JP Morgan Chase 2015 Annual Report Download - page 93

JPMorgan Chase & Co./2015 Annual Report 83
BUSINESS SEGMENT RESULTS
The Firm is managed on a line of business basis. There are
four major reportable business segments – Consumer &
Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset Management. In addition,
there is a Corporate segment.
The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is currently evaluated by management. Results
of these lines of business are presented on a managed
basis. For a definition of managed basis, see Explanation
and Reconciliation of the Firm’s use of Non-GAAP Financial
Measures, on pages 80–82.
JPMorgan Chase
Consumer Businesses Wholesale Businesses
Consumer & Community Banking Corporate & Investment Bank
Commercial
Banking
Asset
Management
Consumer &
Business
Banking
Mortgage
Banking
Card, Commerce
Solutions & Auto
Banking Markets & Investor
Services
• Middle
Market
Banking
• Global
Investment
Management
• Consumer
Banking/
Chase Wealth
Management
• Business
Banking
• Mortgage
Production
• Mortgage
Servicing
• Real Estate
Portfolios
• Card
Services
– Credit
Card
– Commerce
Solutions
• Auto &
Student
• Investment
Banking
• Treasury
Services
• Lending
• Fixed
Income
Markets
• Corporate
Client
Banking
• Global
Wealth
Management
• Equity
Markets
• Securities
Services
• Credit
Adjustments
& Other
• Commercial
Term
Lending
• Real Estate
Banking
Description of business segment reporting methodology
Results of the business segments are intended to reflect
each segment as if it were essentially a stand-alone
business. The management reporting process that derives
business segment results allocates income and expense
using market-based methodologies. The Firm periodically
assesses the assumptions, methodologies and reporting
classifications used for segment reporting, and further
refinements may be implemented in future periods.
Revenue sharing
When business segments join efforts to sell products and
services to the Firm’s clients, the participating business
segments agree to share revenue from those transactions.
The segment results reflect these revenue-sharing
agreements.
Funds transfer pricing
Funds transfer pricing is used to allocate interest income
and expense to each business and transfer the primary
interest rate risk exposures to the Treasury group within
Corporate. The allocation process is unique to each business
segment and considers the interest rate risk, liquidity risk
and regulatory requirements of that segment as if it were
operating independently, and as compared with its stand-
alone peers. This process is overseen by senior
management and reviewed by the Firm’s Asset-Liability
Committee (“ALCO”).
Preferred stock dividend allocation
As part of its funds transfer pricing process, the Firm
allocates substantially all of the cost of its outstanding
preferred stock to its reportable business segments, while
retaining the balance of the cost in Corporate. This cost is
included as a reduction to net income applicable to common
equity in order to be consistent with the presentation of
firmwide results.
Business segment capital allocation changes
On at least an annual basis, the Firm assesses the level of
capital required for each line of business as well as the
assumptions and methodologies used to allocate capital to
its lines of business and updates the equity allocations to its
lines of business as refinements are implemented. Each
business segment is allocated capital by taking into
consideration stand-alone peer comparisons, regulatory
capital requirements (as estimated under Basel III Advanced
Fully Phased-In rules) and economic risk. The amount of
capital assigned to each business is referred to as equity.
For further information about line of business capital, see
Line of business equity on page 156.
Expense allocation
Where business segments use services provided by
corporate support units, or another business segment, the
costs of those services are allocated to the respective
business segments. The expense is generally
allocated based on actual cost and use of services provided.
In contrast, certain other costs related to corporate support