JP Morgan Chase 2013 Annual Report Download - page 167

JPMorgan Chase & Co./2013 Annual Report 173
Credit ratings
The cost and availability of financing are influenced by
credit ratings. Reductions in these ratings could have an
adverse effect on the Firm’s access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. Additionally,
the Firm’s funding requirements for VIEs and other third
party commitments may be adversely affected by a decline
in credit ratings. For additional information on the impact of
a credit ratings downgrade on the funding requirements for
VIEs, and on derivatives and collateral agreements, see
Special-purpose entities on page 77, and Credit risk,
liquidity risk and credit-related contingent features in Note
6 on pages 220–233, of this Annual Report.
The credit ratings of the parent holding company and certain of the Firm’s significant operating subsidiaries as of December
31, 2013, were as follows.
JPMorgan Chase & Co. JPMorgan Chase Bank, N.A.
Chase Bank USA, N.A. J.P. Morgan Securities LLC
December 31, 2013 Long-term issuer Short-term issuer Outlook Long-term issuer Short-term issuer Outlook Long-term issuer Short-term issuer Outlook
Moody’s Investor Services A3 P-2 Stable Aa3 P-1 Stable Aa3 P-1 Stable
Standard & Poor’s A A-1 Negative A+ A-1 Stable A+ A-1 Stable
Fitch Ratings A+ F1 Stable A+ F1 Stable A+ F1 Stable
On June 11, 2013, S&P announced a reassessment of the
government support assumptions reflected in its holding
company ratings of eight systemically important financial
institutions, including the Firm. As a result of this
reassessment, the outlook for the parent company was
revised to negative from stable; the outlook for the Firm’s
operating subsidiaries remained unchanged at stable.
On November 14, 2013, Moody’s downgraded the Firm and
several other bank holding companies based on Moody’s
reassessment of its assumptions relating to implicit
government support for such companies. Specifically,
Moody’s downgraded the senior and subordinated debt
ratings of JPMorgan Chase and Co., and the subordinated
debt rating of JPMorgan Chase Bank, N.A. and upgraded the
long-term issuer rating of JPMorgan Securities. The parent
company downgrade also resulted in Moody’s downgrade of
the parent company’s short-term rating. The rating actions
did not have a material adverse impact on the Firm’s cost of
funds or its ability to fund itself.
Additional downgrades of the Firm’s long-term ratings by
one notch or two notches could result in a further
downgrade of the Firm’s short-term ratings. If this were to
occur, the Firm believes its cost of funds could increase and
access to certain funding markets could be reduced. The
nature and magnitude of the impact of further ratings
downgrades depends on numerous contractual and
behavioral factors (which the Firm believes are
incorporated in its liquidity risk and stress testing metrics).
The Firm believes it maintains sufficient liquidity to
withstand a potential decrease in funding capacity due to
further ratings downgrades.
JPMorgan Chase’s unsecured debt does not contain
requirements that would call for an acceleration of
payments, maturities or changes in the structure of the
existing debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm’s credit ratings, financial ratios,
earnings, or stock price.
Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital ratios,
strong credit quality and risk management controls, diverse
funding sources, and disciplined liquidity monitoring
procedures. Rating agencies continue to evaluate economic
and geopolitical trends, regulatory developments, rating
uplift assumptions surrounding government support, future
profitability, risk management practices, and legal
expenses, all of which could lead to adverse ratings actions.
Although the Firm closely monitors and endeavors to
manage factors influencing its credit ratings, there is no
assurance that its credit ratings will not be further changed
in the future.