JP Morgan Chase 2010 Annual Report Download - page 258

Notes to consolidated financial statements
258 JPMorgan Chase & Co./2010 Annual Report
The table below outlines the key economic assumptions used to determine the fair value as of December 31, 2010 and 2009, of certain of the
Firm’s retained interests in nonconsolidated Firm-sponsored securitizations, other than MSRs, that are valued using modeling techniques. The
table below also outlines the sensitivities of those fair values to immediate 10% and 20% adverse changes in assumptions used to determine
fair value. For a discussion of MSRs, see Note 17 on pages 260–263 of this Annual Report.
Residential mortgage
Dec
ember 31, 2010
(in millions, except rates and where otherwise noted)
Prime(b) Subprime Option ARMs
Commercial
and other(g)
JPMorgan Chase interests in securitized assets(a)(c) $ 708 $ 14 $ 29 $ 2,906
Weighted
-average life (in years)
5.5
6.6
7
.7
3.3
Weighted-average constant prepayment rate(d) 7.9% 5.7% 8.4% —
%
CPR
CPR
CPR
CPR
Impact of 10% adverse change
$
(15)
$
—
$
—
$
—
Impact of 20% adverse change
(
27
)
(1)
(
1
)
—
Weighted-average loss assumption
5.2
%
1
6.2
%
30.0
%
2.1
%
Impact of 10% adverse change
$
(12)
$
(1)
$
—
$
(76
)
Impact of 20% adverse change
(21)
(2)
(1)
(151
)
Weighted-average discount rate 11.6% 10.7% 6.3% 16.4
%
Impact of 10% adverse change
$
(26)
$
—
$
(
1
)
$
(
69
)
Impact of 20% adverse change
(
47
)
(1)
(
2
)
(134
)
December 31, 2009
Residential mortgage
(in millions, except rates and where
otherwise noted)
Credit card(e) Prime(b) Subprime Option ARMs
Commercial
and other(g) Student Auto
JPMorgan Chase interests
in
securitized assets(c) $ 4,016 $ 1,143 $ 27 $ 113 $ 2,361 $ 51 $ 9
Weighted
-
average life (in years)
0.6
8.3
4.3
5.1
3.5
8.1
0.6
Weighted
-
average constant
prepayment rate(d) 14.3% 4.9% 21.8% 15.7% —% 5.0% 1.4
%
PPR CPR CPR CPR CPR CPR ABS
Impact of 10% adverse change $ (1) $ (15) $ (2)
$ — $ —
$ (1) $ —
Impact of 20% adverse change
(2)
(31)
(3)
(1)
—
(2)
(1
)
Weighted-average loss assumption 6.8% 3.2% 2.7% 0.7% 1.4% —%(f) 0.8
%
Impact of 10% adverse change $ (1) $ (15) $ (4) $ — $ (41) $ — $ —
Impact of 20% adverse change
(3)
(29)
(7)
—
(100)
—
—
Weighted-average discount rate 12.0% 11.4% 23.2% 5.4% 12.5% 9.0% 2.8
%
Impact of 10% adv
erse change
$
(10)
$
(41)
$
(2)
$
(1)
$
(72)
$
(2)
$
—
Impact of 20% adverse change
(20)
(82)
(4)
(3)
(139)
(4)
—
(a) Effective January 1, 2010, all of the Firm-sponsored credit card, student loan and auto securitization trusts were consolidated as a result of the accounting guidance
related to VIEs and, accordingly, are not included in the table above for the year ended December 31, 2010.
(b) Includes retained interests in Alt-A and re-securitization transactions.
(c) Includes certain investments acquired in the secondary market but predominantly held for investment purposes.
(d) PPR: principal payment rate; ABS: absolute prepayment speed; CPR: constant prepayment rate.
(e) Excludes the Firm’s retained senior and subordinated AFS securities in its credit card securitization trusts, which are discussed on pages 245–246 of this Note.
(f) Expected losses for student loans securitizations are minimal and are incorporated into other assumptions.
(g) The anticipated credit losses, including expected static pool losses, are immaterial for the Firm’s retained interests on commercial and other securitizations that had
occurred during 2010, 2009 and 2008.
The sensitivity analysis in the preceding table is hypothetical. Changes in fair value based on a 10% or 20% variation in assumptions generally
cannot be extrapolated easily, because the relationship of the change in the assumptions to the change in fair value may not be linear. Also, in
the table, the effect that a change in a particular assumption may have on the fair value is calculated without changing any other assumption.
In reality, changes in one factor may result in changes in another, which might counteract or magnify the sensitivities. The above sensitivities
also do not reflect risk management practices the Firm may undertake to mitigate such risks.