JP Morgan Chase 2010 Annual Report Download - page 274

Notes to consolidated financial statements
JPMorgan Chase & Co./2010 Annual Report
274
The following table presents the regulatory capital, assets and risk-based capital ratios for JPMorgan Chase and its significant banking subsidiaries at
December 31, 2010 and 2009. These amounts are determined in accordance with regulations issued by the Federal Reserve and/or OCC.
Well-
capitalized
ratios(g)
Minimum
capital
ratios(g)
December 31, JPMorgan Chase & Co.
(e)
JPMorgan Chase Bank, N.A.
(e)
Chase Bank USA, N.A.
(e)
(in millions, except ratios)
2010
2009
2010
2009
2010
2009
Regulatory capital
Tier 1
(a)
$ 142,450 $ 132,971 $ 91,764 $ 96,372 $ 12,966 $ 15,534
Total
182,
216
177,073
130,
44
4
136,646
16,659
19,198
Assets
Risk-weighted
(b)(c)
1,174,978
(f)
1,198,006 965,897 1,011,995 116,992 114,693
Adjusted average
(d)
2,024,515
(f)
1,933,767 1,611,486 1,609,081 117,368
74,087
Capital ratios
Tier 1
(a)
12.1%
(f)
11.1% 9.5% 9.5% 11.1% 13.5% 6.0% 4.0
%
Total
15.5
14.8
13.5
13.5
14.2
16.7 10.0 8.0
Tier 1 leverage 7.0 6.9 5.7 6.0 11.0 21.0 5.0
(h)
3.0
(i)
(a) At December 31, 2010, for JPMorgan Chase and JPMorgan Chase Bank, N.A., trust preferred capital debt securities were $19.8 billion and $600 million, respec-
tively. If these securities were excluded from the calculation at December 31, 2010, Tier 1 capital would be $122.7 billion and $91.2 billion, respectively, and the
Tier 1 capital ratio would be 10.4% and 9.4%, respectively. At December 31, 2010, Chase Bank USA, N.A. had no trust preferred capital debt securities.
(b) Risk-weighted assets consist of on– and off–balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their
risk and potential for default. On–balance sheet assets are risk-weighted based on the perceived credit risk associated with the obligor or counterparty, the nature of
any collateral, and the guarantor, if any. Off–balance sheet assets such as lending-related commitments, guarantees, derivatives and other applicable off–balance
sheet positions are risk-weighted by multiplying the contractual amount by the appropriate credit conversion factor to determine the on–balance sheet credit-
equivalent amount, which is then risk-weighted based on the same factors used for on–balance sheet assets. Risk-weighted assets also incorporate a measure for
the market risk related to applicable trading assets—debt and equity instruments, and foreign exchange and commodity derivatives. The resulting risk-weighted val-
ues for each of the risk categories are then aggregated to determine total risk-weighted assets.
(c) Includes off–balance sheet risk-weighted assets at December 31, 2010, of $282.9 billion, $274.2 billion and $31 million, and at December 31, 2009, of $367.4 billion, $312.3
billion and $49.9 billion, for JPMorgan Chase, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., respectively.
(d) Adjusted average assets, for purposes of calculating the leverage ratio, include total quarterly average assets adjusted for unrealized gains/(losses) on securities, less
deductions for disallowed goodwill and other intangible assets, investments in certain subsidiaries, and the total adjusted carrying value of nonfinancial equity in-
vestments that are subject to deductions from Tier 1 capital.
(e) Asset and capital amounts for JPMorgan Chase’s banking subsidiaries reflect intercompany transactions; whereas the respective amounts for JPMorgan Chase reflect
the elimination of intercompany transactions.
(f) Effective January 1, 2010, the Firm adopted new guidance that amended the accounting for the consolidation of VIEs, which resulted in a decrease in the Tier 1
capital ratio of 34 basis points. See Note 16 on pages 244–259 of this Annual Report for further information.
(g) As defined by the regulations issued by the Federal Reserve, OCC and FDIC.
(h) Represents requirements for banking subsidiaries pursuant to regulations issued under the FDIC Improvement Act. There is no Tier 1 leverage component in the
definition of a well-capitalized bank holding company.
(i) The minimum Tier 1 leverage ratio for bank holding companies and banks is 3% or 4%, depending on factors specified in regulations issued by the Federal Reserve
and OCC.
Note: Rating agencies allow measures of capital to be adjusted upward for deferred tax liabilities, which have resulted from both nontaxable business combinations and
from tax-deductible goodwill. The Firm had deferred tax liabilities resulting from nontaxable business combinations totaling $647 million and $812 million at
December 31, 2010 and 2009, respectively; and deferred tax liabilities resulting from tax-deductible goodwill of $1.9 billion and $1.7 billion at December 31, 2010
and 2009, respectively.
A reconciliation of the Firm’s Total stockholders’ equity to Tier 1 capital and Total qualifying capital is presented in the table below.
December 31, (in millions)
2010
2009
Tier 1 capital
Total stockholde
rs’ equity
$
176,106
$ 165,365
Effect of certain items in accumulated other comprehensive income/(loss) excluded from Tier 1 capital
(748
)
75
Qualifying hybrid securities and noncontrolling interests
(a)
19,887 19,535
Less: Goodwill
(b)
46,915 46,630
Fair value DVA on derivative and structured note liabilities related to the Firm’s credit quality
1,261
912
Investments in certain subsidiaries and other
1,03
2
802
Other intangible assets
(b)
3,587 3,660
Total Tier 1 capital
142,
450
132,971
Tie
r 2 capital
Long-term debt and other instruments qualifying as Tier 2
25,018
28,977
Qualifying allowance for credit losses
14,
959
15,296
Adjustment for investments in certain subsidiaries and other
(211
)
(171)
Total Tier 2 capital
39,7
66
44,102
Total qualifying capital
$
182,
216
$ 177,073
(a) Primarily includes trust preferred capital debt securities of certain business trusts.
(b) Goodwill and other intangible assets are net of any associated deferred tax liabilities.