A NNU A L REPORT 2018
Financial Highlights
As of or for the year ended December 31,
(in millions, except per share, ratio data and headcount)
2018
2017
2016
Reported basis(a)
Total net revenue
Total noninterest expense
Pre-provision profit
Provision for credit losses
Net income
Per common share data
Net income per share:
Basic
Diluted
Cash dividends declared
Book value
Tangible book value (TBVPS)(b)
$ 109,029
63,394
45,635
4,871
32,474
$
$ 100,705
59,515
41,190
5,290
24,441
$
$
$ 9.04
9.00
2.72
70.35
56.33
6.35
6.31
2.12
67.04
53.56
10 %
12
12.1
13.8
15.7
$
$
$
96,569
56,672
39,897
5,361
24,733
6.24
6.19
1.88
64.06
51.44
10 %
13
12.2
13.9
15.2
Selected ratios
Return on common equity
Return on tangible common equity (ROTCE)(b)
Common equity Tier 1 capital ratio(c)
Tier 1 capital ratio(c)
Total capital ratio(c)
13 %
17
12.0
13.7
15.5
Selected balance sheet data (period-end)
Loans
Total assets
Deposits
Common stockholders’ equity
Total stockholders’ equity
Market data
Closing share price
Market capitalization
Common shares at period-end
Headcount
$ 984,554
2,622,532
1,470,666
230,447
256,515
$
97.62
319,780
3,275.8
256,105
$ 930,697
2,533,600
1,443,982
229,625
255,693
$
106.94
366,301
3,425.3
252,539
$ 894,765
2,490,972
1,375,179
228,122
254,190
$
86.29
307,295
3,561.2
243,355
(a) Results are presented in accordance with accounting principles generally accepted in the United States of America, except where
otherwise noted.
(b) TBVPS and ROTCE are each non-GAAP financial measures. For further discussion of these measures, refer to Explanation and
Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial Performance Measures on pages 57–59.
(c) The ratios presented are calculated under the Basel III Fully Phased-In Approach, and they are key regulatory capital measures.
For further discussion, refer to “Capital Risk Management” on pages 85-94.
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets
of $2.6 trillion and operations worldwide. The firm is a leader in investment banking,
financial services for consumers and small businesses, commercial banking, financial
transaction processing and asset management. A component of the Dow Jones Industrial
Average, JPMorgan Chase & Co. serves millions of customers in the United States and
many of the world’s most prominent corporate, institutional and government clients
under its J.P. Morgan and Chase brands.
Information about J.P. Morgan’s capabilities can be found at jpmorgan.com and about
Chase’s capabilities at chase.com. Information about JPMorgan Chase & Co. is available
at jpmorganchase.com.
#1
#1 in U.S. retail
deposit growth
89%
YOU INVEST
TOP 10
89% of You Invest customers are
first-time investors with Chase
Ranked Top 10 on Fortune magazine’s
World’s Most Admired Companies list
20,000
FINANCING/AFFORDABLE
PROPERTIES
#1
Financing for 20,000 affordable
properties for low-income individuals
across the U.S.
#1 most visited banking portal in the U.S.
• 49 million active digital customers
• 33 million active mobile customers
#1
#1 in global investment banking fees
for the 10th consecutive year
$1T OF M&A
Advisor on more than
$1 trillion of announced M&A
transactions
#1
#1 U.S.
multifamily lender
FIRST
U.S. BANK
WITH DIGITAL COIN
First U.S. bank with
a digital coin
$500M
ADVANCINGCITIES INITIATIVE
83%
RANKED IN TOP TWO QUARTILES
10%
WAGE INCREASE
$500 million AdvancingCities initiative
to create economic opportunity in cities
around the world
83% of long-term mutual fund assets
under management ranked in the
top two quartiles over the 10-year period
10% wage increase,
on average, to $15–$18 per hour
for 22,000 employees
Dear Fellow Shareholders,
Jamie Dimon,
Chairman and
Chief Executive Officer
Once again, I begin this annual letter to shareholders with a sense of pride about
our company and our hundreds of thousands of employees around the world. As I
look back on the last decade — a period of profound political and economic change
— it is remarkable how much we have accomplished, not only in terms of financial
performance but in our steadfast dedication to help clients, communities and
countries all around the world.
In 2018, we continued to accelerate investments in products, services and
technology. For example, for the first time in nearly a decade, we extended our
presence in several states with new Chase branches (we plan to open another 400
new branches in the next few years). In addition, we started a new digital investing
platform: You Invest; we launched our partnership with Amazon and Berkshire
Hathaway in healthcare; we broadened our commitment to create opportunities
for jobs and prosperity and reduce the wealth gap for black Americans with
Advancing Black Pathways (announced in February 2019); and we launched our
2
AdvancingCities initiative to support job and wage growth in communities most
in need of capital. While it is too soon to assess the impact of these efforts, we’re
seeing terrific results so far.
2018 was another strong year for JPMorgan Chase, with the firm generating record
revenue and net income, even without the impact of tax reform. We earned
$32.5 billion in net income on revenue1 of $111.5 billion, reflecting strong underlying
performance across our businesses. Adjusting for the enactment of the Tax Cuts
and Jobs Act, we now have delivered record results in eight of the last nine years,
and we have confidence that we will continue to deliver in the future. Each line
of business grew revenue and net income for the year while continuing to make
significant investments in products, people and technology. We grew core loans
by 7%, increased deposits in total by 3% and generally grew market share across
our businesses, all while maintaining credit discipline and a fortress balance
sheet. In total, we extended credit and raised capital of $2.5 trillion for businesses,
institutional clients and U.S. customers.
In last year’s letter, we emphasized how important a competitive global tax system
is for America. Over the last 20 years, as the world reduced its tax rates, America
did not. Our previous tax code was increasingly uncompetitive, overly complex, and
loaded with special interest provisions that created winners and losers. This drove
down capital investment in the United States, which reduced domestic productivity
and wage growth. The new tax code establishes a business tax rate that will
make the United States competitive around the world and frees U.S. companies
to bring back profits earned overseas. The cumulative effect of capital retained
and reinvested over many years in the United States will help cultivate strong
businesses and ultimately create jobs and increase wages.
For JPMorgan Chase, all things being equal (which they are not), the new lower
tax rates added $3.7 billion to net income. For the long term, we expect that
some or eventually most of that increase will be erased as companies compete
for customers on products, capabilities and prices. However, we did take this
opportunity in the short term to massively increase our investments in technology,
new branches and bankers, salaries (we now pay a minimum of $31,000 a year
for full time entry-level jobs in the United States), philanthropy and lending
(specifically in lower income neighborhoods).
1 Represents managed revenue.
3
Earnings, Diluted Earnings per Share and Return on Tangible Common Equity
2004–2018
($ in billions, except per share and ratio data)
Adjusted net income1
$32.5
$24.4
$24.7
$26.9
$24.4
$9.00
(cid:30)
$21.3
$21.7
$21.7
$19.0
(cid:30)
15%
(cid:30)
$4.48
15%
(cid:30)
(cid:30)
$5.19
$17.9
11%
(cid:30)
(cid:30)
$4.34
$17.4
(cid:30)
15%
(cid:30)
$3.96
$6.00
(cid:30)
(cid:30)
13%
$6.19
(cid:30)
(cid:30)
13%
13%
(cid:30)
(cid:30)
$5.29
(cid:30)
17%
(cid:30)
$6.31
(cid:30)
12%
Adjusted
ROTCE1 was
13.6%,
for 2017
24%
(cid:30)
22%
(cid:30)
(cid:30)
15%
$14.4
$15.4
(cid:30)
(cid:30)
$4.00
$4.33
(cid:30)
10%
(cid:30)
$4.5
$1.52
$8.5
(cid:30)
$2.35
10%
(cid:30)
$11.7
(cid:30)
$2.26
(cid:30)
6%
$5.6
(cid:30)
$1.35
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
(cid:31) Net income (cid:31) Diluted earnings per share (cid:31) Return on tangible common equity (ROTCE)
1 Adjusted results, a non-GAAP financial measure, exclude a $2.4 billion decrease to net income, for 2017, as a result of the enactment of the Tax Cuts and Jobs Act.
Tangible Book Value and Average Stock Price per Share
2004–2018
High: $119.33
Low: $ 91.11
$110.72
$92.01
$47.75
$43.93
$38.70
$36.07
$63.83 $65.62
$58.17
$51.88
$39.83
$35.49
$40.36 $39.36
$39.22
$38.68 $40.72
$51.44 $53.56
$56.33
$48.13
$44.60
$15.35
$16.45
$18.88
$21.96
$22.52
$27.09
$30.12
$33.62
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
4
As you know, we believe tangible book value per share is a good measure of the
value we have created for our shareholders. If our asset and liability values are
appropriate — and we believe they are — and if we can continue to deploy this
capital profitably, we think we can continue to exceed 15% return on tangible
equity for the next several years (and potentially at or above 17% in the near term),
assuming there is not a significant downturn. If we can earn these types of returns,
our company should ultimately be worth considerably more than tangible book
value. The chart on the bottom of the opposite page shows that tangible book value
“anchors” the stock price.
Bank One/JPMorgan Chase & Co. tangible book value per share performance vs. S&P 500 Index
Performance since becoming CEO of Bank One
(3/27/2000—12/31/2018)1
Compounded annual gain
Overall gain
Performance since the Bank One
and JPMorgan Chase & Co. merger
(7/1/2004—12/31/2018)
Compounded annual gain
Overall gain
Bank One
(A)
S&P 500 Index
(B)
Relative Results
(A) — (B)
11.6%
615.8%
4.7%
136.4%
6.9%
479.4%
JPMorgan Chase & Co.
(A)
S&P 500 Index
(B)
Relative Results
(A) — (B)
12.4%
442.3%
7.8%
196.8%
4.6%
245.5%
Tangible book value over time captures the company’s use of capital, balance sheet and profitability. In this chart, we are looking at
heritage Bank One shareholders and JPMorgan Chase & Co. shareholders. The chart shows the increase in tangible book value per share;
it is an after-tax number that assumes all dividends were retained vs. the Standard & Poor’s 500 Index (S&P 500 Index), which is a
pre-tax number that includes reinvested dividends.
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
In the last five years, we have bought back almost $55 billion in stock or
approximately 660 million shares, which is nearly 20% of the company’s common
shares outstanding. In prior letters, I explained why buying back our stock at
tangible book value per share was a no-brainer. Seven years ago, we offered an
example of this: If we bought back a large block of stock at tangible book value,
earnings and tangible book value per share would be substantially higher just four
years later than without the buyback. While we prefer buying back our stock at
tangible book value, we think it makes sense to do so even at or above two times
tangible book value for reasons similar to those we’ve expressed in the past. If we
buy back a big block of stock this year, we would expect (using analysts’ earnings
5
estimates) earnings per share in five years to be 2%–3% higher and tangible book
value to be virtually unchanged. We want to remind our shareholders that we much
prefer to use our capital to grow than to buy back stock. I discuss stock buybacks
later in this letter.
Stock total return analysis
Performance since becoming CEO of Bank One
(3/27/2000—12/31/2018)1
Compounded annual gain
Overall gain
Performance since the Bank One
and JPMorgan Chase & Co. merger
(7/1/2004—12/31/2018)
Compounded annual gain
Overall gain
Performance for the period ended
December 31, 2018
Compounded annual gain/(loss)
One year
Five years
Ten years
Bank One
S&P 500 Index
S&P Financials Index
11.2%
638.9%
4.7%
136.4%
3.1%
76.3%
JPMorgan Chase & Co.
S&P 500 Index
S&P Financials Index
9.4%
268.0%
7.8%
196.8%
2.4%
40.5%
(6.6)%
13.6%
14.5%
(4.4)%
8.5%
13.1%
(13.0)%
8.1%
10.9%
These charts show actual returns of the stock, with dividends reinvested, for heritage shareholders of Bank One and JPMorgan Chase & Co.
vs. the Standard & Poor’s 500 Index (S&P 500 Index) and the Standard & Poor’s Financials Index (S&P Financials Index).
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
While we don’t run the company worrying about the stock price in the short run, in
the long run our stock price is a measure of the progress we have made over the
years. This progress is a function of continual investments, in good and bad times,
to build our capabilities — our people, systems and products. These important
investments drive the future prospects of our company and position it to grow
and prosper for decades. Whether looking back over five years, 10 years or since
the JPMorgan Chase/Bank One merger (approximately 14 years ago), our stock
has significantly outperformed the Standard & Poor’s 500 Index and the Standard
& Poor’s Financials Index. And this growth came during a time of unprecedented
challenges for banks — both the Great Recession and the extraordinarily difficult
legal, regulatory and political environment that followed.
6
JPMorgan Chase stock is owned by large institutions, pension plans, mutual funds
and directly by individual investors. However, it is important to remember that
in almost all cases, the ultimate beneficiaries are individuals in our communities.
Well over 100 million people in the United States own stock, and a large
percentage of these individuals, in one way or another, own JPMorgan Chase
stock. Many of these people are veterans, teachers, police officers, firefighters,
retirees, or those saving for a home, school or retirement. Your management
team goes to work every day recognizing the enormous responsibility that we
have to perform for our shareholders.
In the first section of this letter, I try to give a comprehensive understanding of
how we run our company, including how we think about building shareholder
value for the long run. In that section, I highlight our strong belief that building
shareholder value can only be done in conjunction with taking care of employees,
customers and communities. This is completely different from the commentary
often expressed about the sweeping ills of naked capitalism and institutions only
caring about shareholder value.
In the second section of this letter, I comment on important forward-looking issues.
While we remain optimistic about the long-term growth of the United States and
the world, the near-term economic and political backdrop is increasingly complex
and fraught with risks — both known and unknown. And we face a future with less
overall confidence in virtually all institutions, from corporations to governments
to the media. The extremely volatile global markets in the fourth quarter of 2018
might be a harbinger of things to come — creating both risks for our company and
opportunities to serve our clients.
The third section of this letter is about public policy, specifically American public
policy, which is a major concern for our country and, therefore, our company.
Again, I try to give a comprehensive, multi-year overview of what I see as some of
our problems and suggest a few ways they can be addressed. One consistent theme
is completely clear: Businesses, governments and communities need to work as
partners, collaboratively and constructively, to analyze and solve problems and
help strengthen the economy for everyone’s benefit.
7
I.
JPMorgan Chase Principles and Strategies
1.
First and foremost, we look at our business from the point of view of the
customer.
2. We endeavor to be the best at anything and everything we do.
3. We will maintain a fortress balance sheet — and fortress financial principles.
4. We lift up our communities.
5. We take care of our employees.
6. We always strive to learn more about management and leadership.
7. We do not worry about some issues.
II. Comments on Current Critical Issues
1. We need to continue to restore trust in the strength of the U.S. banking system
and global systemically important financial institutions.
2. We have to remind ourselves that responsible banking is good and safe banking.
3. We believe in good regulation — both to help America grow and improve
financial stability.
4. We believe stock buybacks are an essential part of proper capital allocation
but secondary to long-term investing.
5. On the importance of the cloud and artificial intelligence, we are all in.
6. We remain devoted and diligent to protect privacy and stay cyber safe —
we will do what it takes.
7. We know there are risks on the horizon that will eventually demand
our attention.
8. We are prepared for — though we are not predicting — a recession.
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Page 29
Page 31
Page 33
Page 34
Page 35
Page 36
Page 40
8
III. Public Policy
1.
The American Dream is alive — but fraying for many.
2. We must have a proper diagnosis of our problems — the issues are real
and serious — if we want to have the proper prescription that leads to
workable solutions.
3. All these issues are fixable, but that will happen only if we set aside partisan
politics and narrow self-interest — our country must come first.
4. Governments must be better and more effective — we cannot succeed without
their help. The rest of us could do a better job, too.
5. CEOs: Your country needs you!
6. America’s global role and engagement are indispensable.
Page 41
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Page 42
Page 46
Page 47
Page 50
Page 51
9
I.
JPM ORG AN CHAS E PR INCIPLES AND STRATEGIES
In this section, I want to give the reader a comprehensive view of how we run the company.
We manage the company consistently with these principles in mind – and they have stood
the test of time. We also strive to satisfy, and even exceed, the requirements of our regu-
lators and governments around the globe – and we think these principles are a critical
component of that.
1. First and foremost, we look at our business from the point of view of the customer.
Customer needs are what gets our attention.
We believe that in a hyper-competitive world
(from competitors known and unknown), the
best strategy – both offensive and defensive
– is to give the customer more: something
better, faster or more efficiently. We are
always on a quest to improve our products
and services, and, for the most part, this is
done with enhancements in technology and
through the continual training of our people.
Most fundamental of all is doing the right
thing for our customers – in all cases.
We energetically drive organic growth.
We continue to drive good and healthy
organic growth (meaning good customers,
products and services they need and want
at fair and reasonable prices), and while
we are happy with our progress, we recog-
nize that we won’t meet every goal we set
for ourselves and can always do better. In
past letters, we have identified many areas
of organic growth. Our achievements with
these initiatives are detailed in the CEO
letters in this Annual Report, but a few of
the critical strategies are highlighted in the
sidebar below.
ORGANIC GROWTH OPPORTUNITIES ACROSS OUR LINES OF BUSINESS
Consumer &
Community
Banking
• By 2022, we expect 93% of the U.S. population to be in our Chase footprint
as we expand our branch network to new markets with an integrated
physical and digital approach. In addition to entering the Washington, D.C.,
Philadelphia and Boston markets in 2018, we recently announced nine new
markets for 2019, including Charlotte, Minneapolis, Nashville and St. Louis.
• The onboarding experience for new customers is being simplified.
Customers can open a new deposit account digitally in three to five minutes,
functionality that added approximately 1.5 million new accounts since its
February 2018 launch; we’re expanding this functionality inside our
branches as well. We also recently announced Chase MyHome, our new
digitally enabled mortgage fulfillment process that prefills applications for
our existing customers. It’s 20% faster than our paper-based process,
allowing us to close a mortgage within three weeks. Our confidence in our
enhanced approach is reflected in our money-back guarantee.
10
• Customers recently began receiving personalized merchant offers and
discounts from ChaseOffersSM. This program ramped up rapidly, with
customers activating 25+ million offers across 7 million cards in the initiative’s
first three months. CreditJourneySM, with more than 15 million users enrolled,
has also been a tremendously successful way to engage customers through
access to credit score information and identity protection.
• And later this year, we’ll make it easier for our credit card customers to
borrow on their existing lines through two new products — My Chase PlanSM,
allowing customers to finance a specific purchase at a reasonable cost at
the point of sale; and My Chase LoanSM, letting customers borrow against
their unused credit limit and pay back their debt in fixed amounts at a
competitive rate. These products enable us to compete for the approximately
$250 billion in card loans that our existing customers have with competitors.
Corporate &
Investment Bank
• We have been #1 in investment banking for the past decade and finished
2018 with 8.7% of global wallet share, the industry’s best. Still, we believe
we can increase our share over time as we continue to add bankers
selectively and leverage technology to provide better data and insights
to our clients.
• Our Treasury Services business grew revenue by 13% last year. As we
further implement our wholesale payments model, which includes merchant
services, we will be able to deliver a unique value proposition to our clients.
We see opportunities in every customer segment from middle market and
small businesses to large corporate clients and their business outside of
the United States.
• We have consistently grown share in Markets — including in businesses
where the wallet has shrunk. We are prioritizing investments in products
and technology to stay ahead of our clients’ needs. As companies expand
their businesses and acquire assets — increasingly across borders — our
global expertise in hedging risks and protecting capital can be as important
to them as the actual acquisition.
• Our Securities Services business has transformed itself into an industry
powerhouse, and it sits alongside the world’s leading trading businesses. As
asset managers face ongoing pressures from passive investing and margin
compression in the coming years, we think we have a unique opportunity to
help them become more efficient by outsourcing support functions and
using our innovative technology platforms.
• Our Corporate & Investment Bank is one of the few truly global businesses
in the financial services industry. As emerging countries take their place on
the global stage, we will be there to support them. The investments we are
making in China and in other emerging markets today will result in our
international growth for years to come.
11
Commercial
Banking
• Being able to deliver the broad-based capabilities of JPMorgan Chase at a
very local level is a key competitive advantage. Since launching our Middle
Market expansion efforts, we are now local in 39 new markets and have
added 2,800 clients, resulting in 22% compounded revenue growth over the
last three years. Our growth potential for Middle Market business isn’t just
limited to our expansion markets. Through data-driven analysis, we’ve
identified nearly 38,000 prospective clients nationally. Some of our most
exciting opportunities are within our legacy markets like New York, Chicago,
Dallas and Houston, where we have been for over a century.
• Chase’s retail branch expansion amplifies our opportunity to deepen
relationships with clients who already are in those markets by giving them
access to branches and the additional resources that come with that access.
In addition, the expansion opens the opportunity to serve more public
sector customers in new U.S. markets through our Government Banking
business, deepening community engagement and broadening our work with
cities, states, public universities and other municipal clients.
• Commercial Banking’s partnership with the Corporate & Investment Bank
continues to be highly successful and is a key growth driver for both
businesses. Being able to deliver the #1 investment bank locally enhances
our strategic dialogue with our clients and separates us from our
competitors. In 2018, 39% of the firm’s North America investment banking
fees came from Commercial Banking clients, totaling $2.5 billion in revenue,
up from $1 billion 10 years ago. We expect that number to continue to grow.
Asset & Wealth
Management
• We are using data and technology to transform how we interact with clients.
By integrating our human expertise with distinctive digital offerings like You
Invest, we have been able to attract new clients, 89% of whom are first-time
investors with Chase.
• We are expanding our footprint to capture more of the opportunity across
the U.S. wealth management spectrum — from mass affluent ($500,000 to
$3 million) to high-net-worth ($3 million to $10 million) to ultra-high-net-
worth ($10 million or greater). By the end of 2019, we expect to have 6,500
advisors globally on the ground where our clients need us most.
• We have continued to innovate our product lineup by adding 47 index funds
and exchange-traded funds (ETF) over the last three years.
12
The charts below show JPMorgan Chase’s
fairly consistent growth over the years.
This kind of growth only comes from
happy, repeat customers. They have plenty
of other choices.
Client Franchises Built Over the Long Term
Deposits market share5
# of top 50 Chase markets
where we are #1 (top 3)
Average deposits growth rate
Active mobile customers growth rate
Credit card sales market share7
Merchant processing volume20 ($B)
# of branches
Client investment assets ($B)
Business Banking primary market share21
Global investment banking fees10
Market share10
Total Markets revenue11
Market share11
FICC11
Market share11
Equities11
Market share11
Assets under custody ($T)
# of top 50 MSAs with dedicated teams
Bankers
New relationships (gross)
Average loans ($B)
Average deposits ($B)
Gross investment banking revenue ($B)16
Multifamily lending15
Ranking of 5-year cumulative net client
asset flows23
North America Private Bank (Euromoney)18
Client assets ($T)
Active AUM market share24
North America Private Bank client
Consumer &
Community
Banking
Corporate &
Investment
Bank
Commercial
Banking
Asset & Wealth
Management
8%
NM
15.9%
$661
3,079
~$80
5.1%
#2
8.7%
#8
6.3%
#7
7.0%
#8
5.0%
$13.9
26
1,203
NA
$53.6
$73.6
$0.7
#28
NA
#1
$1.3
2006
3.6%
2017
8.7%
11 (25)
16 (40)
2018
9.0%
Serve 62 million U.S. households, including 4 million
16 (42)
5%
11%
22.3%
$1,366
5,036
$282
small businesses
49 million active digital customers1, including
33 million active mobile customers2
99 million debit and credit card accounts3
#1 in new primary bank relationships nationally4
#1 U.S. credit card issuer based on sales and
outstandings6
#2 jumbo mortgage originator9
9%
13%
22.0%
$1,192
5,130
$273
8.7%
8.8%
#1
8.1%
#1
10.7%
#1
11.1%
co–#1
9.9%
$23.5
50
1,766
1,062
$198.1
$177.0
$2.4
#1
#1
8.7%
#1
11.6%
#1
11.9%
co–#1
11.2%
$23.2
50
1,922
1,232
$205.5
$170.9
$2.5
#1
#2
#1
$2.8
#2
#1
$2.7
>80% of Fortune 500 companies do business with us
Presence in over 100 markets globally
#1 in 16 businesses — compared to 8 in 201422
#1 in global investment banking fees for the 10th
consecutive year10
Consistently ranked #1 in Markets revenue since 201211
J.P. Morgan Research ranked as the #1 Global
Research Firm12
#1 in USD payments volume13
Top 3 custodian globally14
133 locations across the U.S.
26 international locations
17 specialized industry coverage teams
#1 traditional Middle Market Bookrunner17
20,000 affordable housing units financed in 2018
Serve clients across the entire wealth spectrum
Business with 55% of the world’s largest pension funds,
sovereign wealth funds and central banks
Fiduciaries across all asset classes
83% of 10-year long-term mutual fund assets under
management (AUM) performed above peer median19
Revenue and long-term AUM balance growth ~90%
since 2006
1.8%
2.5%
2.5%
assets market share25
3%
4%
4%
Average loans ($B)
# of Wealth Management client advisors
$26.5
1,506
$123.5
2,605
$138.6
2,865
For information on footnotes 1–19, refer to slides 32-33 in the JPMorgan Chase 2019 Investor Day — Firm Overview presentation, which is available on JPMorgan Chase & Co.’s
website (https://www.jpmorganchase.com/corporate/investor-relations/document/2019_firm_overview_ba56d0e8.pdf), under the heading Investor Relations, Events & Presentations,
JPMorgan Chase 2019 Investor Day, and on Form 8-K as furnished to the U.S. Securities and Exchange Commission (SEC) on February 26, 2019, which is available on the SEC’s
website (www.sec.gov).
20 2006 reflects First Data joint venture.
21 Source: Barlow Research Associates, Primary Bank Market Share Database as of 4Q18. Rolling eight quarter average of small businesses with revenue of $100,000 – <$25 million.
22 Source: Ranks for Banking – Dealogic as of January 1, 2019, and ranks for Markets, Treasury Services and Securities Services – Coalition, preliminary 2018 rank analysis based on
JPMorgan Chase’s business structure.
23 Source: Company filings and JPMorgan Chase estimates. Rankings reflect competitors in the peer group with publicly reported financials and 2018 client assets of at least $500B
as follows: Allianz Group, Bank of America Corporation, Bank of New York Mellon Corporation, BlackRock, Inc., Credit Suisse Group AG, Franklin Resources, Inc., The Goldman Sachs
Group, Inc., Invesco Ltd., Morgan Stanley, T. Rowe Price Group, Inc. and UBS Group AG. JPMorgan Chase’s ranking reflects AWM client assets, Chase Wealth Management investments
and new-to-firm Chase Private Client deposits.
24 Source: Strategic Insight as of February 2019. Reflects active long-term mutual funds and exchange-traded funds only. Excludes fund of funds and money market funds.
25 Source: Capgemini World Wealth Report 2018. Market share estimated based on 2017 data (latest available).
NM = Not meaningful
NA = Not available
FICC = Fixed Income, Currencies and Commodities
MSAs = Metropolitan statistical areas
USD = U.S. dollar
B = Billions
T = Trillions
13
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
New and Renewed Credit and Capital for Our Clients
2008–2018
($ in billions)
$1,866
$1,820
$2,102
$274
$2,144
$197
$326
$275
$309
$368
$281
$252
$222
$1,567
$312
$167
$1,494
$243
$136
$1,577
$252
$167
$1,392
$1,264
$1,519
$1,621
$1,443
$1,088
$1,115
$1,158
$2,357
$265
$2,044
$233
$399
$2,496
$2,307
$227
$258
$430
$480
$1,789
$1,693
$1,619
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
(cid:31) Corporate clients (cid:31) Commercial clients (cid:31) Consumer
Assets Entrusted to Us by Our Clients
at December 31,
Deposits and client assets1
($ in billions)
$2,681
$365
$573
$2,811
$372
$558
$3,255
$439
$755
$3,011
$398
$730
$2,424
$361
$648
$1,415
$3,617
$464
$824
$3,740
$3,633
$503
$861
$558
$722
$3,802
$618
$757
$4,227
$4,211
$660
$679
$784
$792
$2,783
$2,740
$1,743
$1,881
$1,883
$2,061
$2,329
$2,376
$2,353
$2,427
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
(cid:31) Client assets (cid:31) Wholesale deposits (cid:31) Consumer deposits
Assets under custody2
($ in trillions)
$16.1
$16.9
$18.8
$20.5
$20.5
$19.9
$20.5
$13.2
$14.9
$23.5
$23.2
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
1 Represents assets under management, as well as custody, brokerage, administration and deposit accounts.
2 Represents activities associated with the safekeeping and servicing of assets.
14
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES 2. We endeavor to be the best at anything and everything we do.
