JP Morgan Chase 2012 Annual Report Download - page 63

JPMorgan Chase & Co./2012 Annual Report 73
to mortgage servicing rights (“MSR”), which was a gain of
$619 million in 2012, compared with a loss of $1.6 billion
in 2011. For additional information on mortgage fees and
related income, which is recorded predominantly in CCB,
see CCB’s Mortgage Production and Mortgage Servicing
discussion on pages 85–87, and Note 17 on pages 291–295
of this Annual Report.
Card income decreased during 2012, driven by lower debit
card revenue, reflecting the impact of the Durbin
Amendment; and to a lesser extent, higher amortization of
loan origination costs. The decrease in credit card income
was offset partially by higher net interchange income
associated with growth in credit card sales volume, and
higher merchant servicing revenue. For additional
information on credit card income, see the CCB segment
results on pages 80–91 of this Annual Report.
Other income increased in 2012 compared with the prior
year, largely due to a $1.1 billion benefit from the
Washington Mutual bankruptcy settlement, and $888
million of extinguishment gains in Corporate/Private Equity
related to the redemption of trust preferred securities
(“TruPS”). The extinguishment gains were related to
adjustments applied to the cost basis of the TruPS during
the period they were in a qualified hedge accounting
relationship. These items were offset partially by the
absence of a prior-year gain on the sale of an investment in
AM.
Net interest income decreased in 2012 compared with the
prior year, predominantly reflecting the impact of lower
average trading asset balances, the runoff of higher-yielding
loans, faster prepayment of mortgage-backed securities,
limited reinvestment opportunities, as well as the impact of
lower interest rates across the Firm’s interest-earning
assets. The decrease in net interest income was partially
offset by lower deposit and other borrowing costs. The
Firm’s average interest-earning assets were $1.8 trillion for
2012, and the net yield on those assets, on a fully taxable-
equivalent (“FTE”) basis, was 2.48%, a decrease of 26
basis points from 2011.
2011 compared with 2010
Total net revenue for 2011 was $97.2 billion, a decrease of
$5.5 billion, or 5%, from 2010. Results for 2011 were
driven by lower net interest income in several businesses,
lower securities gains in Corporate/Private Equity, lower
mortgage fees and related income in CCB, and lower
principal transactions revenue in Corporate/Private Equity.
These declines were partially offset by higher asset
management fees, largely in AM.
Investment banking fees decreased from 2010,
predominantly due to declines in equity and debt
underwriting fees. The impact from lower industry-wide
volumes in the second half of 2011 more than offset the
Firm’s record level of debt underwriting fees in the first six
months of the year. Advisory fees increased for the year,
reflecting higher industry-wide completed M&A volumes
relative to the 2010 level.
Principal transactions revenue decreased compared with
2010. This was driven by lower trading revenue and lower
private equity gains. Trading revenue included a $1.4 billion
gain from DVA on structured notes and derivative liabilities,
resulting from the widening of the Firm’s credit spreads; this
was partially offset by a $769 million loss, net of hedges,
from CVA on derivative assets in CIB’s credit portfolio, due
to the widening of credit spreads related to the Firm’s
counterparties. The prior year included a $509 million gain
from DVA, partially offset by a $403 million loss, net of
hedges, from CVA. Excluding DVA and CVA, lower trading
revenue reflected the impact of challenging market
conditions on Corporate and CIB during the second half of
2011. Lower private equity gains were primarily due to net
write-downs on privately-held investments and the absence
of prior-year gains from sales in the Private Equity portfolio.
Lending- and deposit-related fees increased modestly in
2011 compared with the prior year. The increase was
primarily driven by the introduction of a new checking
account product offering by CCB in the first quarter of
2011, and the subsequent conversion of certain existing
accounts into the new product. The increase was offset
partly by the impact of regulatory and policy changes
affecting nonsufficient fund/overdraft fees in CCB.
Asset management, administration and commissions
revenue increased from 2010, reflecting higher asset
management fees in AM and CCB, driven by net inflows to
products with higher margins and the effect of higher
market levels; and higher administration fees in CIB,
reflecting net inflows of assets under custody.
Securities gains decreased, compared with the 2010 level,
primarily due to the repositioning of the AFS portfolio in
response to changes in the current market environment and
to rebalancing exposures.
Mortgage fees and related income decreased in 2011
compared with 2010, reflecting a MSR risk management
loss of $1.6 billion for 2011, compared with income of $1.1
billion for 2010, largely offset by lower repurchase losses in
2011. The $1.6 billion loss was driven by a $7.1 billion loss
due to a decrease in the fair value of the mortgage servicing
rights (“MSR”) asset, which was predominantly offset by a
$5.6 billion gain on the derivatives used to hedge the MSR
asset. For additional information on repurchase losses, see
the Mortgage repurchase liability discussion on pages 111–
115 and Note 29 on pages 308–315 of this Annual Report.
Card income increased during 2011, largely reflecting
higher net interchange income associated with higher
customer transaction volume on credit and debit cards, as
well as lower partner revenue-sharing due to the impact of
the Kohl’s portfolio sale. These increases were partially
offset by lower revenue from fee-based products, as well as
the impact of the Durbin Amendment.
Other income increased in 2011, driven by valuation
adjustments on certain assets and incremental revenue
from recent acquisitions in CIB, and higher auto operating
lease income in CCB, resulting from growth in lease volume.