Derivative instruments
Derivative instruments enable end-users to modify or mitigate exposure to credit or market risks. Counterparties to a derivative contract seek to obtain risks and rewards similar to those that could be obtained from purchasing or selling a related cash instrument without having to exchange upfront the full purchase or sales price. JPMorgan Chase makes markets in derivatives for customers and also uses derivatives to hedge or manage its own risk exposures. Predominantly all of the Firm’s derivatives are entered into for market-making or risk management purposes.
Market-making derivatives
The majority of the Firm’s derivatives are entered into for market-making purposes. Customers use derivatives to mitigate or modify interest rate, credit, foreign exchange, equity and commodity risks. The Firm actively manages the risks from its exposure to these derivatives by entering into other derivative transactions or by purchasing or selling other financial instruments that partially or fully offset the exposure from client derivatives. The Firm also seeks to earn a spread between the client derivatives and offsetting positions, and from the remaining open risk positions.
Risk management derivatives
The Firm manages its market risk exposures using various derivative instruments.
Interest rate contracts are used to minimize fluctuations in earnings that are caused by changes in interest rates. Fixed-rate assets and liabilities appreciate or depreciate in market value as interest rates change. Similarly, interest income and expense increases or decreases as a result of variable-rate assets and liabilities resetting to current market rates, and as a result of the repayment and subsequent origination or issuance of fixed-rate assets and liabilities at current market rates. Gains or losses on the derivative instruments that are related to such assets and liabilities are expected to substantially offset this variability in earnings. The Firm generally uses interest rate swaps, forwards and futures to manage the impact of interest rate fluctuations on earnings.
Foreign currency forward contracts are used to manage the foreign exchange risk associated with certain foreign currency–denominated (i.e., non-U.S. dollar) assets and liabilities and forecasted transactions, as well as the Firm’s net investments in certain non-U.S. subsidiaries or branches whose functional currencies are not the U.S. dollar. As a result of fluctuations in foreign currencies, the U.S. dollar–equivalent values of the foreign currency–denominated assets and liabilities or forecasted revenue or expense increase or decrease. Gains or losses on the derivative instruments related to these foreign currency–denominated assets or liabilities, or forecasted transactions, are expected to substantially offset this variability.
Commodities contracts are used to manage the price risk of certain commodities inventories. Gains or losses on these derivative instruments are expected to substantially offset the depreciation or appreciation of the related inventory. Also in the commodities portfolio, electricity and natural gas futures and forwards contracts are used to manage price risk associated with energy-related tolling and load-serving contracts and investments.
The Firm uses credit derivatives to manage the counterparty credit risk associated with loans and lending-related commitments. Credit derivatives compensate the purchaser when the entity referenced in the contract experiences a credit event, such as bankruptcy or a failure to pay an obligation when due. Credit derivatives primarily consist of credit default swaps. For a further discussion of credit derivatives, see the discussion in the Credit derivatives section on pages 231–233 of this Note.
For more information about risk management derivatives, see the risk management derivatives gains and losses table on page 231 of this Note, and the hedge accounting gains and losses tables on pages 229–231 of this Note.
Derivative counterparties and settlement types
The Firm enters into over-the-counter (“OTC”) derivatives, which are negotiated and settled bilaterally with the derivative counterparty. The Firm also enters into, as principal, certain exchange traded derivatives (“ETD”) such as futures and options, and “cleared” over-the-counter (“OTC-cleared”) derivative contracts with central counterparties (“CCPs”). ETD contracts are generally standardized contracts traded on an exchange and cleared by the CCP, which is the counterparty from the inception of the transactions. OTC-cleared derivatives are traded on a bilateral basis and then novated to the CCP for clearing.
Accounting for derivatives
All free-standing derivatives that the Firm executes for its own account are required to be recorded on the Consolidated Balance Sheets at fair value. For information on the derivatives that the Firm clears for its clients’ accounts, see Note 29 on pages 318–324 of this Annual Report.
As permitted under U.S. GAAP, the Firm nets derivative assets and liabilities, and the related cash collateral receivables and payables, when a legally enforceable master netting agreement exists between the Firm and the derivative counterparty. For further discussion of the offsetting of assets and liabilities, see Note 1 on pages 189–191 of this Annual Report. The accounting for changes in value of a derivative depends on whether or not the transaction has been designated and qualifies for hedge accounting. Derivatives that are not designated as hedges are reported and measured at fair value through earnings. The tabular disclosures on pages 223–233 of this Note provide additional information on the amount of, and reporting for, derivative assets, liabilities, gains and losses. For further discussion of derivatives embedded in structured notes, see Notes 3 and 4 on pages 195–215 and 215–218, respectively, of this Annual Report.
Derivatives designated as hedges
The Firm applies hedge accounting to certain derivatives executed for risk management purposes – generally interest rate, foreign exchange and commodity derivatives. However, JPMorgan Chase does not seek to apply hedge accounting to all of the derivatives involved in the Firm’s risk management activities. For example, the Firm does not apply hedge accounting to purchased credit default swaps used to manage the credit risk of loans and lending-related commitments, because of the difficulties in qualifying such contracts as hedges. For the same reason, the Firm does not apply hedge accounting to certain interest rate and commodity derivatives used for risk management purposes.
To qualify for hedge accounting, a derivative must be highly effective at reducing the risk associated with the exposure being hedged. In addition, for a derivative to be designated as a hedge, the risk management objective and strategy must be documented. Hedge documentation must identify the derivative hedging instrument, the asset or liability or forecasted transaction and type of risk to be hedged, and how the effectiveness of the derivative is assessed prospectively and retrospectively. To assess effectiveness, the Firm uses statistical methods such as regression analysis, as well as nonstatistical methods including dollar-value comparisons of the change in the fair value of the derivative to the change in the fair value or cash flows of the hedged item. The extent to which a derivative has been, and is expected to continue to be, effective at offsetting changes in the fair value or cash flows of the hedged item must be assessed and documented at least quarterly. Any hedge ineffectiveness (i.e., the amount by which the gain or loss on the designated derivative instrument does not exactly offset the change in the hedged item attributable to the hedged risk) must be reported in current-period earnings. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued.
