JP Morgan Chase 2015 Annual Report Download - page 174

Management’s discussion and analysis
164 JPMorgan Chase & Co./2015 Annual Report
Credit ratings
The cost and availability of financing are influenced by
credit ratings. Reductions in these ratings could have an
adverse effect on the Firm’s access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. Additionally,
the Firm’s funding requirements for VIEs and other third
party commitments may be adversely affected by a decline
in credit ratings. For additional information on the impact of
a credit ratings downgrade on the funding requirements for
VIEs, and on derivatives and collateral agreements, see
Special-purpose entities on page 77, and credit risk,
liquidity risk and credit-related contingent features in
Note 6.
The credit ratings of the Parent Company and the Firm’s principal bank and nonbank subsidiaries as of December 31, 2015,
were as follows.
JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.
Chase Bank USA, N.A. J.P. Morgan Securities LLC
December 31, 2015
Long-term
issuer
Short-term
issuer Outlook
Long-term
issuer
Short-term
issuer Outlook
Long-term
issuer
Short-term
issuer Outlook
Moody’s Investors Service A3 P-2 Stable Aa3 P-1 Stable Aa3 P-1 Stable
Standard & Poor’s A- A-2 Stable A+ A-1 Stable A+ A-1 Stable
Fitch Ratings A+ F1 Stable AA- F1+ Stable AA- F1+ Stable
Downgrades of the Firm’s long-term ratings by one or two
notches could result in an increase in its cost of funds, and
access to certain funding markets could be reduced as
noted above. The nature and magnitude of the impact of
ratings downgrades depends on numerous contractual and
behavioral factors (which the Firm believes are
incorporated in its liquidity risk and stress testing metrics).
The Firm believes that it maintains sufficient liquidity to
withstand a potential decrease in funding capacity due to
ratings downgrades.
JPMorgan Chase’s unsecured debt does not contain
requirements that would call for an acceleration of
payments, maturities or changes in the structure of the
existing debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm’s credit ratings, financial ratios,
earnings, or stock price.
Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital ratios,
strong credit quality and risk management controls, diverse
funding sources, and disciplined liquidity monitoring
procedures. Rating agencies continue to evaluate economic
and geopolitical trends, regulatory developments, future
profitability, risk management practices, and litigation
matters, as well as their broader ratings methodologies.
Changes in any of these factors could lead to changes in the
Firm’s credit ratings.
In May 2015, Moody’s published its new bank rating
methodology. As part of this action, the Firm’s preferred
stock, deposits and bank subordinated debt ratings were
upgraded by one notch. Additionally in May 2015, Fitch
changed its bank ratings methodology, implementing
ratings differentiation between bank holding companies and
their bank subsidiaries. This resulted in a one notch
upgrade to the issuer ratings, senior debt ratings and long-
term deposit ratings of JPMorgan Chase Bank, N.A., and
certain other subsidiaries. In December 2015, S&P removed
from its ratings for U.S. GSIBs the uplift assumption due to
extraordinary government support. As a result, the Firm’s
short-term and long-term senior unsecured debt ratings
and its subordinated unsecured debt ratings were lowered
by one notch.
Although the Firm closely monitors and endeavors to
manage, to the extent it is able, factors influencing its credit
ratings, there is no assurance that its credit ratings will not
be changed in the future.