JP Morgan Chase 2012 Annual Report Download - page 239

JPMorgan Chase & Co./2012 Annual Report 249
Note 13 – Securities financing activities
JPMorgan Chase enters into resale agreements, repurchase
agreements, securities borrowed transactions and securities
loaned transactions (collectively, “securities financing
agreements”) primarily to finance the Firm’s inventory
positions, acquire securities to cover short positions,
accommodate customers’ financing needs, and settle other
securities obligations.
Securities financing agreements are treated as
collateralized financings on the Firm’s Consolidated Balance
Sheets. Resale and repurchase agreements are generally
carried at the amounts at which the securities will be
subsequently sold or repurchased, plus accrued interest.
Securities borrowed and securities loaned transactions are
generally carried at the amount of cash collateral advanced
or received. Where appropriate under applicable accounting
guidance, resale and repurchase agreements with the same
counterparty are reported on a net basis. Fees received and
paid in connection with securities financing agreements are
recorded in interest income and interest expense,
respectively.
The Firm has elected the fair value option for certain
securities financing agreements. For further information
regarding the fair value option, see Note 4 on pages 214–
216 of this Annual Report. The securities financing
agreements for which the fair value option has been elected
are reported within securities purchased under resale
agreements; securities loaned or sold under repurchase
agreements; and securities borrowed on the Consolidated
Balance Sheets. Generally, for agreements carried at fair
value, current-period interest accruals are recorded within
interest income and interest expense, with changes in fair
value reported in principal transactions revenue. However,
for financial instruments containing embedded derivatives
that would be separately accounted for in accordance with
accounting guidance for hybrid instruments, all changes in
fair value, including any interest elements, are reported in
principal transactions revenue.
The following table details the Firm’s securities financing
agreements, all of which are accounted for as collateralized
financings during the periods presented.
December 31,
(in millions) 2012 2011
Securities purchased under resale
agreements(a) $ 295,413 $ 235,000
Securities borrowed(b) 119,017 142,462
Securities sold under repurchase
agreements(c) $ 215,560 $ 197,789
Securities loaned(d) 23,582 14,214
(a) At December 31, 2012 and 2011, included resale agreements of
$24.3 billion and $22.2 billion, respectively, accounted for at fair
value.
(b) At December 31, 2012 and 2011, included securities borrowed of
$10.2 billion and $15.3 billion, respectively, accounted for at fair
value.
(c) At December 31, 2012 and 2011, included repurchase agreements of
$3.9 billion and $6.8 billion, respectively, accounted for at fair value.
(d) At December 31, 2012, included securities loaned of $457 million
accounted for at fair value. There were no securities loaned accounted
for at fair value at December 31, 2011.
The amounts reported in the table above were reduced by
$96.9 billion and $115.7 billion at December 31, 2012 and
2011, respectively, as a result of agreements in effect that
meet the specified conditions for net presentation under
applicable accounting guidance.
JPMorgan Chase’s policy is to take possession, where
possible, of securities purchased under resale agreements
and of securities borrowed. The Firm monitors the value of
the underlying securities (primarily G7 government
securities, U.S. agency securities and agency MBS, and
equities) that it has received from its counterparties and
either requests additional collateral or returns a portion of
the collateral when appropriate in light of the market value
of the underlying securities. Margin levels are established
initially based upon the counterparty and type of collateral
and monitored on an ongoing basis to protect against
declines in collateral value in the event of default. JPMorgan
Chase typically enters into master netting agreements and
other collateral arrangements with its resale agreement and
securities borrowed counterparties, which provide for the
right to liquidate the purchased or borrowed securities in
the event of a customer default. As a result of the Firm’s
credit risk mitigation practices with respect to resale and
securities borrowed agreements as described above, the
Firm did not hold any reserves for credit impairment with
respect to these agreements as of December 31, 2012 and
2011.
For further information regarding assets pledged and
collateral received in securities financing agreements, see
Note 30 on pages 315–316 of this Annual Report.