There are three types of hedge accounting designations: fair value hedges, cash flow hedges and net investment hedges. JPMorgan Chase uses fair value hedges primarily to hedge fixed-rate long-term debt, AFS securities and certain commodities inventories. For qualifying fair value hedges, the changes in the fair value of the derivative, and in the value of the hedged item for the risk being hedged, are recognized in earnings. If the hedge relationship is terminated, then the adjustment to the hedged item continues to be reported as part of the basis of the hedged item and for interest-bearing instruments is amortized to earnings as a yield adjustment. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item – primarily net interest income and principal transactions revenue.
JPMorgan Chase uses cash flow hedges primarily to hedge the exposure to variability in forecasted cash flows from floating-rate assets and liabilities and foreign currency–denominated revenue and expense. For qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative is recorded in OCI and recognized in the Consolidated Statements of Income when the hedged cash flows affect earnings. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item – primarily interest income, interest expense, noninterest revenue and compensation expense. The ineffective portions of cash flow hedges are immediately recognized in earnings. If the hedge relationship is terminated, then the value of the derivative recorded in accumulated other comprehensive income/(loss) (“AOCI”) is recognized in earnings when the cash flows that were hedged affect earnings. For hedge relationships that are discontinued because a forecasted transaction is expected to not occur according to the original hedge forecast, any related derivative values recorded in AOCI are immediately recognized in earnings.
JPMorgan Chase uses foreign currency hedges to protect the value of the Firm’s net investments in certain non-U.S. subsidiaries or branches whose functional currencies are not the U.S. dollar. For foreign currency qualifying net investment hedges, changes in the fair value of the derivatives are recorded in the translation adjustments account within AOCI.
The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure category. |
| | | | |
Type of Derivative | Use of Derivative | Designation and disclosure | Affected segment or unit | Page reference |
Manage specifically identified risk exposures in qualifying hedge accounting relationships: | | | |
◦ Interest rate | Hedge fixed rate assets and liabilities | Fair value hedge | Corporate/PE | 229 |
◦ Interest rate | Hedge floating rate assets and liabilities | Cash flow hedge | Corporate/PE | 230 |
◦ Foreign exchange | Hedge foreign currency-denominated assets and liabilities | Fair value hedge | Corporate/PE | 229 |
◦ Foreign exchange | Hedge forecasted revenue and expense | Cash flow hedge | Corporate/PE | 230 |
◦ Foreign exchange | Hedge the value of the Firm’s investments in non-U.S. subsidiaries | Net investment hedge | Corporate/PE | 231 |
◦ Commodity | Hedge commodity inventory | Fair value hedge | CIB | 229 |
Manage specifically identified risk exposures not designated in qualifying hedge accounting relationships: | | | |
◦ Interest rate | Manage the risk of the mortgage pipeline, warehouse loans and MSRs | Specified risk management | CCB | 231 |
◦ Credit | Manage the credit risk of wholesale lending exposures | Specified risk management | CIB | 231 |
◦ Credit(a) | Manage the credit risk of certain AFS securities | Specified risk management | Corporate/PE | 231 |
◦ Commodity | Manage the risk of certain commodities-related contracts and investments | Specified risk management | CIB | 231 |
◦Interest rate and foreign exchange | Manage the risk of certain other specified assets and liabilities | Specified risk management | Corporate/PE | 231 |
Market-making derivatives and other activities: | | | |
• Various | Market-making and related risk management | Market-making and other | CIB | 231 |
• Various(b) | Other derivatives, including the synthetic credit portfolio | Market-making and other | CIB, Corporate/PE | 231 |
| |
(a) | Includes a limited number of single-name credit derivatives used to mitigate the credit risk arising from specified AFS securities. |
| |
(b) | The synthetic credit portfolio is a portfolio of index credit derivatives, including short and long positions, that was held by CIO. On July 2, 2012, CIO transferred the synthetic credit portfolio, other than a portion that aggregated to a notional amount of approximately $12 billion, to CIB. The positions making up the portion of the synthetic credit portfolio retained by CIO on July 2, 2012, were effectively closed out during the third quarter of 2012. The results of the synthetic credit portfolio, including the portion transferred to CIB, have been included in the gains and losses on derivatives related to market-making activities and other derivatives category discussed on page 231 of this Note. |
Notional amount of derivative contracts
The following table summarizes the notional amount of derivative contracts outstanding as of December 31, 2013 and 2012.
|
| | | | | | |
| Notional amounts(c) |
December 31, (in billions) | 2013 |
| 2012 |
|
Interest rate contracts(a) | | |
Swaps | $ | 35,221 |
| $ | 33,037 |
|
Futures and forwards | 11,251 |
| 11,756 |
|
Written options | 3,991 |
| 3,860 |
|
Purchased options | 4,187 |
| 3,909 |
|
Total interest rate contracts | 54,650 |
| 52,562 |
|
Credit derivatives(b) | 5,386 |
| 5,981 |
|
Foreign exchange contracts(a) | | |
|
Cross-currency swaps | 3,488 |
| 3,413 |
|
Spot, futures and forwards | 3,773 |
| 4,005 |
|
Written options | 659 |
| 651 |
|
Purchased options | 652 |
| 662 |
|
Total foreign exchange contracts | 8,572 |
| 8,731 |
|
Equity contracts | | |
Swaps | 205 |
| 163 |
|
Futures and forwards(a) | 49 |
| 38 |
|
Written options(a) | 425 |
| 441 |
|
Purchased options | 380 |
| 403 |
|
Total equity contracts | 1,059 |
| 1,045 |
|
Commodity contracts | | |
|
Swaps(a) | 124 |
| 120 |
|
Spot, futures and forwards(a) | 234 |
| 367 |
|
Written options | 202 |
| 262 |
|
Purchased options | 203 |
| 260 |
|
Total commodity contracts | 763 |
| 1,009 |
|
Total derivative notional amounts | $ | 70,430 |
| $ | 69,328 |
|
| |
(a) | The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. |
| |
(b) | Primarily consists of credit default swaps. For more information on volumes and types of credit derivative contracts, see the Credit derivatives discussion on pages 231–233 of this Note. |
| |
(c) | Represents the sum of gross long and gross short third-party notional derivative contracts. |
While the notional amounts disclosed above give an indication of the volume of the Firm’s derivatives activity, the notional amounts significantly exceed, in the Firm’s view, the possible losses that could arise from such transactions. For most derivative transactions, the notional amount is not exchanged; it is used simply as a reference to calculate payments.
