JP Morgan Chase 2015 Annual Report Download - page 228

Notes to consolidated financial statements
218 JPMorgan Chase & Co./2015 Annual Report
In 2015, the Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm
determined that it was probable that the forecasted interest payment cash flows would not occur as a result of the planned
reduction in wholesale non-operating deposits. The Firm did not experience any forecasted transactions that failed to occur for
the years ended December 31, 2014 or 2013.
Over the next 12 months, the Firm expects that approximately $95 million (after-tax) of net losses recorded in AOCI at
December 31, 2015, related to cash flow hedges, will be recognized in income. For terminated cash flow hedges, the maximum
length of time over which forecasted transactions are remaining is approximately 7 years. For open cash flow hedges, the
maximum length of time over which forecasted transactions are hedged is approximately 2 years. The Firm’s longer-dated
forecasted transactions relate to core lending and borrowing activities.
Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pretax gains/(losses) recorded on such instruments for the years ended December 31, 2015, 2014 and
2013.
Gains/(losses) recorded in income and other comprehensive income/(loss)
2015 2014 2013
Year ended December 31,
(in millions)
Excluded
components
recorded
directly in
income(a)
Effective
portion
recorded in OCI
Excluded
components
recorded
directly in
income(a)
Effective
portion
recorded in OCI
Excluded
components
recorded
directly in
income(a)
Effective
portion
recorded in OCI
Foreign exchange derivatives $(379) $1,885 $(448) $1,698 $(383) $773
(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign
exchange forward contracts. Amounts related to excluded components are recorded in other income. The Firm measures the ineffectiveness of net
investment hedge accounting relationships based on changes in spot foreign currency rates and, therefore, there was no significant ineffectiveness for net
investment hedge accounting relationships during 2015, 2014 and 2013.
Gains and losses on derivatives used for specified risk
management purposes
The following table presents pretax gains/(losses) recorded
on a limited number of derivatives, not designated in hedge
accounting relationships, that are used to manage risks
associated with certain specified assets and liabilities,
including certain risks arising from the mortgage pipeline,
warehouse loans, MSRs, wholesale lending exposures, AFS
securities, foreign currency-denominated assets and
liabilities, and commodities-related contracts and
investments.
Derivatives gains/(losses)
recorded in income
Year ended December 31,
(in millions) 2015 2014 2013
Contract type
Interest rate(a) $ 853 $ 2,308 $ 617
Credit(b) 70 (58) (142)
Foreign exchange(c) 25 (7) 1
Commodity(d) (12) 156 178
Total $ 936 $ 2,399 $ 654
(a) Primarily represents interest rate derivatives used to hedge the
interest rate risk inherent in the mortgage pipeline, warehouse loans
and MSRs, as well as written commitments to originate warehouse
loans. Gains and losses were recorded predominantly in mortgage fees
and related income.
(b) Relates to credit derivatives used to mitigate credit risk associated
with lending exposures in the Firm’s wholesale businesses. These
derivatives do not include credit derivatives used to mitigate
counterparty credit risk arising from derivative receivables, which is
included in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded in
principal transactions revenue.
(c) Primarily relates to hedges of the foreign exchange risk of specified
foreign currency-denominated assets and liabilities. Gains and losses
were recorded in principal transactions revenue.
(d) Primarily relates to commodity derivatives used to mitigate energy
price risk associated with energy-related contracts and investments.
Gains and losses were recorded in principal transactions revenue.
Gains and losses on derivatives related to market-making
activities and other derivatives
The Firm makes markets in derivatives in order to meet the
needs of customers and uses derivatives to manage certain
risks associated with net open risk positions from the Firm’s
market-making activities, including the counterparty credit
risk arising from derivative receivables. All derivatives not
included in the hedge accounting or specified risk
management categories above are included in this category.
Gains and losses on these derivatives are primarily recorded
in principal transactions revenue. See Note 7 for
information on principal transactions revenue.