JP Morgan Chase 2010 Annual Report Download - page 223

JPMorgan Chase & Co./2010 Annual Report 223
The following table summarizes the Firm’s loan balances by portfolio segment:
December 31, 2010 (in millions) Wholesale
Consumer, excluding
credit card Credit Card Total
Retained
(a)
$ 222,510 $ 327,464 $ 135,524 $ 685,498
(b)
Held-for-sale
3,147
154
2,152
5,453
At fair value
1,976
—
—
1,976
Total
$
227,633
$
327,618
$
137,676
$
692,927
December 31, 2009 (in millions) Wholesale
Consumer, excluding
credit card Credit Card Total
Retained $ 200,077 $ 348,355 $ 78,786 $ 627,218
(b)
Held
-
for
-
sale
2,734
2,142
—
4,876
At fair value
1,364
—
—
1,364
Total
$ 204,175 $ 350,497 $ 78,786 $ 633,458
(a) Effective January 1, 2010, the Firm adopted accounting guidance related to VIEs. Upon adoption of the guidance, the Firm consolidated $84.7 billion of loans associ-
ated with Firm-sponsored credit card securitization trusts; $15.1 billion of wholesale loans; and $4.8 billion of loans associated with certain other consumer securitiza-
tion entities, primarily mortgage-related. For further information, see Note 16 on pages 244–259 of this Annual Report.
(b) Loans (other than PCI loans and those for which the fair value option has been selected) are presented net of unearned income, unamortized discounts and premiums,
and net deferred loan costs of $1.9 billion and $1.4 billion at December 31, 2010 and 2009, respectively.
On an on-going basis, the Firm manages its exposure to credit risk. Selling loans is one way that the Firm reduces its credit exposures. The
following table provides information about the Firm's loan sales by portfolio segment.
Year ended December 31, (in millions)
2010
2009
2008
Net gains/(losses) on sales of loans (including lower of
cost or fair value adjustments)(a)
Wholesale
$
215
$
291
$
(2,647
)
Consumer, excluding credit card
265
127
(11
)
Credit Card
(16)
21
150
Total net gains/(losses) on sales of loans (including lower
of cost or fair value adjustments)(a)
$
464
$
439
$
(2
,508
)
(a) Excludes sales related to loans accounted for at fair value.
Wholesale loan portfolio
Wholesale loans include loans made to a variety of customers
from large corporate and institutional clients to certain high-net
worth individuals.
The primary credit quality indicator for wholesale loans is the risk
rating assigned each loan. Risk ratings are used to identify the
credit quality of loans and differentiate risk within the portfolio.
Risk ratings on loans consider the probability of default (“PD”)
and the loss given default (“LGD”). PD is the likelihood that a
loan will not be repaid at default. The LGD is the estimated loss
on the loan that would be realized upon the default of the bor-
rower and takes into consideration collateral and structural
support for each credit facility.
Management considers several factors to determine an appro-
priate risk rating, including the obligor’s debt capacity and
financial flexibility, the level of the obligor’s earnings, the
amount and sources for repayment, the level and nature of
contingencies, management strength, and the industry and
geography in which the obligor operates. Risk ratings generally
represent ratings profiles similar to those defined by S&P and
Moody’s. Investment grade ratings range from “AAA/Aaa”
to “BBB-/Baa3”. Noninvestment grade ratings are further
classified as noncriticized (“BB+/Ba1 and B-/B3”) and criticized
(“CCC+”/”Caa1 and lower”), and the criticized portion is
further subdivided into performing and nonaccrual loans, repre-
senting management’s assessment of the collectibility of princi-
pal and interest. Criticized loans have a higher probability of
default than noncriticized loans.
Risk ratings are reviewed on a regular and ongoing basis by Credit
Risk Management and are adjusted as necessary for updated
information affecting the obligor’s ability to fulfill its obligations.
As noted above, the risk rating of a loan considers the industry in
which the obligor conducts its operations. As part of the overall
credit risk management framework, the Firm focuses on the man-
agement and diversification of its industry and client exposures,
with particular attention paid to industries with actual or potential
credit concern. See Note 5 on pages 189–190 in this Annual Report
for further detail on industry concentrations.