Impact of derivatives on the Consolidated Balance Sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that are reflected on the Firm’s Consolidated Balance Sheets as of December 31, 2013 and 2012, by accounting designation (e.g., whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Free-standing derivative receivables and payables(a) | | | | | | | | |
| Gross derivative receivables | | | | Gross derivative payables | | |
December 31, 2013 (in millions) | Not designated as hedges | Designated as hedges | Total derivative receivables | | Net derivative receivables(c) | | Not designated as hedges | Designated as hedges | Total derivative payables | | Net derivative payables(c) |
Trading assets and liabilities | | | | | | | | | | | | |
Interest rate | $ | 851,189 |
| $ | 3,490 |
| | $ | 854,679 |
| | $ | 25,782 |
| | $ | 820,811 |
| $ | 4,543 |
| $ | 825,354 |
| | $ | 13,283 |
|
Credit | 83,520 |
| — |
| | 83,520 |
| | 1,516 |
| | 82,402 |
| — |
| 82,402 |
| | 2,281 |
|
Foreign exchange | 152,240 |
| 1,359 |
| | 153,599 |
| | 16,790 |
| | 158,728 |
| 1,397 |
| 160,125 |
| | 15,947 |
|
Equity | 52,931 |
| — |
| | 52,931 |
| | 12,227 |
| | 54,654 |
| — |
| 54,654 |
| | 14,719 |
|
Commodity | 34,344 |
| 1,394 |
| | 35,738 |
| | 9,444 |
| | 37,605 |
| 9 |
| 37,614 |
| | 11,084 |
|
Total fair value of trading assets and liabilities | $ | 1,174,224 |
| $ | 6,243 |
| | $ | 1,180,467 |
| | $ | 65,759 |
| | $ | 1,154,200 |
| $ | 5,949 |
| $ | 1,160,149 |
| | $ | 57,314 |
|
| | | | | | | | | | | | |
| Gross derivative receivables | | | | Gross derivative payables | | |
December 31, 2012 (in millions) | Not designated as hedges | Designated as hedges | Total derivative receivables | | Net derivative receivables(c) | | Not designated as hedges | Designated as hedges | Total derivative payables | | Net derivative payables(c) |
Trading assets and liabilities | | | | | | | | | | | | |
Interest rate(b) | $ | 1,296,268 |
| $ | 6,064 |
| | $ | 1,302,332 |
| | $ | 39,205 |
| | $ | 1,257,654 |
| $ | 3,120 |
| $ | 1,260,774 |
| | $ | 24,906 |
|
Credit | 100,310 |
| — |
| | 100,310 |
| | 1,735 |
| | 100,027 |
| — |
| 100,027 |
| | 2,504 |
|
Foreign exchange(b) | 145,676 |
| 1,577 |
| | 147,253 |
| | 14,142 |
| | 158,419 |
| 2,133 |
| 160,552 |
| | 18,601 |
|
Equity(b) | 42,679 |
| — |
| | 42,679 |
| | 9,266 |
| | 44,535 |
| — |
| 44,535 |
| | 11,819 |
|
Commodity(b) | 43,185 |
| 586 |
| | 43,771 |
| | 10,635 |
| | 46,981 |
| 644 |
| 47,625 |
| | 12,826 |
|
Total fair value of trading assets and liabilities | $ | 1,628,118 |
| $ | 8,227 |
| | $ | 1,636,345 |
| | $ | 74,983 |
| | $ | 1,607,616 |
| $ | 5,897 |
| $ | 1,613,513 |
| | $ | 70,656 |
|
| |
(a) | Balances exclude structured notes for which the fair value option has been elected. See Note 4 on pages 215–218 of this Annual Report for further information. |
| |
(b) | The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. |
| |
(c) | As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and payables when a legally enforceable master netting agreement exists. |
The following table presents, as of December 31, 2013 and 2012, the gross and net derivative receivables by contract and settlement type. Derivative receivables have been netted on the Consolidated Balance Sheets against derivative payables to the same counterparty with respect to derivative contracts for which the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, the receivables are not eligible under U.S. GAAP for netting against related derivative payables on the Consolidated Balance Sheets, and are shown separately in the table below.
|
| | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 |
December 31, (in millions) | Gross derivative receivables | Amounts netted on the Consolidated balance sheets | Net derivative receivables | | Gross derivative receivables | Amounts netted on the Consolidated balance sheets | Net derivative receivables |
U.S. GAAP nettable derivative receivables | | | | | | | | | |
Interest rate contracts: | | | | | | | | | |
Over–the–counter (“OTC”)(a) | $ | 486,449 |
| $ | (466,493 | ) | | $ | 19,956 |
| | $ | 794,282 |
| $ | (771,449 | ) | | $ | 22,833 |
|
OTC–cleared | 362,426 |
| (362,404 | ) | | 22 |
| | 491,947 |
| (491,678 | ) | | 269 |
|
Exchange traded(b) | — |
| — |
| | — |
| | — |
| — |
| | — |
|
Total interest rate contracts | 848,875 |
| (828,897 | ) | | 19,978 |
| | 1,286,229 |
| (1,263,127 | ) | | 23,102 |
|
Credit contracts: | | | | | | | | | |
OTC | 66,269 |
| (65,725 | ) | | 544 |
| | 90,744 |
| (90,104 | ) | | 640 |
|
OTC–cleared | 16,841 |
| (16,279 | ) | | 562 |
| | 8,471 |
| (8,471 | ) | | — |
|
Total credit contracts | 83,110 |
| (82,004 | ) | | 1,106 |
| | 99,215 |
| (98,575 | ) | | 640 |
|
Foreign exchange contracts: | | | | | | | | | |
OTC(a) | 148,953 |
| (136,763 | ) | | 12,190 |
| | 141,053 |
| (133,088 | ) | | 7,965 |
|
OTC–cleared | 46 |
| (46 | ) | | — |
| | 23 |
| (23 | ) | | — |
|
Exchange traded(b) | — |
| — |
| | — |
| | — |
| — |
| | — |
|
Total foreign exchange contracts | 148,999 |
| (136,809 | ) | | 12,190 |
| | 141,076 |
| (133,111 | ) | | 7,965 |
|
Equity contracts: | | | | | | | | | |
OTC(a) | 31,870 |
| (29,289 | ) | | 2,581 |
| | 26,025 |
| (24,645 | ) | | 1,380 |
|
OTC–cleared | — |
| — |
| | — |
| | — |
| — |
| | — |
|
Exchange traded(b) | 17,732 |
| (11,415 | ) | | 6,317 |
| | 12,841 |
| (8,768 | ) | | 4,073 |
|
Total equity contracts | 49,602 |
| (40,704 | ) | | 8,898 |
| | 38,866 |
| (33,413 | ) | | 5,453 |
|
Commodity contracts: | | | | | | | | | |
OTC(a) | 21,619 |
| (15,082 | ) | | 6,537 |
| | 26,850 |
| (20,729 | ) | | 6,121 |
|
OTC–cleared | — |
| — |
| | — |
| | — |
| — |
| | — |
|
Exchange traded(b) | 12,528 |
| (11,212 | ) | | 1,316 |
| | 15,108 |
| (12,407 | ) | | 2,701 |
|
Total commodity contracts | 34,147 |
| (26,294 | ) | | 7,853 |
| | 41,958 |
| (33,136 | ) | | 8,822 |
|
Derivative receivables with appropriate legal opinion | $ | 1,164,733 |
| $ | (1,114,708 | ) | (c) | $ | 50,025 |
| | $ | 1,607,344 |
| $ | (1,561,362 | ) | (c) | $ | 45,982 |
|
Derivative receivables where an appropriate legal opinion has not been either sought or obtained | 15,734 |
| | | 15,734 |
| | 29,001 |
| | | 29,001 |
|
Total derivative receivables recognized on the Consolidated Balance Sheets | $ | 1,180,467 |
| | | $ | 65,759 |
| | $ | 1,636,345 |
| | | $ | 74,983 |
|
| |
(a) | The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. |
| |
(b) | Exchange traded derivative amounts that relate to futures contracts are settled daily. |
| |
(c) | Included netted cash collateral payables of $63.9 billion and $79.2 billion at December 31, 2013, and December 31, 2012, respectively. |
The following table presents, as of December 31, 2013 and 2012, the gross and net derivative payables by contract and settlement type. Derivative payables have been netted on the Consolidated Balance Sheets against derivative receivables to the same counterparty with respect to derivative contracts for which the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, the payables are not eligible under U.S. GAAP for netting against related derivative receivables on the Consolidated Balance Sheets, and are shown separately in the table below.
|
| | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 |
December 31, (in millions) | Gross derivative payables | Amounts netted on the Consolidated balance sheets | Net derivative payables | | Gross derivative payables | Amounts netted on the Consolidated balance sheets | Net derivative payables |
U.S. GAAP nettable derivative payables | | | | | | | | | |
Interest rate contracts: | | | | | | | | | |
OTC(a) | $ | 467,850 |
| $ | (458,081 | ) | | $ | 9,769 |
| | $ | 774,824 |
| $ | (754,105 | ) | | $ | 20,719 |
|
OTC–cleared | 354,698 |
| (353,990 | ) | | 708 |
| | 482,018 |
| (481,763 | ) | | 255 |
|
Exchange traded(b) | — |
| — |
| | — |
| | — |
| — |
| | — |
|
Total interest rate contracts | 822,548 |
| (812,071 | ) | | 10,477 |
| | 1,256,842 |
| (1,235,868 | ) | | 20,974 |
|
Credit contracts: | | | | | | | | | |
OTC | 65,223 |
| (63,671 | ) | | 1,552 |
| | 89,170 |
| (88,151 | ) | | 1,019 |
|
OTC–cleared | 16,506 |
| (16,450 | ) | | 56 |
| | 9,372 |
| (9,372 | ) | | — |
|
Total credit contracts | 81,729 |
| (80,121 | ) | | 1,608 |
| | 98,542 |
| (97,523 | ) | | 1,019 |
|
Foreign exchange contracts: | | | | | | | | | |
OTC(a) | 155,110 |
| (144,119 | ) | | 10,991 |
| | 153,181 |
| (141,928 | ) | | 11,253 |
|
OTC–cleared | 61 |
| (59 | ) | | 2 |
| | 29 |
| (23 | ) | | 6 |
|
Exchange traded(b) | — |
| — |
| | — |
| | — |
| — |
| | — |
|
Total foreign exchange contracts | 155,171 |
| (144,178 | ) | | 10,993 |
| | 153,210 |
| (141,951 | ) | | 11,259 |
|
Equity contracts: | | | | | | | | | |
OTC(a) | 33,295 |
| (28,520 | ) | | 4,775 |
| | 28,321 |
| (23,949 | ) | | 4,372 |
|
OTC–cleared | — |
| — |
| | — |
| | — |
| — |
| | — |
|
Exchange traded(b) | 17,349 |
| (11,415 | ) | | 5,934 |
| | 12,000 |
| (8,767 | ) | | 3,233 |
|
Total equity contracts | 50,644 |
| (39,935 | ) | | 10,709 |
| | 40,321 |
| (32,716 | ) | | 7,605 |
|
Commodity contracts: | | | | | | | | | |
OTC(a) | 21,993 |
| (15,318 | ) | | 6,675 |
| | 28,744 |
| (22,392 | ) | | 6,352 |
|
OTC–cleared | — |
| — |
| | — |
| | — |
| — |
| | — |
|
Exchange traded(b) | 12,367 |
| (11,212 | ) | | 1,155 |
| | 14,488 |
| (12,407 | ) | | 2,081 |
|
Total commodity contracts | 34,360 |
| (26,530 | ) | | 7,830 |
| | 43,232 |
| (34,799 | ) | | 8,433 |
|
Derivative payables with appropriate legal opinions | $ | 1,144,452 |
| $ | (1,102,835 | ) | (c) | $ | 41,617 |
| | $ | 1,592,147 |
| $ | (1,542,857 | ) | (c) | $ | 49,290 |
|
Derivative payables where an appropriate legal opinion has not been either sought or obtained | 15,697 |
| | | 15,697 |
| | 21,366 |
| | | 21,366 |
|
Total derivative payables recognized on the Consolidated Balance Sheets | $ | 1,160,149 |
| | | $ | 57,314 |
| | $ | 1,613,513 |
| | | $ | 70,656 |
|
| |
(a) | The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. |
| |
(b) | Exchange traded derivative balances that relate to futures contracts are settled daily. |
| |
(c) | Included netted cash collateral receivables of $52.1 billion and $60.7 billion related to OTC and OTC-cleared derivatives at December 31, 2013, and December 31, 2012, respectively. |
In addition to the cash collateral received and transferred that is presented on a net basis with net derivative receivables and payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate counterparty credit risk associated with the Firm’s derivative instruments but are not eligible for net presentation, because (a) the collateral is non-cash financial instruments (generally U.S. government and agency securities and other G7 government bonds), (b) the amount of collateral held or transferred exceeds the fair value exposure, at the individual counterparty level, as of the date presented, or (c) the collateral relates to derivative receivables or payables where an appropriate legal opinion has not been either sought or obtained.
The following tables present information regarding certain financial instrument collateral received and transferred as of December 31, 2013 and 2012, that is not eligible for net presentation under U.S. GAAP. The collateral included in these tables relates only to the derivative instruments for which appropriate legal opinions have been obtained; excluded are (i) additional collateral that exceeds the fair value exposure and (ii) all collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained. |
| | | | | | | | | | | | | | | | | | | | | |
Derivative receivable collateral | | | | | |
| 2013 | | 2012 |
December 31, (in millions) | Net derivative receivables | Collateral not nettable on the Consolidated balance sheets | | Net exposure | | Net derivative receivables | Collateral not nettable on the Consolidated balance sheets | | Net exposure |
Derivative receivables with appropriate legal opinions | $ | 50,025 |
| $ | (12,414 | ) | (a) | $ | 37,611 |
| | $ | 45,982 |
| $ | (11,350 | ) | (a) | $ | 34,632 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
Derivative payable collateral(b) | | | | | |
| 2013 | | 2012 |
December 31, (in millions) | Net derivative payables | Collateral not nettable on the Consolidated balance sheets | | Net amount(c) | | Net derivative payables | Collateral not nettable on the Consolidated balance sheets | | Net amount(c) |
Derivative payables with appropriate legal opinions | $ | 41,617 |
| $ | (6,873 | ) | (a) | $ | 34,744 |
| | $ | 49,290 |
| $ | (20,109 | ) | (a) | $ | 29,181 |
|
| |
(a) | Represents liquid security collateral as well as cash collateral held at third party custodians. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with that counterparty. |
| |
(b) | Derivative payable collateral relates only to OTC and OTC-cleared derivative instruments. Amounts exclude collateral transferred related to exchange-traded derivative instruments. |
| |
(c) | Net amount represents exposure of counterparties to the Firm. |
Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each derivative contract type, derivatives expose JPMorgan Chase to credit risk — the risk that derivative counterparties may fail to meet their payment obligations under the derivative contracts and the collateral, if any, held by the Firm proves to be of insufficient value to cover the payment obligation. It is the policy of JPMorgan Chase to actively pursue, where possible, the use of legally enforceable master netting arrangements and collateral agreements to mitigate derivative counterparty credit risk. The amount of derivative receivables reported on the Consolidated Balance Sheets is the fair value of the derivative contracts after giving effect to legally enforceable master netting agreements and cash collateral held by the Firm.
While derivative receivables expose the Firm to credit risk, derivative payables expose the Firm to liquidity risk, as the derivative contracts typically require the Firm to post cash or securities collateral with counterparties as the fair value of the contracts moves in the counterparties’ favor or upon specified downgrades in the Firm’s and its subsidiaries’ respective credit ratings. Certain derivative contracts also provide for termination of the contract, generally upon a downgrade of either the Firm or the counterparty, at the fair value of the derivative contracts. The following table shows the aggregate fair value of net derivative payables related to OTC and OTC-cleared derivatives that contain contingent collateral or termination features that may be triggered upon a ratings downgrade, and the associated collateral the Firm has posted in the normal course of business, at December 31, 2013 and 2012.
|
| | | | | | |
OTC and OTC-cleared derivative payables containing downgrade triggers |
December 31, (in millions) | 2013 | 2012 |
Aggregate fair value of net derivative payables | $ | 24,631 |
| $ | 40,844 |
|
Collateral posted | 20,346 |
| 34,414 |
|
The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), at December 31, 2013 and 2012, related to OTC and OTC-cleared derivative contracts with contingent collateral or termination features that may be triggered upon a ratings downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the predefined threshold rating is breached. A downgrade by a single rating agency that does not result in a rating lower than a preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral, except in certain instances in which additional initial margin may be required upon a ratings downgrade, or termination payment requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating of the rating agencies referred to in the derivative contract.