While we never expect to be best-in-class
every year in every business, we normally
compare well with our best-in-class peers.
The chart below shows our performance
generally, by business, versus our competi-
tors in terms of efficiency and returns.
JPMorgan Chase Is in Line with Best-in-Class Peers in Both Efficiency and Returns
Efficiency
Returns
JPM 2018
overhead
ratios
Best-in-class
peer overhead
ratios1
JPM medium-term
target overhead
ratio
JPM 2018
ROTCE
Best-in-class
peer ROTCE2, 3
JPM medium-term
target ROTCE
Consumer &
Community
Banking
Corporate &
Investment
Bank
Commercial
Banking
Asset & Wealth
Management
53%
57%
37%
74%
47%
BAC–CB
54%
BAC–GB & GM
42%
USB–C&CB
50%+/-
28%
33%
BAC–CB
25%+
54%+/-
16%
16%
BAC–GB & GM
35%+/-
20%
17%
FITB
~16%
~18%
60%
CS–PB & TROW
70%+/-
31%
37%
MS–WM & TROW
25%+
JPMorgan Chase compared with peers4
Overhead ratios5
Target
~55%
JPM
C
BAC
GS
WFC
MS
57%
57%
58%
64%
64%
72%
ROTCE
JPM
BAC
GS
WFC
MS
C
17%
16%
Target
~17%
14%
14%
14%
11%
1 Best-in-class overhead ratio represents comparable JPMorgan Chase (JPM) peer business segments: Bank of America Consumer
Banking (BAC-CB), Bank of America Global Banking and Global Markets (BAC–GB & GM), U.S. Bancorp Corporate and Commercial
Banking (USB–C&CB), Credit Suisse Private Banking (CS–PB) and T. Rowe Price Group, Inc. (TROW).
2 Best-in-class ROTCE represents implied net income minus preferred stock dividends of comparable JPM peers and peer business
segments when available: BAC–CB, BAC–GB & GM, Fifth Third Bancorp (FITB), Morgan Stanley Wealth Management (MS–WM) and TROW.
3 Given comparisons are at the business segment level, where available, allocation methodologies across peers may be inconsistent
with JPM’s.
4 Bank of America Corporation (BAC), Citigroup Inc. (C), The Goldman Sachs Group, Inc. (GS), Morgan Stanley (MS), Wells Fargo &
Company (WFC).
5 Managed overhead ratio = total noninterest expense/managed revenue; revenue for GS and MS is reflected on a reported basis.
ROTCE = Return on tangible common equity
On an ongoing basis, we analyze and
compare ourselves with our competitors
at a very detailed level. The analysis we do
is on more than 50 sub-lines of business
and hundreds of products, incorporating
not just financial data but also operational
data, customer satisfaction and many other
measures. Our management will always be
very critical of its own performance: Acknowl-
edging our shortcomings and mistakes and
studying them intensely and learning from
them make for a stronger company.
15
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
We also never lose sight of the fact that we
have an extraordinary number of strong
competitors – we cannot be complacent.
There are many capable financial tech-
nology (fintech) companies in the United
States and around the world – technology
always creates opportunities for disruption.
We have acknowledged that companies like
Square and PayPal have done things that we
could have done but did not. They looked at
clients’ problems, improved straight through
processing, added data and analytics to prod-
ucts, and moved quickly. We recently sent
one of our senior teams to China to study
what’s being achieved there with artificial
intelligence (AI) and fintech, and it’s hard
not to be both impressed and a little worried
about the progress China has made – it made
our management team even more motivated
to move quickly. Suffice it to say, no matter
what our current performance is, we cannot
rest on our laurels.
3. We will maintain a fortress balance sheet — and fortress financial principles.
A fortress company starts with a fortress
balance sheet.
You can see in the chart below that our
balance sheet is extraordinarily strong.
Our Fortress Balance Sheet
at December 31,
CET1
TCE/
Total assets1
Tangible
common equity
Total assets
RWA
Liquidity
Fed funds purchased and securities loaned
or sold under repurchase agreements
Long-term debt and
preferred stock
2008
7.0%2
4.0%
$84B
$2.2T
$1.2T2
~$300B
$193B
$303B3
1 Excludes goodwill and intangible assets.
2 CET1 reflects Tier 1 common; reflects Basel I measure.
3 Includes trust preferred securities.
4 Reflects Basel III Standardized measure which is the firm's current binding constraint.
5 Operational risk RWA is a component of RWA under Basel III Advanced measure.
6 Represents the amount of HQLA included in the liquidity coverage ratio.
For additional information, refer to LCR and HQLA on page 96.
+500 bps
+300 bps
+$101B
+$0.4T
+$0.3T
+~$455B
–$11B
+$5B
2018
12.0%4
7.0%
$185B
$2.6T
$1.5T4
$755B
$182B
$308B
B = Billions
T = Trillions
bps = basis points
2018 Basel III
Advanced is 12.9%,
or 17.8% excluding
$389B operational
risk RWA5
2018 Basel III
Advanced is $1.4T
including $389B
operational risk
RWA5
Reported HQLA
is $529B6
$197B eligible
for TLAC
CET1 = Common equity Tier 1 ratio. For additional information, refer to Regulatory capital on pages 86-91
TCE = Tangible common equity
RWA = Risk-weighted assets
Liquidity = HQLA plus unencumbered marketable securities, which includes excess liquidity at JPMorgan Chase Bank, N.A.
HQLA = High quality liquid assets. Predominantly includes cash on deposit at central banks and highly liquid securities including
U.S. agency mortgage-backed securities, U.S. Treasuries and sovereign bonds
LCR = Liquidity coverage ratio
TLAC = Total loss absorbing capacity
16
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES We have an incredibly well-capitalized bank
with enormous liquidity.
But a fortress balance sheet isn’t enough.
To be a fortress company, we believe that
you also need to have strong, properly diver-
sified earnings and margins. It is capital
and liquidity combined with strong earn-
ings and margins that provide the ability to
withstand extreme stress. I want to remind
shareholders that we run hundreds of
stress tests internally each month, some of
which are far more severe than the Federal
Reserve’s (the Fed) annual stress test. We
also believe that we should have strong
earnings after making investments for the
future – which may reduce earnings in the
short run. We are cost- and capital-efficient;
we rigorously allocate our capital; and we
continually analyze our businesses, both to
maximize their individual performance and
to make sure they are contributing to the
health of the whole company.
We like to use our capital to grow.
We much prefer to use our capital to grow
than to buy back stock. We believe buying
back stock should be considered only when
either we cannot invest (sometimes as a
result of regulatory policies) or we are gener-
ating excess capital that we do not expect to
use in the next few years. Buybacks should
not be done at the expense of investing
appropriately in our company. Investing
for the future should come first, and at
JPMorgan Chase, it does.
However, when you cannot see a clear use
for your excess capital over the short term,
buying back stock is an important capital
tool – as long as you are buying it back at
a reasonable price. And when companies
buy back stock (which we only do when it
is at a price that we think adds value to our
remaining shareholders), the capital is redis-
tributed to investors who can put it to good
use elsewhere. It does not disappear. We
currently have excess capital, but we hope in
the future to be able to invest more of it to
grow our businesses.
Good financial management is also critical.
We have always believed that a deep and
detailed understanding of a company’s finan-
cial and operational statements, including
all assets and liabilities and all revenue and
expenses (without netting and regardless of
whether they are on- or off-balance sheet), is
critical to running a safe and sound organi-
zation. However, accounting, and therefore
earnings, is not a perfect measure of perfor-
mance or economics. I would like to discuss
a few reasons why:
• Accounting rules can be counterintuitive,
but you can’t make business decisions based
on them. While we are rigorous about
proper accounting and disclosure, some-
times accounting can distort the actual
economics of a business. A few examples
will suffice. In credit card accounting, for
instance, new card customer costs are
expensed over the course of a year and
inexplicably as a contra-revenue item
(i.e., as a reduction of revenue rather
than an expense). In addition, under
upcoming accounting rules, losses that are
expected over the life of the card balance
are accounted for upfront. Meanwhile,
the earnings from the card are booked
over the life of the card, which averages
approximately seven years. In connection
with mortgage loans we don’t own but
instead service (i.e., by sending statements
and receiving payments on behalf of
the mortgagor), the accounting standard
requires that we present-value expected
revenue and expenses and book every-
thing upfront. But in cash management,
asset management and many other prod-
ucts that have a similar, somewhat predict-
able annuity-like revenue stream, the prac-
tice is different. The reason I am making
this point is that you need to understand
the economics of decisions. Accounting
can easily make people do silly things.
17
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES The real damage to an organization
comes from the cumulative corrosive-
ness of trying to “make” its numbers.
This can be exacerbated by compen-
sation deals and models that can be
manipulated to change quarterly results.
It’s easy to change earnings in a quarter
by doing stupid things that help earn-
ings in the short term but are bad in
the long term. Examples include asking
customers to inappropriately buy more
products before the end of the quarter so
you can show revenue growth, reducing
marketing, not opening that new branch
or not investing in technology that won’t
have a payback for a year or two. I could
go on and on. And this could spiral
within a company, as loyal, well-meaning
employees do what they can to help a
company meet its “earnings goal.”
Importantly, in the next section, I speak
in detail about responsible banking, client
selection and intensive risk management.
Proper management is as critical as anything
else we do, but I did not want to repeat the
messages here.
• Conservative accounting is better. While we
always try to make intelligent economic
decisions, I do believe that appropriately
conservative accounting is a better way to
manage your business. For example, recog-
nize problems early, write off software
that is not valuable, don’t book revenue
that is uncertain and so on. Aggressive
accounting leads to trouble, and while it
may help increase performance measures
in the short run, it will most certainly be
uncovered and reversed at precisely the
wrong time.
• Earnings guidance can be very damaging.
Let’s be very clear: Transparency with
shareholders, proper disclosures and
guidance on certain revenue, expense
and balance sheet items all are good.
However, earnings themselves in any one
quarter are a function of decisions made
over many, many years. Quarterly earn-
ings are dependent upon many factors,
like cost of goods sold and market prices,
which often change, as well as unex-
pected events, the weather, and wage and
gross domestic product (GDP) growth. No
CEO can predict all of those things, and
any analyst with an earnings estimate
has made his or her own specific assump-
tions around them.
4. We lift up our communities.
We will never forget that the most important
thing we do is to run a healthy and vibrant
company that is here to constantly serve our
clients with responsible banking. But we
want our shareholders and all of our constit-
uents to understand the tremendous amount
we do, in addition to traditional banking, to
help the communities in which we operate.
Our effort is substantial, permanent and
supported by the whole company.
One of the reasons for JPMorgan Chase’s
enduring success is we have always recog-
nized that long-term business success
depends on community success. When
everyone has a fair shot at participating in
and sharing in the rewards of growth, the
economy will be stronger and our society
will be better. We are making significant,
long-term, data-driven business and philan-
thropic investments aimed at opening doors
to opportunity for those being left behind.
Most people consider corporate responsi-
bility to be enhanced philanthropy. While
we are devoted to philanthropy (we are on
our way to spending $350 million a year
on these efforts), corporate responsibility
is far more than just that. We finance more
than $2 billion in affordable housing each
18
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES year; we do extensive lending in low- and
moderate-income neighborhoods; we lend
to and finance small businesses around
the country; and we design products and
services in financial education for lower
income individuals. And importantly, these
efforts are supported by senior leadership,
managed by some of our best people (these
efforts are not an afterthought) and are
sustainable. We try to be creative, but we
analyze everything, including philanthropy,
based on expected results.
We are huge supporters of regional and
community banks, which are critical to many
cities and small towns around the country.
In an op-ed published by The Wall Street
Journal in 2016, I wrote: “In this system,
regional and smaller community banks play
an indispensable role. They sit close to the
communities they serve; their highest-
ranking corporate officers live in the same
neighborhoods as their clients. They are able
to forge deep and long-standing relation-
ships and bring a keen knowledge of the
local economy and culture. They frequently
are able to provide high-touch and special-
ized banking services.” JPMorgan Chase,
as a traditional “money center bank” and
“bankers’ bank,” in fact, is the largest banker
in America to regional and community
banks. We bank approximately 530 of
America’s 5,200 regional and community
banks. In 2018, we made loans to them or
raised capital for them totaling $4 billion. In
addition, we process payments for them, we
finance some of their mortgage activities,
we advise them on acquisitions, and we buy
and sell securities for them. We also provide
them with interest rate swaps and foreign
exchange both for themselves – to help
them hedge some of their exposures – and
for their clients.
Over the past five years, we have developed
and refined a model that may be a blue-
print for urban revitalization and inclusive
growth. Our head of Corporate Responsi-
bility describes our significant measures in
more detail in his letter, but I highlight a
few examples here, including the sidebar on
page 20 that describes our focused effort to
support black advancement in a number of
the communities we serve:
• Detroit exemplifies the challenges many cities
wrestle with, as well as the strategies for
solving them. Since 2014, JPMorgan Chase
has been combining its philanthropy
and business expertise to address some
of Detroit’s biggest economic hurdles,
ranging from catalyzing development,
building infrastructure and affordable
housing, and boosting small business
growth to revitalizing education and
preparing Detroiters with the skills to
secure well-paying jobs. We are deeply
proud of our $150 million commitment
and the impact we have made to date –
the city has been the proving ground for
our model for driving inclusive growth,
which has made a real difference in
Detroit’s comeback and the lives of its
citizens. Over the past five years, we have
taken lessons learned and applied them to
other cities facing similar challenges.
• The Entrepreneurs of Color Fund (EOCF) is
another example of how we are turning our
insights into action. In 2015, JPMorgan
Chase helped launch the Entrepreneurs of
Color Fund in Detroit to provide under-
served entrepreneurs with access to
capital and assistance needed to grow and
thrive. From 2015 to 2018, the fund made or
approved loans totaling $6.6 million to 79
minority small businesses, resulting in over
830 new or preserved jobs. Since then, the
Detroit fund has more than tripled in size
to over $22 million. Building on the success
of Detroit’s EOCF, we expanded this model
to San Francisco, the South Bronx, the
Greater Washington region and Chicago,
where it is also making a real impact. In
total, these funds are now approximately
$40 million and growing.
19
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES ADVANCING BLACK PATHWAYS: from an op-ed that originally ran on CNN Business
Mellody Hobson and Jamie Dimon:
Black Americans are still worse off
financially. Businesses can help.
MELLODY HOBSON
JAMIE DIMON
For all the positive economic trends in America, the racial wealth
Our current initiative, Advancing Black Leaders, seeks to hire and
gap continues to prevent growth from benefiting everyone. While
promote more black senior executives and junior-level employees
this is not a new crisis, it is one we must urgently address so that
at JPMorgan Chase. We know investing in our employees is key
economic opportunity is equally extended to black Americans.
to our company’s future. In addition to recruiting more African-
Racism, intolerance, and poverty strangle economic opportunity.
The racial wealth gap is stark: For single black Americans, the
median wealth is $200 to $300, compared to $15,000 to $28,000
for single white Americans. This divide undermines financial
American leaders, we also need to focus on retaining them. Since
2016, the firm has increased the number of black managing
directors by 41% and black executive directors by 53%. A good
start — but just the beginning.
stability for many black Americans.
Advancing Black Pathways will create a dedicated talent pipeline
Closing the racial wealth gap is good for Americans, and it
makes good business sense. We know employees from diverse
backgrounds offering different perspectives drive better
corporate outcomes. A recent study showed that businesses
with diverse leadership generate 19% more revenue than
non-diverse companies.
Diversity can also reduce turnover. Nearly seven in 10 millennials
reported they would continue to work at a company for five or
more years if it is diverse.
As leaders in business as well as the broader community, we know
we have a responsibility to society. Not to mention, as financial
services executives, we can help to foster widespread prosperity.
To this end, we have both worked to empower black Americans
to achieve personal and professional success. For example, After
School Matters, a nonprofit founded in 2000, provides enrich-
ment programs to thousands of inner-city high school students in
Chicago. Meanwhile, JPMorgan Chase’s Fellowship Initiative,
founded in 2010, offers hands-on college access and academic
support to young men of color in Los Angeles, New York, Chicago
and Dallas. The scale and success of these efforts are impressive
— but not enough. There is much more work to be done.
Recently, we announced Advancing Black Pathways — a new
program at JPMorgan Chase that seeks to build on existing
efforts to bridge the racial wealth divide and ultimately help
black families build wealth. We urge more businesses to join us
as we attempt to close this divide.
that will start young black professionals on an early career path
and foster a corporate culture that further encourages diversity
at all levels. We plan to hire more than 4,000 black students in
full-time positions, apprenticeships, and internships over the
next five years. JPMorgan Chase will also help create job training
programs that are aligned with growing industries in the broader
communities we serve.
We are also investing in the financial success of black Americans
through a focus on savings, homeownership, and entrepreneur-
ship. For example, the largest wealth gaps lie in racial disparities
among entrepreneurs. If people of color owned businesses at the
same rates as whites, 9 million more jobs and $300 billion in
income would be created.
As part of this effort, we are helping to create a $6.65 million
Entrepreneurs of Color Fund with local partners in the Wash-
ington, D.C. region to expand access to capital, improve business
services, and streamline supplier diversity programs for small,
minority-owned businesses. To date, we have launched similar
low-cost loan funds in four other U.S. cities, bringing other
investors to the table, and leveraging nearly $40 million to
support underserved entrepreneurs. Thus far, Entrepreneurs of
Color Funds have created or saved more than 1,200 jobs in
critical neighborhoods lacking needed resources to grow.
Businesses of every size have an important role to play in
expanding opportunity. By working together, we can give people
a fair and equal chance to succeed, no matter their zip code or
skin color.
20
Reprinted with permission from CNN Business
•
In 2018, we launched AdvancingCities,
JPMorgan Chase’s $500 million, five-year
initiative to drive inclusive growth in cities
around the world. Through this effort, we
are combining our business and philan-
thropic resources and expertise to expand
opportunity for those being left behind
in today’s economy. This is a global
program. Marking our firm’s 150th anni-
versary in France last year, we announced
a $30 million, five-year commitment –
the first AdvancingCities investment – to
support underserved small businesses
and provide skills training to residents
in Seine-Saint-Denis and other areas in
Greater Paris with high levels of poverty
and unemployment.
• Our recent $350 million New Skills at Work
commitment is focused on how we prepare
people to succeed in our transformed work-
places and changing global economy. Over the
past five years, we have supported worker
education and training around the world
– collaborating with nearly 750 partners
and nonprofits in 37 countries and 30
U.S. states, affecting 150,000 individuals.
We are now bolstering our strategy by
promoting better ways for business and
education to collaborate, scaling the best
education and job training programs.
While we know a fundamental disconnect
still remains between business and the
average citizen, we also believe that the only
solution is to remain relentless in our efforts
to earn trust from every customer in every
community. We believe that is the best we
can do. As the largest financial institution in
the country, JPMorgan Chase understands
our responsibility to earn public trust with
everyone, every day.
When disaster strikes, we give special care to
our customers.
When disaster strikes – we are there for our
customers. After Hurricane Florence and
Hurricane Michael devastated the Caro-
linas and the Gulf Coast, respectively, after
wildfires destroyed large parts of California
and after a number of other tragic events,
we stepped up for our communities and
our customers. We also provided relief to
customers affected by the recent government
shutdown – and kept at it until they received
their back pay. Here’s a list of the kinds of
things we did when disaster struck:
• Re-entered damaged areas, often as the
first bank, filling our ATMs and quickly
reopening our branches to give customers
access to cash, as well as crucial docu-
ments in their safe deposit box.
• Activated our special-care line with
specialists to quickly help customers.
• Refunded customers’ overdraft fees.
• Extended and deferred payments on
customers’ car loans.
• Provided necessary relief on customers’
mortgage loans.
• Removed minimum payments on credit
cards, reducing cash payments and
limiting the impact on customer credit
reports.
• In addition, in 2018, donated more than $4
million to emergency assistance agencies
around the world, which included imme-
diate help following the earthquake and
tsunami in Indonesia, wildfires in Greece,
and devastating floods and landslides in
western Japan.
• Over the past five years, contributed more
than $22 million to support immediate
and long-term recovery from disasters.
21
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES 5. We take care of our employees.
Our employees are fundamental to the
vibrancy and success of our company. At
the end of the day, everything we do – from
operations and technology to service and
reputation – is completely based upon the
abilities and character of our employees.
Inclusion and diversity
• We have more than 256,000 employees
globally, with over 170,000 in the United
States. Our commitment to creating an
inclusive organization is not only about
doing the right thing; it’s about doing
what makes our company stronger. In
2016, we introduced Advancing Black
Leaders, an expanded diversity strategy
focused on increased hiring, retention
and development of talent from within
the black community. We magnified that
effort in 2019 with our Advancing Black
Pathways initiative (which is outlined
in the sidebar on page 20). Now, in the
United States, 50% of our firm’s workforce
is ethnically diverse. That said, we know
we have work to do to increase the repre-
sentation of ethnically diverse employees
at senior levels of the company.
• On gender diversity, women represent
30% of our firm’s senior leadership glob-
ally. These are women who run major
businesses and functions – several units
on their own would be among Fortune
1000 companies. Investing in the advance-
ment of women is a key focus for our
company, and we have established a global
firmwide initiative called Women on the
Move that empowers female employees,
clients and consumers to build their
career, grow their businesses and improve
their financial health.
• To encourage diversity and inclusion
in the workplace, we have 10 Busi-
ness Resource Groups (BRG) across the
company to connect approximately
100,000 participating employees around
common interests, as well as foster
networking and camaraderie. Groups are
defined by shared affinities, including
race and cultural heritage, generation,
gender, sexual orientation, disability and
military status. For example, some of our
largest BRGs are Adelante for Hispanic
and Latino employees, Access Ability for
employees who have a disability, AsPIRE
for Asian and Pacific Islander employees,
NextGen for early career professionals,
PRIDE for our LGBT+ employees, BOLD
for black employees and Women on the
Move, our largest group, which has more
than 30,000 members globally.
Wages
• We have been raising wages for our
22,000 employees at the lower end of the
pay range. For those earning between $12
and $16.50 an hour in the United States,
we have been increasing hourly wages to
between $15 and $18, depending on the
local cost of living. For employees making
$40,000 a year or less in the United States,
our average pay increases are around
$4,800. This is the right thing to do, and
we now offer well above the average
hourly wage for most markets. Remember,
these jobs are often the first rung on the
ladder, and many of these employees soon
move on to higher paying positions.
• These increases are on top of the firm’s
comprehensive benefits package, with an
average value of $12,000 for employees in
the lower wage tier.
22
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES 401(k) — Retirement
• We provide comprehensive retirement
benefits, including a competitive 401(k)
plan and dollar-for-dollar match on 5%
of pay. For 2018, the 401(k) plan match,
totaling approximately $482 million,
enhanced the retirement savings of
135,000 employees.
• We recognize that many employees
who earn under $60,000 a year often
do not invest in a 401(k) plan because
they cannot afford the lost cash flow
and, therefore, do not receive the match.
For these employees, we make a discre-
tionary $750 Special Award to them. This
provided 56,000 U.S. employees with $40
million in additional retirement funds –
and this money is granted whether or not
they make their own contribution to a
401(k) plan.
Health benefits and wellness programs
• We offer a comprehensive health benefits
package in the United States, including
a medical plan that covers over 296,000
individuals (138,000 employees, 106,000
children and 52,000 spouses/domestic
partners). In 2018, we covered $1.3 billion
in medical costs (net of employee payroll
contributions). We care very much about
our employees’ health.
• We subsidize the health benefit costs of
lower wage earners up to 90% of the
total cost – for higher paid employees,
we subsidize approximately 60%. In
addition, recognizing the hardship
that deductibles cause for lower paid
employees, effective January 1, 2018, we
lowered the deductible in the medical
plan by $750 for employees earning less
than $60,000. For these employees, if
they do their wellness screenings, their
effective deductible could be zero.
• Enrolled employees and spouses/
domestic partners earned collectively
about $100 million toward their Medical
Reimbursement Accounts in 2018, funded
by JPMorgan Chase, for completing well-
ness activities.
• Outside the United States, we provide
medical coverage to 80,000 employees
and their families under local medical
insurance plans.
• 62% of employees around the globe have
access to our 54 on-site Health & Wellness
Centers, which are staffed with doctors,
nurses, nurse practitioners and other
health professionals. These centers are
extensively visited – in excess of 600,000
encounters a year. And over 100 visits
were potentially life-saving interventions
(involving, for example, urgent cardiac or
respiratory issues).
Training
• We extensively invest in employee bene-
fits and training opportunities so that our
workers can continue to increase their
skills and advance their career. Our total
direct investment in training and devel-
opment is approximately $250 million
a year. What’s more important and hard
to measure is the on-the-job training that
just about every employee gets from their
manager – education that leads to deep
knowledge and promotion opportunities
(and, unfortunately, lots of recruiting from
our competitors). In 2018, we delivered 9
million hours of training to our employees
worldwide, augmented by several new
digital learning innovations.
• Since inception of the program in 2015,
26,500 managers (approximately 60% of
all managers) have attended one or more
Leadership Edge programs. These offer
critical training in leadership and manage-
ment. While this initiative is costly, we
are starting to see results in terms of
reduced attrition, higher satisfaction from
employees and better management.
Volunteer and Employee Engagement Paid Time
Off policy
• Effective January 1, 2019, we implemented
a new Volunteer and Employee Engage-
ment Paid Time Off policy, which provides
up to eight hours of paid time off each
calendar year for volunteer and other
firm-sponsored activities.
23
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES • The new policy increases opportunities for
employees to participate in volunteer activ-
ities and give back to our communities.
Parental Leave policy
• In 2017, we increased paid parental leave
for the primary caregiver to 16 weeks, up
from 12 weeks, for eligible employees in
the United States. In 2018, we extended
the leave for non-primary parental care-
givers to six weeks of paid time off (up
from two weeks).
Supporting veterans
• Our veteran-focused efforts are centered
on facilitating success in veterans’ post-
service lives primarily through employ-
ment and retention. In 2011, JPMorgan
Chase and 10 other companies launched
the 100,000 Jobs Mission, setting a goal
of collectively hiring 100,000 veterans.
The initiative has resulted in the hiring
of more than 500,000 veterans by over
200 member companies of the Veteran
Jobs Mission, with the ultimate goal of
employing 1 million veterans.
• JPMorgan Chase has hired more than
14,000 U.S. veterans since 2011 – including
over 1,100 in 2018 alone – with more than
50% coming from diverse backgrounds.
• We offer internship and rotational entry
programs to ease the transition from
military service to the financial services
industry. Once at our firm, veterans
can count on the support of our Office
of Military and Veterans Affairs, which
sponsors mentorship programs, acclima-
tion and development initiatives, recog-
nition events and other programs to help
bridge the gap between military and
corporate cultures.
• More than 1,000 mortgage-free homes have
been awarded to military families through
nonprofit partners as part of our firm’s
Military Home Awards Program.
• We completely support the U.S. military.
We cannot understand how any U.S.
citizen does not support the extraordinary
sacrifice and hardship borne by the mili-
tary to help protect this great nation.
Needless to say, our success is impossible
without our employees, and we strive
mightily to help them in both their profes-
sional and personal lives.
6. We always strive to learn more about management and leadership.
At the end of the day, everything we do is
done by human beings. In my annual letter
to shareholders, I always enjoy sharing what
we have learned about management, leader-
ship and organizations over time.
Great management is critical, though true
leadership requires more.
For any large organization, great manage-
ment is critical to its long-term success. Great
management is disciplined and rigorous.
Facts, analysis, detail … facts, analysis, detail
… repeat. You can never do enough, and
it does not end. Complex activity requires
hard work and not guessing. Test, test, test
24
and learn, learn, learn. And accept failure
as a “normal” recurring outcome. Develop
great models but know that they are not the
answer – judgment has to be involved in
matters related to human beings. You need
to have good decision-making processes,
with the right people in the room, the proper
dissemination of information and the appro-
priate follow-up – all to get to the right deci-
sion. Force urgency and kill complacency.
Know that there is competition everywhere,
all the time. But even if you do all of this
well, it is not enough.
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES Real leadership requires heart and humility.
It’s possible to be very good at the type
of management described above, but as
managers rise in an organization, they
depend on others more and more. The team
is increasingly important – many team
members know more than their managers
do about certain issues – a team working
together can get to a better outcome. I have
seen many senior managers ascend into
big new roles with a bad reaction to their
increasing dependence on other people – by
hoarding information, never allowing them-
selves to be embarrassed and demanding
personal loyalty versus loyalty to the orga-
nization and its principles. They don’t grow
into the new job – they swell into it. I have
often felt that dependency on their teams
makes these folks feel paranoid or insecure –
leading to this bad behavior.
Good leaders have the humility to know that
they don’t know everything. They foster an
environment of openness and sharing. They
earn trust and respect. There are no “friends
of the boss” – everyone gets equal treatment.
The door is universally open to everybody.
Everyone knows that these leaders are only
trying to do the right thing for customers and
clients. They share the credit when things go
well and take the blame when it does not.
And true leaders don’t just show they care
– they actually do care. While they demand
hard work and effort, they work as hard as
anyone, and they have deep empathy for
their employees under any type of stress.
They are patriots not mercenaries; they have
the heart to wear the jersey every day.
You need to stay hungry and scrappy.
Competition is everywhere, but, often, very
successful companies are lulled into a false
sense of security. Having worked at a number
of companies not nearly as successful as ours
(I have to confess that I kind of liked being
the underdog), we fought every day to even
try to get to the major leagues. All companies
are subject to inertia, insipid bureaucracy and
other flaws, which must be eradicated. If a
company isn’t staying on edge, maintaining
a fire in its belly and pushing forward, it will
eventually fail.
7. We do not worry about some issues.
Since we shared issues that are high priori-
ties, it is almost as important to describe the
issues we don’t worry about daily – and why.
A few are listed below:
• We do not worry about loan growth. It
is most definitely an outcome of how we
manage credit and client decisions. We will
not stretch, ever, to show growth in loans.
• We do not worry about the stock price in
the short run. If you continue to build a
great company, the stock price will take
care of itself.
• We do not worry about quarterly earnings.
Build the company for the future, and you
will maximize earnings over the long run.
• While we worry extensively about all
of the risks we bear, we essentially do
not worry about things like fluctuating
markets and short-term economic reports.
We simply manage through them.
• While we fanatically manage our
company, we do not worry about missing
revenue or expense budgets for good
reasons. This is not a mixed message. We
want our leaders to do the right thing for
the long term and explain it if they have
good reasons to diverge from prior plans.
• We do not worry about charge-offs
increasing in a recession – we fully expect
it, and we manage our business knowing
there will be good times and bad times.
Suffice it to say, we stay devoted to these
principles.
25
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES II. COM MENTS O N CUR R ENT CRITICAL ISSUES
In this section, I review and analyze some of the current critical issues that affect our company.
1. We need to continue to restore trust in the strength of the U.S. banking system and
global systemically important financial institutions.
An enormous amount has been accomplished in
the last decade.
The strength, stability and resiliency of the
financial system have been fundamentally
improved over the course of the last 10 years.
While I don’t agree with all of the Wall Street
Reform and Consumer Protection Act (Dodd-
Frank) regulations, the bill did give regulators
needed authority to fix our financial system’s
most critical flaws. These post-crisis reforms
have made banks much safer and sounder
in the three most important areas: capital,
liquidity, and resolution and recovery.
Large banks, defined as global systemically
important financial institutions, have more
than doubled their highest quality capital to
protect against losses, and they have tripled
their liquid assets to total assets ratio to protect
against unexpected net cash outflows. This
allows healthy banks to weather extreme stress
while continuing to provide credit and support
to their clients (see message to employees on
pages 27-28 that describes many of the lessons
learned from the crisis and the extensive steps
we took to help our clients).
Here’s an eye-opening example of how much
capital is now in the system: Under the Fed’s
most extreme stress-testing scenario, where 35
of the largest American banks bear extreme
losses (as if each were the worst bank in the
system), the combined losses are about 6% of
the total loss absorbing resources of those 35
banks. JPMorgan Chase alone has nearly three
times the loss absorbing resources to cover
the projected losses of all of these 35 banks
(see chart below).
In addition, resolution and recovery regu-
lations have given regulators both the legal
authority and the tools to manage a failing
or failed institution (see my comments in
the sidebar on page 29 about how Lehman
Brothers would have played out under
today’s new rules). This allows regulators to
minimize the impact of a major failed insti-
tution on both taxpayers and the system.
Loss Absorbing Resources of U.S. SIFI Banks Combined
($ in billions)
$2,265
$1,249
$1,016
20181
˜
6
%
$1,749
$1,274
$475
20071
2x
˜
(cid:31) Loan loss reserves, preferred stock
and TLAC long-term debt
(cid:31) Tangible common equity
$1392
35 CCAR banks 2018
projected pre-tax net losses
(severely adverse scenario)
$396
$211
$185
2018 JPMorgan Chase only
1 Includes only the 18 banks participating in CCAR in 2013, as well as Bear Stearns,
Countrywide, Merrill Lynch, National City, Wachovia and Washington Mutual.
2 Federal Reserve Dodd-Frank Act Stress Test 2018: Supervisory Stress Test Methodology
and Results, June 2018.
Source: SNL Financial; Federal Reserve Bank, February 2019
SIFI = Systemically important financial institution
CCAR = Comprehensive Capital Analysis and Review
TLAC = Total loss absorbing capacity
26
Looking back on
the financial crisis
September 2018 message to employees 10 years after the financial crisis
Dear Colleagues,
A decade has passed since the collapse of Lehman Brothers so now is a good time to reflect on the financial
crisis that was raging 10 years ago this month. A lot has been written — and far more is still to be written
— on this crisis, but I would like to share a few thoughts with you on that extraordinary period of time and
everything that all of you at JPMorgan Chase did to try to help.
The gathering storm hit with a vengeance.
While the collapse of Lehman in September 2008 was the epicenter of the crisis, it was actually far more
complex than that — the roots go back to before 2006. By late 2006, we already saw problems in subprime
mortgages, leveraged lending and quantitative investing. With the onset of Basel II, leverage at investment
banks (not commercial banks) more than doubled, as did shadow banking (think structured investment
vehicles, collateralized debt obligations, money market funds and so on). This was often funded by
unsecured, undependable short-term wholesale borrowing. Then the biggest problem of all presented
itself: It was not just subprime mortgages that were flawed — but all mortgages. This happened, in hind-
sight, by bad underwriting, government policy that fueled and fostered inappropriate mortgage lending
(higher and higher loan-to-values, less and less cash down, weaker appraisals and insufficient income
certification), unscrupulous brokers and cavalier investors. The banks, though not the worst actors in
mortgages, joined the party, too. When the world realized that $1 trillion would ultimately be lost in
mortgages, panic ensued. There were multiple failures — mortgage brokers, savings and loans (S&L),
including Washington Mutual (WaMu) and IndyMac, as well as Fannie Mae and Freddie Mac (which were
the largest financial failures of all time) — culminating in the dramatic failure of Lehman, followed by
the extraordinary bailouts of AIG and other major financial institutions.
JPMorgan Chase did everything it possibly could do to help during this time.
On March 16, 2008, we announced our acquisition of Bear Stearns, a company with $300 billion of assets,
which had collapsed and had fatal problems (we were essentially buying a house … but it was a house on
fire). And we did this at the request of the U.S. government (thinking at the time that this could help head
off a terrible crisis). On September 25, 2008, 10 days after the collapse of Lehman Brothers, we bought the
largest S&L — WaMu — another company that had $300 billion of assets. We took other extraordinary actions
— often at calculated but great risk to JPMorgan Chase — to support clients, including governments, and to
support the markets in general. We loaned $70 billion in the global interbank market when it was needed
most. With markets in complete turmoil, we were the only bank willing to single-handedly lend $4 billion to
the state of California, $2 billion to the state of New Jersey and $1 billion to the state of Illinois. Additionally
— and frequently — we loaned or raised for our clients $1.3 trillion at consistent and fair rates, in many cases
far below what the market would have demanded, and we provided more than $100 billion to local govern-
ments, municipalities, schools, hospitals and not-for-profits over the course of 2009. Many other banks did
the same. You probably will be surprised to find out that we lent a tremendous amount of money to Lehman
before the crisis — and even more after the crisis. In fact, at the request of the Federal Reserve, we took
extraordinary risk to lend more than $80 billion (on a secured basis) to Lehman after its bankruptcy to help
facilitate sales of assets in as orderly a way as possible to minimize disruption in the markets.
27
This was a traumatic, historic period of time not just for the financial system but for the world as a whole.
We endured a once-in-a-generation economic, political and social storm, and because of you, we have
emerged 10 years after this crisis as a company of which we can all be proud.
The aftermath and lessons learned.
Many people still ask me about the Troubled Asset Relief Program (TARP), a government program that
provided funding to banks in the midst of the crisis. JPMorgan Chase did not want or need TARP money,
but we recognized that if the healthy banks did not take it, no one else could — out of fear that the market
would lose confidence in them. And while it helped create the false rallying cry that all the banks needed
support, the government, both the Federal Reserve and the Treasury, was trying everything it could in
addition to TARP. And the Federal Reserve and the Treasury should be congratulated for the extraordinary
actions they took to stave off a far worse crisis. In hindsight, it is easy to criticize any specific action, but,
in total, the government succeeded in avoiding a calamity.
There were many lessons learned from the crisis: the need for plenty of capital and liquidity, proper
underwriting and regulations that are constantly refined, fair and appropriate. In fact, regulators should
take a victory lap because Lehman, Bear Stearns, AIG and multiple other failures effectively could not
happen today because of the new rules and requirements.
We entered the crisis with the capital, liquidity, earnings, diversity of businesses, people and a risk
management culture that enabled us to avoid most — but, unfortunately, not all — of the issues exposed by
the crisis. These strengths also helped us to weather the economic crisis and to continue to play a central
role in supporting our clients and our communities and rebuilding the U.S. economy. Counter to what most
people think, many of the extreme actions we took were not done to make a profit: They were done to
support our country and the financial system.
What stood out most was our character and capabilities — which make JPMorgan Chase what it is today.
When the global financial crisis unfolded in 2008, the people of JPMorgan Chase understood the vital role
our firm needed to play and felt a deep responsibility to those who rely on us. It was this sense of respon-
sibility that enabled us to move beyond the challenges we were facing at that time and maintain a focus
on what really matters: Taking care of our clients, helping the communities in which we operate — all while
under extreme pressure from both the markets and the body politic — and protecting our company.
How we managed through the crisis is a testimony to the collective strength of character and commitment
of our people. During those chaotic days throughout the crisis and its aftermath, many of our people had
to work around the clock, seven days a week, for months on end. And they did it without complaint. The
biggest lesson of the crisis: The quality, character, culture and capabilities of your partners are paramount.
Looking back and then looking around at the company we are today, I am filled with awe and admiration.
For JPMorgan Chase, these past 10 years have been part of a challenging, yet defining, decade. Today,
JPMorgan Chase is among the leaders in most of our businesses. I can’t tell you how proud I am to be your
partner and to witness your extraordinary performance. I can’t thank our current and former employees
enough for helping us get through those turbulent times and for the company we have become.
28
LEHMAN REDUX — IT SIMPLY WOULD NOT HAVE FAILED, BUT IT WOULD
HAVE BEEN EASILY MANAGEABLE IF IT DID FAIL
As I mentioned in my shareholder letter in 2016, it is instructive to look at what would happen
if Lehman were to fail in today’s regulatory regime. First of all, it is highly unlikely the firm
would fail because under today’s capital rules, Lehman’s equity capital would be approximately
$45 billion instead of $23 billion, which it was in 2007. In addition, Lehman would have far
stronger liquidity and “bail-inable” debt. And finally, the firm would be forced to raise capital
much earlier in the process. Lehman simply would not have failed.
However, if by the remotest, shooting-star possibility Lehman failed anyway, regulators would
now have the legal authority to put the firm in receivership (they did not have that ability
back in 2007-2008). At the moment of failure, unsecured debt of approximately $120 billion
would be immediately converted to equity. “New Lehman” would be the best-capitalized
bank in the world. In addition, derivatives contracts would not be triggered, and cash would
continue to move through the pipes of the financial system. Legislators and regulators should
be applauded for what they have done to solve the Too Big to Fail problem, though I should
point out that this was accomplished by putting some basic rules in place — not the thousands
of other rules layered atop them.
2. We have to remind ourselves that responsible banking is good and safe banking.
One of the critical responsibilities of banks is
to take a rigorous and disciplined approach
to allocating capital in the financial system –
whether they do it directly through loans or
through public and private capital markets.
Banks need to do this knowing there will
be recessions and that they should plan to
support their clients through their most diffi-
cult times. We did exactly that throughout
the 2008 crisis (again, see message to
employees on pages 27-28). While many
people focus on market making, which of
course entails risk (we buy and sell about $2
trillion a day of various securities around the
world), this risk taking is carefully moni-
tored and largely hedged. To put risk taking
and market making a little bit in perspective
– in the last five years, we have lost money
trading on only 11 days, and the loss was
usually small and never more than about
two times the average normal trading day
revenue. Overall, loans are still the biggest
risk that banks take. Our loan losses last year
were $5 billion, and in the worst year of the
Great Recession, our loan losses were approx-
imately $24 billion.
Responsible banks cannot always give customers
what they want.
Making bad and unworthy loans ultimately
is bad for both the bank and the customer.
Being a responsible bank means you can’t
always give customers what they want,
and, therefore, it is unlikely that all of your
customers are going to like you. We are
fundamentally not in the same position
as most businesses. If a customer has the
money, most businesses will sell their goods
and services to that customer. Banks can’t do
that. Sometimes we have to say no or enforce
29
II. COMMENTS ON CURRENT CRITICAL ISSUES A recent example in the oil and gas sector shows
how we balance risk while serving clients in
tough times.
From 2014 to 2016, oil prices collapsed from
a high of $108 per barrel to a low of $26
per barrel. We were carrying approximately
250 loans to smaller oil and gas companies
(mostly based in Houston), referred to in
the industry as “reserve-based loans,” or
RBLs. The proven oil and gas reserves in
the ground served as the collateral for these
loans, as reviewed by both J.P. Morgan’s
petroleum engineers and third-party engi-
neering consultants. We had $3 billion in
outstanding loans under the RBL structure
(and more to the oil industry as a whole).
While we made these loans conservatively,
we knew that low oil prices at the bottom of
the cycle put us at great risk of loan losses
– maybe even as high as $500 million. Our
view was that we were going to work with
these borrowers; i.e., extend the loans and
try to help the companies survive this rough
patch. (Of course, we put up additional loan
loss reserves to account for possible losses.)
At one point, surprisingly, some regulators
made it clear that they did not want banks
to extend these loans because they were too
risky. But we thought it was important, even
at the risk of losing hundreds of millions
of dollars (something that we were posi-
tioned to be able to do), to help our clients
get through this tough time rather than
desert them when they needed us most. And
sticking with our clients is exactly what we
did. We thought regulators were overreacting
– and, indeed, our losses, ultimately, were
miniscule. Because of these actions, we are
still welcome in Houston.
rules that may be unpopular. I have always
believed that this necessary discipline with
customers is one of the reasons that, histori-
cally, banks have not been popular.
Banks are under constant pressure, including
political pressure, to make loans (remember
subprime mortgages?) even when they
should not. But when and if something goes
wrong with loans, even when proper and
responsible underwriting is done, banks will
come under a lot of legal, regulatory and
political scrutiny and should expect to be
blamed for potentially causing the problem.
These conflicting pressures – to make or not
make loans – will always exist and need to be
properly navigated by a good bank.
Client selection is critical.
Client selection is one of the most important
things we do. If one bank builds a book of
business with clients of high character and
another bank builds its business with clients
of low character (who are usually pushing
sound banking practices to the limit), it’s
clear which bank will succeed over time.
Therefore, turning down clients, which can
sometimes be hard to do, is often the only
way to be a responsible bank.
Risk taking is a detailed, analytical process and
includes extensive risk mitigation.
Shareholders may be surprised to find out
that, fundamentally, we are not a risk-taking
but rather a risk-mitigating institution.
Risk mitigation is not guessing – it is a
thoughtful, detailed analytical process that
leads to measured decision making. Partic-
ipants in our risk meetings can attest that
while we are adamant about serving clients,
we are also fanatic about understanding and
mitigating some of the associated risks. So,
in addition to proper client selection, risks
are mitigated through simplification, diver-
sification, hedging, syndication, covenants,
hard limits, continuous monitoring and fast
reaction to problems. We deeply analyze
everything so we can shoulder appropriate
risk for and with our clients. We are their
financial partner.
30
II. COMMENTS ON CURRENT CRITICAL ISSUES 3. We believe in good regulation — both to help America grow and improve financial stability.
I want to be very clear that we do not advo-
cate for the repeal of Dodd-Frank. We believe
that the strength and resilience of the U.S.
financial system have benefited from the
law. Ten years out from the crisis, however, it
is appropriate for policymakers to examine
areas of our regulatory framework that
are excessive, overlapping, inefficient or
duplicative. At the same time, they should
identify areas where banks can promote
economic growth without impacting the very
important progress we have made on safety
and soundness. In fact, a stronger economy,
by definition, is a safer economy. Our goal
should be to achieve a rational, calibrated
approach to regulation that strikes the right
balance. This should be an ongoing and
rigorous process that does not require any
significant piece of legislation and should not
be politicized.
Here are a few areas where we think recalibra-
tion would be good not only for banks, but for
consumers and the economy as a whole:
• Carefully monitor the growing shadow bank
system. While we do not believe that the
rise in non-banks and shadow banking
has reached the point of systemic risk, the
growth in non-bank mortgage lending,
student lending, leveraged lending and
some consumer lending is accelerating
and needs to be assiduously monitored.
(We do this monitoring regularly as part
of our own business.) Growth in shadow
banking has been possible because rules
and regulations imposed upon banks
are not necessarily imposed upon these
non-bank lenders, which exemplifies the
risk of not having the new rules prop-
erly calibrated. An additional risk is that
many of these non-bank lenders will not
be able to continue lending in difficult
economic times – their borrowers will
become stranded. Banks traditionally try
to continue lending to their customers in
tough times.
• The country desperately needs mortgage
reform — it would add to America’s economic
growth. Reducing onerous and unneces-
sary origination and servicing require-
ments (there are 3,000 federal and state
requirements today) and opening up the
securitization markets for safe loans would
dramatically improve the cost and avail-
ability of mortgages to consumers – partic-
ularly the young, the self-employed and
those with prior defaults. And these would
not be subprime mortgages but mortgages
that we should be making. By taking this
step, our economists believe that home-
ownership and economic growth would
increase by up to 0.2% a year.
In the early 2000s, bad mortgage laws
helped create the Great Recession of 2008.
Today, bad mortgage rules are hindering
the healthy growth of the U.S. economy.
Because there are so many regulators
involved in crafting the new rules, coupled
with political intervention that isn’t
always helpful, it is hard to achieve the
much-needed mortgage reform. This has
become a critical issue and one reason
why banks have been moving away from
significant parts of the mortgage busi-
ness. That business, in particular, high-
lights one of the flaws of our complicated
capital allocation regime. The best way to
risk manage a bank is to use risk weights
that are actually based on risk. However,
since most banks are also constrained by
standardized capital (a capital measure
that does not risk-adjust for the lower risk
of having a properly underwritten prime
mortgage), owning mortgages becomes
hugely unprofitable.
Because of these significant issues, we
are intensely reviewing our role in origi-
nating, servicing and holding mortgages.
The odds are increasing that we will
need to materially change our mortgage
strategy going forward.
31
II. COMMENTS ON CURRENT CRITICAL ISSUES We also need to get the recalibration of
other regulatory requirements right, partic-
ularly around operational risk capital, the
Fed’s Comprehensive Capital Analysis and
Review (CCAR) stress test and the addi-
tional allocation of capital to global system-
ically important banks (GSIB). If we don’t
do so, certain products and services will
continue to be pushed outside the banking
system (where they are, fundamentally, not
regulated), distorting markets and raising
the cost of credit for clients.
• Operational risk capital. We now hold
nearly $400 billion of operational risk-
weighted assets, which means we hold
more than $40 billion of equity for assets
that don’t exist. This was a new calcula-
tion added after the crisis to recognize
that banks also bear serious operational
risk (stemming from lawsuits, processing
errors and other issues). I agree that all
banks bear operational risk, yet this is
also true for all companies. Most compa-
nies, including banks, have earnings to
pay for operational risk. And the calcu-
lation that gets us to $400 billion is
questionable and so complex that I am
not going to explain it here. Finally, most
of our operational risk assets stem from
Bear Stearns and WaMu subprime mort-
gage products that we don’t even offer
anymore. Tying up capital in perpetuity
– looking for shadows on the wall – is
probably not the best idea for fostering
growth in America.
• Comprehensive Capital Analysis Review.
I deeply believe in stress testing, but I do
have issues with CCAR. First, it consists
of only a single test (there are many
things that can go wrong that should
be stress tested) – which is unlikely to
prepare anyone (banks or regulators)
adequately. There is an arbitrariness
to a single test. Moreover, I don’t think
CCAR accurately represents what a loss
would look like in the nine quarters
after a Lehman-type event (remember
32
that in the nine quarters following the
actual Lehman collapse, JPMorgan Chase
earned $30 billion). One of the refrains
that we hear about CCAR results is they
show that most banks at the worst part
of the stress cycle can barely cover their
required capital. This is fundamentally
inaccurate. The CCAR test can give this
false impression because it requires
banks to do unnatural things (such as
continuing all stock buybacks – even
when it is completely obvious that
banks wouldn’t or couldn’t do this). As a
result, we don’t rely solely on CCAR, and
we stress test hundreds of scenarios a
month, preparing ourselves for circum-
stances far worse than CCAR stress.
While CCAR losses may exceed what
banks are likely to experience, they do
appropriately include benefits that banks
receive from being diversified and from
having healthy profit margins. And
CCAR is an effective built-in countercy-
clical buffer because its whole purpose
is to ensure adequate capital at the worst
point of a major stress event. Capital
requirements for GSIBs, however, are
completely different.
• GSIB capital requirements. My biggest
issue is with GSIB capital require-
ments, and since they may be added
to the CCAR stress test, they become
even more important. Most of the
factors used in GSIB requirements
are not risk-adjusted – and many of
the calculations have no fundamental
underpinning or logical justification.
Their methodology irrationally multi-
plies certain factors over and over, and
many of the facts are simply unjus-
tified on any basis. For example, one
of the risks is called “substitutability,”
which is supposed to measure the risk
that we won’t be able to replace certain
services of a large bank that fails or
retrenches during a crisis. The specific
factors used to calculate this risk are
market share of equity and debt under-
writing and market making. But when
II. COMMENTS ON CURRENT CRITICAL ISSUES Lehman failed, no one had a problem
in replacing any of these activities.
For another example, American regu-
lators simply doubled thresholds for
American banks (versus international
competition) and have never adjusted
them, as they were supposed to do, for
economic growth, for other new regula-
tions like total loss absorbing capacity
and liquidity or for the fact that GSIB
banks have become a smaller part of
the financial system. Now regulators
are talking about adding GSIB require-
ments to CCAR, which is only logical if
the GSIB charge itself makes sense in
the first place. If GSIB regulation is to
become this important, it needs thor-
ough justification.
Later in this letter I discuss some possible
adverse consequences to the U.S. financial
system because of the interplay between
these factors in a downturn. One comment
that we continue to hear is that U.S. banks
are now doing quite well despite evidence
that GSIB requirements are tougher on
U.S. banks than on foreign banks. But
that outperformance is not ordained from
above and may not always be the case. We
should calculate data the right way, and
U.S. banks, their employees, shareholders
and the communities they serve should not
be put at a permanent disadvantage.
Proper calibration of financial regulation
can enhance the growth and resiliency of
the U.S. economy, which actually reduces
systemic risk and helps banks safely serve
more clients.
4. We believe stock buybacks are an essential part of proper capital allocation but
secondary to long-term investing.
I have already noted that stock buybacks,
though sometimes misused, are an
important tool that businesses must have
to reallocate excess capital. To reiterate, this
should be done only after proper invest-
ments for the future have been considered.
A recent complaint is that companies,
partially due to tax reform, have used
their excess capital to buy back more
stock instead of investing in their busi-
ness. While this is true, you should keep in
mind three things. First, as stock buybacks
increased in 2018, so did corporate capital
expenditures and research and develop-
ment (R&D). In fact, contrary to popular
belief, capital expenditures as a percentage
of GDP are higher today than in the “good
old days” of the 1950s and 1960s. Second,
companies tend to buy back stock when
they don’t see a good use for capital in the
next year or two. We believe that as compa-
nies adjust to the new higher cash flows,
they will begin to reinvest more of that
money in the United States. The benefit of
tax reform is the long-term (multi-year)
cumulative effect of capital retained and
reinvested in the United States. And third,
the capital that was used to buy back stock
did not disappear – it was given to share-
holders who then put it to a better and
higher use of their own choosing.
Here is one concluding comment on long-
term investing: Many investors legiti-
mately demand that companies think long
term and explain their strategies and poli-
cies. Meanwhile, these same investors, who
demand long-term thinking from compa-
nies, often invest in funds that are paid a
lot of money for how a stock performs in
one year. I hope these investors appreciate
the disconnect and hope they will consider
the pressures for short-term performance
they may have helped to create.
33
II. COMMENTS ON CURRENT CRITICAL ISSUES 5. On the importance of the cloud and artificial intelligence, we are all in.
The power of the cloud is real.
We were a little slow in adopting the cloud,
for which I am partially responsible. My
early thinking about the cloud was that it
was just another term for outsourcing. I held
firm to the view, which is somewhat still
true, that we can run our own data centers,
networks and applications as efficiently as
anyone. But here’s the critical point: Cloud
capabilities are far more extensive, and
we are now full speed ahead. Let me cite a
couple of examples:
• The cloud gives us the ability to achieve
rapid scale and elasticity of computing
power exponentially beyond our own
capacity. This will be especially relevant as
we scale up our artificial intelligence efforts.
• The cloud platform is agile and flexible.
It offers access to data sets, advanced
analytics and machine learning capabili-
ties beyond our own. It increases devel-
opers’ effectiveness by multiples – you
can almost “click and drop” new elements
into existing programs as opposed to
writing extensive new code. For instance,
adding databases and/or machine
learning to an application can be done
almost instantaneously. And certain
tasks, such as testing code and provi-
sioning compute power, are automated.
• The cloud provides a software develop-
ment experience that is frictionless and
allows our engineers to prototype quickly
and learn fast, as well as increase the
speed of delivering new capabilities to our
customers and clients.
It is important to note that the cloud has
matured to the point where it can meet the
high expectations that are set by large enter-
prises that have fairly intense demands
around security, audit procedures, access to
systems, cyber security and business resiliency.
We will be rapidly “refactoring” most of our
applications to take full advantage of cloud
computing. We then can decide whether it is
more advantageous to run our applications
34
on the external cloud or the internal cloud
(the internal cloud will have many of the
benefits of the external cloud’s scalable and
efficient platforms).
One final but key issue: Agile platforms and
cloud capabilities not only allow you to do
things much faster but also enable you to
organize teams differently. You can create
smaller teams of five to 20 people who can
be continually reimagining, reinventing and
rolling out new products and services in a
few days instead of months.
The power of artificial intelligence and machine
learning is real.
These technologies already are helping us
reduce risk and fraud, upgrade customer
service, improve underwriting and enhance
marketing across the firm. And this is just
the beginning. As our management teams
get better at understanding the power of AI
and machine learning, these tools are rapidly
being deployed across virtually everything we
do. We can also use artificial intelligence to
try to achieve certain desired outcomes, such
as making mortgages even more available to
minorities. A few examples will suffice:
• In the Corporate & Investment Bank,
DeepX leverages machine learning to
assist our equities algorithms globally to
execute transactions across 1,300 stocks a
day, and this total is rising as we roll out
DeepX to new countries.
