JP Morgan Chase 2015 Annual Report Download - page 177

JPMorgan Chase & Co./2015 Annual Report 167
on consumer delinquency, or the calibration between the
Firm’s wholesale loan risk ratings and external credit
ratings) or data sources (for example, external PD and LGD
factors that incorporate industry-wide information, versus
Firm-specific history) would result in a different estimated
allowance for credit losses. To illustrate the potential
magnitude of certain alternate judgments, the Firm
estimates that changes in the following inputs would have
the following effects on the Firm’s modeled loss estimates
as of December 31, 2015, without consideration of any
offsetting or correlated effects of other inputs in the Firm’s
allowance for loan losses:
• For PCI loans, a combined 5% decline in housing prices
and a 1% increase in unemployment rates from current
levels could imply an increase to modeled credit loss
estimates of approximately $700 million.
• For the residential real estate portfolio, excluding PCI
loans, a combined 5% decline in housing prices and a
1% increase in unemployment rates from current levels
could imply an increase to modeled annual loss
estimates of approximately $125 million.
• A 50 basis point deterioration in forecasted credit card
loss rates could imply an increase to modeled
annualized credit card loan loss estimates of
approximately $600 million.
• An increase in PD factors consistent with a one-notch
downgrade in the Firm’s internal risk ratings for its
entire wholesale loan portfolio could imply an increase
in the Firm’s modeled loss estimates of approximately
$2.1 billion.
• A 100 basis point increase in estimated LGD for the
Firm’s entire wholesale loan portfolio could imply an
increase in the Firm’s modeled loss estimates of
approximately $175 million.
The purpose of these sensitivity analyses is to provide an
indication of the isolated impacts of hypothetical
alternative assumptions on modeled loss estimates. The
changes in the inputs presented above are not intended to
imply management’s expectation of future deterioration of
those risk factors. In addition, these analyses are not
intended to estimate changes in the overall allowance for
loan losses, which would also be influenced by the judgment
management applies to the modeled loss estimates to
reflect the uncertainty and imprecision of these modeled
loss estimates based on then-current circumstances and
conditions.
It is difficult to estimate how potential changes in specific
factors might affect the overall allowance for credit losses
because management considers a variety of factors and
inputs in estimating the allowance for credit losses.
Changes in these factors and inputs may not occur at the
same rate and may not be consistent across all geographies
or product types, and changes in factors may be
directionally inconsistent, such that improvement in one
factor may offset deterioration in other factors. In addition,
it is difficult to predict how changes in specific economic
conditions or assumptions could affect borrower behavior
or other factors considered by management in estimating
the allowance for credit losses. Given the process the Firm
follows and the judgments made in evaluating the risk
factors related to its loss estimates, management believes
that its current estimate of the allowance for credit losses is
appropriate.
Fair value of financial instruments, MSRs and commodities
inventory
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. The majority of such assets and liabilities are
measured at fair value on a recurring basis. Certain assets
and liabilities are measured at fair value on a nonrecurring
basis, including certain mortgage, home equity and other
loans, where the carrying value is based on the fair value of
the underlying collateral.
Assets measured at fair value
The following table includes the Firm’s assets measured at
fair value and the portion of such assets that are classified
within level 3 of the valuation hierarchy. For further
information, see Note 3.
December 31, 2015
(in billions, except ratio data)
Total assets at
fair value
Total level
3 assets
Trading debt and equity instruments $ 284.1 $ 11.9
Derivative receivables(a) 59.7 7.9
Trading assets 343.8 19.8
AFS securities 241.8 0.8
Loans 2.9 1.5
MSRs 6.6 6.6
Private equity investments(b) 1.9 1.7
Other 28.0 0.8
Total assets measured at fair value on a
recurring basis 625.0 31.2
Total assets measured at fair value on a
nonrecurring basis 1.7 1.0
Total assets measured at fair value $ 626.7 $ 32.2
Total Firm assets $ 2,351.7
Level 3 assets as a percentage of total
Firm assets(a) 1.4%
Level 3 assets as a percentage of total
Firm assets at fair value(a) 5.1%
Note: Effective April 1, 2015, the Firm adopted new accounting guidance for
certain investments where the Firm measures fair value using the net asset value
per share (or its equivalent) as a practical expedient and has excluded these
investments from the fair value hierarchy. For further information, see Note 3.
(a) For purposes of table above, the derivative receivables total reflects the
impact of netting adjustments; however, the $7.9 billion of derivative
receivables classified as level 3 does not reflect the netting adjustment as
such netting is not relevant to a presentation based on the transparency
of inputs to the valuation of an asset. However, if the Firm were to net
such balances within level 3, the reduction in the level 3 derivative
receivables balance would be $546 million at December 31, 2015; this
is exclusive of the netting benefit associated with cash collateral, which
would further reduce the level 3 balances.
(b) Private equity instruments represent investments within the Corporate
line of business.