|
| | | | | | | | | | | | | |
Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives | | | | | |
| 2013 | | 2012 |
December 31, (in millions) | Single-notch downgrade | Two-notch downgrade | | Single-notch downgrade | Two-notch downgrade |
Amount of additional collateral to be posted upon downgrade(a) | $ | 952 |
| $ | 3,244 |
| | $ | 1,234 |
| $ | 4,090 |
|
Amount required to settle contracts with termination triggers upon downgrade(b) | 540 |
| 876 |
| | 857 |
| 1,270 |
|
| |
(a) | Includes the additional collateral to be posted for initial margin. Prior period amounts have been revised to conform with the current presentation. |
| |
(b) | Amounts represent fair value of derivative payables, and do not reflect collateral posted. |
Impact of derivatives on the Consolidated Statements of Income
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
Fair value hedge gains and losses
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well as pretax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2013, 2012 and 2011, respectively. The Firm includes gains/(losses) on the hedging derivative and the related hedged item in the same line item in the Consolidated Statements of Income.
|
| | | | | | | | | | | | | | | | | |
| Gains/(losses) recorded in income | | Income statement impact due to: |
Year ended December 31, 2013 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(e) | Excluded components(f) |
Contract type | | | | | | | |
Interest rate(a) | $ | (3,469 | ) | | $ | 4,851 |
| $ | 1,382 |
| | $ | (132 | ) | $ | 1,514 |
|
Foreign exchange(b) | (1,096 | ) | (d) | 864 |
| (232 | ) | | — |
| (232 | ) |
Commodity(c) | 485 |
| | (1,304 | ) | (819 | ) | | 38 |
| (857 | ) |
Total | $ | (4,080 | ) | | $ | 4,411 |
| $ | 331 |
| | $ | (94 | ) | $ | 425 |
|
| | | | | | | |
| Gains/(losses) recorded in income | | Income statement impact due to: |
Year ended December 31, 2012 (in millions) | Derivatives | Hedged items |
| Total income statement impact | | Hedge ineffectiveness(e) | Excluded components(f) |
Contract type | | | | | | | |
Interest rate(a) | $ | (1,238 | ) | | $ | 1,879 |
| $ | 641 |
| | $ | (28 | ) | $ | 669 |
|
Foreign exchange(b) | (3,027 | ) | (d) | 2,925 |
| (102 | ) | | — |
| (102 | ) |
Commodity(c) | (2,530 | ) | | 1,131 |
| (1,399 | ) | | 107 |
| (1,506 | ) |
Total | $ | (6,795 | ) | | $ | 5,935 |
| $ | (860 | ) | | $ | 79 |
| $ | (939 | ) |
| | | | | | | |
| Gains/(losses) recorded in income | | Income statement impact due to: |
Year ended December 31, 2011 (in millions) | Derivatives | Hedged items |
| Total income statement impact | | Hedge ineffectiveness(e) | Excluded components(f) |
Contract type | | | | | | | |
Interest rate(a) | $ | 532 |
| | $ | 33 |
| $ | 565 |
| | $ | 104 |
| $ | 461 |
|
Foreign exchange(b) | 5,684 |
| (d) | (3,761 | ) | 1,923 |
| | — |
| 1,923 |
|
Commodity(c) | 1,784 |
| | (2,880 | ) | (1,096 | ) | | (10 | ) | (1,086 | ) |
Total | $ | 8,000 |
| | $ | (6,608 | ) | $ | 1,392 |
| | $ | 94 |
| $ | 1,298 |
|
| |
(a) | Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS securities. Gains and losses were recorded in net interest income. The current presentation excludes accrued interest. |
| |
(b) | Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses related to the derivatives and the hedged items, due to changes in foreign currency rates, were recorded in principal transactions revenue and net interest income. |
| |
(c) | Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or market (market approximates fair value). Gains and losses were recorded in principal transactions revenue. |
| |
(d) | Included $(556) million, $(3.1) billion and $4.9 billion for the years ended December 31, 2013, 2012 and 2011, respectively, of revenue related to certain foreign exchange trading derivatives designated as fair value hedging instruments. |
| |
(e) | Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the hedged item attributable to the hedged risk. |
| |
(f) | The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward points on foreign exchange forward contracts and time values. |
Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and the pretax gains/(losses) recorded on such derivatives, for the years ended December 31, 2013, 2012 and 2011, respectively. The Firm includes the gain/(loss) on the hedging derivative and the change in cash flows on the hedged item in the same line item in the Consolidated Statements of Income.
