JP Morgan Chase 2010 Annual Report Download - page 246

Notes to consolidated financial statements
246 JPMorgan Chase & Co./2010 Annual Report
which were classified within loans on its Consolidated Balance
Sheets. The Firm maintained an average undivided interest in
principal receivables owned by those trusts of approximately 16%
for the year ended December 31, 2009. The Firm also retained
$7.2 billion of senior securities and $6.6 billion of subordinated
securities in certain of its credit card securitization trusts as of
December 31, 2009, which were classified as AFS securities. Addi-
tionally, the Firm’s interests included $1.0 billion of escrow ac-
counts and $3.2 billion of retained subordinated interests in
accrued interest and fees on securitized receivables, which were
classified as “other assets.”
During 2009, the Firm took certain actions permitted by the trust
agreements with respect to two of the Firm’s credit card securitiza-
tion trusts.
• Chase Issuance Trust (the “Trust”): In 2009, the Firm consoli-
dated, for regulatory capital purposes, the Chase Issuance Trust
(the Firm’s primary issuance trust) as a result of taking certain
actions permitted by the Trust agreements, including increasing
the required credit enhancement level of each tranche of out-
standing notes issued by the Trust and increasing the excess
spread for the Trust. These actions resulted in the addition of
approximately $40 billion of risk-weighted assets for regulatory
capital purposes, which decreased the Firm’s Tier 1 capital ratio
by approximately 40 basis points, at that time, but did not have
a material impact on the Firm’s Consolidated Balance Sheets or
results of operations.
• Washington Mutual Master Trust (“WMMT”): The Firm acquired
an interest in the WMMT as part of the acquisition of the Wash-
ington Mutual banking operations. In 2009, the Firm removed all
remaining credit card receivables originated by Washington Mu-
tual, resulting in the consolidation of the WMMT for accounting
and regulatory capital purposes. As a result, the Firm recorded,
during the second quarter of 2009, additional assets with an ini-
tial fair value of $6.0 billion, additional liabilities with an initial
fair value of $6.1 billion and a pretax loss of approximately $64
million.
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes originated and purchased residential mortgages,
commercial mortgages and other consumer loans (including automo-
bile and student loans) primarily in its RFS and IB businesses. De-
pending on the particular transaction, as well as the respective
business involved, the Firm may act as the servicer of the loans and/or
retain certain beneficial interests in the securitization trusts.
Effective January 1, 2010, the Firm consolidated certain mortgage
securitization trusts (both residential and commercial) and Firm-
sponsored automobile and student loan trusts as a result of the
implementation of the accounting guidance. The consolidation
determination was based on the Firm’s ability to direct the activities
of these VIEs through its servicing responsibilities and duties,
including making decisions related to loan modifications and work-
outs. Additionally, the nature and extent of the Firm’s continuing
economic involvement with these trusts obligates the Firm to ab-
sorb losses and gives the Firm the right to receive benefits from the
VIEs that could potentially be significant.
Prior to January 1, 2010, the Firm accounted for its residential and
commercial mortgage, automobile, and certain student loan securiti-
zations as QSPEs and therefore did not consolidate these entities;
only the Firm’s retained interests in these entities were recorded on its
Consolidated Balance Sheets. In addition, the Firm previously consoli-
dated certain other student loan securitizations in accordance with
the accounting treatment under prior accounting guidance.
The following table presents the total unpaid principal amount of
assets held in JPMorgan Chase–sponsored securitization entities in
which the Firm has continuing involvement, including those that
are consolidated by the Firm and those that are not consolidated by
the Firm. Continuing involvement includes servicing the loans;
holding senior interests or subordinated interests; recourse or
guarantee arrangements; and derivative transactions. In certain
instances, the Firm’s only continuing involvement is servicing the
loans. In the table below, the amount of beneficial interests held by
JPMorgan Chase does not equal the assets held in nonconsolidated
VIEs because of the existence of beneficial interests held by third
parties, which are reflected at their current outstanding par
amounts; and because a portion of the Firm’s retained interests
(trading assets and AFS securities) are reflected at their fair values.
See Securitization activity on pages 255–258 of this Note for fur-
ther information regarding the Firm’s cash flows with and interests
retained in nonconsolidated VIEs.