned
transactions are generally carried at the amount of cash collateral
advanced or received. Where appropriate under applicable ac-
counting guidance, resale and repurchase agreements with the
same counterparty are reported on a net basis. Fees received or
paid in connection with securities financing agreements are
recorded in interest income or interest expense.
The Firm has elected the fair value option for certain securities
financing agreements. For a further discussion of the fair value
option, see Note 4 on pages 187–189 of this Annual Report. The
securities financing agreements for which the fair value option
has been elected are reported within securities purchased under
resale agreements; securities loaned or sold under repurchase
agreements; and securities borrowed on the Consolidated Bal-
ance Sheets. Generally, for agreements carried at fair value,
current-period interest accruals are recorded within interest
income and interest expense, with changes in fair value reported
in principal transactions revenue. However, for financial instru-
ments containing embedded derivatives that would be separately
accounted for in accordance with accounting guidance for hybrid
instruments, all changes in fair value, including any interest
elements, are reported in principal transactions revenue.
The following table details the Firm’s securities financing agree-
ments, all of which are accounted for as collateralized financings
during the periods presented.
December 31, (in millions)
2010
2009
Securities purchased under resale agreements
(a)
$ 222,302 $ 195,328
Securities borrowed
(b)
123,587 119,630
Securities sold under repurchase agreements
(c)
$ 262,722 $ 245,692
Securities loaned
10,592
7,835
(a) Includes resale agreements of $20.3 billion and $20.5 billion accounted for at
fair value at December 31, 2010 and 2009, respectively.
(b) Includes securities borrowed of $14.0 billion and $7.0 billion accounted for at
fair value at December 31, 2010 and 2009, respectively.
(c) Includes repurchase agreements of $4.1 billion and $3.4 billion accounted for at
fair value at December 31, 2010 and 2009, respectively.
The amounts reported in the table above have been reduced by
$112.7 billion and $121.2 billion at December 31, 2010 and
2009, respectively, as a result of agreements in effect that meet
the specified conditions for net presentation under applicable
accounting guidance.
JPMorgan Chase’s policy is to take possession, where possible,
of securities purchased under resale agreements and of securi-
ties borrowed. The Firm monitors the market value of the un-
derlying securities that it has received from its counterparties
and either requests additional collateral or returns a portion of
the collateral when appropriate in light of the market value of
the underlying securities. Margin levels are established initially
based upon the counterparty and type of collateral and moni-
tored on an ongoing basis to protect against declines in collat-
eral value in the event of default. JPMorgan Chase typically
enters into master netting agreements and other collateral
arrangements with its resale agreement and securities bor-
rowed counterparties, which provide for the right to liquidate
the purchased or borrowed securities in the event of a customer
default. As a result of the Firm’s credit risk mitigation practices
described above on resale and securities borrowed agreements,
the Firm did not hold any reserves for credit impairment on
these agreements as of December 31, 2010 and 2009.
For a further discussion of assets pledged and collateral received
in securities financing agreements see Note 31 on pages 280–
281 of this Annual Report.