JP Morgan Chase 2012 Annual Report Download - page 93

JPMorgan Chase & Co./2012 Annual Report 103
2011 compared with 2010
Net income was $822 million, compared with $1.3 billion in
the prior year.
Private Equity reported net income of $391 million,
compared with $588 million in the prior year. Net revenue
was $836 million, a decrease of $403 million, primarily
related to net write-downs on private investments and the
absence of prior year gains on sales. Noninterest expense
was $238 million, a decrease of $85 million from the prior
year.
Treasury and CIO reported net income of $1.3 billion,
compared with net income of $3.6 billion in the prior year.
Net revenue was $3.2 billion, including $1.4 billion of
security gains. Net interest income in 2011 was lower
compared with 2010, primarily driven by repositioning of
the investment securities portfolio and lower funding
benefits from financing the portfolio.
Other Corporate reported a net loss of $918 million,
compared with a net loss of $2.9 billion in the prior year.
Net revenue was $103 million, compared with a net loss of
$467 million in the prior year. Noninterest expense was
$2.9 billion which included $3.2 billion of additional
litigation reserves, predominantly for mortgage-related
matters. Noninterest expense in the prior year was $5.5
billion which included $5.7 billion of additional litigation
reserves.
Treasury and CIO overview
Treasury and CIO are predominantly responsible for
measuring, monitoring, reporting and managing the Firm’s
liquidity, funding, capital and structural interest rate and
foreign exchange risks. The risks managed by Treasury and
CIO arise from the activities undertaken by the Firm’s four
major reportable business segments to serve their
respective client bases, which generate both on- and off-
balance sheet assets and liabilities.
Treasury is responsible for, among other functions, funds
transfer pricing. Funds transfer pricing is used to transfer
structural interest rate risk and foreign exchange risk of the
Firm to Treasury and CIO and allocate interest income and
expense to each business based on market rates. CIO,
through its management of the investment portfolio,
generates net interest income to pay the lines of business
market rates. Any variance (whether positive or negative)
between amounts generated by CIO through its investment
portfolio activities and amounts paid to or received by the
lines of business are retained by CIO, and are not reflected
in line of business segment results. Treasury and CIO
activities operate in support of the overall Firm.
CIO achieves the Firm’s asset-liability management
objectives generally by investing in high-quality securities
that are managed for the longer-term as part of the Firm’s
AFS investment portfolio. Unrealized gains and losses on
securities held in the AFS portfolio are recorded in other
comprehensive income. For further information about
securities in the AFS portfolio, see Note 3 and Note 12 on
pages 196–214 and 244–248, respectively, of this Annual
Report. CIO also uses securities that are not classified
within the AFS portfolio, as well as derivatives, to meet the
Firm’s asset-liability management objectives. Securities not
classified within the AFS portfolio are recorded in trading
assets and liabilities; realized and unrealized gains and
losses on such securities are recorded in the principal
transactions revenue line in the Consolidated Statements of
Income. For further information about securities included in
trading assets and liabilities, see Note 3 on pages 196–214
of this Annual Report. Derivatives used by CIO are also
classified as trading assets and liabilities. For further
information on derivatives, including the classification of
realized and unrealized gains and losses, see Note 6 on
pages 218–227 of this Annual Report.
CIO’s AFS portfolio consists of U.S. and non-U.S. government
securities, agency and non-agency mortgage-backed
securities, other asset-backed securities and corporate and
municipal debt securities. Treasury’s AFS portfolio consists
of U.S. and non-U.S. government securities and corporate
debt securities. At December 31, 2012, the total Treasury
and CIO AFS portfolios were $344.1 billion and $21.3
billion, respectively; the average credit rating of the
securities comprising the Treasury and CIO AFS portfolios
was AA+ (based upon external ratings where available and
where not available, based primarily upon internal ratings
that correspond to ratings as defined by S&P and Moody’s).
See Note 12 on pages 244–248 of this Annual Report for
further information on the details of the Firm’s AFS
portfolio.
For further information on liquidity and funding risk, see
Liquidity Risk Management on pages 127–133 of this
Annual Report. For information on interest rate, foreign
exchange and other risks, and CIO VaR and the Firm’s
nontrading interest rate-sensitive revenue at risk, see
Market Risk Management on pages 163–169 of this Annual
Report.
Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions) 2012 2011 2010
Securities gains(a) $ 2,028 $ 1,385 $ 2,897
Investment securities portfolio
(average) 358,029 330,885 323,673
Investment securities portfolio
(period–end) 365,421 355,605 310,801
Mortgage loans (average) 10,241 13,006 9,004
Mortgage loans (period-end) 7,037 13,375 10,739
(a) Reflects repositioning of the investment securities portfolio.