JP Morgan Chase 2010 Annual Report Download - page 245

JPMorgan Chase & Co./2010 Annual Report 245
(a) The assets and liabilities of the Firm-sponsored credit card securitization trusts that were consolidated were initially measured at their carrying values, primarily
amortized cost, as this method is consistent with the approach that Card Services utilizes to manage its other assets. These assets were primarily recorded in loans
on the Firm’s Consolidated Balance Sheet. In addition, Card Services established an allowance for loan losses of $7.4 billion (pretax), which was reported as a transi-
tion adjustment in stockholders’ equity. The impact to stockholders’ equity also includes a decrease to AOCI of $116 million, as a result of the reversal of the fair
value adjustments taken on retained AFS securities that were eliminated in consolidation.
(b) The assets and liabilities of the Firm-administered multi-seller conduits which were consolidated were initially measured at their carrying values, primarily amortized
cost, as this method is consistent with the business’s intent to hold the assets for the longer-term. The assets are recorded primarily in loans and in other assets on
the Firm’s Consolidated Balance Sheets.
(c) RFS consolidated certain mortgage and other consumer securitizations, which resulted in a net increase in both assets and liabilities of $4.7 billion ($3.5 billion
related to residential mortgage securitizations and $1.2 billion related to other consumer securitizations). These assets were initially measured at their unpaid princi-
pal balance and recorded primarily in loans on the Firm’s Consolidated Balance Sheets. This method was elected as a practical expedient.
(d) IB consolidated certain mortgage and other consumer securitizations, which resulted in a net increase in both assets and liabilities of $4.3 billion ($3.7 billion related
to residential mortgage securitizations and $0.6 billion related to other consumer securitizations). These assets were initially measured at their fair value, as this
method is consistent with the approach that IB utilizes to manage similar assets. These assets were recorded primarily in trading assets on the Firm’s Consolidated
Balance Sheets.
(e) The U.S. GAAP consolidation of the credit card securitization trusts did not have a significant impact on risk-weighted assets on the adoption date because the
Chase Issuance Trust (the Firm’s primary credit card securitization trust) had been consolidated for regulatory capital purposes beginning in the second quarter of
2009, which added approximately $40.0 billion of risk-weighted assets for regulatory capital purposes. In addition, the Firm elected a two-quarter regulatory imple-
mentation deferral of the effect of this accounting guidance on risk-weighted assets and risk-based capital requirements, as permitted for its Firm-administered
multi-seller conduits and certain mortgage-related and other securitization entities. The deferral period ended July 1, 2010, and the Firm consolidated, for regulatory
capital purposes, the deferred amounts, which had a negligible impact on risk-weighted assets and risk-based capital ratios.
Significant Firm-sponsored variable interest entities
Credit card securitizations
The Card Services (“CS”) business securitizes originated and pur-
chased credit card loans, primarily through the Chase Issuance Trust
(the “Trust”). The Firm’s continuing involvement in credit card securi-
tizations includes servicing the receivables, retaining an undivided
seller’s interest in the receivables, retaining certain senior and subor-
dinated securities and maintaining escrow accounts. As servicer, the
Firm receives contractual servicing fees based on the securitized loan
balance plus excess servicing fees, which are recorded in credit card
income as discussed in Note 7 on page 200 of this Annual Report.
Effective January 1, 2010, the Firm consolidated the assets and
liabilities of Firm-sponsored credit card securitization trusts, including
its primary card securitization trust, Chase Issuance Trust, as a result
of the implementation of new accounting guidance. The consolida-
tion determination was based on the Firm’s ability to direct the
activities of these VIEs through its servicing responsibilities and other
duties, including making decisions as to the receivables that are
transferred into those trusts and as to any related modifications and
workouts. Additionally, the nature and extent of the Firm’s other
continuing involvement with the trusts, as indicated above, obligates
the Firm to absorb losses and gives the Firm the right to receive
certain benefits from these VIEs that could potentially be significant.
Upon consolidation at January 1, 2010, the Firm recorded a net
increase in GAAP assets of $60.9 billion on the Consolidated Balance
Sheet, as follows: $84.7 billion of loans; $7.4 billion of allowance for
loan losses; $4.4 billion of other assets, partially offset by $20.8
billion of previously recognized assets, consisting primarily of retained
AFS securities that were eliminated upon consolidation. In addition,
the Firm recognized $65.4 billion of liabilities representing the trusts’
beneficial interests issued to third parties.
The following table summarizes the assets and liabilities of the Firm-sponsored credit card securitization trusts at December 31, 2010.
(in billions) Loans Other assets
Total assets held by Firm–sponsored
credit card securitization trusts
Beneficial interests
issued to third parties
December 31, 2010 $ 67.2 $ 1.3 $ 68.5 $ 44.3
The underlying securitized credit card receivables and other assets
are available only for payment of the beneficial interests issued by
the securitization trusts; they are not available to pay the Firm’s
other obligations or the claims of the Firm’s other creditors.
The agreements with the credit card securitization trusts require the
Firm to maintain a minimum undivided interest in the credit card
trusts (which generally ranges from 4% to 12%). As of December
31, 2010, the Firm held undivided interests in Firm-sponsored
credit card securitization trusts of $17.2 billion. The Firm main-
tained an average undivided interest in principal receivables owned
by those trusts of approximately 19% for the year ended December
31, 2010. The Firm also retained $1.1 billion of senior securities
and $3.2 billion of subordinated securities in certain of its credit
card securitization trusts as of December 31, 2010. The Firm’s
undivided interests in the credit card trusts and securities retained
are eliminated in consolidation.
Accounting Treatment Prior to January 1, 2010
Prior to January 1, 2010, the Firm accounted for its credit card
securitizations as QSPEs and therefore these entities were not
consolidated. The Firm recorded only its retained interests in the
entities on its Consolidated Balance Sheets.
As of December 31, 2009, the principal amount outstanding of
total assets held by Firm-sponsored nonconsolidated credit card
securitizations QSPEs was $109.6 billion in which the Firm had
continuing involvement.
At December 31, 2009, the Firm retained undivided interests in its
Firm-sponsored credit card securitization trusts of $16.7 billion,