JP Morgan Chase 2012 Annual Report Download - page 217

JPMorgan Chase & Co./2012 Annual Report 227
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,
because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value
of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm’s view, the
risks associated with such derivatives.
Total credit derivatives and credit-related notes
Maximum payout/Notional amount
Protection sold
Protection purchased
with identical
underlyings(b)
Net protection
(sold)/purchased(c)
Other protection
purchased(d) December 31, 2012 (in millions)
Credit derivatives
Credit default swaps $ (2,954,705) $ 2,879,105 $ (75,600) $ 42,460
Other credit derivatives(a) (66,244) 5,649 (60,595) 33,174
Total credit derivatives (3,020,949) 2,884,754 (136,195) 75,634
Credit-related notes (233) — (233) 3,255
Total $ (3,021,182) $ 2,884,754 $ (136,428) $ 78,889
Maximum payout/Notional amount
Protection sold
Protection purchased
with identical
underlyings(b)
Net protection
(sold)/purchased(c)
Other protection
purchased(d) December 31, 2011 (in millions)
Credit derivatives
Credit default swaps $ (2,839,492) $ 2,798,207 $ (41,285) $ 29,139
Other credit derivatives(a) (79,711) 4,954 (74,757) 22,292
Total credit derivatives (2,919,203) 2,803,161 (116,042) 51,431
Credit-related notes (742) — (742) 3,944
Total $ (2,919,945) $ 2,803,161 $ (116,784) $ 55,375
(a) Primarily consists of total return swaps and CDS options.
(b) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on
protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than
the notional amount of protection sold.
(c) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of
protection pays to the buyer of protection in determining settlement value.
(d) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on
the identical reference instrument.
The following tables summarize the notional and fair value amounts of credit derivatives and credit-related notes as of
December 31, 2012 and 2011, where JPMorgan Chase is the seller of protection. The maturity profile is based on the
remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference
entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives and credit-related
notes where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below.
Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile
December 31, 2012 (in millions) <1 year 1–5 years >5 years
Total
notional amount
Fair value of
receivables(b)
Fair value of
payables(b) Net fair value
Risk rating of reference entity
Investment-grade $ (409,748) $ (1,383,644) $ (224,001) $ (2,017,393) $ 16,690 $ (22,393) $ (5,703)
Noninvestment-grade (214,949) (722,115) (66,725) (1,003,789) 22,355 (36,815) (14,460)
Total $ (624,697) $ (2,105,759) $ (290,726) $ (3,021,182) $ 39,045 $ (59,208) $ (20,163)
December 31, 2011 (in millions) <1 year 1–5 years >5 years
Total
notional amount
Fair value of
receivables(b)
Fair value of
payables(b) Net fair value
Risk rating of reference entity
Investment-grade $ (352,215) $ (1,262,143) $ (345,996) $ (1,960,354) $ 7,809 $ (57,697) $ (49,888)
Noninvestment-grade (241,823) (589,954) (127,814) (959,591) 13,212 (85,304) (72,092)
Total $ (594,038) $ (1,852,097) $ (473,810) $ (2,919,945) $ 21,021 $ (143,001) $ (121,980)
(a) The ratings scale is based on the Firm’s internal ratings, which generally correspond to ratings as defined by S&P and Moody’s.
(b) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm.