JP Morgan Chase 2015 Annual Report Download - page 279

JPMorgan Chase & Co./2015 Annual Report 269
As of December 31, 2015 and 2014, 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 $2.2 billion and $2.9 billion, respectively.
At December 31, 2015 and 2014, the Firm held $4.6 billion
and $2.4 billion, respectively, of interests in
nonconsolidated agency re-securitization entities. The
Firm’s exposure to non-consolidated private-label re-
securitization entities as of December 31, 2015 and 2014
was not material. As of December 31, 2015 and 2014, the
Firm did not consolidate any agency re-securitizations. As of
December 31, 2015 and 2014, the Firm consolidated an
insignificant amount of assets and liabilities of Firm-
sponsored private-label re-securitizations.
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that provide secured financing,
collateralized by pools of receivables and other financial
assets, to customers of the Firm. The conduits fund their
financing facilities 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 provide financing to
customers 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
271 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
$15.7 billion and $5.7 billion of the commercial paper
issued by the Firm-administered multi-seller conduits at
December 31, 2015 and 2014, 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 $5.6 billion and $9.9 billion at
December 31, 2015 and 2014, 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.
Municipal bond vehicles
Municipal bond vehicles or tender option bond (“TOB”)
trusts allow investors to finance their municipal bond
investments at short-term rates. In a typical TOB
transaction, the trust purchases highly rated municipal
bond(s) of a single issuer and funds the purchase by issuing
two types of securities: (1) puttable floating-rate
certificates (“Floaters”) and (2) inverse floating-rate
residual interests (“Residuals”). The Floaters are typically
purchased by money market funds or other short-term
investors and may be tendered, with requisite notice, to the
TOB trust. The Residuals are retained by the investor
seeking to finance its municipal bond investment. TOB
transactions where the Residual is held by a third party
investor are typically known as Customer TOB trusts, and
Non-Customer TOB trusts are transactions where the
Residual is retained by the Firm. The Firm serves as sponsor
for all Non-Customer TOB transactions and certain
Customer TOB transactions established prior to 2014. The
Firm may provide various services to a TOB trust, including
remarketing agent, liquidity or tender option provider, and/
or sponsor.