|
| | | | | | | | | | | | | | | |
| Gains/(losses) recorded in income and other comprehensive income/(loss)(c) |
Year ended December 31, 2013 (in millions) | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(d) | Total income statement impact | Derivatives – effective portion recorded in OCI | Total change in OCI for period |
Contract type | | | | | |
Interest rate(a) | $ | (108 | ) | $ | — |
| $ | (108 | ) | $ | (565 | ) | $ | (457 | ) |
Foreign exchange(b) | 7 |
| — |
| 7 |
| 40 |
| 33 |
|
Total | $ | (101 | ) | $ | — |
| $ | (101 | ) | $ | (525 | ) | $ | (424 | ) |
|
| | | | | | | | | | | | | | | |
| Gains/(losses) recorded in income and other comprehensive income/(loss)(c) |
Year ended December 31, 2012 (in millions) | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(d) | Total income statement impact | Derivatives – effective portion recorded in OCI | Total change
in OCI
for period |
Contract type | | | | | |
Interest rate(a) | $ | (3 | ) | $ | 5 |
| $ | 2 |
| $ | 13 |
| $ | 16 |
|
Foreign exchange(b) | 31 |
| — |
| 31 |
| 128 |
| 97 |
|
Total | $ | 28 |
| $ | 5 |
| $ | 33 |
| $ | 141 |
| $ | 113 |
|
| | | | | |
| Gains/(losses) recorded in income and other comprehensive income/(loss)(c) |
Year ended December 31, 2011 (in millions) | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(d) | Total income statement impact | Derivatives – effective portion recorded in OCI | Total change
in OCI
for period |
Contract type | | | | | |
Interest rate(a) | $ | 310 |
| $ | 19 |
| $ | 329 |
| $ | 107 |
| $ | (203 | ) |
Foreign exchange(b) | (9 | ) | — |
| (9 | ) | (57 | ) | (48 | ) |
Total | $ | 301 |
| $ | 19 |
| $ | 320 |
| $ | 50 |
| $ | (251 | ) |
| |
(a) | Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in net interest income. |
| |
(b) | Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains and losses follows the hedged item – primarily noninterest revenue and compensation expense. |
| |
(c) | The Firm did not experience any forecasted transactions that failed to occur for the years ended December 31, 2013, 2012 or 2011. |
| |
(d) | Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to the hedged risk. |
Over the next 12 months, the Firm expects that $4.6 million (after-tax) of net losses recorded in AOCI at December 31, 2013, related to cash flow hedges will be recognized in income. The maximum length of time over which forecasted transactions are hedged is 10 years, and such transactions primarily relate to core lending and borrowing activities.
Net investment hedge gains and losses
The following tables present 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, 2013, 2012 and 2011.
|
| | | | | | | | | | | | | | | | | | | | |
| Gains/(losses) recorded in income and other comprehensive income/(loss) |
| 2013 | | 2012 | | 2011 |
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 |
Contract type | | | | | | | | |
Foreign exchange derivatives | $ | (383 | ) | $ | 773 |
| | $ | (306 | ) | $ | (82 | ) | | $ | (251 | ) | $ | 225 |
|
Foreign currency denominated debt | — |
| — |
| | — |
| — |
| | — |
| 1 |
|
Total | $ | (383 | ) | $ | 773 |
| | $ | (306 | ) | $ | (82 | ) | | $ | (251 | ) | $ | 226 |
|
| |
(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 current-period 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 ineffectiveness for net investment hedge accounting relationships during 2013, 2012 and 2011. |
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 liabilities, and commodities-related contracts and investments.
|
| | | | | | | | | |
| Derivatives gains/(losses) recorded in income |
Year ended December 31, (in millions) | 2013 |
| 2012 |
| 2011 |
|
Contract type | | | |
Interest rate(a) | $ | 617 |
| $ | 5,353 |
| $ | 8,084 |
|
Credit(b) | (142 | ) | (175 | ) | (52 | ) |
Foreign exchange(c) | 1 |
| 47 |
| (157 | ) |
Commodity(d) | 178 |
| 94 |
| 41 |
|
Total | $ | 654 |
| $ | 5,319 |
| $ | 7,916 |
|
| |
(a) | Primarily relates to interest rate derivatives used to hedge the interest rate risks associated with the mortgage pipeline, warehouse loans and MSRs. 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, and single-name credit derivatives used to mitigate credit risk arising from certain AFS securities. These derivatives do not include the synthetic credit portfolio or credit derivatives used to mitigate counterparty credit risk arising from derivative receivables, both of which are 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 liabilities. Gains and losses were recorded in principal transactions revenue and net interest income. |
| |
(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. These derivatives, as well as all other derivatives (including the synthetic credit portfolio ) that are 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 on pages 234–235 of this Annual Report for information on principal transactions revenue.
Credit derivatives
Credit derivatives are financial instruments whose value is derived from the credit risk associated with the debt of a third-party issuer (the reference entity) and which allow one party (the protection purchaser) to transfer that risk to another party (the protection seller). Credit derivatives expose the protection purchaser to the creditworthiness of the protection seller, as the protection seller is required to make payments under the contract when the reference entity experiences a credit event, such as a bankruptcy, a failure to pay its obligation or a restructuring. The seller of credit protection receives a premium for providing protection but has the risk that the underlying instrument referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in the credit derivatives market and uses these derivatives for two primary purposes. First, in its capacity as a market-maker, the Firm actively manages a portfolio of credit derivatives by purchasing and selling credit protection, predominantly on corporate debt obligations, to meet the needs of customers. Second, as an end-user, the Firm uses credit derivatives to manage credit risk associated with lending exposures (loans and unfunded commitments) and derivatives counterparty exposures in the Firm’s wholesale businesses, and to manage the credit risk arising from certain AFS securities and from certain financial instruments in the Firm’s market-making businesses. For more information on the synthetic credit portfolio, see the discussion on page 222 of this Note. Following is a summary of various types of credit derivatives.
Credit default swaps
Credit derivatives may reference the credit of either a single reference entity (“single-name”) or a broad-based index. The Firm purchases and sells protection on both single- name and index-reference obligations. Single-name CDS and index CDS contracts are typically OTC-cleared derivative contracts. Single-name CDS are used to manage the default risk of a single reference entity, while index CDS contracts are used to manage the credit risk associated with the broader credit markets or credit market segments. Like the S&P 500 and other market indices, a CDS index comprises a portfolio of CDS across many reference entities. New series of CDS indices are periodically established with a new underlying portfolio of reference entities to reflect changes in the credit markets. If one of the reference entities in the index experiences a credit event, then the reference entity that defaulted is removed from the index. CDS can also be referenced against specific portfolios of reference names or against customized exposure levels based on specific client demands: for example, to provide protection against the first $1 million of realized credit losses in a $10 million portfolio of exposure. Such structures are commonly known as tranche CDS.
