JP Morgan Chase 2014 Annual Report Download - page 106

Management’s discussion and analysis
104 JPMorgan Chase & Co./2014 Annual Report
months ended September 30, 2012. Net interest income in
2013 was a loss of $2.7 billion compared with a loss of
$1.7 billion in the prior year, primarily due to low interest
rates and limited reinvestment opportunities. Net interest
income improved in the fourth quarter of 2013 due to
higher interest rates and better reinvestment opportunities.
Other Corporate reported a net loss of $5.6 billion,
compared with a net loss of $221 million in the prior year.
Noninterest revenue in 2013 was $1.8 billion, down 2%
compared with the prior year. In 2013, noninterest revenue
included gains of $1.3 billion and $493 million on the sales
of Visa shares and One Chase Manhattan Plaza, respectively.
Noninterest revenue in the prior year included a $1.1 billion
benefit for the Washington Mutual bankruptcy settlement
and a $665 million gain from the recovery on a Bear
Stearns-related subordinated loan. Noninterest expense of
$9.7 billion was up $5.9 billion compared with the prior
year. Included in 2013 noninterest expense was $10.2
billion of legal expense, including reserves for litigation and
regulatory proceedings, compared with $3.7 billion of
expense for additional litigation reserves, largely for
mortgage-related matters, in the prior year.
Treasury and CIO overview
Treasury and CIO are predominantly responsible for
measuring, monitoring, reporting and managing the Firm’s
liquidity, funding and structural interest rate and foreign
exchange risks, as well as executing the Firm’s capital plan.
The risks managed by Treasury and CIO arise from the
activities undertaken by the Firm’s four major reportable
business segments to serve their respective client bases,
which generate both on- and off-balance sheet assets and
liabilities.
Treasury and CIO achieve the Firm’s asset-liability
management objectives generally by investing in high-
quality securities that are managed for the longer-term as
part of the Firm’s investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm’s asset-
liability management objectives. For further information on
derivatives, see Note 6. The investment securities portfolio
primarily consists of U.S. and non-U.S. government
securities, agency and nonagency mortgage-backed
securities, other asset-backed securities, corporate debt
securities and obligations of U.S. states and municipalities.
At December 31, 2014, the investment securities portfolio
was $343.1 billion, and the average credit rating of the
securities comprising the portfolio was AA+ (based upon
external ratings where available and where not available,
based primarily upon internal ratings that correspond to
ratings as defined by S&P and Moody’s). See Note 12 for
further information on the details of the Firm’s investment
securities portfolio.
For further information on liquidity and funding risk, see
Liquidity Risk Management on pages 156–160. For
information on interest rate, foreign exchange and other
risks, Treasury and CIO Value-at-risk (“VaR”) and the Firm’s
structural interest rate-sensitive revenue at risk, see Market
Risk Management on pages 131–136.
Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions) 2014 2013 2012
Securities gains $ 71 $ 659 $ 2,028
Investment securities portfolio
(average) 349,285 353,712 358,029
Investment securities portfolio
(period–end)(a) 343,146 347,562 365,421
Mortgage loans (average) 3,308 5,145 10,241
Mortgage loans (period-end) 2,834 3,779 7,037
(a) Period-end investment securities included held-to-maturity securities of $49.3
billion and $24.0 billion at December 31, 2014, and 2013, respectively. Held-to-
maturity securities as of December 31, 2012, were not material.
Private Equity portfolio
Selected income statement and balance sheet data
Year ended December 31,
(in millions) 2014 2013 2012
Private equity gains/(losses)
Realized gains $ 1,164 $ (170) $ 17
Unrealized gains/(losses)(a) 43 734 639
Total direct investments 1,207 564 656
Third-party fund investments 34 137 134
Total private equity gains/(losses)(b) $ 1,241 $ 701 $ 790
(a) Includes reversals of unrealized gains and losses that were recognized in prior
periods and have now been realized.
(b) Included in principal transactions revenue in the Consolidated statements of
income.
Private equity portfolio information(a)
December 31, (in millions) 2014 2013 2012
Publicly held securities
Carrying value $ 878 $ 1,035 $ 578
Cost 583 672 350
Quoted public value 893 1,077 578
Privately held direct securities
Carrying value 4,555 5,065 5,379
Cost 5,275 6,022 6,584
Third-party fund investments(b)
Carrying value 433 1,768 2,117
Cost 423 1,797 1,963
Total private equity portfolio
Carrying value $ 5,866 $ 7,868 $ 8,074
Cost 6,281 8,491 8,897
(a) For more information on the Firm’s methodologies regarding the valuation of the
Private Equity portfolio, see Note 3. For information on the sale of a portion of
the Private Equity business in January 2015, see Note 2.
(b) Unfunded commitments to third-party private equity funds were $147 million,
$215 million and $370 million at December 31, 2014, 2013 and 2012,
respectively.
2014 compared with 2013
The carrying value of the private equity portfolio at
December 31, 2014 was $5.9 billion, down from $7.9
billion at December 31, 2013. The decrease in the portfolio
was predominantly driven by sales of investments, partially
offset by unrealized gains.
2013 compared with 2012
The carrying value of the private equity portfolio at
December 31, 2013 was $7.9 billion, down from $8.1
billion at December 31, 2012. The decrease in the portfolio
was predominantly driven by sales of investments, partially
offset by new investments and unrealized gains.