JP Morgan Chase 2013 Annual Report Download - page 286

Notes to consolidated financial statements
292 JPMorgan Chase & Co./2013 Annual Report
In more limited circumstances, the Firm creates a re-
securitization trust independently and not in conjunction
with specific clients. In these circumstances, the Firm is
deemed to have the unilateral ability to direct the most
significant activities of the re-securitization trust because of
the decisions made during the establishment and design of
the trust; therefore, the Firm consolidates the re-
securitization VIE if the Firm holds an interest that could
potentially be significant.
Additionally, the Firm may invest in beneficial interests of
third-party securitizations and generally purchases these
interests in the secondary market. In these circumstances,
the Firm does not have the unilateral ability to direct the
most significant activities of the re-securitization trust,
either because it wasn’t involved in the initial design of the
trust, or the Firm is involved with an independent third
party sponsor and demonstrates shared power over the
creation of the trust; therefore, the Firm does not
consolidate the re-securitization VIE.
As of December 31, 2013 and 2012, the Firm did not
consolidate any agency re-securitizations. As of
December 31, 2013 and 2012, the Firm consolidated $86
million and $76 million, respectively, of assets, and $23
million and $5 million, respectively, of liabilities of private-
label re-securitizations. See the table on page 296 of this
Note for more information on the consolidated re-
securitization transactions.
As of December 31, 2013 and 2012, total assets (including
the notional amount of interest-only securities) of
nonconsolidated Firm-sponsored private-label re-
securitization entities in which the Firm has continuing
involvement were $2.8 billion and $4.6 billion, respectively.
At December 31, 2013 and 2012, the Firm held
approximately $1.3 billion and $2.0 billion, respectively, of
interests in nonconsolidated agency re-securitization
entities, and $6 million and $61 million, respectively, of
senior and subordinated interests in nonconsolidated
private-label re-securitization entities. See the table on
page 290 of this Note for further information on interests
held in nonconsolidated securitizations.
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that purchase interests in, and make loans
secured by, pools of receivables and other financial assets
pursuant to agreements with customers of the Firm. The
conduits fund their purchases and loans through the
issuance of highly rated commercial paper. The primary
source of repayment of the commercial paper is the cash
flows from the pools of assets. In most instances, the assets
are structured with deal-specific credit enhancements
provided to the conduits by the customers (i.e., sellers) or
other third parties. Deal-specific credit enhancements are
generally structured to cover a multiple of historical losses
expected on the pool of assets, and are typically in the form
of overcollateralization provided by the seller. The deal-
specific credit enhancements mitigate the Firm’s potential
losses on its agreements with the conduits.
To ensure timely repayment of the commercial paper, and
to provide the conduits with funding to purchase interests in
or make loans secured by pools of receivables in the event
that the conduits do not obtain funding in the commercial
paper market, each asset pool financed by the conduits has
a minimum 100% deal-specific liquidity facility associated
with it provided by JPMorgan Chase Bank, N.A. JPMorgan
Chase Bank, N.A. also provides the multi-seller conduit
vehicles with uncommitted program-wide liquidity facilities
and program-wide credit enhancement in the form of
standby letters of credit. The amount of program-wide
credit enhancement required is based upon commercial
paper issuance and approximates 10% of the outstanding
balance.
The Firm consolidates its Firm-administered multi-seller
conduits, as the Firm has both the power to direct the
significant activities of the conduits and a potentially
significant economic interest in the conduits. As
administrative agent and in its role in structuring
transactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm’s interests
that could potentially be significant to the VIEs include the
fees received as administrative agent and liquidity and
program-wide credit enhancement provider, as well as the
potential exposure created by the liquidity and credit
enhancement facilities provided to the conduits. See page
296 of this Note for further information on consolidated VIE
assets and liabilities.