JP Morgan Chase 2015 Annual Report Download - page 280

Notes to consolidated financial statements
270 JPMorgan Chase & Co./2015 Annual Report
J.P. Morgan Securities LLC may serve as a remarketing
agent on the Floaters for TOB trusts. The remarketing agent
is responsible for establishing the periodic variable rate on
the Floaters, conducting the initial placement and
remarketing tendered Floaters. The remarketing agent may,
but is not obligated to make markets in Floaters. At
December 31, 2015 and 2014, the Firm held an
insignificant amount of these Floaters on its Consolidated
balance sheets and did not hold any significant amounts
during 2015.
JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC
often serves as the sole liquidity or tender option provider
for the TOB trusts. The liquidity provider’s obligation to
perform is conditional and is limited by certain events
(“Termination Events”), which include bankruptcy or failure
to pay by the municipal bond issuer or credit enhancement
provider, an event of taxability on the municipal bonds or
the immediate downgrade of the municipal bond to below
investment grade. In addition, the liquidity provider’s
exposure is typically further limited by the high credit
quality of the underlying municipal bonds, the excess
collateralization in the vehicle, or, in certain transactions,
the reimbursement agreements with the Residual holders.
Holders of the Floaters may “put,” or tender, their Floaters
to the TOB trust. If the remarketing agent cannot
successfully remarket the Floaters to another investor, the
liquidity provider either provides a loan to the TOB trust for
the purchase of or directly purchases the tendered Floaters.
In certain Customer TOB transactions, the Firm, as liquidity
provider, has entered into a reimbursement agreement with
the Residual holder. In those transactions, upon the
termination of the vehicle, if the proceeds from the sale of
the underlying municipal bonds are not sufficient to repay
amounts owed to the Firm, as liquidity or tender option
provider, the Firm has recourse to the third party Residual
holders for any shortfall. Residual holders with
reimbursement agreements are required to post collateral
with the Firm to support such reimbursement obligations
should the market value of the underlying municipal bonds
decline. The Firm does not have any intent to protect
Residual holders from potential losses on any of the
underlying municipal bonds.
TOB trusts are considered to be variable interest entities.
The Firm consolidates Non-Customer TOB trusts because as
the Residual holder, the Firm has the right to make
decisions that significantly impact the economic
performance of the municipal bond vehicle, and have the
right to receive benefits and bear losses that could
potentially be significant to the municipal bond vehicle. The
Firm does not consolidate Customer TOB trusts, since the
Firm does not have the power to make decisions that
significantly impact the economic performance of the
municipal bond vehicle. Certain non-consolidated Customer
TOB trusts are sponsored by a third party, and not the Firm.
See page 271 of this Note for further information on
consolidated municipal bond vehicles.
The Firm’s exposure to nonconsolidated municipal bond VIEs at December 31, 2015 and 2014, including the ratings profile of
the VIEs’ assets, was as follows.
December 31,
(in billions)
Fair value of assets
held by VIEs Liquidity facilities Excess(a)
Maximum
exposure
Nonconsolidated municipal bond vehicles
2015 $ 6.9 $ 3.8 $ 3.1 $ 3.8
2014 11.5 6.3 5.2 6.3
Ratings profile of VIE assets(b)
Fair value of
assets held
by VIEs
Wt. avg.
expected life
of assets
(years)
Investment-grade
Noninvestment-
grade
December 31,
(in billions, except where otherwise noted)
AAA to
AAA- AA+ to AA- A+ to A-
BBB+ to
BBB- BB+ and below
2015 $ 1.7 $ 4.6 $ 0.5 $ — $ 0.1 $ 6.9 4.0
2014 2.7 8.4 0.4 — — $ 11.5 4.9
(a) Represents the excess of the fair values of municipal bond assets available to repay the liquidity facilities, if drawn.
(b) The ratings scale is presented on an S&P-equivalent basis.