JP Morgan Chase 2013 Annual Report Download - page 104

Management’s discussion and analysis
110 JPMorgan Chase & Co./2013 Annual Report
2012 compared with 2011
Net loss was $2.0 billion, compared with a net income of
$919 million in the prior year.
Private Equity reported net income of $292 million,
compared with net income of $391 million in the prior year.
Net revenue was $601 million, compared with $836 million
in the prior year, due to lower unrealized and realized gains
on private investments, partially offset by higher unrealized
gains on public securities. Noninterest expense was $145
million, down from $238 million in the prior year.
Treasury and CIO reported a net loss of $2.1 billion,
compared with net income of $1.3 billion in the prior year.
Net revenue was a loss of $3.1 billion, compared with net
revenue of $3.2 billion in the prior year. The current year
loss reflected $5.8 billion of losses incurred by CIO from the
synthetic credit portfolio for the six months ended June 30,
2012, and $449 million of losses from the retained index
credit derivative positions for the three months ended
September 30, 2012. These losses were partially offset by
securities gains of $2.0 billion. The current year revenue
reflected $888 million of extinguishment gains related to
the redemption of trust preferred securities, which are
included in all other income in the above table. The
extinguishment gains were related to adjustments applied
to the cost basis of the trust preferred securities during the
period they were in a qualified hedge accounting
relationship. Net interest income was negative $683
million, compared with $1.4 billion in the prior year,
primarily reflecting the impact of lower portfolio yields and
higher deposit balances across the Firm.
Other Corporate reported a net loss of $221 million,
compared with a net loss of $821 million in the prior year.
Noninterest revenue of $1.8 billion was driven by a $1.1
billion benefit for the Washington Mutual bankruptcy
settlement, which is included in all other income in the
above table, and a $665 million gain from the recovery on a
Bear Stearns-related subordinated loan. Noninterest
expense of $3.8 billion was up $1.0 billion compared with
the prior year. The current year included expense of $3.7
billion for additional litigation reserves, largely for
mortgage-related matters. The prior year included expense
of $3.2 billion for additional litigation reserves.
Treasury and CIO overview
Treasury and CIO are predominantly responsible for
measuring, monitoring, reporting and managing the Firm’s
liquidity, funding and structural interest rate and foreign
exchange risks, as well as executing the Firm’s capital plan.
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.
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 and HTM investment securities portfolios (the
“investment securities portfolio”). CIO also uses derivatives,
as well as securities that are not classified as AFS or HTM, to
meet the Firm’s asset-liability management objectives. For
further information on derivatives, see Note 6 on pages
220–233 of this Annual Report. For further information
about securities not classified within the AFS or HTM
portfolio, see Note 3 on pages 195–215 of this Annual
Report. The Treasury and CIO investment securities
portfolio primarily consists of U.S. and non-U.S. government
securities, agency and non-agency mortgage-backed
securities, other asset-backed securities, corporate debt
securities and obligations of U.S. states and municipalities.
At December 31, 2013, the total Treasury and CIO
investment securities portfolio was $347.6 billion; the
average credit rating of the securities comprising the
Treasury and CIO investment securities portfolio 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 249–254 of this Annual Report for
further information on the details of the Firm’s investment
securities portfolio.
For further information on liquidity and funding risk, see
Liquidity Risk Management on pages 168–173 of this
Annual Report. For information on interest rate, foreign
exchange and other risks, Treasury and CIO Value-at-risk
(“VaR”) and the Firm’s structural interest rate-sensitive
revenue at risk, see Market Risk Management on pages
142–148 of this Annual Report.
Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions) 2013 2012 2011
Securities gains $ 659 $ 2,028 $ 1,385
Investment securities portfolio
(average) 353,712 358,029 330,885
Investment securities portfolio
(period–end)(a) 347,562 365,421 355,605
Mortgage loans (average) 5,145 10,241 13,006
Mortgage loans (period-end) 3,779 7,037 13,375
(a) Period-end investment securities included held-to-maturity balance
of $24.0 billion at December 31, 2013. Held-to-maturity balances
for the other periods were not material.