JP Morgan Chase 2013 Annual Report Download - page 93

JPMorgan Chase & Co./2013 Annual Report 99
CIB provides several non-GAAP financial measures which
exclude the impact of FVA (effective fourth quarter 2013) and
DVA on: net revenue, net income, compensation ratio,
overhead ratio, and return on equity. The ratio for the
allowance for loan losses to end-of-period loans is calculated
excluding the impact of consolidated Firm-administered
multi-seller conduits and trade finance, to provide a more
meaningful assessment of CIB’s allowance coverage ratio.
These measures are used by management to assess the
underlying performance of the business and for
comparability with peers.
2013 compared with 2012
Net income was $8.6 billion, up 2% compared with the
prior year.
Net revenue was $34.2 billion compared with $34.3 billion
in the prior year. Net revenue in the current year’s fourth
quarter included a $1.5 billion loss as a result of
implementing a funding valuation adjustment (“FVA”)
framework for over-the-counter (“OTC”) derivatives and
structured notes. The FVA framework incorporates the
impact of funding into the Firm’s valuation estimates for
OTC derivatives and structured notes and reflects an
industry migration towards incorporating the market cost of
unsecured funding in the valuation of such instruments. The
loss recorded in the fourth quarter of 2013 is a one-time
adjustment arising on implementation of the new FVA
framework. In future periods the Firm will incorporate FVA
in its estimates of fair value for OTC derivatives and
structured notes from the date of initial recognition.
Net revenue also included a $452 million loss from debit
valuation adjustments (“DVA”) on structured notes and
derivative liabilities, compared with a loss of $930 million
in the prior year. Excluding the impact of FVA (effective
fourth quarter of 2013) and DVA, net revenue was $36.1
billion and net income was $9.7 billion, compared with
$35.3 billion and $9.0 billion in the prior year, respectively.
Banking revenues were $12.1 billion, compared with $11.3
billion in the prior year. Investment banking fees were $6.3
billion, up 10% from the prior year, driven by higher equity
underwriting fees of $1.5 billion (up 46%) and record debt
underwriting fees of $3.5 billion (up 8%), partially offset
by lower advisory fees of $1.3 billion (down 12%). Equity
underwriting results were driven by higher industry-wide
issuance and an increase in the Firm’s wallet share
compared with the prior year, according to Dealogic.
Industry-wide loan syndication volumes and wallet
increased as the low rate environment continued to fuel
refinancing activity. The Firm also ranked #1 in wallet and
volumes shares across high grade, high yield and loan
products. Advisory fees were lower compared with the prior
year as industry-wide completed M&A wallet declined 13%.
The Firm maintained its #2 ranking and improved share for
both announced and completed volumes during the period.
Treasury Services revenue was $4.1 billion, down 3%
compared with the prior year, primarily reflecting lower
trade finance spreads, partially offset by higher net interest
income on higher deposit balances. Lending revenue was
$1.6 billion, up from $1.3 billion, in the prior year
reflecting net interest income on retained loans, fees on
lending related commitments, as well as gains on securities
received from restructured loans.
Markets and Investor Services revenue was $22.2 billion
compared to $23.0 billion in the prior year. Combined Fixed
Income and Equity Markets revenue was $20.2 billion, up
from $19.8 billion the prior year. Fixed Income Markets
revenue of $15.5 billion was slightly higher reflecting
consistently strong client revenue and lower losses from the
synthetic credit portfolio, which was partially offset by
lower rates-related revenue given an uncertain rate outlook
and low spread environment. Equities Markets revenue of
$4.8 billion was up 8% compared with the prior year driven
by higher revenue in derivatives and cash equities products
as well as Prime Services primarily on higher balances.
Securities Services revenue was $4.1 billion compared with
$4.0 billion in the prior year on higher custody and fund
services revenue primarily driven by record assets under
custody of $20.5 trillion. Credit Adjustments & Other was a
loss of $2.1 billion predominantly driven by FVA (effective
the fourth quarter of 2013) and DVA.
The provision for credit losses was a benefit of $232
million, compared with a benefit of $479 million in the
prior year. The current year benefit reflected lower
recoveries as compared to 2012 as the prior year benefited
from the restructuring of certain nonperforming loans. Net
recoveries were $78 million, compared with $284 million in
the prior year reflecting a continued favorable credit
environment with stable credit quality trends.
Nonperforming loans were down 57% from the prior year.
Noninterest expense of $21.7 billion was slightly down
compared with the prior year, driven by lower compensation
expense, offset by higher non compensation expense
related to higher litigation expense as compared to the
prior year. The compensation ratio, excluding the impact of
DVA and FVA which was effective for the fourth quarter of
2013, was 30% and 32% for 2013 and 2012, respectively.
Return on equity was 15% on $56.5 billion of average
allocated capital and 17% excluding FVA (effective fourth
quarter of 2013) and DVA.
2012 compared with 2011
Net income was $8.4 billion, up 5% compared with the
prior year. These results primarily reflected slightly higher
net revenue compared with 2011, lower noninterest
expense and a larger benefit from the provision for credit
losses. Net revenue was $34.3 billion, compared with $34.0
billion in the prior year. Net revenue included a $930
million loss from DVA on structured notes and derivative
liabilities resulting from the tightening of the Firm’s credit
spreads. Excluding the impact of DVA, net revenue was
$35.3 billion and net income was $9.0 billion, compared
with $32.5 billion and $7.1 billion in the prior year,
respectively.
Banking revenues were $11.3 billion, compared with $10.8
billion in the prior year. Investment banking fees were