• Across our company, we will be deploying
virtual assistants (robots driven by artifi-
cial intelligence) to handle tasks such as
maintaining internal help desks, tracking
down errors and routing inquiries.
• In Consumer Marketing, we are better
able to customize insights and offerings
for individual customers, based on, for
example, their ability to save or invest,
their travel preferences or the availability
of discounts on brands they like.
• Technological solutions help us do better
underwriting, expediting the mortgage or
automobile loan approval process, letting
II. COMMENTS ON CURRENT CRITICAL ISSUES the customer accept the loan in a couple
of clicks and then start shopping for a
home or car.
also curtail check fraud losses by analyzing
signatures, payee names and check features
in real time.
• In our Consumer Operations, we are using
AI and machine learning techniques for
ATM cash management to optimize cash
in devices, reduce the cost of reloads and
schedule ATM maintenance.
• And our initial results from machine
learning fraud applications are expected
to drive approximately $150 million of
annual benefits and countless efficiencies.
For example, machine learning is helping
to deliver a better customer experience
while also prioritizing safety at the point of
sale, where fraud losses have been reduced
significantly, with automated decisions
on transactions made in milliseconds.
We are now able to approve 1 million
additional good customers (who would
have been declined for potential fraud)
and also decline approximately 1 million
additional fraudsters (who would have
been approved). Machine learning will
• Over time, AI will also dramatically
improve Anti-Money Laundering/Bank
Secrecy Act protocols and processes as well
as other complex compliance requirements.
We will try to retrain and redeploy our workforce
as AI reduces certain types of jobs.
We are evaluating all of our jobs to deter-
mine which are most susceptible to being
lost through AI. We will plan ahead so we
can retrain or deploy our employees both
for other roles inside the company and, if
necessary, outside the company.
The combined power of virtually unlimited
computing strength, AI applied to almost
anything and the ability to use vast sets
of data and rapidly change applications
is extraordinary – we have only begun to
take advantage of the opportunities for the
company and for our customers.
6. We remain devoted and diligent to protect privacy and stay cyber safe — we will do what
it takes.
The threat of cyber security may very well be the
biggest threat to the U.S. financial system.
I have written in previous letters about the
enormous effort and resources we dedi-
cate to protect ourselves and our clients
– we spend nearly $600 million a year on
these efforts and have more than 3,000
employees deployed to this mission in some
way. Indirectly, we also spend a lot of time
and effort trying to protect our company in
different ways as part of the ordinary course
of running the business. But the financial
system is interconnected, and adversaries are
smart and relentless – so we must continue
to be vigilant. The good news is that the
industry (plus many other industries), along
with the full power of the federal govern-
ment, is increasingly being mobilized to
combat this threat.
The issues around privacy are real.
We have spoken frequently in the past about
the importance of safeguarding the privacy
of our customers. We already do this exten-
sively, and, in fact, we are inventing new
products to make it easier for our customers
to understand where we send their data
(with their permission), as well as how to
change or restrict what we do with that data.
New laws in Europe stipulate that consumers
should be able to see what data companies
have on file about them and to correct or
delete this information if they choose. These
are the right principles, but they are very
complex to execute. It is imperative that the
U.S. government thoughtfully design policies
to protect its consumers and that these poli-
cies be national versus state-specific. Different
35
II. COMMENTS ON CURRENT CRITICAL ISSUES state laws around privacy rules would create
a virtually impossible legal, compliance and
regulatory-monitoring situation.
But maybe the most crucial privacy issue of
all relates to protecting our democracy. Our
First Amendment rights do not extend to
foreign governments, entities or individuals.
The openness of the internet means that
trolls, foreign governments and others are
aggressively using social media and other
platforms to confuse and distort information.
They should not be allowed to secretly or
dishonestly advertise or even promote ideas
on media and social networks. We believe
there are ways to address this, and we will be
talking more about this issue in the future.
7. We know there are risks on the horizon that will eventually demand our attention.
In spite of all the uncertainty, the U.S.
economy continues to grow in 2019, albeit
more slowly than in 2018. Employment and
wages are going up, inflation is moderate,
financial markets are healthy, and consumer
and business confidence remains strong,
although down from all-time highs. The
consumer balance sheet and credit are in
rather good shape, and housing, though not
particularly strong, is in short supply in
many U.S. cities, which should eventually
be a tailwind. Before I review some of the
serious and possibly increasing risks that
we may confront in the years ahead, I do
want to review what happened in the fourth
quarter of 2018.
The fourth quarter of 2018 might be a harbinger
of things to come.
Going into the final months of last year, opti-
mism about the global economy prevailed,
and this was reflected in the stock and
bond markets. But in the fourth quarter,
growth slowed in Germany; Italy repudiated
European Union rules; Brexit uncertainty
remained; and fear spiked around Ameri-
ca’s trade issues with China. Among other
geopolitical tensions, the U.S. government
shutdown began. In addition, more questions
arose about interest rate increases in the
United States and the effect of the reversal of
unprecedented quantitative easing, partic-
ularly in this country. These issues, which
reduced growth forecasts and increased
uncertainty, should legitimately cause stock
prices to drop and bond spreads to increase.
However, stock markets fell 20%, investment
grade bond spreads gapped out by 36% and
certain markets (like initial public offerings
and high yield) virtually closed down. Even
at the time, these large swings seemed to
be an overreaction, but they highlight two
critical issues. One, which we never forget, is
that investor sentiment can veer widely from
optimism to pessimism based on little funda-
mental change. And second, for the fourth
or fifth time in this recovery, there were
excessive moves in the market with rapidly
increasing volatility accompanied by steep
drops in liquidity.
Market reactions do not always accurately
reflect the real economy, and, therefore, poli-
cymakers and even companies should not
overreact to them. But they do reflect market
participant views of changing probabilities
and possibilities of economic outcomes.
Thus, policymakers (and banks), particularly
the Fed, must necessarily (because they need
to think forward) take an assessment of these
issues into account. With this backdrop, I
will discuss some of the serious issues on
people’s minds (with more on liquidity later).
There are legitimate concerns around China’s
economy (in addition to trade), but they are
manageable.
To fully understand China, you have to do
a fair assessment of all of its strengths and
weaknesses. Over the last 40 years, China has
done a highly effective job of getting itself
to this point of economic development, but
in the next 40 years, the country will have
to confront serious issues. The Chinese lack
enough food, water and energy; corruption
continues to be a problem; state-owned
36
II. COMMENTS ON CURRENT CRITICAL ISSUES enterprises are often inefficient; corporate
and government debt levels are growing
rapidly; financial markets lack depth, trans-
parency and adequate rule of law; and Asia
is a very complex part of the world geopoliti-
cally speaking. Just as important, not enough
people participate in the nation’s political
system. Chinese leadership is well aware of
these issues and talks about many of them
quite openly. I say none of this to be nega-
tive about China (indeed, I have enormous
respect for what the Chinese have accom-
plished in the economic realm) but just to
give a balanced view. And in spite of these
difficulties, we believe that China is well on
its way to becoming a fully developed nation,
though the future will probably entail more
uncertainty and moments of slower growth
(like the rest of us) than in the past.
Disruption of trade is another risk for
China. The United States’ trade issues with
China are substantial and real. They include
the theft or forced transfer of intellectual
property; lack of bilateral investment rights,
giving ownership or control of investments;
onerous non-tariff barriers; unfair subsidies
or benefits for state-owned enterprises; and
the lack of rapid enforcement of any disagree-
ments. The U.S. position is supported, though
in an uncoordinated way, by our Japanese
and European allies. We should only expect
China to do what is in its own self-interest,
but we believe that it should and will agree
to some of the United States’ trade demands
because, ultimately, the changes will create
a stronger Chinese economy. We should
also point out that over the last 30 years,
the Chinese have been on a high-speed path
that includes increasing transparency and
economic reform, and while the momentum
slows down periodically, they have continued
relentlessly on that path. We believe the odds
are high that a fair trade deal will eventually
be worked out – but if not, there could be
serious repercussions.
China can deal with many serious situa-
tions because, unlike developed democratic
nations, it can both macromanage and
micromanage its economy and move very
fast. Government officials can pull, in a coor-
dinated way, fiscal, monetary and industrial
policy levers to maintain the growth and
employment they want, and they have the
control and wherewithal to do it. That being
said, the American public should understand
that China does not have a straight road to
becoming the dominant economic power.
The nation simply has too much to overcome
in the foreseeable future. If China and the
United States can maintain a healthy strategic
and economic relationship (and that should
be our goal), it could greatly benefit both
countries – as well as the rest of the world.
Debt levels are increasing around the world —
although this debt is mitigated because much
of it is sovereign debt, which is different from
corporate and consumer debt.
If countries essentially owe debt to them-
selves, not to creditors outside their country,
they can generally manage their debt
(America’s total debt to GDP is just about
80%, while Japan’s is approaching 200%).
Such debt is not necessarily a good thing
because it can be politically destabilizing and
overcomplicate policymaking; however, it
is generally manageable because if a nation
owes money to itself, it is essentially real-
locating its income across various interest
groups within the country. If the country
can continue to grow, it can still create more
income for its citizens.
America’s debt level is rapidly increasing
but is not at the danger level. While America
does owe in excess of $6 trillion (essentially
40% of its publicly held debt) to creditors
outside the country, U.S. companies and
investors hold more than $25 trillion in total
claims on foreigners, including more than
$12 trillion of foreign portfolio holdings,
and the U.S. economy is worth more than
$100 trillion. So we earn more on foreign
assets than we pay to foreign creditors. This
is not a major issue. However, our country’s
debt level over the next 30 years will start
to increase exponentially, and at a certain
point, this could cause concern in global
capital markets. We have time to address this
problem, but we should start to deal with the
issue well before it becomes a crisis.
37
II. COMMENTS ON CURRENT CRITICAL ISSUES People also point to emerging market debt –
both corporate and sovereign – as a potential
issue, but the emerging markets, both coun-
tries and companies, are much bigger and
stronger than they were in the past. They
have more foreign exchange reserves and
generally more effective risk management of
currency and interest rate mismatches.
Leveraged lending is increasing, particularly
through shadow banks.
Total leveraged lending in the United
States is approximately $2.3 trillion. About
25% of the loans are owned by banks, the
majority in more senior positions, and the
remaining 75% are owned by shadow banks
or non-banks. Deconstructing that number a
bit, about $1.8 trillion is in U.S. institutional
leverage term loans – approximately 30%
of which are owned by banks. We estimate
that approximately $500 billion of direct
loans are owned exclusively by non-banks.
While leveraged lending is a growing issue
and one that we are monitoring, we don’t
think this is yet of the size or quality to cause
systemic issues in the financial system. This
does not mean it won’t create some issues.
When things get bad, invariably prices drop
dramatically, certain types of high-yield debt
cannot be refinanced, etc. – but at this level,
it is still a manageable issue.
There are growing geopolitical tensions — with
less certainty around American global leadership.
Geopolitical tensions are always there – just
reading the newspaper in any week in any
year since World War II would make anyone
pretty worried. But it does appear that geopo-
litical tensions are growing. Let me mention a
few: Russian aggression, Middle East conflicts,
Venezuela, North Korea, Iran, Turkey, Brexit
and European politics generally.
It’s always difficult to understand the effect
of geopolitical uncertainty. But it is now
heightened due to uncertainty around how
the United States intends to exercise global
leadership. This uncertainty may very well
be the biggest new unknown factor affecting
critical geopolitical and economic issues.
38
The chance of bad policy errors is increasing.
In this risk section and in the next section
on public policy, I feel compelled to empha-
size an obvious point: Bad public policy is
a major risk. It could be central banks and
monetary policy, trade snafus or simply deep
political gridlock in an increasingly complex
world – but bad policymaking is definitely
an increasing risk for the global economy.
The confusion and uncertainty around liquidity
are causing some legitimate concerns.
Several times in the last few years, including
in the fourth quarter of 2018, markets
exhibited rapid losses of liquidity, although
fortunately, and importantly, the markets
recovered in all cases – but that was in the
context of a good environment. The ongoing
debate around liquidity and short-term losses
of liquidity in the market is an important
one. We consider it in two ways: traditional
liquidity and macro liquidity.
• Traditional liquidity. I call it micro liquidity
here, and it generally refers to the width of
the bid-ask spread, as well as the size and
speed with which securities can be bought
or sold without dramatically affecting
their price. There is no question that some
micro liquidity is more constrained than
in the past due to bank capital, liquidity
and Volcker Rule requirements. In addi-
tion, high-frequency traders generally
create some intraday liquidity (within a
day), though even this is unreliable in a
downturn. Because they rarely take posi-
tions interday (day to day), traders do not
create real liquidity, but my view is that
they increase the volatility of liquidity
over time. There is no question that rules
and regulations also cause unwanted and
unnecessary distortions in money market
vehicles, such as repos and swaps, particu-
larly at quarter-end.
If you look at liquidity – from before the
financial crisis to today – in fairly liquid
markets like Treasuries, swaps and equi-
ties, there is a noticeable difference. In
good markets, liquidity is essentially high
and is almost at the same level today as it
II. COMMENTS ON CURRENT CRITICAL ISSUES was before the crisis. But when markets
became volatile in the last several years,
liquidity dropped much further and faster
than it did before the crisis. It is important
to remember that this happened in good
times. Therefore, it is reasonable to expect
that what we have been experiencing is
now the new normal of liquidity – and
that we should be prepared for it to be
even worse in truly difficult times.
• Macro liquidity. This describes a broader
view of financial conditions. For example,
is it easy to borrow and lend? Are banks
able to increase their lending? Is the cost of
borrowing going up? Is the Fed adding or
reducing liquidity in the system (essentially
by buying or selling Treasuries)? There is
no doubt that new regulations, particularly
bank liquidity requirements, dramatically
reduce the ability of the Fed to increase
bank lending today by shoring up bank
reserves. In the old days, the central bank
could effectively create excess reserves by
buying Treasuries. These excess reserves
were lendable by the bank. Today, such
reserves are often not lendable due to new
liquidity rules. So bank lending as a func-
tion of deposits is, in effect, permanently
reduced. The notion of “money velocity”
and in fact the transmission of monetary
policy are, therefore, different from the
past, and it is hard to calculate the full
effect of all these changes. It is extremely
difficult for us, and probably even for the
Fed, to know when and at what level the
removal of cash (liquidity) from the system
starts to significantly affect macro or micro
liquidity. We will, however, probably know
it when we see it.
There may be too much certainty that growth will
be slow and inflation subdued.
There is still global growth, and employ-
ment and wages continue to go up. However,
this has been a very slow recovery, and it is
possible that the “normal” increase of infla-
tion late in the cycle, due to wage demands
and limited supply, can still happen. We
don’t see it today, but I would not rule it out.
In addition, 10-year bond spreads have been
suppressed in some way by the extreme
quantitative easing around the world. If that
ever reverses in a material way, how could
it not have an effect on the 10-year bond?
Finally, I would not look at the yield curve
and its potential inversion as giving the same
signals as in the past. There has simply been
too much interference in the global markets
by central banks and regulators to under-
stand its full effect on the yield curve.
Expect banks to be far more constrained going
into the next real downturn.
Today is nothing like 2008. There are fewer
leveraged financial assets in the system
now than a decade ago. In 2008, huge losses
in the mortgage market forced consumers
and companies to sell assets acquired by
borrowing. Fundamentally, market panic
ensued. Now there is far less borrowing
against assets, and it is unlikely that there
will be a lot of forced selling as a result.
However, keep in mind that it is still possible
for investors to sell lots of assets if any form
of market panic takes place.
When the next real downturn begins, banks
will be constrained – both psychologically
and by new regulations – from lending freely
into the marketplace, as many of us did in
2008 and 2009. New regulations mean that
banks will have to maintain more liquidity
going into a downturn, be prepared for the
impacts of even tougher stress tests and
hold more capital because capital require-
ments are even more procyclical than in the
past. Effectively, some new rules will force
capital to the sidelines just when it might
be needed most by clients and the markets.
For example, in the next financial crisis,
JPMorgan Chase will simply be unable to
take some of the actions we took in 2008, as
described in the sidebar on pages 27-28.
The Fed is still quite powerful and retains
numerous tools to deal with many of the issues
described above.
There is excessive focus on what the Fed says
and does in the short term. The Fed appro-
priately, and by necessity, needs to be data
dependent – how could it be otherwise? And,
of course, while proper policy requires Fed
39
II. COMMENTS ON CURRENT CRITICAL ISSUES officials to constantly think about the future
(though it does not require them to make
specific forecasts public), they can’t know
what the future holds with any certainty. But
they are deeply knowledgeable, flexible and
appropriately willing to change their minds.
And, counter to what you often hear today,
they retain a large number of tools at their
disposal. They can change short-term rates at
will and, in fact, can effect change on longer
term rates if they want. With a few simple
words, they can change the future expecta-
tions of the interest rate curve. They can buy
or finance an extraordinary amount of assets,
and they can revise regulations, if necessary,
to improve liquidity or enhance lending.
They can often, simply by asking, get banks
to take certain actions that they want. It is a
mistake to think that they don’t have signifi-
cant tools at their disposal.
Of course, we hyper-focus on today’s prob-
lems, and they often overshadow the prog-
ress we are making across the globe. We
should not overlook the positive signs. In
addition to the strong U.S. economy, the
world is still growing, trade issues may be
properly resolved and Brazil, among others,
has turned the corner economically.
If a downturn starts and leads to darker
scenarios, we will be prepared, and we also
believe the U.S. government will eventually
respond adequately.
8. We are prepared for — though we are not predicting — a recession.
The key point here is that a fairly healthy
U.S. economy will be confronting a wide
variety of issues in 2020 and 2021. It’s hard
to look at all the issues facing the world and
not think that the range of possible outcomes
is broader and that the odds of bad outcomes
might be increasing. And certain factors, like
confidence, which we know is important, can
be easily damaged by bad policy, unexpected
events or even high market volatility. The
next recession may not resemble prior reces-
sions. Next time, the cause may be just the
cumulative effect of negative factors – the
proverbial last straw on the camel’s back.
not stop investing in our future, investing in
technology or building new branches. We will
continue to make markets for our clients. We
will not overreact to the credit cycle.
We will mitigate risk. We may reduce risk
by taking on fewer new clients or by syndi-
cating or hedging risk. And we may reduce
risk by managing our portfolio of securi-
ties and loans unrelated to clients. We will
exercise more of our muscle in terms of
managing expenses, monitoring headcount
and creating more efficiencies. We will have
special credit teams, created in advance, to
deal with any problematic credits.
We are always prepared to deal with the next
recession.
We generally do not spend a lot of time
guessing about when the next recession will
be – we manage our business knowing that
there will be cycles.
Finally, we will be seeking out new ways
to grow and compete. Our experience is
that recessions do create opportunities for
healthy companies to enhance their fran-
chises generally by serving clients where
other companies cannot.
First and foremost, we will continue to serve
our clients. From the prior parts of this
letter, you can see that we continued to make
responsible loans to our clients during and
after the Great Recession when they needed
us most – and we will do that again. We will
40
II. COMMENTS ON CURRENT CRITICAL ISSUES III. PU BLIC POLICY
There are many critical issues roiling the
United States and other countries around
the world today – just to name a few:
capitalism versus other economic systems,
the role of business in our society, how the
United States intends to exercise global
leadership, income inequality, equal oppor-
tunity, access to healthcare, immigration
and diversity. Many people have lost faith
in government’s ability to solve these and
other problems. In fact, almost all insti-
tutions – governments, schools, unions,
media and businesses – have lost credibility
in the eyes of the public. In the meantime,
many of these problems have been around
for a long time and are not aging well. Poli-
tics is increasingly divisive, and a number
of policies are not working. This state of
affairs is unlikely to get better without thor-
ough diagnosis, thoughtful policy solutions
and a commitment to a common purpose.
In this section, I attempt to analyze and
offer some views on what has caused
this situation and then suggest some
solutions. Neither the diagnoses nor the
proposed cures are purely my own. These
issues have been studied intensively by
many people with deep knowledge. And
given the space and other constraints of
this letter, I may be about to violate the
Einstein maxim, which I love: “Everything
should be made as simple as possible, but
not simpler.” One of the main points I am
trying to make is that when you step back
and take a comprehensive multi-year view,
looking at the situation in its totality, it
is the cumulative effect of many of our
policies that has created many of our prob-
lems. And whatever the solutions, I think
they are unlikely to be achieved by govern-
ment alone – civil society and business
need to be part of the equation. To start,
we must understand our problems.
1. The American Dream is alive — but fraying for many.
Before I talk about our problems, I think it’s
important to put any negatives in context, so
first a paean to our nation. America is still
the most prosperous nation the world has
ever seen. We are blessed with the natural
gifts of land; all the food, water and energy
we need; the Atlantic and Pacific oceans as
natural borders; and wonderful neighbors
in Canada and Mexico. And we are blessed
with the extraordinary gifts from our
Founding Fathers, which are still unequaled:
freedom of speech, freedom of religion,
freedom of enterprise, and the promise of
equality and opportunity. These gifts have
led to the most dynamic economy the world
has ever seen, nurturing vibrant businesses
large and small, exceptional universities, and
a welcoming environment for innovation,
science and technology. America was an idea
borne on principles, not based upon histor-
ical relationships and tribal politics. It has
and will continue to be a beacon of hope for
the world and a magnet for the world’s best
and brightest.
Of course, America has always had its flaws.
Some of its more recent issues center on
income inequality, stagnant wages, lack of
equal opportunity, immigration and lack
of access to healthcare. I make it a prac-
tice when hearing complaints to strive to
understand where people might be right
or partially right instead of rejecting or
accepting their views reflexively.
41
Middle class incomes have been stagnant
for years. Income inequality has gotten
worse. Forty percent of American workers
earn less than $15 an hour, and about 5%
of full-time American workers earn the
minimum wage or less, which is certainly
not a living wage. In addition, 40% of
Americans don’t have $400 to deal with
unexpected expenses, such as medical
bills or car repairs. More than 28 million
Americans don’t have medical insurance
at all. And, surprisingly, 25% of those
eligible for various types of federal assis-
tance programs don’t get any help. No
one can claim that the promise of equal
opportunity is being offered to all Amer-
icans through our education systems, nor
are those who have run afoul of our justice
system getting the second chance that
many of them deserve. And we have been
debating immigration reform for 30 years.
Simply put, the social needs of far too
many of our citizens are not being met.
Over the last 10 years, the U.S. economy has
grown cumulatively about 20%. While this
may sound impressive, it must be put into
context: After a sharp downturn, economic
growth would have been 40% over 10 years
in a normal recovery. Twenty percent more
growth would have added $4 trillion to
GDP, which certainly would have driven
wages higher and given us the wherewithal
to broadly build a better country. Key
questions that keep arising – and remain
unanswered are: Why have productivity
and economic growth been so anemic?
And why have income inequality and so
many other things gotten worse? Included
among the common explanations is that
“secular stagnation” is the new normal. I’ve
also heard blame placed on institutional
greed and “short-termism,” bad corporate
governance, job displacement from new
technologies, immigration or trade and a
lack of new productivity-enhancing tech-
nology. Another common refrain is that
capitalism and free enterprise have failed.
As you’ll see, I think some of these argu-
ments miss the mark.
2. We must have a proper diagnosis of our problems — the issues are real and serious —
if we want to have the proper prescription that leads to workable solutions.
incorporating or accounting for the effect of
certain factors that can be pivotal but are too
complex or qualitative to model.
I have tried to come up with a list of critical
factors that greatly affect the health of an
economy over many years (such as educa-
tion, infrastructure, healthcare, etc.). The
list is below, and when you look at how we
have performed in these areas, it’s rather
condemning. Our shortcomings in these
areas clearly have impeded the prosperity
of the U.S. economy and have failed many
of our fellow citizens over the past two
decades or so.
Slogans are not policy, and, though simple
and sometimes virtuous-sounding, they often
lead to policies that fail. Well-intentioned but
poorly designed policies generally have large
and unintended negative consequences. Policy
should always be extremely well-designed.
In my view, too often we don’t perform the
deep analysis required to fully understand
our problems. One of the reasons is that we
often have too short term an orientation;
i.e., looking at how things have changed
year-over-year or even quarter-over-quarter.
We frequently fail to look at trends over a
multi-year period or over decades – we miss
the forest for the trees. It’s also important to
point out that many economic models that
are used to design policy have a hard time
42
III. PUBLIC POLICY Our problems: What’s holding back our nation’s productivity and
economic growth and reducing opportunity
INEFFECTIVE AND OUT-OF-TOUCH
EDUCATION SYSTEMS
EXCESSIVE REGULATION AND
BUREAUCRACY
Many of our high schools, vocational schools and community
colleges do not properly prepare today’s younger generation
for available professional-level jobs, many of which pay a
multiple of the minimum wage. We used to be among the best
in the world at training our workforce for good jobs, but now
we are falling short. This is a huge reason for both inequality
and lack of opportunity. Our inner-city high schools are failing
their communities and are leaving too many behind. In some
inner-city schools, fewer than 60% of students graduate, and
of those who do, a significant number are not prepared for
employment and are often relegated to a life of poverty.
Proper training and retraining would also help in our rapidly
changing technological world. Finally, skills training has
become increasingly important over time, and the negligence
of our education systems to be responsive to employers’
current needs has to have reduced GDP growth.
SOARING HEALTHCARE COSTS
These now represent almost 20% of GDP — more than twice the
cost per person compared with most developed nations. While
we have some of the best healthcare in the world, our outcomes
are not twice as good as those of the rest of the world. Some
studies say that gains in life expectancy in the last 50 years were
a significant contributor to U.S. national wealth (and health),
possibly equal to half of GDP growth, as people were healthier
and lived longer, which generally improved the quality of the
labor force and productivity. This may no longer be true. Obesity
costs our country $1.4 trillion a year because it drives so many
illnesses (i.e., heart disease, diabetes, cancer, stroke and
depression). Even worse, 70% of today’s youth (ages 17–24) are
not eligible for military service, essentially due to poor academic
skills (basic reading and writing) or health issues (often obesity
or diabetes). And out-of-pocket healthcare expenses for the
average American have skyrocketed over the last 20 years,
causing huge anxiety, particularly for low-income families who
have been hit with the highest increases in healthcare costs.
Excessive regulation for both large and small companies
has reduced growth and business formation without
making the economic system safer or better. The ease of
starting a business in the United States has worsened, and
both small business formation and employment growth
have dropped to the lowest rates in 30 years. By some
estimates, approximately $2 trillion is spent on federal
regulations annually, which is about $15,000 per house-
hold. We need good regulations, and we have to get better
at effectively implementing them — accomplishing the
desired good outcomes — while minimizing unnecessary
costs and bad unintended consequences.
INABILITY TO PLAN AND BUILD
INFRASTRUCTURE
It took eight years to get a man to the moon (from idea to
completion), but it now can take a decade to simply get the
permits to build a bridge or a new solar field. The country that
used to have the best infrastructure on the planet by most
measures is now not even ranked among the top 20 developed
nations, according to the World Economic Forum’s Basic
Requirement Index, which reflects infrastructure along with
other criteria. We are falling behind on airports, bridges,
water, highways, aviation and more. One study examined the
effect of poor infrastructure on efficiency (for example, poorly
constructed highways, congested airports with antiquated air
traffic control systems, aging electrical grids and old water
pipes) and concluded this could all be costing us more than
$200 billion a year. Philip K. Howard, who does some of the
best academic work on America’s infrastructure, estimates it
would cost $4 trillion to fix our aging infrastructure — and this
is less than it would cost not to fix it. In fact, a recent study by
Business Roundtable found that every dollar spent restoring
our infrastructure system to good repair and expanding its
capacity would produce nearly $4 in economic benefits. What
happened to that “can-do” nation of ours?
43
PREVIOUSLY UNCOMPETITIVE TAX
SYSTEM FOR BUSINESS
Over the last 20 years, as the world reduced its tax rates,
America did not. Our previous tax code was increasingly
uncompetitive, overly complex and loaded with special-interest
provisions that created winners and losers. This was driving
down capital investment in the United States and giving an
advantage to foreign companies, thereby reducing productivity
and causing wages to remain stagnant. The good news is the
recent changes in the U.S. tax system include many of the key
ingredients to fuel economic expansion: a business tax rate that
will make the United States competitive around the world along
with provisions to free U.S. companies to bring back profits
earned overseas.
CAPRICIOUS AND WASTEFUL
LITIGATION SYSTEM
Our litigation system now costs 1.6% of GDP, 1% more than
what it costs in the average OECD (Organisation for Economic
Co-operation and Development) nation.
INEFFICIENT MORTGAGE MARKETS
The inability to reform mortgage markets has dramatically
reduced mortgage availability. In fact, our analysis shows that,
conservatively, more than $1 trillion in additional mortgage loans
might have been made over a five-year period had we reformed
our mortgage system. J.P. Morgan analysis indicates that the cost
of not reforming the mortgage markets could be as high as 0.2%
of GDP a year.
DRAMATIC REDUCTION IN LABOR
FORCE PARTICIPATION
Wages for low-skilled work are no longer a living wage — the
incentives to start work have been declining over time. Add to
this the education issues already mentioned above. Two other
contributing factors are that many former felons have a hard
time getting jobs, and an estimated 2 million Americans are
currently addicted to opioids (in 2017, a staggering 48,000
Americans died because of opioid overdoses). Some studies
show that addiction is one of the major reasons why many men
ages 25–54 are permanently out of work.
FRUSTRATING IMMIGRATION
POLICIES AND REFORM
Forty percent of foreign students who receive advanced
degrees in science, technology and math (300,000 students
annually) have no legal way of staying here, although many
would choose to do so. Most students from countries outside
the United States pay full freight to attend our universities,
but many are forced to take the skills they learned here back
home. From my vantage point, that means one of our largest
exports is brainpower. We need more thoughtful, merit-based
immigration policies. In addition, most Americans would like a
permanent solution to DACA (Deferred Action for Childhood
Arrivals) and a path to legal status for law-abiding, tax-paying
undocumented immigrants — this is tearing the body politic
apart. The Congressional Budget Office estimates the failure to
pass immigration reform earlier this decade is costing us 0.3%
of GDP a year.
44
STUDENT LENDING (AND DEBT)
Irrational student lending, soaring college costs and the burden of
student loans have become a significant issue. The impact of
student debt is now affecting mortgage credit and household
formation — a $1,000 increase in student debt reduces subsequent
homeownership rates by 1.8%. Recent research shows that the
burdens of student debt are now starting to affect the economy.
LACK OF PROPER FEDERAL
GOVERNMENT BUDGETING
AND PLANNING
This inevitably leads to waste, inefficiency and constraints on
multi-year planning. One striking example: It may cost the
military at least 20% of its spending power when budgets are
not approved on time and continuous spending resolutions are
imposed. And we don’t do some basic things well, like account
for loans and guarantees properly and demand appropriate
funding of public pension plans.
It is hard to look at these issues in their
totality and not conclude that they have a
significant negative effect on the great Amer-
ican economic engine. My view is if you add
it all up, this dysfunction could easily have
been a 1% drag on our growth rate. Before I
talk about some ideas to address these issues,
I would like to discuss one major debate
currently in the echo chamber.
Is capitalism to blame? Is socialism better?
There is no question that capitalism has been
the most successful economic system the
world has ever seen. It has helped lift billions
of people out of poverty, and it has helped
enhance the wealth, health and education of
people around the world. Capitalism enables
competition, innovation and choice.
This is not to say that capitalism does not
have flaws, that it isn’t leaving people behind
and that it shouldn’t be improved. It’s essen-
tial to have a strong social safety net – and all
countries should be striving for continuous
improvement in regulations as well as social
and welfare conditions.
Many countries are called social democra-
cies, and they successfully combine market
economies with strong social safety nets.
This is completely different from traditional
socialism. In a traditional socialist system,
the government controls the means of
production and decides what to produce and
in what quantities, and, often, how and where
the citizens work rather than leaving those
decisions in the hands of the private sector.
When governments control companies,
economic assets (companies, lenders and
so on) over time are used to further polit-
ical interests – leading to inefficient compa-
nies and markets, enormous favoritism and
corruption. As Margaret Thatcher said, “The
problem with socialism is that eventually you
run out of other people’s money.” Socialism
inevitably produces stagnation, corruption
and often worse – such as authoritarian
government officials who often have an
increasing ability to interfere with both the
economy and individual lives – which they
frequently do to maintain power. This would
be as much a disaster for our country as it has
been in the other places it’s been tried.
I am not an advocate for unregulated, unvar-
nished, free-for-all capitalism. (Few people I
know are.) But we shouldn’t forget that true
freedom and free enterprise (capitalism) are,
at some point, inexorably linked.
Successful economies will create large, successful
companies.
Show me a country without any large,
successful companies, and I will show you
an unsuccessful country – with too few
jobs and not enough opportunity as an
outcome. And no country would be better
off without its large, successful companies in
addition to its midsized and small compa-
nies. Private enterprise is the true engine of
growth in any country. Approximately 150
million people work in the United States:
130 million work in private enterprise and
only 20 million people in government. As
I pointed out earlier in this letter, large,
successful companies generally provide
good wages, even at the starting level, as
well as insurance for employees and their
families, retirement plans, training and
other benefits. Companies in a free enter-
prise system drive innovation through
capital investments and R&D; they are huge
supporters of communities; and they often
are at the forefront of social policy. Are they
the reason for all of society’s ills? Absolutely
not. However, in many ways and without ill
intent, many companies were able to avoid –
almost literally drive by – many of society’s
problems. Now they are being called upon to
do more – and they should.
45
III. PUBLIC POLICY 3. All these issues are fixable, but that will happen only if we set aside partisan politics and
narrow self-interest — our country must come first.
We need to set aside partisan politics.
None of these issues is exclusively owned
by Democrats or Republicans. To the
contrary, it is clear that partisan politics is
stopping collaborative policy from being
implemented, particularly at the federal
level. This is not some special economic
malaise we are in. This is about our society.
We are unwilling to compromise. We are
unwilling or unable to create good policy
based on deep analytics. And our govern-
ment is unable to reorganize and keep pace
in the new world. Plain and simple, this is a
collective failure to put the needs of society
ahead of our personal, parochial and
partisan interests. If we do not fix these
problems, America’s moral, economic and
military dominance may cease to exist.
In my view, we need a Marshall Plan for
America. To do this, Democrats have to
acknowledge that many of the things that
have been done as a nation – often in
the name of good – have sometimes not
worked and need to be modified. Throwing
money at problems does not always work.
Recently, a report showed that the federal
government wasted nearly $1 billion on
charter schools due to mismanagement
and lack of adequate oversight – this was
money intended to help children. Demo-
crats should acknowledge Republicans’
legitimate concerns that sending money
to Washington tends to be simply seen as
waste, ultimately offering little value to
local communities. Republicans need to
acknowledge that America should and can
afford to provide a proper safety net for
our elderly, our sick and our poor, as well as
help create an environment that generates
more opportunities and more income for
more Americans. And if we can demon-
46
strate that we are spending money wisely,
we should spend more – think infrastruc-
ture and education funding. And that
may very well mean taxing the wealthy
more. If that happens, the wealthy should
remember that if we improve our society
and our economy, then they, in effect, are
among the main winners.
Our nation requires strong political
leaders to develop good, thoughtful poli-
cies, use their political skills to determine
what is doable and exercise their leader-
ship skills to lead people toward common-
sense solutions.
We need to set aside our narrow self-interest.
We live in an increasingly complex world
where companies, governments, unions
and special interest groups vie for time,
attention and favorable circumstances for
their respective institutions. While it is a
constitutional right to petition our govern-
ment, and many organizations legitimately
fight for the interests of their constituents,
we all may have become too self-inter-
ested. I fear that this self-interest is part of
what is destroying the glue that holds our
society together. We all share a collective
responsibility to improve our country.
I would like to give a few examples, which
represent the tip of the iceberg (it would
be easy to come up with thousands more).
• Governments, both federal and state,
fight to keep military bases open that
we don’t need and Veterans Affairs
hospitals that are broken – making the
military more costly and less effective.
Our shortcomings are not just about
inefficiencies; they border on immoral.
In an incredibly depressing story,
former Secretary of Defense Bob Gates
describes how Congress took years
longer than it should have to approve
the building of U.S. Army personnel
III. PUBLIC POLICY carriers that we needed in Iraq and
Afghanistan to protect our soldiers from
improvised explosive devices. While
we dallied, many of our soldiers died or
received terrible lifelong injuries.
Five states (California, Connecticut,
Illinois, New Jersey and New York) fight
for unlimited state and local tax deduc-
tions because those five states reap 46%
of the benefit – even worse, knowing
that over 80% of the benefits from
these deductions go to people who earn
more than $320,000 a year.
• Businesses are equally guilty here.
Just start digging through the tax code
– buried in there are an extraordi-
nary number of loopholes, credits and
exemptions that aren’t about competi-
tiveness or good tax policy. Suffice it to
say, industry gets its share of tax breaks
and forms of protection from legiti-
mate competition. I could add hospitals,
schools and unions to this list – none of
our institutions is blameless.
While leaders obviously fight for their
institutions, we all need to be able to
advocate for policies that are good for
our organizations without being bad for
our country. And as a general matter, we,
as citizens, should support policies that
are good for our country even if they
may not be good for us individually. For
too long, too many have fought to use
regulation and legislation to further their
interests without appropriate regard for
the needs of the country.
4. Governments must be better and more effective — we cannot succeed without their help.
The rest of us could do a better job, too.
The U.S. federal government is becoming
less relevant to what is going on in people’s
lives. People have generally lost faith in the
ability of institutions to deliver on their
mission and meet societal needs. They are
demanding change, and we must recognize
that change is needed. We need dramatic
reform of our global and federal institu-
tions and how we attack our biggest soci-
etal challenges. There are signs of progress,
particularly in how local governments are
starting to attack pressing problems – the
ones that directly affect people’s lives, like
education, housing and employment. Look
at Detroit and see how excellent leader-
ship is fixing a once failing city. We should
continue to empower local governments
to address the needs of our society, but we
should be asking our federal government
to do the same.
I have already commented about needing
real policies that include thoughtful plans
to increase growth and create more oppor-
tunity for everyone. Faster growth will
raise incomes, generate opportunities and
create the wherewithal to fund improve-
ments in our social welfare programs.
(On pages 48-49, I describe some possible
solutions to the problems previously high-
lighted on pages 43-44.) These solutions
are not my own but are a synthesis of
some of the best thoughts that we have
seen. Some of these solutions are simple,
and some are more complex. And obvi-
ously, if they were politically easy to put
into practice, that would have been done
by now. However, I am convinced that if
we could get ideas like these implemented,
economic growth and opportunity for all
would be greatly enhanced.
47
III. PUBLIC POLICY Some solutions to how we might drive growth, incomes and opportunity
EDUCATION
REGULATORY REFORM
We know what to do. High schools and community colleges
should work with local businesses to create specific skills
training programs, internships and apprenticeships that
prepare graduating students to be job-ready — whether they
go on to earn a credential, to work or to attend college. With
7 million job openings and 6 million unemployed workers in
the United States, there is an opportunity for companies to
work with local institutions, including community colleges and
local apprenticeship programs. Business must be involved
in this process, and it needs to be done locally because that
is where the actual jobs are. Germany does an exceptional
job at apprenticeships. Germany has one of the strongest
education and training systems in the world, with about 1.5
million young people annually participating in apprentice-
ship programs that are paid opportunities to gain in-demand
skills along with an education. The vocational schools and
apprenticeship programs work directly with local businesses
to ensure students are connected to available jobs upon
graduation. Germany’s youth unemployment rate is one of the
lowest in the world.
Some countries are now implementing mandatory preschool
for children at three years of age. This is a wonderful policy. It
makes childcare less expensive and has proved to be extraor-
dinarily good for student education short and long term.
Parents like it, too. Of course, the benefits may not be seen for
many years, but this is precisely the type of long-term thinking
in policymaking that we need.
HEALTHCARE
This may be our toughest, most complicated problem, but we know
there are some things we can do to make the system work better.
Some of the solutions may include aligning incentives better; trying
to eliminate the extraordinary amount of money wasted on
bureaucracy, administration and fraud; empowering employees to
make better choices, with upfront transparency in employer plan
pricing and options and the actual cost of medical procedures;
developing better corporate wellness programs, focusing particu-
larly on obesity and smoking; creating better tools to shop around
for non-emergency care and manage healthcare expenses; and
reducing the extraordinary expense for unwanted end-of-life care.
Another obvious thing to do is to start teaching wellness, nutrition,
health and exercise in K-12 classrooms nationwide.
48
Starting a small business today generally requires multiple licenses,
which take precious months to get. But it doesn’t end there. Talk
with any small business owner and that person will describe the
mountains of red tape, inefficient systems and a huge amount of
documentation involved to operate the business. We need to reduce
the number of licenses that are required to open and run a small
business. In addition, we should look at the excessive state and local
rules affecting small businesses, consolidating and eliminating
unnecessary rules and regulations where possible. And all
regulations should have a thorough cost-benefit analysis and be
periodically reviewed for current relevancy.
INFRASTRUCTURE INVESTMENT
The 2015 transportation spending bill, Fixing America’s Surface
Transportation Act (FAST Act), is intended to fund surface transporta-
tion programs — including highways — at over $305 billion through
2020. Its aim is to improve mobility on America’s highways; create
jobs and support economic growth; decrease bureaucracy in getting
projects approved and completed — and we need to finish its
implementation. Again, experience from other countries may help.
We could learn from Germany and Canada, for example, whose
officials endorsed large infrastructure projects and sped through
permitting in two to three years by forcing federal, state and local
approvers to simultaneously work through a single vetting process.
Significantly reducing the time of permitting also dramatically reduces
the cost and uncertainty around making major capital investments.
TAX CREDITS AND BENEFITS
The business tax changes in the 2017 tax law made the United States
more competitive, benefiting American workers today and strength-
ening our economy for the long term. In 2018, nominal wages
increased 3.3% — the fastest rate of growth since 2008 — and job
openings exceeded the number of unemployed workers for the first
time since the federal government started tracking these data in
2000. Beyond this important progress, there is still more that
policymakers could do to help working Americans. Of the 150 million
Americans working today, approximately 21 million earn between
$7.25 an hour (the prevailing federal minimum wage) and $10.10 an
hour. It is hard to live on $7-$10 an hour, particularly for families
(even if two household members are working). While it would be
acceptable to increase minimum wages, this should be done locally
and carefully so it does not increase unemployment. Perhaps a
more effective step would be to expand the Earned Income Tax
Credit (EITC). Today, the EITC supplements low- to moderate-
income working individuals and couples, particularly with children.
For example, a single mother with two children earning $9 an hour
(approximately $20,000 a year) could receive a tax credit of more
than $5,000 at year’s end. Last year, the EITC program cost the
United States about $63 billion, and 25 million individuals received
the credit. We should convert the EITC to make it more like a
negative income payroll tax, which would spread the benefit,
reduce fraudulent and improper payments, and get it into more
people’s hands. Workers without children receive a very small tax
credit — this should be dramatically expanded, too.
LITIGATION
While the rule of law and the right of plaintiffs to get their day
in court are sacrosanct, there have to be ways to improve this
system. One example, which works in many other countries, is to
have the loser pay in some circumstances. Clearly, this would have
to be done in such a way as to ensure that aggrieved parties are
not denied appropriate access to our justice system. But we need
a way to reduce frivolous litigation designed principally to extract
fees for lawyers. We also need to reduce the time and the cost
necessary to achieve justice by adding more judges and creating
more specialty courts to deal with complex issues.
IMMIGRATION
There has been support for bipartisan comprehensive legislation
that provides substantial money for border security, creates more
merit-based immigration, makes DACA permanent and gives a
path to legal status or citizenship for law-abiding, hard-working,
undocumented immigrants. We know this is no easy feat, but we
should pass and enact legislation to resolve immigration.
MORTGAGE LENDING
Things can be done to reform mortgage markets, which would
increase mortgage availability — as I mentioned in the previous
sidebar on pages 43-44.
LABOR FORCE PARTICIPATION
We have already mentioned two critical solutions that would help
improve labor force participation — make work pay more by
expanding the EITC and provide graduating students with work skills
that will lead to better paying jobs. Remember, jobs bring dignity.
That first job is often the first rung on the ladder. People like working,
and studies show that once people start working, they continue
working. Jobs and living wages lead to better social outcomes — more
household formation, more marriages and children, and less crime,
as well as better health and overall well-being.
Reducing recidivism of those who have been incarcerated is not only
important to citizens with a criminal record and their families — but it
can also have profound positive implications for public safety. Last
year, we welcomed the Federal Deposit Insurance Corporation’s
proposed changes to allow banks more flexibility in hiring citizens
convicted of a crime. Our responsibility to recruit, hire, retain and
train talented workers extends to this population, and we will support
re-entry programs and give convicted and/or formerly incarcerated
Americans a path to well-paying jobs. Finally, we should all be
gratified that the government now seems to be taking the opioid
problem very seriously.
STUDENT LENDING
We should have programs to ameliorate the burden of student loans
on some former students. We would be well-advised to have more
properly designed underwriting standards around the creation of
student loans. Direct government lending to students has grown
almost 500% over the last 10 years — and it has not all been
responsible lending. It would also be helpful for the government to
disclose student lending programs as if they were accountable on
the same basis as a bank. Addressing these factors would lead to
far better, and healthier, student lending.
PROPER BUDGETING AND PLANNING
All levels of government should do proper budgeting and planning
— and on a multi-year basis. It is particularly important that most
federal programs — think military, infrastructure and education
— have good long-term plans and be held accountable to execute
them. When the government says it is going to spend money, it
should tell the American people what the expected outcome is and
report on it. It should account for loans the same way the private
sector does, and it should be required to do cost-benefit analysis.
49
One final thought: If I were king for a day,
I would always have a competitive business
tax system and invest in infrastructure and
education as a sine qua non to maximize
the long-term health and growth of our
economy and our citizens. I would not trade
these issues off – I would figure out a way to
properly pay for them.
Somehow we need to help reinvent govern-
ment to make it more efficient and nimble
in the new world. While the federal govern-
ment remains somewhat in a stalemate, we
have seen governors and mayors at the state
and local levels taking active control and
framing effective solutions. They are helping
to create a laboratory of what works and are
often at the forefront with initiatives that
restore confidence in the ability of govern-
ment to deliver. We also call upon CEOs
and other leaders to step up and offer
non-parochial solutions.
5. CEOs: Your country needs you!
Despite the fact that CEOs are not generally
viewed with high levels of trust, surprisingly,
the 2019 Edelman Trust Barometer global
report – encompassing a general global
population of more than 33,000 respondents
– shows that 76% think CEOs should take
a stand on challenging issues and that 75%
actually trust their employer.
It’s not enough just for companies to meet
the letter and the spirit of the law. They can
also aggressively work to improve society.
They can take positions on public policy
that they think are good for the country.
And they can decide, with proper policies
and regulatory oversight, with whom and
how they will do business.
We believe CEOs can and should get involved
– particularly when they or their companies
can uniquely help design policies that are
good for America. At JPMorgan Chase, we are
strengthening our public policy teams to take
our advocacy and ideas to the next level. We
believe the best way to scale programs that
we have seen work in cities, states and coun-
tries around the globe is to develop action-
able public policies that allow more people to
benefit from economic growth.
However, this does get complex. What
companies cannot do is abridge the law of
the land or abrogate the rights of voters
and their representatives to set the law of
the land. There are circumstances in which
JPMorgan Chase is called upon to do things
and/or set policies that should have been
set by the federal government – in effect,
these are decisions that the voter must
decide. We work very hard to try to stay on
the right side of all these issues.
In any event, things have changed. In the
past, boards and advisors to boards advised
company CEOs to keep their head down
and stay out of the line of fire. Now the
opposite may be true. If companies and
CEOs do not get involved in public policy
issues, making progress on all these prob-
lems may be more difficult.
We can use our unique capabilities, data
and resources to help inform infrastruc-
ture policies, corporate governance policies,
affordable housing policies, financial educa-
tion policies and inclusion policies, as well
as small business financing and formation,
community and economic development, and
others. In addition, while almost all compa-
nies can help further job skills, training, and
diversity and inclusion efforts, each company
can also add value where it has distinct
capabilities, like expertise around healthcare,
infrastructure or technology.
50
III. PUBLIC POLICY 6. America’s global role and engagement are indispensable.
One of the biggest uncertainties in the
world today is America’s role on the world
stage. A more secure and more prosperous
world is also good for the long-term security
and prosperity of the United States. And
America’s role in building that more secure
world has been and will likely continue to
be indispensable.
While there are many legitimate complaints
about international organizations (the
North Atlantic Treaty Organization, the
World Trade Organization and the United
Nations), the world is better off with these
institutions. America should engage and
exercise its power and influence cautiously
and judiciously. We should all understand
that global laws, standards and norms will be
established whether or not our nation partic-
ipates in setting them. It is certain that we
will be happier with the evolution of global
standards if we help craft and implement
them. We should not abdicate this role. To
the contrary, it is critical that America help
develop the best global standards in trade,
immigration, corporate governance and
many other important issues.
IN CLO SING
While I have a deep and abiding faith in the United States of America
and its extraordinary resiliency and capabilities, we do not have a divine
right to success. Our challenges are significant, and we should not
assume they will take care of themselves. Let us all do what we can to
strengthen our exceptional union.
I would like to express my deep gratitude and appreciation for the
employees of JPMorgan Chase. From this letter, I hope shareholders
and all readers gain an appreciation for the tremendous character and
capabilities of our people and how they have helped communities
around the world. I hope you are as proud of them as I am.
Jamie Dimon
Chairman and Chief Executive Officer
April 4, 2019
51
III. PUBLIC POLICY Consumer & Community Banking
Banking deposits and investment
balances. The incremental deposits
acquired over this time period alone
would be equivalent to the seventh
largest retail bank in the country.
Our customers spent more than
$1 trillion on 99 million debit and
credit card accounts in 2018, averag-
ing 49 million transactions every day.
We also have the largest customer
base of active mobile users among
U.S. banks at 33 million.
We grew our business while reduc-
ing our overhead ratio and making
significant investments. These
include investing in the 400
branches we are opening in new
markets to extend our reach to cus-
tomers, as well as in other improve-
ments to our customers’ experience.
We achieved our 2018 results with
continued focus on the same four
areas as in years past: customers,
profitability, people and controls.
Here are some of the highlights of
what we accomplished in each of
these areas.
Customers
We are proud that Chase has a rela-
tionship with nearly half of all U.S.
households. A first step in reaching
more customers is making sure we
are meeting their needs. Therefore,
we are introducing new products
and refreshing existing ones with
the features and benefits our cus-
tomers value.
Another step taken this past year
was to open branches in new mar-
kets, specifically Washington, D.C.,
Philadelphia and Boston. When we
enter these communities, we bring
the full force of this great company
– hiring, lending and helping cus-
tomers save for their first home, start
a business or retire with financial
In 2018, the U.S. economy benefited
from continued low unemployment
and stable inflation. There have been
other economic periods like this
since the 1950s, but they have not
lasted as long. The U.S. economy is
strong. Gross domestic product
increased at an annual rate of 2.9%;
unemployment in 2018 hit its lowest
level since December 1969; and wage
growth picked up, passing along
some of the strength of the economic
expansion to the consumer – many
of whom are our customers. The
consumer debt burden is at manage-
able levels, both consumer and small
business optimism is at or near an
all-time high, and consumer credit
remains strong.
While the economy is performing
well, it is not working for everyone.
Across the firm, we recognize this
and want to do our part to remedy
that reality. As a company, we want
to help everyone make the most of
their money and seek opportunities
to connect with households we don’t
already serve.
2018 financial results
Consumer and Community Banking
(CCB) had a remarkable 2018. We
delivered a 28% return on equity on
record net income of $14.9 billion and
$52.1 billion in revenue, up 12% year-
over-year. We grew our customer base
to nearly 62 million U.S. households,
including 4 million small businesses.
Among our consumer households,
25% have a relationship with two or
more Chase lines of business. This
performance is a direct result of the
growth in our business drivers and a
sustained focus on investing for the
medium and long term.
In CCB, our four-year compound
annual growth rate for deposits has
been double that of the industry over-
all since 2014, and in 2018, we grew
retail deposit share in 27 of our top
30 markets. Our average deposits of
$670 billion were up 5%, and client
investment assets reached $282
billion, up 3% despite volatility in
the market. Since 2014, we have
brought in $215 billion of Consumer
#1
#1
62M
#1 in total U.S. credit card sales
volume and outstandings
#1 in U.S. retail
deposit growth
62 million households
#1
15
MOBILE LOGINS
#1 most visited banking
portal in the U.S.
15 mobile logins
per active user per month
29%
QUICKDEPOSITSM
29% of check deposit
transactions through
QuickDepositSM
52
80+%
SELF-SERVICED
49M
ACTIVE DIGITAL CUSTOMERS
$1+T
More than 80% of
transactions self-serviced
49 million active digital
customers
More than $1 trillion
in credit and debit card
sales volume
YOU INVEST
DIGITAL PLATFORM
1.5M
DIGITAL DEPOSIT
ACCOUNTS
33M
ACTIVE MOBILE CUSTOMERS
You Invest digital trading
1.5 million deposit accounts
33 million active mobile
platform launched
opened digitally
customers
Branch expansion 2018-2019
Expanding into new markets
Last year, we announced plans to open up to 400
new retail branches and hire as many as 3,000
employees in new U.S. markets over the next five
years. This expansion is part of a $20 billion invest-
ment in our business and local economic growth. We
are committed to serving all communities, including
those with low- to moderate-income households, with
these new branches. We’ve opened 12 branches in
the Greater Washington region, Philadelphia and the
Delaware Valley, and Boston — and will continue to
grow in these regions.
We plan to add retail branches in nine more U.S.
markets this year, opening as many as 90 new
branches and hiring 700 employees, offering more
customers access to our retail and business banking
services and providing jobs to these communities.
Existing footprint
2018 expansion
2019 expansion
security. The reception in each mar-
ket, by new and existing customers,
has been wonderful. As part of the
market expansion, we also support
each local community directly with
help from the JPMorgan Chase Foun-
dation. In Washington, D.C., we com-
mitted $1.6 million in philanthropy.
In Boston, we committed $3 billion
for home and small business loans
and $1.1 million to support jobs and
skills development.
We are always focused on improving
the customer experience. Across all
of our products, we have made it
quicker and easier to become a Chase
customer. Increasingly, that experi-
ence is digital, online or mobile. More
than 1 million customers opened a
checking or savings account digitally
in 2018. For existing customers who
were adding an account, it took less
than three minutes. We have plans to
reduce that time even further.
Existing customers enjoyed a steady
stream of improvements to their
experience with us: the ability to
lock and unlock a misplaced card,
more options on how to pay credit
card bills, discounts and offers from
favorite merchants, and, for those
who have multiple relationships with
us, a clear understanding of the prod-
ucts they qualify for before applying.
Profitability
We prioritize long-term, profitable
growth when making decisions about
investing in the future of our con-
sumer franchise. In 2018, we contin-
ued our progress to drive down struc-
tural expense, reducing our overhead
ratio to 53%, down from 56% the
prior year. We’ve also made progress
reducing our cost to serve each house-
hold while our customer base and
total transaction volume continue to
grow. We’ve made investments that
have brought down our cost to serve
each household by 15% since 2014.
These investments allow us to reach
more customers at a lower cost and
through the channels they prefer.
More and more often, that channel
is mobile.
Our active mobile customer base
grew 11% since 2017, averaging a
login rate of 15 times a month. And
we have made it easy for customers
who want to speak with someone by
phone or in person.
Customers are doing more than 80%
of their transactions on their own.
This simple experience means cus-
tomers who use mobile and digital
channels are happier with us, tend to
do more business with us and are
more profitable.
Consumer Banking customers who
have relationships with two or more
Chase lines of business generate two
and a half times more pre-tax income
for us. That is because they have
deeper relationships and also
because they are often servicing their
accounts digitally, which is more
cost-effective.
For those customers who rely on
branches, we are tailoring our physi-
cal network to match the service
activity of each location. We have
expanded into our new market loca-
tions using a combination of strate-
gically placed full-service branches,
smaller format branches and stand-
alone ATMs – which can now sup-
port 74% of the transactions that
once required a teller.
53
#1
#1
62M
#1 in total U.S. credit card sales
volume and outstandings
#1 in U.S. retail
deposit growth
62 million households
#1
15
MOBILE LOGINS
#1 most visited banking
portal in the U.S.
15 mobile logins
per active user per month
29%
QUICKDEPOSITSM
29% of check deposit
transactions through
QuickDepositSM
80+%
SELF-SERVICED
49M
ACTIVE DIGITAL CUSTOMERS
$1+T
More than 80% of
transactions self-serviced
49 million active digital
customers
More than $1 trillion
in credit and debit card
sales volume
YOU INVEST
DIGITAL PLATFORM
1.5M
DIGITAL DEPOSIT
ACCOUNTS
33M
ACTIVE MOBILE CUSTOMERS
You Invest digital trading
platform launched
1.5 million deposit accounts
opened digitally
33 million active mobile
customers
We are committed to serving all
households with these new branches,
including ones with low to moderate
incomes.
People
We are so proud of our team, 135,0001
strong. In the same way we focus
on making experiences great for our
customers, we also strive to do the
same for our employees.
We have always believed our com-
pany has a role to play in society,
leading by example in areas such as
diversity. It’s important to us that our
employees represent the customers
we serve. More than 57% of our
employees are women, and more than
half are minorities. Our employees
who work directly with customers in
our branches and call centers have
higher minority representation than
our senior executive positions, and we
are working to correct that balance.
But we don’t stop with our employ-
ees. We are leading initiatives to drive
inclusive growth across the country,
such as Women on the Move – which
helps women overcome barriers they
face at work and helps further female
1 Includes employees and contractors
54
representation – and, most recently,
Advancing Black Pathways, our effort
to promote greater opportunities
for black Americans to participate in
economic success.
We are also mindful that the nature
of our work is changing as we invest
in technology that allows customers
to manage their own needs. While
we have hired 2,000+ more people in
technology and digital roles, we have
7,000 fewer employees working in
operational positions since 2014.
We are committed to offering other
opportunities and training to those
employees who might need to find a
new role – here at Chase or some-
where else.
Controls
Our customers rely on us to protect
their data and their money. We take
that responsibility very seriously.
Therefore, we deploy many safe-
guards, checks and balances to make
sure we do our work as effectively as
possible. This helps us adhere to the
many regulations and requirements
that govern us. Upgrading and rigor-
ously maintaining these controls is
an ongoing discipline; we are proud
of the work we do and will continue
to improve.
Looking ahead — 2019
Becoming a customer
As we continue to focus on custom-
ers’ needs in 2019, we will make it
even easier to become a Chase cus-
tomer and grow with us during a life-
time. Earlier this year, we created a
product to meet the needs of the mil-
lions of U.S. households outside of the
banking system – Chase Secure Bank-
ing. For a fee of $4.95 a month, people
receive access to our branches, ATMs
and mobile banking to make pay-
ments, deposit checks and send
money, and they cannot overdraft.
We will also continue to expand to
new markets. We expect 93% of the
U.S. population to be in our Chase
footprint by the end of 2022.
Paying with Chase
Our customers make more than
$2 trillion in payments each year –
whether they are shopping with one
of our cards, paying a bill or paying
another person. No matter the
method, we want them to be able to
do so with ease and confidence, as
well as to realize the value of paying
with Chase. In addition to the new
customer-friendly features I men-
tioned earlier, we are upgrading our
card chips to be “tap to pay”-enabled.
We announced two new features for
our credit card customers coming
later this year – My Chase PlanSM and
My Chase LoanSM – to provide more
ways to borrow using existing Chase
credit card lines. When customers
need to pay their Chase bills, they
can set a fixed amount to pay auto-
matically or pay at our ATMs.
Growing wealth
We want to help everyone make the
most of their money, whether they
need to build emergency savings to
cover unexpected expenses, save for a
home or invest. In January 2019, dur-
ing National Savings Month, we intro-
duced Auto Save, which allows our
customers to set rules for how much
to save based on milestones like
receiving a paycheck or spending at a
certain merchant. And every week, on
average, we welcome 5,000 new cus-
tomers to You Invest, our self-directed
digital investing product.
Owning a home
We have made it simpler and faster
for customers who want to work with
us to buy their home. Our digitally
enabled fulfillment process is more
convenient than the paper process;
it’s 20% faster, can be completed
online from anywhere and allows
customers to monitor their progress
through the process. Customer satis-
faction is at record highs, but there is
still room to simplify and improve.
Owning a car
Of the 62 million households with
whom we have a relationship,
roughly 1 million of them will buy or
lease a car with Chase each year. We
think we can do better than that by
making the experience easier and
adding value to the process – for our
customers and for our dealer and
manufacturer partners.
Growing businesses
As a firm, JPMorgan Chase can do
more to support businesses than just
about any other financial services
firm. From sole proprietors, family-,
female- and minority-owned busi-
nesses all the way to the largest global,
multinational corporations, we help
businesses manage the spectrum of
needs, whether making day-to-day
payments or financing growth. No
matter the business, we are focused
on ways to bring unique value to cus-
tomers who do more business with us.
For our customers who process pay-
ments with Chase, we can offer same-
day funding if they deposit those
sales into a Chase Business Checking
account. For a small business owner,
same-day access to your sales can
make a real difference.
Closing
I have never been more optimistic
about our future. We are committed
to making our business even better
by serving more customers. The key
to doing that is moving faster. We
have made progress improving upon
the pace we became accustomed to,
but we still need to do better.
Members of my leadership team
and I traveled to China at the end of
2018, and we were impressed by the
speed at which companies function.
Those we visited are using machine
learning to open accounts in seconds
or pay out claims based on smart-
phone images within hours. Seeing
these capabilities only inspired us to
move more quickly and push the
boundaries of what we think we can
accomplish for our customers and
our shareholders.
Gordon Smith
Co-President and Chief Operating Officer,
JPMorgan Chase & Co., and
CEO, Consumer & Community Banking
2018 HIGHLIGHTS AND ACCOMPLISHMENTS
• #1 in overall customer satisfac-
tion among national banks
(J.D. Power)
• #1 in primary bank relationships
within our Chase footprint
• The most frequently added new
bank among small businesses
that added another financial
institution in the past year
(Barlow Research)1
• Retail deposit volume growth at a
rate more than twice the industry
average since 2014
• #1 most visited banking portal in
the U.S. — chase.com
• #1 U.S. credit card issuer
• #1 U.S. co-brand credit card
issuer
• Relief provided to customers
affected by the California wild-
fires and the federal government
shutdown
• #1 in total U.S. credit and debit
payments volume
1 1Q17-4Q18 data, small businesses with
revenue $100,000 to $25 million
55
Corporate & Investment Bank
2018 performance and backdrop
The Corporate & Investment Bank
(CIB) had a record year in 2018, set-
ting a new benchmark for earnings
of $11.8 billion on $36.4 billion of
revenue, resulting in a return on
equity (ROE) of 16%.
We are now 10 years removed from
the financial crisis of 2008, when
J.P. Morgan was a safe haven for
clients in chaotic markets. We
remain that safe haven while we
drive the industry forward through
innovation and technology.
The standout performances of our
businesses last year and over the past
decade are the result of hard work,
continuous investment and a belief
that a complete, global offering helps
clients meet their evolving financial
objectives. As our clients grow in size
and complexity, they require a finan-
cial partner who can provide the
financing solutions they need, wher-
ever they need them and however
they want them delivered.
Last year was especially active for
mergers and acquisitions (M&A) and
equity markets. We advised on more
than $1 trillion in announced M&A1
in 2018, including significant deals
such as Takeda’s $82 billion acquisi-
tion of Shire, IBM’s $34 billion pur-
chase of Red Hat and Walmart’s $16
billion acquisition of Flipkart, India’s
largest online retailer.
We ranked #1 in wallet share for
both debt and equity capital markets
and raised more than $475 billion
for clients around the world. We led
prominent initial public offerings
(IPO), including for AXA Equitable
Holdings, the largest U.S. insurance
IPO since 2002, and for Siemens
Healthineers, the largest healthcare
IPO ever in EMEA2.
As a result of our worldwide invest-
ment banking work for clients, we
generated $7.5 billion in fees and
solidified our #1 standing in market
share for the 10th consecutive year. In
fact, amid heavy competition in a rel-
atively healthy economic environ-
ment, our share of global investment
banking business stood at 8.7%, the
highest of any bank since 2009.
Despite volatile trading markets at the
end of the year, we continued to be a
leading provider of trading liquidity
to institutional investors, reporting
full-year Markets revenue of $19.6 bil-
lion, up 6% from 2017. In Equities, we
achieved record full-year revenue of
$6.9 billion, up 21%. Our Cash Equi-
ties, Equity Derivatives and Prime
Finance businesses each gained
market share, and each generated
double-digit revenue growth during
the year. The investments we have
made in people and technology have
led to stronger execution capabilities
and significant growth in both client
balances and volumes. Over the past
five years, our Equities business has
gained more wallet share than our top
three competitors combined.
Even with the fourth quarter’s turbu-
lent markets, stronger performances
during the year in areas such as
Currencies & Emerging Markets and
Commodities contributed to $12.7
billion of Fixed Income Markets
revenue in 2018, nearly matching our
2017 result. Once again, we gained
share as the industry wallet declined.
In Treasury Services, we continued
to outpace competitors, growing
firmwide revenue to approximately
$9 billion. Our performance was
helped by higher interest rates and
operating deposits, which have
grown by 9% since 2016.
Looking ahead, Treasury Services
will benefit from our recent deci-
sion to integrate its operations with
Strong Returns on Higher Capital 3
($ in billions)
CIB ROE
Capital
2014
10%
$61
2015
12%
$62
(cid:31) Revenue
(cid:31) Net income
Overhead ratio
$34.7
$33.7
$6.9
67%
$8.1
64%
2016
16%
$64
$35.3
$10.8
54%
2017
14%
$70
$34.7
$10.8
56%
2018
16%
$70
$36.4
$11.8
57%
1 Dealogic as of January 1, 2019
2 EMEA = Europe/Middle East/Africa
3 Reported results for 2014 and 2015 have been revised to reflect the adoption in 2018 of the new revenue recognition guidance
#1
$1T OF M&A
$475+B
OF CAPITAL
#1
#1 in global investment
banking fees for
the 10th consecutive year
Advisor on more than
$1 trillion of announced M&A
transactions
More than $475 billion raised
for clients in the capital markets
#1 Global
Trading House
#1
Chase Merchant Services, the largest
merchant acquirer in the U.S. and
Europe. Together, these businesses
form the biggest wholesale payments
network in the world, processing
more than $6 trillion payments daily.
It serves 1.6 million small business
Top Global
Research Firm
customers and more than 80% of
Fortune 500 companies. By combin-
ing units, we will be able to reduce
legacy platform costs, accelerate the
expansion of our merchant acquisi-
tion business into Latin America and
Asia Pacific, and continue to innovate
FIRST
across networks using blockchain
TO OFFER
technology.
REAL-TIME PAYMENTS
First to offer real-time
payments in U.S. dollars, euros
and British pounds sterling
Securities Services continued to
grow and transform in 2018 while
benefiting from higher interest rates
and client balances. The business
took on an unprecedented amount of
new client business while at the
same time streamlining infrastruc-
ture and upgrading systems.
In addition to onboarding more than
$1 trillion in assets from BlackRock,
there were many other significant suc-
cesses. New business wins globally
have led to a growth in assets under
custody of approximately $2.7 trillion
since the start of 2017. Such mandates
helped drive revenue up 8% in 2018
to $4.2 billion, while we maintained
industry-leading operating margins
and high client satisfaction scores.
Although our overall results are
impressive, it’s important for us to
stay hungry and focused on our
clients, anticipate changes and never
lapse into complacency. We embrace
disruption – even as the market
leader – and continually invest in
digital technologies to provide clients
with data and insights when and
$6T
where they want them.
WHOLESALE PAYMENTS
That focus has generated results for
our shareholders, too. In addition to
$6 trillion of wholesale
earning an industry-leading return on
payments processed daily
equity, our market share among the
CIB’s largest competitors grew the
most year-over-year, even after outpac-
ing the group between 2014 and 2017,
according to data from Coalition.
We know that profitability stems
FIRST
from serving clients well, and the
U.S. BANK
choices we are making today always
WITH DIGITAL COIN
start with the same two-part ques-
First U.S. bank with
tion: Is this the right thing to do for
a digital coin
our clients and for the long term?
We expect to see periods of volatility
in the future, and we are committed
to managing risk in a dynamic way
FIRST
no matter what market conditions
BLOCKCHAIN-BASED
we face. That requires us to be disci-
PAYMENT NETWORK
plined and not overextend ourselves,
trusting in our strengths and doing
First to create a
blockchain-based payment
what is right.
information network
Around the world
Investors always assess geopolitical
risks, and 2018 provided no shortage
of them. For our part, we constantly
monitor and stress test our positions.
$23.2T
We take a long-term view of client
relationships and investments while
maintaining discipline on underwrit-
ing standards and risk concentrations
across clients, countries and products.
$23.2 trillion client assets
under custody
ASSETS UNDER CUSTODY
The economic cycle
From an economic perspective, fun-
damental growth continues to sup-
port the longest postwar expansion
in history. Corporate earnings and
balance sheets are healthy, U.S.
unemployment is near record lows
and we are not seeing signs of dete-
riorating credit quality.
That said, I believe we are closer to
the end of the expansionary cycle
than the beginning. My sense is that
the market volatility in the fourth
quarter of 2018 was partly due
to fear among investors that the
downturn was coming sooner than
expected. Meanwhile, “flash crashes”
are becoming more frequent. These
are a function of a number of factors,
including thinner liquidity across
asset classes, fewer participants in
the market and a growing percentage
of automated trading volumes.
Potential opportunities in Asia
Pacific, particularly China, remain
significant. Last year, we announced
major growth plans for China,
including the appointment of a new
country chief executive officer along
with a formal application to Chinese
regulators to establish a new, major-
ity-owned securities company.
In Europe, our attention remains on
Brexit. Despite the uncertainty of the
U.K.’s future relationship with the
European Union, J.P. Morgan has
been planning for the worst while
hoping for the best. Regardless of
Brexit’s ultimate consequences,
J.P. Morgan will be able to serve
clients in any scenario. We’re fortu-
nate to have branches, offices and
talented people across Europe, ensur-
ing seamless client service before,
during and after Brexit.
57
#1
$6T
WHOLESALE PAYMENTS
FIRST
BLOCKCHAIN-BASED
PAYMENT NETWORK
#1
Top Global
Research Firm
$6 trillion of wholesale
payments processed daily
First to create a
blockchain-based payment
information network
#1 Fixed Income Trading
market share
FIRST
TO OFFER
REAL-TIME PAYMENTS
FIRST
U.S. BANK
WITH DIGITAL COIN
$23.2T
ASSETS UNDER CUSTODY
#1
First to offer real-time
payments in U.S. dollars, euros
and British pounds
First U.S. bank with
a digital coin
$23.2 trillion client assets
under custody
Co #1 Equity Trading
market share
Technology
We’ve learned the hard way that it is
incredibly costly to lose a leadership
position due to a failure to embrace
change. Our firm was a leader in for-
eign exchange in the late 1990s, but
by resisting rather than embracing
electronic trading, we lost market
share. It took many years and mil-
lions of dollars of investment to
recapture our leadership – illustrating
the crippling effect that short-term
thinking can have on a business.
That lesson is one of the many rea-
sons we continue to reinvest such
significant sums – now more than
$11.5 billion per year – into technol-
ogy across the firm.
As electronification of the trading
markets continues across asset
classes, we are building sophisticated
trading platforms, such as Algo
Central, enabling clients to use pre-
dictive analytics to tailor orders and
even change the speed and execution
style while the trade is live.
In Securities Services, which safe-
guards more than $23 trillion in
client assets, we extended our
Investment Analytics Platform to
more than 200 large investor clients,
58
giving them clearer insight into their
own portfolios and helping them bet-
ter manage the risks and concentra-
tions associated with their positions.
dashboard. This transparency only
strengthens relationships and pro-
vides even more value to companies
that look to us for strategic advice.
In wholesale payments, more than
180 international banks have signed
on to be part of J.P. Morgan’s Inter-
bank Information Network, which
uses blockchain technology to
instantly transfer global payment
information among correspondent
banks, allowing funds to reach ben-
eficiaries faster and with fewer steps.
We are also the first bank to offer
real-time payments in U.S. dollars,
euros and British pounds, and the
first U.S. bank to create and test a
digital coin for instantaneous cross-
border payments using blockchain.
In investment banking, we are using
technology to empower bankers and
strengthen connections with clients.
With access to a wealth of informa-
tion about M&A and the capital mar-
kets, bankers can sit side by side with
clients, review trends and evaluate
timely capital raises or even model
what might happen to their stock in
an activist situation. Treasurers can
view our top-ranked research, evalu-
ate various financial metrics and cre-
ate custom reports on an easy-to-use
There is also a large opportunity to
improve efficiencies internally using
technology. About 40% of time in
global operations is spent on servicing
client accounts, including answering
queries. As we develop systems to bet-
ter direct those requests, we will spend
less time searching for answers and
more time responding to client needs.
With our scale, global footprint and
leadership, we have the ability to ana-
lyze data and generate insights like no
other financial services company in
the world. We increasingly see our
business as a platform to which cli-
ents can connect for whatever finan-
cial products and services they need.
Most exciting, perhaps, is the innova-
tive spirit surging through the bank.
Last September, we kicked off a com-
petition in which teams of analysts
and associates across the CIB were
invited to submit their best ideas for
making the company faster, smarter
and better. In a span of several weeks,
the teams submitted 469 ideas, many
of which we are already taking for-
ward with funding. The competition
showcased the amazing talent emerg-
ing within the organization and fueled
optimism about our bank’s future.
Communities and partnerships
Being part of a firm that has four
best-in-class franchises is extraordi-
nary. The talent and resources we
can mobilize for a client, a govern-
ment, an industry or a new market
are unmatched. Our work in Detroit
is well-known: We have partnered
with local officials and organizations,
investing $150 million in the city’s
economic recovery. This effort goes
beyond a financial commitment.
Through the JPMorgan Chase Ser-
vice Corps, teams of our colleagues
are working on-site at local nonprofit
partners to solve specific challenges.
I’m proud to say that the firm is
extending its resources to other cities
and communities, such as Greater
Paris and Chicago. As a global bank
with clients and employees around
the world, we believe we can add
value by partnering with local
governments and organizations to
expand access to jobs and skills for
young people and adults and help
regional businesses grow.
We are also working with colleagues
across the bank to support different
segments of the economy. The CIB’s
integration with Chase Merchant Ser-
vices is aimed at making international
payments seamless for both consum-
ers and e-commerce companies. Simi-
larly, being able to offer best-in-class
advice and capital markets expertise
to 19,000 midsized companies on
Commercial Banking’s roster helped
yield $2.5 billion of North America
investment banking revenue during
2018 – a record. Our bankers are plan-
ning to gradually extend efforts to
midsized companies in Europe and
Latin America as well. We’re also
working with the Private Bank to
expand our coverage of family offices
across the U.S. and around the world.
Conclusion
We have worked hard over many
years to earn our place as an indus-
try leader – in market share, financial
strength and reputation. As we trans-
form our business for the future, we
will build on our legacy of success by
taking advantage of strategic growth
opportunities while maintaining day-
to-day discipline. Our experienced
and talented CIB leadership team,
bolstered by the next generation of
vibrant, energetic employees, is pro-
pelling our company to the forefront
of digital banking and is positioning
us to serve our clients with the inno-
vative, effective financial strategies
they will need in the years to come.
Daniel E. Pinto
Co-President and Chief Operating
Officer, JPMorgan Chase & Co., and
CEO, Corporate & Investment Bank
2018 HIGHLIGHTS AND ACCOMPLISHMENTS
• The CIB had earnings of $11.8 billion
on $36.4 billion of revenue, produc-
ing a best-in-class ROE of 16%.
• J.P. Morgan ranked #1 in global
investment banking fees for the 10th
consecutive year, ending 2018 with
an 8.7% market share, the highest
share of any bank since 2009.
• J.P. Morgan ranked #1 in wallet
share for both debt and equity capi-
tal markets, raising more than $475
billion for clients around the world.
• J.P. Morgan advised on 10 of the
top 20 M&A transactions in 2018
and generated a full-year record
in M&A revenue.
• Overall Markets revenue of $19.6
billion was up 6%, led by record
revenue in Equities trading, which
was up 21%.
• J.P. Morgan ranked as the #1
• Firmwide revenue in Treasury
Global Research Firm in Institu-
tional Investor magazine’s annual
investor survey. We also ranked
#1 in both All-America and All-
Europe Fixed Income, #1 in All-
America Equity Research, and #2
in All-Europe Equity Research and
Latin America Research.
Services grew to nearly $9 billion
in 2018. Our decision to integrate
the business with our Merchant
Services offering now provides
clients with access to the largest
wholesale payments network in
the world.
• With $23.2 trillion in assets
under custody, our Securities
Services business continued to
win more client mandates across
the globe, helping to drive rev-
enue up 8% in 2018.
• More than 180 international banks
have signed on to be part of
J.P. Morgan’s Interbank Informa-
tion Network, which uses block-
chain technology to instantly
transfer global payment informa-
tion among correspondent banks.
59
Commercial Banking
In Commercial Banking (CB), we
continue to execute our long-term,
disciplined strategy, focused on help-
ing our clients succeed and making a
positive difference in our communi-
ties. Across our business, we have
been steadily investing to deliver
more value to our clients. I’m excited
about what we’ve accomplished so
far and the tremendous opportunity
ahead of us. As you consider the
future for CB, it’s useful to reflect on
our progress over the last decade:
• This 10-year perspective provides a
through-the-cycle lens, which is the
best way to measure the outcome of
our efforts, as well as the tremen-
dous potential for CB. At every step
along the way, we have been build-
ing with patience, selecting the
best clients and maintaining our
fortress principles.
• During this time, we commenced
our Middle Market expansion
efforts, focusing on delivering our
broad-based capabilities to more
clients across the U.S. To date, we
have opened 67 new locations,
added 650 new bankers and set a
solid foundation for continued
organic growth.
• In 2008, we acquired our Commer-
cial Term Lending (CTL) franchise
from Washington Mutual. Since
then, CTL has become the #1 multi-
family lender in the U.S., as we
have made significant investments
to better serve our clients.
I’m incredibly proud of how our
team is executing and the market
leadership positions we’ve estab-
lished. You can see the outcome of
this hard work and discipline in our
performance – over the past decade,
we’ve added high-quality loans and
deposits, nearly doubled revenue and
tripled net income.
While we’re pleased with these
results, we are not standing still. We
see enormous potential for our fran-
chise and are building for the next
10 years and beyond. In this letter,
I share highlights from our 2018
performance, the progress we are
making on our strategic priorities
and the investments underway that
will drive continued success for our
clients and CB.
Ten-Year Retrospective — Consistent Investment and Disciplined Growth
($ in billions)
Revenue
Net income
Average loans
Average deposits1
2008
$4.8
$1.4
$82
$103
2018
$9.1
$4.2
$206
$171
10-year CAGR
7%
11%
10%
5%
1 Deposits herein represent average client deposits and other third-party liabilities
CAGR = Compound annual growth rate
60
Record performance in 2018
In 2018, CB delivered outstanding
financial results. We generated record
revenue of $9.1 billion, up 5% year-
over-year, and net income grew 20%
to a record $4.2 billion. We have
remained highly selective in growing
our loan portfolio, and our net charge-
offs were just 3 basis points for the
year. Our continued credit, expense
and capital discipline led to an industry-
leading overhead ratio of 37% and a
strong return on equity of 20%.
Clients are at the center of everything
we do, and we’re delivering meaning-
ful advice, solutions and capital to
help them succeed. In 2018, we hired
more than 150 new bankers and
made nearly 30,000 more client calls.
Through these efforts, we added over
1,200 new relationships, grew loans
by $7.4 billion across our business
and ended the year with $206 billion
in average loan balances.
Being able to deliver our leading
investment banking capabilities
locally separates us from our compet-
itors. Our partnership with the
Corporate & Investment Bank (CIB) is
outstanding and allows us to deepen
our strategic dialogue with clients.
Even while investment banking activ-
ity is market dependent, we have
grown revenue every year since the
JPMorgan Chase/Bank One merger in
2004. 2018 was no exception, as we
generated a record $2.5 billion in
Investment Banking (IB) revenue,
accounting for 39% of CIB’s North
America investment banking fees.
Growing our client franchise
Across all of our businesses, we have
a tremendous opportunity to add
more great clients and deepen those
relationships over time. Since launch-
ing our Middle Market expansion
efforts, we are local and active in 39
new metropolitan statistical areas
and have added close to 2,800 new
clients. When we move into a new
market, we are truly engaged in our
communities and deliver the full
power and platform of our entire
firm. Client by client, banker by
banker, we have organically created a
nice-sized bank from scratch, build-
ing a $15 billion loan portfolio and
an $11 billion deposit franchise. The
foundational investments we make
upfront, essentially our operating
infrastructure, are meaningful and
are now largely in place. As our pres-
ence matures, these newer markets
will drive revenue growth, margins
and returns for many years to come.
The growth potential for our Middle
Market business isn’t limited to our
expansion markets. Through data-
driven analysis, we’ve identified and
prioritized 38,000 prospective clients
nationally. Some of our most excit-
ing opportunities are within our leg-
acy markets, such as New York, Chi-
cago, Dallas and Houston, where we
have been for over a century.
Overall, we now have banking teams
in 116 locations across the U.S. These
markets account for roughly 70% of
the country’s gross domestic product,
and our success will continue to be
driven by our exceptional teams, our
comprehensive capabilities delivered
locally and CB’s ability to grow with
clients over time.
Positioning for long-term success in
Commercial Real Estate
Our Commercial Real Estate (CRE)
businesses are designed to thrive
through the cycle, and growth has
been highly selective and disciplined.
We are pleased with our performance
in 2018, generating loan growth of 4%
and $24 billion in loan originations.
As we move into 2019, we will con-
tinue to target cycle-resistant seg-
Middle Market Banking and Specialized Industries — Market Opportunity
1 Size of circle indicates relative number of prospects in a given city
MMBSI = Middle Market Banking and Specialized Industries
ments and asset classes, watch market
conditions closely and maintain our
strict underwriting criteria. By staying
true to these fundamentals, we
believe we can thoughtfully continue
to grow our CRE loan portfolio.
Enhancing our capabilities to deliver
more value
Recognizing that clients are in vari-
ous stages of development and in
different industries, we know they
have unique needs and priorities.
We also know that expectations are
shifting and that we need to contin-
ually raise the bar to deliver more
value. As such, CB has dedicated,
client-focused design teams working
to integrate, simplify and create
new functionality. These teams are
developing exciting new capabilities
that will deliver powerful solutions
while substantially improving the
overall client experience.
We are making significant invest-
ments in our digital and payments
capabilities, and this work is critical
to our value proposition. It will
enable our clients to connect with us
in the simplest way possible,
Prospect density1
MMBSI footprint
whether through application pro-
gramming interfaces or an open
banking solution, and allow clients
to accept and collect payments from
anywhere in the world, in any cur-
rency. Finally, our ability to deliver
real-time data and insights will help
clients optimize and simplify their
operations. The value we deliver
through these capabilities allows us
to build incredibly close client rela-
tionships and is the foundation for
gathering and retaining long-term,
stable operating deposits.
Similarly, we are transforming how
we provide credit to our clients. As
an example, in CTL, speed and cer-
tainty of execution are critical. To
address this, we developed our pro-
prietary loan origination platform,
CREOS. Today, we use CREOS to pro-
cess 100% of our CTL volume and
are seeing terrific results with more
than 40% of our loans closing in less
than 30 days. This platform allows
our clients to focus on running their
business and lets us deliver a supe-
rior client experience rather than
compete on pricing, terms and credit.
61
Making a positive difference in the
communities we serve
In CB, we embrace our obligation to
be a positive force in our communi-
ties and are well-positioned to sup-
port the firm’s commitment to mak-
ing a difference. In 2018, we financed
the development of more than 20,000
housing units for low-income individ-
uals, and, notably, our Commercial
Development Banking team provided
$188 million in capital to the nation’s
largest Community Development
Financial Institutions. In addition, CB
supported local businesses, states and
municipalities, school districts, non-
profits and higher education institu-
tions with over $56 billion in capital
to help them deliver their critical
services. Equally important to serving
our communities, last year CB
employees volunteered more than
20,000 hours at local organizations.
