JP Morgan Chase 2013 Annual Report Download - page 66

Management’s discussion and analysis
72 JPMorgan Chase & Co./2013 Annual Report
information on mortgage fees and related income, see CCB’s
Mortgage Banking’s discussion on pages 92–93, and Note
17 on pages 299–304 of this Annual Report.
Card income increased compared with the prior year period.
The increase was driven by higher net interchange income
on credit and debit cards and merchant servicing revenue,
due to growth in sales volume. For additional information
on credit card income, see the CCB segment results on
pages 86–97 of this Annual Report.
Other income decreased in 2013 compared with the prior
year, predominantly reflecting lower revenues from
significant items recorded in Corporate/Private Equity. In
2013, the Firm recognized a $1.3 billion gain on the sale of
Visa shares, a $493 million gain from the sale of One Chase
Manhattan Plaza, and a modest loss related to the
redemption of trust preferred securities (“TruPS”). In 2012,
the Firm recognized a $1.1 billion benefit from the
Washington Mutual bankruptcy settlement and an $888
million extinguishment gain related to the redemption of
TruPS. The net decrease was partially offset by higher
revenue in CIB, largely from client-driven activity.
Net interest income decreased in 2013 compared with the
prior year, primarily reflecting the impact of the runoff of
higher yielding loans and originations of lower yielding
loans, and lower trading-related net interest income. The
decrease in net interest income was partially offset by lower
long-term debt and other funding costs. The Firm’s average
interest-earning assets were $2.0 trillion in 2013, and the
net interest yield on those assets, on a fully taxable-
equivalent (“FTE”) basis, was 2.23%, a decrease of 25
basis points from the prior year.
2012 compared with 2011
Total net revenue for 2012 was $97.0 billion, down slightly
from 2011. Results for 2012 were driven by lower principal
transactions revenue from losses incurred by CIO, and lower
net interest income. These items were predominantly offset
by higher mortgage fees and related income and higher
other income.
Investment banking fees decreased slightly from 2011,
reflecting lower advisory fees on lower industry-wide
volumes, and to a lesser extent, slightly lower equity
underwriting fees on industry-wide volumes that were flat
from the prior year. These declines were predominantly
offset by record debt underwriting fees, driven by favorable
market conditions and the impact of continued low interest
rates.
Principal transactions revenue decreased compared with
2011, predominantly due to $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 incurred
by CIO from the retained index credit derivative positions
for the three months ended September 30, 2012; and
additional modest losses incurred by CIB from the synthetic
credit portfolio in the last six months of 2012.
Principal transaction revenue also included a $930 million
loss in 2012, compared with a $1.4 billion gain in 2011,
from DVA on structured notes and derivative liabilities,
resulting from the tightening of the Firm’s credit spreads.
These declines were partially offset by higher market-
making revenue in CIB, driven by strong client revenue and
higher revenue in rates-related products, as well as a $665
million gain recognized in Other Corporate associated with
the recovery on a Bear Stearns-related subordinated loan.
Private equity gains decreased in 2012, predominantly due
to lower unrealized and realized gains on private
investments, partially offset by higher unrealized gains on
public securities.
Lending- and deposit-related fees decreased in 2012
compared with the prior year. The decrease predominantly
reflected lower lending-related fees in CIB and lower
deposit-related fees in CCB.
Asset management, administration and commissions
revenue decreased from 2011, largely driven by lower
brokerage commissions in CIB. This decrease was largely
offset by higher asset management fees in AM driven by net
client inflows, the effect of higher market levels, and higher
performance fees; and higher investment service fees in
CCB, as a result of growth in sales of investment products.
Securities gains increased, compared with the 2011 level,
reflecting the results of repositioning the CIO AFS securities
portfolio.
Mortgage fees and related income increased significantly in
2012 compared with 2011, due to higher Mortgage
Banking net production and servicing revenue. The increase
in net production revenue, reflected wider margins driven
by favorable market conditions; and higher volumes due to
historically low interest rates and the Home Affordable
Refinance Programs (“HARP”). The increase in net servicing
revenue resulted from a favorable swing in risk
management results related to mortgage servicing rights
(“MSR”), which was a gain of $619 million in 2012,
compared with a loss of $1.6 billion in 2011.
Card income decreased during 2012, driven by lower debit
card revenue, reflecting the impact of the Durbin
Amendment; and to a lesser extent, higher amortization of
loan origination costs. The decrease in credit card income
was offset partially by higher net interchange income
associated with growth in credit card sales volume, and
higher merchant servicing revenue.
Other income increased in 2012 compared with the prior
year, largely due to a $1.1 billion benefit from the
Washington Mutual bankruptcy settlement, and $888
million of extinguishment gains in Corporate/Private Equity
related to the redemption of TruPS. The extinguishment
gains were related to adjustments applied to the cost basis
of the TruPS during the period they were in a qualified
hedge accounting relationship. These items were offset
partially by the absence of a prior-year gain on the sale of
an investment in AM.
Net interest income decreased in 2012 compared with the
prior year, predominantly reflecting the impact of lower
average trading asset balances, the runoff of higher-yielding