JP Morgan Chase 2013 Annual Report Download - page 139

JPMorgan Chase & Co./2013 Annual Report 145
are included in the Firm’s Risk Management VaR, while
Regulatory VaR excludes these credit derivative hedges.
For additional information on Regulatory VaR and the other
components of market risk regulatory capital (e.g. VaR-
based measure, stressed VaR-based measure and the
respective backtesting) for the Firm, see JPMorgan Chase’s
“Regulatory Capital Disclosures – Market Risk Pillar 3
Report” which are available on the Firm’s website (http://
investor.shareholder.com/jpmorganchase/basel.cfm) and
Capital Management on pages 160–167 of this Annual
Report.
The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level.
Total VaR
As of or for the year ended December 31, 2013 2012 At December 31,
(in millions) Avg. Min Max Avg. Min Max 2013 2012
CIB trading VaR by risk type
Fixed income $ 43 (a) $ 23 $ 62 $ 83 (a) $ 47 $ 131 $ 36 (a) $ 69 (a)
Foreign exchange 7 5 11 10 6 22 98
Equities 13 9 21 21 12 35 14 22
Commodities and other 14 11 18 15 11 27 13 15
Diversification benefit to CIB trading VaR (34) (b) NM (c) NM (c) (45) (b) NM (c) NM (c) (36) (b) (39) (b)
CIB trading VaR 43 21 66 84 50 128 36 75
Credit portfolio VaR 13 10 18 25 16 42 11 18
Diversification benefit to CIB VaR (9) (b) NM (c) NM (c) (13) (b) NM (c) NM (c) (5) (b) (9) (b)
CIB VaR 47 (a)(e) 25 74 96 (a)(e) 58 142 42 (a)(e) 84 (a)(e)
Mortgage Banking VaR 12 4 24 17 8 43 524
Treasury and CIO VaR (f) 6(a) 3 14 92 (d) 5(d) 196 (d) 46
Asset Management VaR 4 2 5 2 — (g) 532
Diversification benefit to other VaR (8) (b) NM (c) NM (c) (10) (b) NM (c) NM (c) (5) (b) (7) (b)
Other VaR 14 6 28 101 18 204 725
Diversification benefit to CIB and other VaR (9) (b) NM (c) NM (c) (45) (b) NM (c) NM (c) (5) (b) (11) (b)
Total VaR $ 52 $ 29 $ 87 $ 152 $ 93 $ 254 $ 44 $ 98
(a) On July 2, 2012, CIO transferred its synthetic credit portfolio, other than a portion aggregating approximately $12 billion notional, to CIB; CIO’s retained portfolio was effectively
closed out during the three months ended September 30, 2012.
(b) Average portfolio VaR and period-end portfolio VaR were less than the sum of the VaR of the components described above, which is due to portfolio diversification. The
diversification effect reflects the fact that risks are not perfectly correlated.
(c) Designated as not meaningful (“NM”), because the minimum and maximum may occur on different days for distinct risk components, and hence it is not meaningful to compute
a portfolio-diversification effect.
(d) The Firm restated its 2012 first quarter financial statements regarding the CIO synthetic credit portfolio. The CIO VaR amounts for 2012 were not recalculated to reflect the
restatement.
(e) Effective in the fourth quarter of 2012, CIB’s VaR includes the VaR of the former reportable business segments, Investment Bank and Treasury & Securities Services (“TSS”),
which were combined to form the CIB business segment as a result of the reorganization of the Firm’s business segments. TSS VaR was not material and was previously classified
within Other VaR. Prior period VaR disclosures were not revised as a result of the business segment reorganization.
(f) The Treasury and CIO VaR includes Treasury VaR as of the third quarter of 2013.
(g) The minimum Asset Management VaR for 2012 was immaterial.
As presented in the table above, average Total VaR and
average CIB VaR decreased during 2013 compared with
2012. These decreases were primarily driven by reduced
risk in the synthetic credit portfolio and lower market
volatility across multiple asset classes.
During the third quarter of 2012, the Firm applied a new
VaR model to calculate VaR for CIO’s synthetic credit
portfolio that had been transferred to the CIB on July 2,
2012. In the first quarter of 2013, in order to achieve
consistency among like products within CIB and in
conjunction with the implementation of Basel 2.5
requirements, the Firm moved CIO’s synthetic credit
portfolio to an existing VaR model within the CIB. This
change had an insignificant impact to the average fixed
income VaR and average total CIB trading and credit
portfolio VaR, and it had no impact to the average Total VaR
compared with the model used in the third and fourth
quarters of 2012.
Average Treasury and CIO VaR for the year ended December
31, 2013, decreased from 2012, predominantly reflecting
the reduction in and transfer of risk from CIO’s synthetic
credit portfolio to the CIB on July 2, 2012. The index credit
derivative positions retained by CIO were effectively closed
out during the three months ended September 30, 2012.
Average Mortgage Banking VaR for the year ended
December 31, 2013, decreased from 2012. The decrease is
attributable to reduced risk across the Mortgage Production
and Mortgage Servicing businesses.
The Firm’s average Total VaR diversification benefit was $9
million or 15% of the sum for 2013, compared with $45
million or 23% of the sum for 2012. In general, over the
course of the year, VaR exposure can vary significantly as
positions change, market volatility fluctuates and
diversification benefits change.