For both single-name CDS contracts and index CDS contracts, upon the occurrence of a credit event, under the terms of a CDS contract neither party to the CDS contract has recourse to the reference entity. The protection purchaser has recourse to the protection seller for the difference between the face value of the CDS contract and the fair value of the reference obligation at settlement of the credit derivative contract, also known as the recovery value. The protection purchaser does not need to hold the debt instrument of the underlying reference entity in order to receive amounts due under the CDS contract when a credit event occurs.
Credit-related notes
A credit-related note is a funded credit derivative where the issuer of the credit-related note purchases from the note investor credit protection on a reference entity or an index. Under the contract, the investor pays the issuer the par value of the note at the inception of the transaction, and in return, the issuer pays periodic payments to the investor, based on the credit risk of the referenced entity. The issuer also repays the investor the par value of the note at maturity unless the reference entity experiences a specified credit event (or one of the entities that makes up a reference index). If a credit event occurs, the issuer is not obligated to repay the par value of the note, but rather, the issuer pays the investor the difference between the par value of the note and the fair value of the defaulted reference obligation at the time of settlement. Neither party to the credit-related note has recourse to the defaulting reference entity. For a further discussion of credit-related notes, see Note 16 on pages 288–299 of this Annual Report.
The following tables present a summary of the notional amounts of credit derivatives and credit-related notes the Firm sold and purchased as of December 31, 2013 and 2012. Upon a credit event, the Firm as a seller of protection would typically pay out only a percentage of the full notional amount of net protection sold, as the amount actually required to be paid on the contracts takes into account the recovery value of the reference obligation at the time of settlement. The Firm manages the credit risk on contracts to sell protection by purchasing protection with identical or similar underlying reference entities. Other purchased protection referenced in the following tables includes credit derivatives bought on related, but not identical, reference positions (including indices, portfolio coverage and other reference points) as well as protection purchased through credit-related notes.
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives, because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm’s view, the risks associated with such derivatives.
Total credit derivatives and credit-related notes
|
| | | | | | | | | | | | |
| Maximum payout/Notional amount |
| Protection sold | Protection purchased with identical underlyings(b) | Net protection (sold)/purchased(c) | Other protection purchased(d) |
December 31, 2013 (in millions) |
Credit derivatives | | | | |
Credit default swaps | $ | (2,601,581 | ) | $ | 2,610,198 |
| $ | 8,617 |
| $ | 8,722 |
|
Other credit derivatives(a) | (95,094 | ) | 45,921 |
| (49,173 | ) | 24,192 |
|
Total credit derivatives | (2,696,675 | ) | 2,656,119 |
| (40,556 | ) | 32,914 |
|
Credit-related notes | (130 | ) | — |
| (130 | ) | 2,720 |
|
Total | $ | (2,696,805 | ) | $ | 2,656,119 |
| $ | (40,686 | ) | $ | 35,634 |
|
| | | | |
| Maximum payout/Notional amount |
| Protection sold | Protection purchased with identical underlyings(b) | Net protection (sold)/purchased(c) | Other protection purchased(d) |
December 31, 2012 (in millions) |
Credit derivatives | | | | |
Credit default swaps | $ | (2,954,705 | ) | $ | 2,879,105 |
| $ | (75,600 | ) | $ | 42,460 |
|
Other credit derivatives(a) | (66,244 | ) | 5,649 |
| (60,595 | ) | 33,174 |
|
Total credit derivatives | (3,020,949 | ) | 2,884,754 |
| (136,195 | ) | 75,634 |
|
Credit-related notes | (233 | ) | — |
| (233 | ) | 3,255 |
|
Total | $ | (3,021,182 | ) | $ | 2,884,754 |
| $ | (136,428 | ) | $ | 78,889 |
|
| |
(a) | Other credit derivatives predominantly consists of put options on fixed income portfolios. |
| |
(b) | Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold. |
| |
(c) | Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the buyer of protection in determining settlement value. |
| |
(d) | Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference instrument. |
The following tables summarize the notional and fair value amounts of credit derivatives and credit-related notes as of December 31, 2013 and 2012, where JPMorgan Chase is the seller of protection. The maturity profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below.
|
| | | | | | | | | | | | | | | | | | | | | |
Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile | | |
December 31, 2013 (in millions) | <1 year | 1–5 years | >5 years | Total notional amount | Fair value of receivables(b) | Fair value of payables(b) | Net fair value |
Risk rating of reference entity | | | | | | | |
Investment-grade | $ | (365,660 | ) | $ | (1,486,394 | ) | $ | (130,597 | ) | $ | (1,982,651 | ) | $ | 31,727 |
| $ | (5,629 | ) | $ | 26,098 |
|
Noninvestment-grade | (140,540 | ) | (544,671 | ) | (28,943 | ) | (714,154 | ) | 27,426 |
| (16,674 | ) | 10,752 |
|
Total | $ | (506,200 | ) | $ | (2,031,065 | ) | $ | (159,540 | ) | $ | (2,696,805 | ) | $ | 59,153 |
| $ | (22,303 | ) | $ | 36,850 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
December 31, 2012 (in millions) | <1 year | 1–5 years | >5 years | Total notional amount | Fair value of receivables(b) | Fair value of payables(b) | Net fair value |
Risk rating of reference entity | | | | | | | |
Investment-grade | $ | (409,748 | ) | $ | (1,383,644 | ) | $ | (224,001 | ) | $ | (2,017,393 | ) | $ | 16,690 |
| $ | (22,393 | ) | $ | (5,703 | ) |
Noninvestment-grade | (214,949 | ) | (722,115 | ) | (66,725 | ) | (1,003,789 | ) | 22,355 |
| (36,815 | ) | (14,460 | ) |
Total | $ | (624,697 | ) | $ | (2,105,759 | ) | $ | (290,726 | ) | $ | (3,021,182 | ) | $ | 39,045 |
| $ | (59,208 | ) | $ | (20,163 | ) |
| |
(a) | The ratings scale is based on the Firm’s internal ratings, which generally correspond to ratings as defined by S&P and Moody’s. |
| |
(b) | Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm. |
us-gaap:DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock