JP Morgan Chase 2010 Annual Report Download - page 280

Notes to consolidated financial statements
JPMorgan Chase & Co./2010 Annual Report
280
Under the rules of Visa USA, Inc., and MasterCard International,
JPMorgan Chase Bank, N.A., is liable primarily for the amount of
each processed credit card sales transaction that is the subject of a
dispute between a cardmember and a merchant. If a dispute is
resolved in the cardmember’s favor, Chase Paymentech will
(through the cardmember’s issuing bank) credit or refund the
amount to the cardmember and will charge back the transaction to
the merchant. If Chase Paymentech is unable to collect the amount
from the merchant, Chase Paymentech will bear the loss for the
amount credited or refunded to the cardmember. Chase Paymen-
tech mitigates this risk by withholding future settlements, retaining
cash reserve accounts or by obtaining other security. However, in
the unlikely event that: (1) a merchant ceases operations and is
unable to deliver products, services or a refund; (2) Chase Paymen-
tech does not have sufficient collateral from the merchant to pro-
vide customer refunds; and (3) Chase Paymentech does not have
sufficient financial resources to provide customer refunds, JPMor-
gan Chase Bank, N.A., would be liable for the amount of the
transaction. For the year ended December 31, 2010, Chase Pay-
mentech incurred aggregate credit losses of $12 million on $469.3
billion of aggregate volume processed, and at December 31, 2010,
it held $189 million of collateral. For the year ended December 31,
2009, Chase Paymentech incurred aggregate credit losses of $11
million on $409.7 billion of aggregate volume processed, and at
December 31, 2009, it held $213 million of collateral. For the year
ended December 31, 2008, Chase Paymentech incurred aggregate
credit losses of $13 million on $713.9 billion of aggregate volume
processed, and at December 31, 2008, it held $222 million of
collateral. The Firm believes that, based on historical experience
and the collateral held by Chase Paymentech, the fair value of the
Firm’s charge back-related obligations, which are representative of
the payment or performance risk to the Firm, is immaterial.
Exchange and clearinghouse guarantees
The Firm is a member of several securities and futures exchanges
and clearinghouses, both in the U.S. and other countries. Member-
ship in some of these organizations requires the Firm to pay a pro
rata share of the losses incurred by the organization as a result of
the default of another member. Such obligations vary with different
organizations. These obligations may be limited to members who
dealt with the defaulting member or to the amount (or a multiple of
the amount) of the Firm’s contribution to a member’s guarantee
fund, or, in a few cases, the obligation may be unlimited. It is
difficult to estimate the Firm’s maximum exposure under these
membership agreements, since this would require an assessment of
future claims that may be made against the Firm that have not yet
occurred. However, based on historical experience, management
expects the risk of loss to be remote.
Note 31 – Commitments, pledged assets,
collateral and contingencies
Lease commitments
At December 31, 2010, JPMorgan Chase and its subsidiaries were
obligated under a number of noncancelable operating leases for
premises and equipment used primarily for banking purposes, and
for energy-related tolling service agreements. Certain leases contain
renewal options or escalation clauses providing for increased rental
payments based on maintenance, utility and tax increases, or they
require the Firm to perform restoration work on leased premises.
No lease agreement imposes restrictions on the Firm’s ability to pay
dividends, engage in debt or equity financing transactions or enter
into further lease agreements.
The following table presents required future minimum rental pay-
ments under operating leases with noncancelable lease terms that
expire after December 31, 2010.
Year ended December 31, (in mi
l
lions)
2011
$
1,884
2012
1,804
2013
1,674
2014
1,497
2015
1,363
After 2015
7,778
Total minimum payments required
(a)
16,000
Less: Sublease rentals under noncancelable su
b
leases
(1,848
)
Net
minimum payment r
e
quired
$ 14,152
(a) Lease restoration obligations are accrued in accordance with U.S. GAAP, and
are not reported as a required minimum lease payment.
Total rental expense was as follows.
Year ended Dece
m
ber 31,
(in millions) 2010 2009 2008
Gross rental expense
$
2,212
$ 1,884 $ 1,917
Sublease rental income
(545)
(172) (415)
Net rental expense
$
1,667
$ 1,712 $ 1,502