JP Morgan Chase 2014 Annual Report Download - page 267

JPMorgan Chase & Co./2014 Annual Report 265
private-label re-securitizations. See the table on page 268
of this Note for more information on the consolidated re-
securitization transactions.
As of December 31, 2014 and 2013, 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 $2.9 billion and $2.8 billion, respectively.
At December 31, 2014 and 2013, the Firm held
approximately $2.4 billion and $1.3 billion, respectively, of
interests in nonconsolidated agency re-securitization
entities, and $36 million and $6 million, respectively, of
senior and subordinated interests in nonconsolidated
private-label re-securitization entities. See the table on
page 263 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
268 of this Note for further information on consolidated VIE
assets and liabilities.
In the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper issued by the
Firm-administered multi-seller conduits. The Firm held $5.7
billion and $4.1 billion of the commercial paper issued by
the Firm-administered multi-seller conduits at
December 31, 2014 and 2013, respectively. The Firm’s
investments reflect the Firm’s funding needs and capacity
and were not driven by market illiquidity. The Firm is not
obligated under any agreement to purchase the commercial
paper issued by the Firm-administered multi-seller
conduits.
Deal-specific liquidity facilities, program-wide liquidity and
credit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firm-
administered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administered
multi-seller conduits. The unfunded portion of these
commitments was $9.9 billion and $9.1 billion at
December 31, 2014 and 2013, respectively, and are
reported as off-balance sheet lending-related commitments.
For more information on off-balance sheet lending-related
commitments, see Note 29.
VIEs associated with investor intermediation activities
As a financial intermediary, the Firm creates certain types
of VIEs and also structures transactions with these VIEs,
typically using derivatives, to meet investor needs. The Firm
may also provide liquidity and other support. The risks
inherent in the derivative instruments or liquidity
commitments are managed similarly to other credit, market
or liquidity risks to which the Firm is exposed. The principal
types of VIEs for which the Firm is engaged in on behalf of
clients are municipal bond vehicles, credit-related note
vehicles and asset swap vehicles.
Municipal bond vehicles
The Firm has created a series of trusts that provide short-
term investors with qualifying tax-exempt investments, and
that allow investors in tax-exempt securities to finance their
investments at short-term tax-exempt rates. In a typical
transaction, the vehicle purchases fixed-rate longer-term
highly rated municipal bonds and funds the purchase by
issuing two types of securities: (1) puttable floating-rate
certificates and (2) inverse floating-rate residual interests
(“residual interests”). The maturity of each of the puttable
floating-rate certificates and the residual interests is equal
to the life of the vehicle, while the maturity of the
underlying municipal bonds is typically longer. Holders of
the puttable floating-rate certificates may “put,” or tender,
the certificates if the remarketing agent cannot successfully
remarket the floating-rate certificates to another investor. A
liquidity facility conditionally obligates the liquidity provider
to fund the purchase of the tendered floating-rate
certificates. Upon termination of the vehicle, proceeds from