Looking forward
I hope you can see why I’m incredibly
proud of our franchise and excited
about the opportunities ahead. CB’s
performance over the last 10 years
has set the standard for us going
forward. We have an exceptional
team, outstanding capabilities and
enormous market opportunities.
We believe we are well-prepared for
whatever market conditions are
ahead, and the investments we are
making today will drive success for
decades to come.
All of this comes down to our cli-
ents. We are grateful for our long-
standing relationships and appreci-
ate the trust and confidence they
place in JPMorgan Chase. I also want
to thank the entire CB team for mak-
ing our business better every day
and their ongoing commitment to
serving clients.
2018 HIGHLIGHTS AND ACCOMPLISHMENTS
Douglas B. Petno
CEO, Commercial Banking
Performance highlights
Business segment highlights
• Delivered record revenue of
• Middle Market Banking — Record
$9.1 billion and record earnings
of $4.2 billion
gross Investment Banking
revenue4; added five new offices
• Generated return on equity of 20%
on $20 billion of allocated capital
• Continued superior credit quality
— net charge-off ratio of 0.03%
• Corporate Client Banking —
Record revenue, with strong
investment banking growth and
record average loans
• Commercial Term Lending —
Completed rollout of new CREOS
platform across the business,
resulting in more than 40% of new
loans originated with normalized
controllable cycle times of less
than 30 days
• Real Estate Banking — Record
net income, with revenue up 13%
from 2017
• Delivered an industry-leading
overhead ratio of 37%
Leadership positions
• #1 U.S. multifamily lender1
• #1 Traditional Middle Market
Bookrunner2
• Winner of Greenwich Best Brand
Awards in Middle Market Banking
— Overall, Loans and Lines of
Credit, Cash Management, Inter-
national Products and Services3
62
• Community Development Banking —
Provided over $1.5 billion in capital
for affordable housing properties
and supported the firm’s Advancing-
Cities initiative with banking and
community engagement expertise
Firmwide contribution
• Commercial Banking clients
accounted for 39%5 of total North
America investment banking fees
• Over $145 billion in assets under
management from Commercial
Banking clients, generating approxi-
mately $500 million in investment
management revenue
• $513 million in Card Services revenue4
• $4.1 billion in Treasury Services
revenue
Progress in key growth areas
• Middle Market expansion — Record
revenue of $649 million; 17% CAGR
since 2013
• Investment banking — Record
gross revenue of $2.5 billion5;
8% CAGR since 2013
•
International banking —
Revenue6 of $400 million;
10% CAGR since 2013
1 Rank based on S&P Global Market
Intelligence as of December 31, 2018
2 Refinitiv LPC, FY18
3 Greenwich Associates Commercial Banking
Study, 2018
4 Investment Banking and Card Services
revenue represents gross revenue generated
by CB clients
5
Represents the percentage and amount of
CIB’s North America investment banking
fees generated by CB clients, excluding fees
from fixed income and equity markets,
which is included in CB gross IB revenue
6 Non-U.S. revenue from U.S. multinational
clients
CAGR = Compound annual growth rate
Asset & Wealth Management
In 2018, we marked the 10-year anni-
versary of the global financial crisis,
emanating from the U.S., that
shocked financial markets all around
the world. Investors with the forti-
tude to remain steadfast on their
long-term investing journey and
withstand the tremendous volatility
have been highly rewarded. But for
many others in the decade since
2008, it has been difficult to endure
the severe drawdowns and even
more challenging to ever fully re-risk.
2018 didn’t enhance confidence in
markets either – for the first time in
this century, cash was the only major
publicly traded U.S. asset class to gen-
erate a positive return for investors.
Fiduciaries since 1881
Reflecting over the past decade, I am
proud of how our teams have helped
clients – from those with a small
savings account to the world’s largest
pension and sovereign wealth funds
– navigate this volatile period. As
stewards of wealth, we measure suc-
cess by our ability to drive positive
client outcomes over time, and we
recognize the responsibility and
privilege that come with serving as
a fiduciary. Since launching our first
investment product in 1881 – one
that is still available today – our
J.P. Morgan culture has remained
committed each and every day to
delivering to clients the strongest
risk-adjusted investment returns
we can uncover in the markets.
Strong investment performance
2018 marked another impressive
year in investment performance ver-
sus our competitors, with more than
83% of our mutual fund assets
under management (AUM) around
the world outperforming the peer
median over the 10-year period.
In 2018, we were recognized by
Morningstar with five important rat-
ings upgrades, representing almost
$70 billion in client assets. Smart-
Retirement was upgraded to Gold,
making it the only active target date
manager in the industry with a Gold
rating. Global Allocation, Small Cap
Equity and Growth & Income all
were upgraded to Silver. Core Plus
Bond was upgraded to Bronze.
Our impressive investment perfor-
mance attracted $25 billion of net
new asset flows in 2018, marking
83%
our 10th consecutive year of net long-
term inflows and bringing the total
assets entrusted to us to $2.7 trillion.
SMART RETIREMENT
Upgraded to Gold,
ranked top quintile over 10 years
Upgraded to Silver,
ranked top decile over 5 years
Upgraded to Silver,
ranked top decile over 5, 10 & 15 years
Upgraded to Silver,
83%
ranked top quintile over 5 & 10 years
Created by Fahmi
from the Noun Project
Upgraded to Bronze,
93%
ranked top quartile over 5 & 10 years
2018 % of J.P. Morgan Asset Management Long-Term Mutual Fund AUM
Outperforming Peer Median over 10 years 1
(net of fees)
83%
93%
59%
Total J.P. Morgan
Asset Management
Equity
Fixed Income
Multi-Asset Solutions
& Alternatives
83%
93%
59%
85%
1 For footnoted information, refer to slide 16 in the 2019 Asset & Wealth Management Investor Day presentation,
which is available at jpmorganchase.com/corporate/investor-relations/event-calendar.htm
AUM = Assets under management
59%
85%
63
93%
59%
85%
85%
Importantly, our flows are not concen-
trated in any one asset class, region
or channel but come from a well-
diversified set of global businesses.
Consistent financial performance
When we focus on client outcomes,
our own financial success follows.
Record revenue of $14.1 billion and
record net income of $2.9 billion
enabled us to deliver a healthy 31%
return on equity for our share-
holders. As we continue to invest
in the business for the future, our
deeply embedded culture of risk
management allowed us to do so
while holding our net charge-off
ratio to a very low 0.01%.
Top talent
Top talent is our single most impor-
tant asset. We consistently attract,
train and cultivate many of the top
investment managers and advisors
in our industry, proudly retaining
more than 95% of our top talent
over the last several years. In the
Wealth Management space, we
continue to broaden our coverage
and are approaching nearly 6,500
advisors, located all around the
world and close to where our
clients need us most. We will
continue to expand our footprint
across the U.S. and other high-
growth areas such as China, where
we can import our firm’s expertise,
as well as welcome new local talent
into the J.P. Morgan family.
Product innovation
To help ensure we continue provid-
ing our clients with the solutions
they need today and into the
future, we are laser focused on
innovating new products every-
where we do business. There’s
nothing we can’t achieve when
we put the resources of this firm
behind an initiative, and these
are only a few examples:
JPMorgan Chase Total Client Asset Flows: 2014-2018 1
• Beta/ETFs: Just two years ago, we
started building our Beta busi-
ness. Today, we offer beta capabil-
ities and exchange-traded funds
(ETF) ranging from active to
strategic beta and passive, with
$43 billion in AUM. In 2018, our
U.S. ETF business ranked #4 in
industry flows, competing head
to head with firms that have long
led the rankings and were consid-
ered unassailable.
• You Invest: Launched in 2018, You
Invest has transformed the land-
scape for our retail clients. The
easy-to-navigate user interface and
the ability to access investments on
the go have attracted a new genera-
tion of clients, 89% of whom are
first-time investors with Chase.
And that’s only the beginning –
later this year, we’ll be rolling out
our digital advice platform called
You Invest Portfolios.
Assets=
AUM+AUS
Assets
Assets
Fixed Income
Equity
AUM
Multi-Asset
Alternatives
Liquidity
Brokerage
AUS
Custody
Deposits
Wealth Management
Retail
Institutional
U.S.
LatAm
EMEA
Asia
≥$0 <$0
2014
2015
2016
2017
2018
1 For footnoted information, refer to slide 17 in the 2019 Asset & Wealth Management Investor Day presentation,
which is available at jpmorganchase.com/corporate/investor-relations/event-calendar.htm
AUM = Assets under management
AUS = Assets under supervision
T
C
U
D
O
R
P
/
S
S
A
L
C
T
E
S
S
A
L
E
N
N
A
H
C
I
N
O
G
E
R
64
• Digital everything: Our ability to
connect with clients – however,
wherever and whenever they need
us – is paramount to our future
success. Our goal is to deliver
J.P. Morgan’s expertise 24/7, world-
wide. One example of a recent
application we launched is Digital
Portfolio Insights. This cutting-edge
tool allows external financial advi-
sors to access J.P. Morgan’s propri-
etary risk management analytics
to generate sophisticated and
customized insights. In 2018, these
advisors used the tool to help them
build better portfolios for over
20,000 of their clients.
Simplify for growth
Our ability to innovate and to sustain
our growth requires us to have rigor-
ous discipline around business simpli-
fication. Over the past few years, we
have merged or closed 229 funds
while launching 125 new products; we
have closed 21 front office locations in
order to open 17 new state-of-the-art
facilities; and we have decommis-
sioned nearly 230 legacy system tools
while delivering almost 280 modern
technology applications straight to
our clients and advisors. Our relent-
less focus on product and system
optimization and continuous empha-
sis on cutting waste allow us to con-
tinuously reinvest in our future.
driving toward the best client out-
comes, and we believe that focus is
the engine of our continued success.
I couldn’t be more proud of what we
have delivered for our clients and our
shareholders, and I have never been
more excited for what is to come.
Fortitude
In this time of rapid change and
competition, we are fortunate to be
part of the broader JPMorgan Chase
organization, where we all constantly
challenge one another to use our
expertise, scale and invaluable client
base to continuously reimagine the
future of how we serve our clients.
We have a proud legacy of doing
first-class business in a first-class way,
and we have extended that promise
to institutions, central banks, sover-
eign wealth funds and individuals.
It’s our history and our expertise that
give us the fortitude and vision to
help our clients thrive in today’s
evolving market. No matter the
speed or scale of change, our funda-
mental mission remains the same:
We are relentlessly focused on
Mary Callahan Erdoes
CEO, Asset & Wealth Management
2018 HIGHLIGHTS AND ACCOMPLISHMENTS
Business highlights
• 10th consecutive year of net
long-term inflows
• Record revenue of $14.1 billion
• More than 83% of our long-
term mutual fund AUM
outperformed the peer median
over the 10-year period
• Retention rate of over 95%
Leadership positions
• Best Global Provider of
Short-Term Investments/
Money Market Funds
(Global Finance, March 2019)
• Leading Pan-European Fund
Management Firm (Thomson
Reuters/Extel, June 2018)
• Retirement Leader of the Year
(Fund Action, June 2018)
• Record net income of $2.9 billion
for top talent
• Record average loan balances
of $139 billion
• Record average mortgage
balances of $41.5 billion
• Best Tech Innovation in
Data Globally
(The Banker, August 2018)
• North America Asset Manager
of the Year
(Reactions, November 2018)
• Asset Manager of the Year for
Asia (AsianInvestor, June 2018)
• ETF Issuer of the Year
(ETF.com, March 2019)
• Best Private Bank for Research &
Asset Allocation Globally
(Euromoney, February 2019)
• Best Private Bank for
Ultra-High-Net-Worth Globally
(FT/PWM magazine, November 2018)
65
Corporate Responsibility
In an era characterized by deep
social divisions and widening eco-
nomic disparity all over the world,
companies like ours have a responsi-
bility to be leaders in finding solu-
tions. This is not simply about being
a good corporate citizen; it is a busi-
ness imperative. The success of our
firm is inextricably linked to the
success of our communities.
Many of today’s challenges stem
from the reality that, despite a grow-
ing economy, people are working
age our firm’s expertise: building job
skills, expanding small businesses,
revitalizing neighborhoods and
promoting financial health.
Over the last five years, we have
refined this model in Detroit, where
we made a $150 million commitment
to the city’s economic recovery. The
results have exceeded our expecta-
tions. People are moving back. The
unemployment rate is down from
20% in 2013 to less than 9% today.
For the first time in 17 years, home
Business has an obligation and a vested interest in
ensuring our system delivers on its unrivaled potential
to create widely shared economic opportunity.
harder but are unable to get ahead.
The average American family has
seen its net worth move backward
over a generation. Meanwhile, for
every $100 in white family wealth
today, black families hold just about
$5. For far too many people, the
system is not working.
Business has an obligation and a
vested interest in ensuring our
system delivers on its unrivaled
potential to create widely shared
economic opportunity. That’s why
JPMorgan Chase is applying the
same capabilities and resources that
enable us to deliver Return on Invest-
ment for our shareholders to generate
what we call ‘Return on Community.’
This means we are making inten-
tional, long-term investments aimed
at lifting those who are being left
behind, focused where we can lever-
values have risen and mortgage
lending is up. While much work
remains to be done, there is a sense
of optimism once again, particularly
among young people who now see
a future for themselves in their city.
In 2018, we took a major step to
expand the number of people and
places we reach by launching
AdvancingCities, our firm’s $500
million initiative to drive inclusive
growth around the world. While
many cities are experiencing grow-
ing economies, vibrant downtown
cores often obscure large pockets of
concentrated poverty. At the same
time, cities offer the opportunity
to drive large-scale innovation and
impact. Through AdvancingCities,
we are combining our business
and philanthropic resources to do
exactly that.
6666
These efforts underscore the degree
to which our mission to drive inclu-
sive growth has become a fundamen-
tal tenet of our culture. Through our
market expansion, kicked off in 2018,
we are bringing the full force of our
firm to advance this mission. We are
opening 400 new Chase branches,
enabling us to lend to more custom-
ers, offer more good jobs and further
invest in neighborhoods. The first
of these branches are now open in
Boston, Philadelphia and Washing-
ton, D.C., where we are pairing them
with expanded lending and philan-
thropic commitments, focused in
low- and moderate-income areas.
And we are actively working to hire
locally while raising wages for our
entry-level employees.
Opening doors to opportunity
transforms lives, lifts entire com-
munities and strengthens the global
economy. It is also the best way to
repair the societal fractures that
increasingly divide us – and that’s
the right thing to do for our firm
and for our shareholders.
Peter L. Scher
Head of Corporate Responsibility and
Chairman of the Mid-Atlantic Region
“” Generating Return on Community
JPMorgan Chase believes that companies must
do even more to help solve today’s biggest
challenges and create economic opportunity
for more people. To do so, they must invest in
communities the same way they invest in their
own businesses. As announced in early 2018,
our firm will deploy $1.75 billion by 2023 to
drive inclusive growth in communities around
the world. Generating Return on Community
is one of our core objectives because we know
that the future of our company depends on the
well-being of our communities.
To create and sustain lasting positive change,
JPMorgan Chase is investing in four key drivers
of opportunity, areas that are aligned with our
business expertise: jobs and skills, small busi-
ness expansion, neighborhood revitalization
and financial health. We are putting this model
into action through significant, long-term and
data-driven investments that leverage our
firm’s expertise, capital, data, technology and
global presence.
AdvancingCities — Expanding opportunity
at scale
Our model for impact has yielded real results so
we are doubling down on our commitment to
drive inclusive growth and expanding the num-
ber of people and places we reach. JPMorgan
Chase launched AdvancingCities — our largest,
most comprehensive corporate responsibility ini-
tiative to date to invest in solutions that bolster
the world’s cities and the people within them.
This initiative will allow us to deepen our work
in cities in two ways: through targeted commit-
ments in key markets where the conditions
exist for large-scale investments and through
an annual Challenge that will accelerate collab-
orative, innovative solutions designed by local
leaders and residents to break down barriers
to opportunity.
To catalyze sustainable growth, we are combin-
ing our firm’s philanthropic efforts with our
lending and investing expertise to deploy up
to $250 million as low-cost, long-term loan
capital. We expect our investment to attract
an additional $1 billion in outside capital.
In 2018, marking our 150th anniversary in
France, JPMorgan Chase announced its
first AdvancingCities commitment — a $30
million, five-year philanthropic investment
to provide underserved residents and local
entrepreneurs across Greater Paris access
to economic opportunity.
Building branches, strengthening our
communities
Unlocking the power of data for public
good
As we expand our consumer business, we are
also increasing our philanthropic commitment
to our communities. For example, in 2018, we
announced plans to open 70 new branches in
the Greater Washington region and hire 700
new employees, the first major branch expan-
sion as part of our firm’s $20 billion, five-year
investment in our business and local economic
growth. To fuel the economy of this region, we
committed $4 billion in lending for home mort-
gages and small business and $500 million to
support affordable housing. In addition,
roughly 20% of our branches in the region will
reside in low- and moderate-income communi-
ties. We also doubled our philanthropic invest-
ment, committing $25 million to create eco-
nomic opportunity for residents at risk of being
left behind in today’s economy.
One such investment is the $6 million we com-
mitted in 2018 to prepare Greater Washington
area students for local, in-demand technology
jobs. As an employer, we hear from so many of
our clients and employers about their struggle
to find workers with the right skills. In 2017,
only 3,000 individuals obtained associate
degrees and other sub-baccalaureate creden-
tials in digital skills and technology, while there
were 15,000 jobs that needed those credentials
in the region. Demand for tech workers with
less than a four-year degree increased by 42%
in the region between 2014 and 2017.
As part of our firm’s global New Skills for Youth
initiative, our investment will support five
school districts in Virginia, Washington, D.C.,
and Maryland and enable them to partner with
local colleges and universities to build career
pathways for students that lead to well-paying
technology jobs.
We are harnessing our scale and scope to shed
light on the inner workings of today’s global
economy. The JPMorgan Chase Institute seeks
to help decision makers — policymakers, busi-
nesses and nonprofit leaders — use timely data
and thoughtful analyses to make informed
decisions that advance inclusive growth around
the world. Drawing on our firm’s unique propri-
etary data, expertise and market access, the
Institute develops analyses and insights on the
inner workings of the global economy, frames
critical problems, and convenes stakeholders
and leading thinkers around solutions. Our
firm’s data informs all of our strategic invest-
ments in communities around the world.
In 2018, the Institute shared valuable analyses
and insights on:
• Local commerce activity, leveraging 4 billion
credit and debit card transactions from
nearly 7.7 million customers to provide an
unprecedented view of the online U.S. econ-
omy, examining how online commerce has
grown, who has driven that growth, and how
it has impacted brick-and-mortar merchants;
• Families’ out-of-pocket healthcare spending
trends from 2014 to 2017;
• Growth and evolution of the Online Platform
Economy, exploring its scale, key segments,
characteristics and how earnings from plat-
forms figure into family income;
• Challenges, opportunities and life cycles
of America’s small businesses by analyzing
revenue and cash flows of 1.3 million small
businesses;
• Institutional investor trading behavior in
foreign exchange markets around three
events that led to the largest one-day moves
in the relevant currencies in the last 20
years: Brexit, the 2016 U.S. presidential elec-
tion and the decision by the Swiss National
Bank to remove the Swiss franc floor; and
• Americans’ tax refunds by income and other
demographic characteristics, as well as the
impact of tax refunds on healthcare spending.
6767
2018 HIGHLIGHTS AND ACCOMPLISHMENTS
received services to improve their finan-
cial health; 1,246 jobs were created or
retained; and 1,319 small businesses
received capital or technical assistance
• Greater Washington region: One year into
our $25 million commitment:
— 590 units of affordable housing were cre-
ated or preserved; 312 jobs were created
or retained; 722 small businesses received
capital or technical assistance
• Through New Skills at Work, over the past
five years, we have helped nearly 150,000
people receive skills training for well-paying
jobs in growing industries by partnering with
about 740 nonprofits, investing $250 million
in job training and career education initia-
tives in 37 countries, as well as 30 U.S.
states and Washington, D.C.
Awards and recognition
• Ranked Top 10 on Fortune magazine’s
World’s Most Admired Companies list
• Named to Fortune magazine’s Change the
World list for the second year in a row
• Named to The Chronicle of Philanthropy’s
Top 20 Corporate Givers list
• Named recipient of the International Medical
Corps’ Global Citizen Award
• Harvard Business School (in a 2018 case study)
profiled the firm’s model for impact in Detroit
and how it’s being applied in other cities
• Named to the Military Times’ Best for Vets
Employers list
• Named an ENERGY STAR® Partner of the
Year, recognized by the U.S. Environmental
Protection Agency and U.S. Department
of Energy
• Named to Black Enterprise’s 50 Best
Companies for Diversity list
Accomplishments
Generating Return on Community through our
comprehensive, multimillion-dollar commit-
ments to Detroit, Chicago and the Greater
Washington region:
• Detroit: Five years into our $150 million
commitment:
• Through our global commitment to promote
— 13,573 people participated in workforce
programs; 1,632 units of affordable hous-
ing were created or preserved; 13,180
people received services to improve their
financial health; 2,067 jobs were created
or retained; 4,387 small businesses
received capital or technical assistance
• Chicago’s South and West sides: One year
into our $40 million commitment:
— 2,857 people participated in workforce
programs; 176 units of housing were
created or preserved; 5,341 people
6868
financial health:
— Announced eight financial services inno-
vators as winners of the Financial Solu-
tions Lab (FinLab) 2018 Challenge,
focused on improving consumer financial
health in the U.S. To date, FinLab has
supported more than 30 innovative finan-
cial technology (fintech) companies that
have raised over $500 million in capital
since joining the program, saving U.S.
residents more than $1 billion.
— Launched the Financial Inclusion Lab in
India, applying insights from the Lab in
the U.S. to help scale early-stage fintech
startups that are focused on helping
India’s underserved communities.
• Expanded the Entrepreneurs of Color Fund
(EOCF) from Detroit to Chicago, the South
Bronx and the Bay Area, providing minority
entrepreneurs with access to capital, educa-
tion and other resources to build and grow
their businesses. Through 2018, JPMorgan
Chase has committed $13.6 million through
EOCF, resulting in 210 loans totaling $9.5
million that created or retained 1,200 jobs.
• To date, hosted five Partnerships for Raising
Opportunity in Neighborhoods (PRO Neigh-
borhoods) competitions, awarding more
than $98 million to over 70 Community
Development Financial Institutions across
the U.S. After our $68 million commitment,
the winners of the first three competitions
raised an additional $713 million in outside
capital, issued over 21,000 loans to low- and
moderate-income customers, and created or
preserved more than 3,000 affordable hous-
ing units and 11,000 quality jobs.
• In 2018, provided $3.2 billion for wind
and solar projects in the U.S. Since 2003,
JPMorgan Chase has committed or arranged
more than $21 billion in financing for wind,
solar and geothermal projects in the U.S.
• Awarded our 1,000th mortgage-free home to
a U.S. military veteran, reaching all five
branches of service in communities across
44 states.
• Engaged our employees to serve our
communities:
— Nearly 59,000 employees volunteered
more than 389,000 hours in 2018. This
includes 218 employee volunteers from
offices in 15 countries who contributed
18,500 hours working on-site with 49
of our nonprofit partners through the
JPMorgan Chase Service Corps.
— Within the first three months of the firm’s
Board Match program — which doubles
the impact of eligible employees’ dona-
tions to nonprofits on whose boards they
serve — 271 employees contributed,
resulting in the firm matching more than
$1.3 million to those organizations.
— In 2018, our firm and employees donated
more than $4 million to assist disaster
relief efforts around the globe.
Table of contents
Financial:
40 Five-Year Summary of Consolidated Financial
Highlights
Audited financial statements:
41 Five-Year Stock Performance
148 Management’s Report on Internal Control Over
Financial Reporting
149 Report of Independent Registered Public Accounting
Management’s discussion and analysis:
Firm
42 Introduction
43 Executive Overview
150 Consolidated Financial Statements
155 Notes to Consolidated Financial Statements
48 Consolidated Results of Operations
52 Consolidated Balance Sheets and Cash Flows Analysis
55 Off–Balance Sheet Arrangements and Contractual
Cash Obligations
57 Explanation and Reconciliation of the Firm’s Use of
Non-GAAP Financial Measures and Key Performance
Measures
Supplementary information:
60 Business Segment Results
287 Selected quarterly financial data (unaudited)
79 Enterprise-wide Risk Management
288 Distribution of assets, liabilities and stockholders’
equity; interest rates and interest differentials
84 Strategic Risk Management
293 Glossary of Terms and Acronyms
102 Credit and Investment Risk Management
124 Market Risk Management
132 Country Risk Management
134 Operational Risk Management
141 Critical Accounting Estimates Used by the Firm
Note:
144 Accounting and Reporting Developments
147 Forward-Looking Statements
The following pages from JPMorgan Chase & Co.’s 2018
Form 10-K are not included herein: 1-38, 300-311
JPMorgan Chase & Co./2018 Form 10-K
39
Financial
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS (unaudited)
As of or for the year ended December 31,
(in millions, except per share, ratio, headcount data and where otherwise noted)
Selected income statement data
Total net revenue
Total noninterest expense
Pre-provision profit
Provision for credit losses
Income before income tax expense
Income tax expense
Net income
Earnings per share data
Net income: Basic
Diluted
Average shares: Basic
Diluted
Market and per common share data
Market capitalization
Common shares at period-end
Book value per share
Tangible book value per share (“TBVPS”)(a)
Cash dividends declared per share
Selected ratios and metrics
Return on common equity (“ROE”)
Return on tangible common equity (“ROTCE”)(a)
Return on assets (“ROA”)
Overhead ratio
Loans-to-deposits ratio
Liquidity coverage ratio (“LCR”) (average)(b)
Common equity tier 1 (“CET1”) capital ratio(c)
Tier 1 capital ratio(c)
Total capital ratio(c)
Tier 1 leverage ratio(c)
Supplementary leverage ratio (“SLR”)(d)
Selected balance sheet data (period-end)
Trading assets
Investment securities
Loans
Core Loans
Average core loans
Total assets
Deposits
Long-term debt
Common stockholders’ equity
Total stockholders’ equity
Headcount
Credit quality metrics
Allowance for credit losses
Allowance for loan losses to total retained loans
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(e)
Nonperforming assets
Net charge-offs
Net charge-off rate
2018
2017
2016
2015
2014
$ 109,029
63,394
45,635
4,871
40,764
8,290
32,474
$
$ 100,705
59,515
41,190
5,290
35,900
11,459
24,441
$
$
9.04
9.00
3,396.4
3,414.0
$
6.35
6.31
3,551.6
3,576.8
$
(f) $
$
96,569
56,672
39,897
5,361
34,536
9,803
24,733
6.24
6.19
3,658.8
3,690.0
$
$
$
94,440
59,911
34,529
3,827
30,702
6,260
24,442
6.05
6.00
3,741.2
3,773.6
$
$
$
95,994
62,156
33,838
3,139
30,699
8,954
21,745
5.33
5.29
3,808.3
3,842.3
$ 319,780
3,275.8
70.35
56.33
2.72
$ 366,301
3,425.3
67.04
53.56
2.12
$ 307,295
3,561.2
64.06
51.44
1.88
$ 241,899
3,663.5
60.46
48.13
1.72
$ 232,472
3,714.8
56.98
44.60
1.58
13%
17
1.24
58
67
113
12.0
13.7
15.5
8.1
6.4%
10%
12
0.96
59
64
119
12.2
13.9
15.9
8.3
6.5%
10%
13
1.00
59
65
N/A
12.3
14.0
15.5
8.4
6.5%
11%
13
0.99
63
65
N/A
11.8
13.5
15.1
8.5
6.5%
10%
13
0.89
65
56
N/A
10.2
11.6
13.1
7.6
N/A
$ 413,714
261,828
984,554
931,856
885,221
2,622,532
1,470,666
282,031
230,447
256,515
256,105
$ 381,844
249,958
930,697
863,683
829,558
2,533,600
1,443,982
284,080
229,625
255,693
252,539
$ 372,130
289,059
894,765
806,152
769,385
2,490,972
1,375,179
295,245
228,122
254,190
243,355
$ 343,839
290,827
837,299
732,093
670,757
2,351,698
1,279,715
288,651
221,505
247,573
234,598
$ 398,988
348,004
757,336
628,785
596,823
2,572,274
1,363,427
276,379
211,664
231,727
241,359
$
14,500
$
14,672
$
14,854
$
14,341
$
14,807
$
1.39%
1.23
$
5,190
4,856
0.52%
1.47%
1.27
1.55%
1.34
1.63%
1.37
1.90%
1.55
$
6,426
5,387
0.60% (g)
$
7,535
4,692
$
7,034
4,086
7,967
4,759
0.54%
0.52%
0.65%
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior
period amounts were revised. For additional information, refer to Note 1.
(a) TBVPS and ROTCE are non-GAAP financial measures. For a further discussion of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP
Financial Measures and Key Performance Measures on pages 57-59.
(b) For the years ended December 31, 2018 and 2017, the percentage represents the Firm’s reported average LCR for the three months ended December 31, 2018 and 2017,
per the U.S. LCR public disclosure requirements which became effective April 1, 2017. Refer to Liquidity Risk Management on pages 95–100 for additional information on
the Firm’s LCR.
(c) Ratios presented are calculated under the Basel III Transitional capital rules and for the capital ratios represent the lower of the Standardized or Advanced approach. As of
December 31, 2018, the Firm’s capital ratios were equivalent whether calculated on a transitional or fully phased-in basis. Refer to Capital Risk Management on pages
85-94 for additional information on Basel III.
(d) Effective January 1, 2018, the SLR was fully phased-in under Basel III. The SLR is defined as Tier 1 capital divided by the Firm’s total leverage exposure. Ratios prior to
2018 were calculated under the Basel III Transitional rules, per the SLR public disclosure requirements which became effective January 1, 2015.
(e) Excluded the impact of residential real estate purchased credit-impaired (“PCI”) loans, a non-GAAP financial measure. For further discussion of these measures, refer to
Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59, and the Allowance for credit losses on
pages 120–122.
(f) On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The Firm’s results for the year ended December 31, 2017 included a $2.4 billion decrease
to net income as a result of the enactment of the TCJA. For additional information related to the impact of the TCJA, refer to Note 24.
(g) Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for the year ended December 31, 2017 would have been 0.55%.
40
JPMorgan Chase & Co./2018 Form 10-K
FIVE-YEAR STOCK PERFORMANCE
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. (“JPMorgan Chase” or
the “Firm”) common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index.
The S&P 500 Index is a commonly referenced equity benchmark in the United States of America (“U.S.”), consisting of leading
companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are
publicly traded in the U.S. and is composed of leading national money center and regional banks and thrifts. The S&P Financial
Index is an index of financial companies, all of which are components of the S&P 500. The Firm is a component of all three
industry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2013, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends are reinvested.
December 31,
(in dollars)
JPMorgan Chase
KBW Bank Index
S&P Financial Index
S&P 500 Index
December 31,
(in dollars)
2013
2014
2015
2016
2017
2018
$ 100.00
$ 109.88
$ 119.07
$ 160.23
$ 203.07
$ 189.57
100.00
100.00
100.00
109.36
115.18
113.68
109.90
113.38
115.24
141.23
139.17
129.02
167.49
169.98
157.17
137.82
147.82
150.27
JPMorgan Chase & Co./2018 Form 10-K
41
Management’s discussion and analysis
The following is Management’s discussion and analysis of the financial condition and results of operations (“MD&A”) of JPMorgan
Chase for the year ended December 31, 2018. The MD&A is included in both JPMorgan Chase’s Annual Report for the year ended
December 31, 2018 (“Annual Report”) and its Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form
10-K”) filed with the Securities and Exchange Commission (“SEC”). Refer to the Glossary of terms and acronyms on pages 293–299
for definitions of terms and acronyms used throughout the Annual Report and the 2018 Form 10-K.
The MD&A contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of
1995. These statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to
significant risks and uncertainties. For a discussion of certain of those risks and uncertainties and the factors that could cause
JPMorgan Chase’s actual results to differ materially because of those risks and uncertainties, refer to Forward-looking Statements
on page 147) and Part I, Item 1A: Risk factors in the 2018 Form 10-K.
For management reporting purposes, the Firm’s activities
are organized into four major reportable business
segments, as well as a Corporate segment. The Firm’s
consumer business is the Consumer & Community Banking
(“CCB”) segment. The Firm’s wholesale business segments
are Corporate & Investment Bank (“CIB”), Commercial
Banking (“CB”), and Asset & Wealth Management (“AWM”).
For a description of the Firm’s business segments, and the
products and services they provide to their respective client
bases, refer to Business Segment Results on pages 60-78,
and Note 31.
INTRODUCTION
JPMorgan Chase & Co. (NYSE: JPM), a financial holding
company incorporated under Delaware law in 1968, is a
leading global financial services firm and one of the largest
banking institutions in the United States of America
(“U.S.”), with operations worldwide; JPMorgan Chase had
$2.6 trillion in assets and $256.5 billion in stockholders’
equity as of December 31, 2018. The Firm is a leader in
investment banking, financial services for consumers and
small businesses, commercial banking, financial transaction
processing and asset management. Under the J.P. Morgan
and Chase brands, the Firm serves millions of customers in
the U.S. and globally many of the world’s most prominent
corporate, institutional and government clients.
JPMorgan Chase’s principal bank subsidiaries are JPMorgan
Chase Bank, National Association (“JPMorgan Chase Bank,
N.A.”), a national banking association with U.S. branches in
27 states and the District of Columbia as of December 31,
2018, and Chase Bank USA, National Association (“Chase
Bank USA, N.A.”), a national banking association that is the
Firm’s principal credit card-issuing bank. In January 2019,
the OCC approved an application of merger which was filed
by JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. in
December 2018 and which contemplates that Chase Bank
USA, N.A. will merge with and into JPMorgan Chase Bank,
N.A., with JPMorgan Chase Bank, N.A. as the surviving bank.
For additional information refer to Supervision and
Regulation on pages 1-6 in the 2018 Form 10-K. JPMorgan
Chase’s principal nonbank subsidiary is J.P. Morgan
Securities LLC (“J.P. Morgan Securities”), a U.S. broker-
dealer. The bank and non-bank subsidiaries of JPMorgan
Chase operate nationally as well as through overseas
branches and subsidiaries, representative offices and
subsidiary foreign banks. The Firm’s principal operating
subsidiary in the U.K. is J.P. Morgan Securities plc, a
subsidiary of JPMorgan Chase Bank, N.A.
42
JPMorgan Chase & Co./2018 Form 10-K
EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected
information and does not contain all of the information that is
important to readers of this 2018 Form 10-K. For a complete
description of the trends and uncertainties, as well as the
risks and critical accounting estimates affecting the Firm and
its various lines of business, this 2018 Form 10-K should be
read in its entirety.
Effective January 1, 2018, the Firm adopted several new
accounting standards, of which the most significant to the
Firm was the guidance related to revenue recognition, and
recognition and measurement of financial assets. The
revenue recognition guidance requires gross presentation of
certain costs that were previously offset against revenue.
This change was adopted retrospectively and, accordingly,
prior period amounts were revised, resulting in both total
net revenue and total noninterest expense increasing with no
impact to net income. The adoption of the recognition and
measurement guidance resulted in $505 million of fair value
gains in the first quarter of 2018, recorded in total net
revenue, on certain equity investments that were previously
held at cost. For additional information, refer to Note 1.
Financial performance of JPMorgan Chase
Year ended December 31,
(in millions, except per share data
and ratios)
Selected income statement data
2018
2017
Change
Total net revenue
$109,029
$100,705
8%
Total noninterest expense
Pre-provision profit
Provision for credit losses
Net income
63,394
45,635
4,871
59,515
41,190
5,290
32,474
24,441
Diluted earnings per share
9.00
6.31
Selected ratios and metrics
Return on common equity
Return on tangible common equity
13%
17
10%
12
Book value per share
$
70.35
$
67.04
Tangible book value per share
56.33
53.56
7
11
(8)
33
43
5
5
Capital ratios(a)
CET1
Tier 1 capital
Total capital
12.0%
12.2%
13.7
15.5
13.9
15.9
(a) Ratios presented are calculated under the Basel III Transitional rules. As of
December 31, 2018, the Firm’s capital ratios were equivalent whether
calculated on a transitional or fully phased-in basis. Refer to Capital Risk
Management on pages 85-94 for additional information on Basel III.
Comparisons noted in the sections below are for the full year of
2018 versus the full year of 2017, unless otherwise specified.
Firmwide overview
JPMorgan Chase reported strong results for 2018, with record
net income and EPS of $32.5 billion and $9.00 per share,
respectively, on net revenue of $109.0 billion. Excluding the
impact of the Tax Cuts & Jobs Acts (“TCJA”), net income and
EPS were still records for a full year. The Firm reported ROE of
13% and ROTCE of 17%. For additional information related to
the impact of the TCJA, refer to the Consolidated Results of
Operations on pages 48–51 and Note 24.
• Net income increased 33%, reflecting higher net revenue
and the impact of the lower U.S. federal statutory income
tax rate as a result of the TCJA, partially offset by an
increase in noninterest expense.
• Total net revenue increased 8%. Net interest income was
$55.1 billion, up 10%, driven by the impact of higher rates,
loan growth and Card margin expansion, partially offset by
lower CIB Markets net interest income. Noninterest revenue
was $54.0 billion, up 7%, largely driven by higher CIB
Markets noninterest revenue and auto lease income,
partially offset by markdowns on certain legacy private
equity investments and the impact of higher funding spreads
on derivatives.
• Noninterest expense was $63.4 billion, up 7%,
predominantly driven by investments in the business,
including technology, marketing, higher compensation
expense on increased headcount, and real estate, as well as
higher revenue-related costs, including auto lease
depreciation and volume-related transaction costs.
• The provision for credit losses was $4.9 billion, down from
$5.3 billion in the prior year, reflecting a decrease in the
consumer provision driven by a lower addition to the credit
card allowance for credit losses and lower net charge-offs.
The lower net charge-offs were primarily driven by
recoveries from loan sales in the residential real estate
portfolio, predominantly offset by higher net charge-offs in
the credit card portfolio, as anticipated. The prior year also
included a net $218 million write-down recorded in
connection with the sale of the student loan portfolio. The
decrease in the consumer provision was partially offset by
an increase in the wholesale provision, reflecting additions
to the allowance for loan losses from select client
downgrades.
• The total allowance for credit losses was $14.5 billion at
December 31, 2018, and the Firm had a loan loss coverage
ratio, excluding the PCI portfolio, of 1.23%, compared with
1.27% in the prior year. The Firm’s nonperforming assets
totaled $5.2 billion at December 31, 2018, a decrease from
$6.4 billion in the prior year, reflecting improved credit
performance in the consumer portfolio, and reductions in
the wholesale portfolio including repayments and loan sales.
• Firmwide average core loans and core loans excluding CIB
both increased 7%.
Selected capital-related metrics
• The Firm’s Basel III Fully Phased-In CET1 capital was $183.5
billion, and the Standardized and Advanced CET1 ratios were
12.0% and 12.9%, respectively.
• The Firm’s Fully Phased-In supplementary leverage ratio
(“SLR”) was 6.4%.
• The Firm continued to grow tangible book value per share
(“TBVPS”), ending 2018 at $56.33, up 5%.
ROTCE and TBVPS are each non-GAAP financial measures. Core
loans and each of the Fully Phased-In capital and certain
leverage measures are all considered key performance
measures. For a further discussion of each of these measures,
refer to Explanation and Reconciliation of the Firm’s Use of
Non-GAAP Financial Measures and Key Performance Measures
on pages 57-59, and Capital Risk Management on pages
85-94.
JPMorgan Chase & Co./2018 Form 10-K
43
Management’s discussion and analysis
Lines of business highlights
Selected business metrics for each of the Firm’s four lines of
business are presented below for the full year of 2018.
• Revenue of $52.1 billion, up 12%; record
net income of $14.9 billion, up 58%
• Average core loans up 6%; average
deposits of $670 billion, up 5%
• Client investment assets of $282 billion, up
3%
• Credit card sales volume up 11% and
merchant processing volume up 15%
• Record revenue of $36.4 billion, up 5%;
record net income of $11.8 billion, up 9%
• Maintained #1 ranking for Global
Investment Banking fees with 8.7% wallet
share
• Record Equity Markets revenue of $6.9
billion, up 21%
• Investment Banking revenue up 2%;
Treasury Services revenue up 13%; and
Securities Services revenue up 8%
• Record revenue of $9.1 billion, up 5%;
record net income of $4.2 billion, up 20%
• Average loan balances of $205.5 billion, up
4%
CCB
ROE 28%
CIB
ROE 16%
CB
ROE 20%
AWM
ROE 31%
Credit provided and capital raised
JPMorgan Chase continues to support consumers,
businesses and communities around the globe. The Firm
provided credit and raised capital for wholesale and
consumer clients during 2018, consisting of:
$2.5
trillion
$227
billion
$24
billion
$937
billion
Total credit provided and capital raised
Credit for consumers
Credit for U.S. small businesses
Credit for corporations
$1.3
trillion
Capital raised for corporate clients and
non-U.S. government entities
$57
billion
Credit and capital raised for U.S.
governments and nonprofit entities(a)
• Strong credit quality with net charge-offs of
(a) Includes states, municipalities, hospitals and universities.
3 bps
• Record revenue of $14.1 billion, up 2%;
record net income of $2.9 billion, up 22%
• Average loan balances of $139 billion, up
12%
• Assets under management (“AUM”) of $2.0
trillion, down 2%
For a detailed discussion of results by line of business, refer
to the Business Segment Results on pages 60–61.
44
JPMorgan Chase & Co./2018 Form 10-K
2019 outlook
These current expectations are forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on
the current beliefs and expectations of JPMorgan Chase’s
management and are subject to significant risks and
uncertainties. For a further discussion of certain of those risks
and uncertainties and the other factors that could cause
JPMorgan Chase’s actual results to differ materially because of
those risks and uncertainties, refer to Forward-Looking
Statements on page 147 and the Risk Factors section on
pages 7–28 . There is no assurance that actual results in 2019
will be in line with the outlook set forth below, and the Firm
does not undertake to update any forward-looking statements.
JPMorgan Chase’s outlook for 2019 should be viewed against
the backdrop of the global and U.S. economies, financial
markets activity, the geopolitical environment, the
competitive environment, client and customer activity levels,
and regulatory and legislative developments in the U.S. and
other countries where the Firm does business. Each of these
factors will affect the performance of the Firm and its lines
of business. The Firm expects that it will continue to make
appropriate adjustments to its businesses and operations in
response to ongoing developments in the legal, regulatory,
business and economic environments in which it operates.
Firmwide
• Management expects full-year 2019 net interest income, on
a managed basis, to be in excess of $58 billion, reflecting
the annualized impact of 2018 interest rate increases, as
well as expected loan and deposit growth.
• The Firm takes a disciplined approach to managing its
expenses, while investing for growth and innovation. As a
result, management expects Firmwide adjusted expense for
the full-year 2019 to be less than $66 billion.
• The Firm continues to experience charge-off rates at very
low levels, reflecting favorable credit trends across the
consumer and wholesale portfolios. Management expects
full-year 2019 net charge-offs to be less than $5.5 billion,
higher than 2018, driven by growth.
First-quarter 2019
• Management expects the first-quarter 2019 net interest
income, on a managed basis, to be approximately flat
compared with the fourth-quarter of 2018.
• Firmwide adjusted expense for the first-quarter 2019 is
expected to be up mid-single digits compared with the first
quarter of 2018.
• Markets revenue for the first-quarter 2019 is expected to be
lower when compared with the prior-year quarter by high-
teens percentage points on a reported basis, and by low
double-digit percentage points excluding the impact of the
recognition and measurement accounting standard in the
first quarter of 2018, depending on market conditions.
JPMorgan Chase & Co./2018 Form 10-K
45
Management’s discussion and analysis
Business Developments
Expected departure of the U.K. from the EU
In 2016, the U.K. voted to withdraw from the European
Union (“EU”), and in March 2017, the U.K. invoked Article
50 of the Lisbon Treaty, which commenced withdrawal
negotiations with the EU. As a result, the U.K. is scheduled
to depart from the EU on March 29, 2019. Negotiations
regarding the terms of the U.K.’s withdrawal continue
between the U.K. and the EU, although the situation
remains highly uncertain.
The Firm has a long-standing presence in the U.K., which
currently serves as the regional headquarters of the Firm’s
operations in over 30 countries across Europe, the Middle
East, and Africa (“EMEA”). In the region, the Firm serves
clients and customers across its business segments. The
Firm has approximately 16,000 employees in the U.K., of
which approximately two-thirds are in London, with
operational and technology support centers in locations
such as Bournemouth, Glasgow and Edinburgh.
The Firm has been preparing for and continues to make
significant progress in its readiness for the U.K.’s expected
withdrawal from the EU, which is commonly referred to as
“Brexit.” JPMorgan Chase established a Firmwide Brexit
Implementation program in 2017. The program covers
strategic implementation across all impacted businesses
and functions. The program’s objective is to deliver the
Firm’s capabilities on “day one” of the U.K.’s withdrawal
across all impacted legal entities. The program includes an
ongoing assessment of implementation risks including
political, legal and regulatory risks and plans for addressing
and mitigating those risks. The Firm is also monitoring the
expected macroeconomic developments associated with a
no-deal scenario and has undertaken stress testing covering
credit and market risk to assess potential impacts.
Significant uncertainty remains around the U.K.’s expected
departure from the EU, including the possibility that the
U.K. departs without any agreement being reached on how
U.K. financial services firms will conduct business within the
EU (i.e., “a no-deal scenario”).
The Firm is planning for a U.K. withdrawal in the event that
an agreement is reached, as well as for a no-deal scenario.
Significant uncertainties exist under either potential
outcome. For example, in planning for the U.K. withdrawal
from the EU under a no-deal scenario, the Firm is focused
on the following key areas to ensure continuation of service
to its EU clients: regulatory and legal entity readiness; client
readiness; and business and operational readiness.
Regulatory and legal entity readiness
The Firm intends to leverage its existing EU legal entities, in
Germany, Luxembourg and Ireland to conduct broader
financial service activities. These legal entities are in
advanced stages of readiness, including governance,
infrastructure, capital, local regulatory licenses and branch
authorizations, as needed. The Firm anticipates that its EU
legal entities will be ready to service its EU clients in March
2019, if required. There are some dependencies on final
authorizations from the European Central Bank and
jurisdictional National Competent Authorities to carry out
new activity in the EU legal entities.
Client readiness
Where required, agreements with the Firm’s EU clients are
being re-documented from current U.K. legal entities to
existing EU legal entities to ensure continuation of service.
This process involves establishing new agreements such as
ISDA master agreements between clients and the relevant
EU legal entity. There is a risk that not all clients will have
the appropriate legal and operational arrangements in
place upon the U.K.’s withdrawal from the EU. The Firm
continues to actively engage with its clients to ensure
preparedness and, to the extent possible, minimize
operational disruption.
Business and operational readiness
The Firm is expecting to add several hundred employee
positions in its various EU locations, including individuals
who the Firm expects to relocate from the U.K. The Firm is
preparing to be operational in the EU across all in-scope
businesses and functions, including the build-out of
technology, processes and controls, and the necessary
resourcing in the EU locations across first, second and third
line of defense functions.
The Firm and its EU legal entities’ access to market
infrastructures such as trading venues, central
counterparties (“CCPs”) and central settlement systems
(“CSDs”) will need to be adjusted to comply with the
evolving regulatory framework. Some uncertainty remains
with respect to the readiness of the overall market
ecosystem and connectivity between participants. The Firm
continues to monitor the regulatory landscape and is
preparing to take mitigating action, as needed, specifically
in areas such as “contract continuity” that would allow U.K.
entities to continue servicing trade lifecycle events.
In the event that the U.K.’s withdrawal from the EU is
delayed through a transition deal or another mechanism,
the Firm would have the required operational capabilities to
conduct business from its EU legal entities, but the timing of
any changes would be re-assessed to ensure that a strategic
approach is taken. The Firm continues to closely monitor all
negotiations and legislative developments and has
developed an implementation plan that allows for flexibility
given the continued uncertainty.
46
JPMorgan Chase & Co./2018 Form 10-K
Market participants are working closely with public sector
representation as part of National Working Groups
(“NWGs”) towards the common goal of facilitating an
orderly transition from IBORs. Current NWG efforts include
the development of cash and derivative markets referencing
alternative reference rates, as well as the development of
industry consensus for fallback language that would
determine the rates to use in various IBOR-indexed
contracts when a particular IBOR ceases to be produced.
The Firm is encouraging its clients to actively participate in
industry consultations on fallback language in order to
ensure the broadest possible industry engagement in and
understanding of IBOR transition. The Firm continues to
monitor the transition by clients from the current IBOR-
referencing products to products referencing the new
alternative reference rates.
NWGs are also working with accounting standard setters to
manage the accounting implications of amending existing
contracts to add fallback language and to change reference
rates. Current efforts include the identification of potential
accounting impacts and potential alternatives to mitigate
those impacts through interpretation of existing accounting
rules, or through transition relief from FASB and IASB
standard setting.
The Firm continues to develop and implement plans to
appropriately mitigate the risks associated with IBOR
discontinuation as identified alternative reference rates
develop, and liquidity in the markets referencing them
increases. The Firm will continue to engage with regulators
as the transition progresses.
LIBOR transition
The Financial Stability Board (“FSB”) and the Financial
Stability Oversight Council (“FSOC”) have observed that the
secular decline in interbank short-term funding poses
structural risks for unsecured benchmark interest rates
such as Interbank Offered Rates (“IBORs”), and therefore
regulators and market participants in various jurisdictions
have been working to identify alternative reference rates
that are compliant with the International Organization of
Securities Commission’s standards for transaction-based
benchmarks. In the U.S., the Alternative Reference Rates
Committee (the “ARRC”), a group of market and official
sector participants, identified the Secured Overnight
Financing Rate (“SOFR”) as its recommended alternative
benchmark rate. Other alternative reference rates have
been recommended in other jurisdictions.
IBORs are referenced in approximately $370 trillion of
wholesale and consumer transactions globally spanning a
broad range of financial products and contracts. Without
advance transition planning for alternative benchmarks,
sudden cessation of those broadly referenced rates could
cause significant disruptions to gross flows of floating-rate
payments and receipts. An abrupt cessation could also
impair the normal functioning of a variety of markets,
including commercial and consumer lending.
JPMorgan Chase established a Firmwide LIBOR Transition
program in early 2018. The Firmwide CFO and the CEO of
the CIB oversee the program as senior sponsors. When
assessing risks associated with IBOR transition, the program
considers three possible scenarios: disorderly transition,
measured/regulated transition, and IBOR in continuity.
These risks will continue to be monitored, along with any
new risks that emerge as the program progresses. Plans to
mitigate the risks associated with IBOR transition have been
identified, with some already in the early stages of
implementation. Model risk, for example, will be mitigated
by the identification and migration of swap curves based on
IBORs to new alternative reference rates.
JPMorgan Chase & Co./2018 Form 10-K
47
Management’s discussion and analysis
CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan
Chase’s Consolidated Results of Operations on a reported
basis for the three-year period ended December 31, 2018,
unless otherwise specified. Factors that relate primarily to a
single business segment are discussed in more detail within
that business segment. For a discussion of the Critical
Accounting Estimates Used by the Firm that affect the
Consolidated Results of Operations, refer to pages 141-143.
Effective January 1, 2018, the Firm adopted several new
accounting standards. Certain of the new accounting
standards were applied retrospectively and, accordingly,
prior period amounts were revised. For additional
information, refer to Note 1.
2016
6,572
11,566
5,774
Revenue
Year ended December 31,
(in millions)
2018
2017
Investment banking fees
$
7,550
$
7,412
$
Principal transactions
Lending- and deposit-related fees
Asset management,
administration and commissions
Investment securities gains/
(losses)
Mortgage fees and related income
Card income
Other income(a)
Noninterest revenue
Net interest income
Total net revenue
12,059
6,052
11,347
5,933
17,118
16,287
15,364
(395)
1,254
4,989
5,343
53,970
55,059
(66)
1,616
4,433
3,646
50,608
50,097
141
2,491
4,779
3,799
50,486
46,083
$ 109,029
$ 100,705
$
96,569
(a) Included operating lease income of $4.5 billion, $3.6 billion and $2.7
billion for the years ended December 31, 2018, 2017 and 2016,
respectively.
2018 compared with 2017
Investment banking fees increased from a strong prior
year, with overall share gains, reflecting:
• higher advisory fees driven by a higher number of large
completed transactions, and
• higher equity underwriting fees driven by a higher share
of fees, reflecting strong performance across products
predominantly offset by
• the results also reflect a loss in Credit Adjustments &
Other, largely driven by higher funding spreads on
derivatives.
The increase in CIB was partially offset by private equity
losses reflecting markdowns on certain legacy private
equity investments compared with gains in the prior year in
Corporate.
For additional information, refer to CIB and Corporate
segment results on pages 66-70 and pages 77–78,
respectively, and Note 6.
Asset management, administration and commissions
revenue increased reflecting:
• higher asset management fees in AWM and CCB driven by
higher average market levels and the cumulative impact
of net inflows. For AWM, these were partially offset by fee
compression and lower performance fees
• higher brokerage commissions driven by higher volumes
in CIB and AWM, and higher asset-based fees in CIB.
For additional information, refer to AWM, CCB and CIB
segment results on pages 74–76, pages 62–65 and pages
66-70, respectively, and Note 6.
For information on lending- and deposit-related fees, refer
to the segment results for CCB on pages 62–65, CIB on
pages 66-70, and CB on pages 71-73 and Note 6; on
securities gains, refer to the Corporate segment discussion
on pages 77–78.
Investment securities losses increased due to sales related
to repositioning the investment securities portfolio.
Mortgage fees and related income decreased driven by:
• lower net production revenue reflecting lower production
margins and volumes, as well as the impact of a loan sale,
partially offset by
• higher net mortgage servicing revenue reflecting higher
MSR risk management results, predominantly offset by
lower servicing revenue on a lower level of third-party
loans serviced.
For further information, refer to CCB segment results on
pages 62–65, Note 6 and 15.
• lower debt underwriting fees primarily driven by declines
Card income increased driven by:
in industry-wide fee levels.
For additional information, refer to CIB segment results on
pages 66-70 and Note 6.
Principal transactions revenue increased primarily
reflecting higher revenue in CIB driven by:
• Equity Markets with strength across products, primarily in
derivatives and prime brokerage, reflecting strong client
activity, and
• Fixed Income Markets reflecting strong performance in
Currencies & Emerging Markets, and higher revenue in
Commodities compared to a challenging prior year,
largely offset by lower revenue in Credit,
• lower new account origination costs, and higher merchant
processing fees on higher volumes,
largely offset by
• lower net interchange income reflecting higher rewards
costs and partner payments, largely offset by higher card
sales volumes. The rewards costs included an adjustment
to the credit card rewards liability of approximately $330
million, recorded in the second quarter of 2018, driven
by an increase in redemption rate assumptions.
For further information, refer to CCB segment results on
pages 62–65 and Note 6.
48
JPMorgan Chase & Co./2018 Form 10-K
Asset management, administration and commissions
revenue increased as a result of higher asset management
fees in AWM and CCB, and higher asset-based fees in CIB,
both driven by higher market levels
Mortgage fees and related income decreased driven by
lower MSR risk management results, lower net production
revenue on lower margins and volumes, and lower servicing
revenue on lower average third-party loans serviced.
Card income decreased predominantly driven by higher
credit card new account origination costs, largely offset
by higher card-related fees, primarily annual fees.
Other income decreased primarily due to:
• lower other income in CIB largely driven by a $520
million impact related to the enactment of the TCJA,
which reduced the value of certain of CIB’s tax-oriented
investments, and
• the absence in the current year of gains from
– the sale of Visa Europe interests in CCB,
– the redemption of guaranteed capital debt securities
(“trust preferred securities”), and
– the disposal of an asset in AWM
partially offset by
• higher operating lease income reflecting growth in auto
operating lease volume in CCB, and
• a legal benefit of $645 million recorded in the second
quarter of 2017 in Corporate related to a settlement with
the FDIC receivership for Washington Mutual and with
Deutsche Bank as trustee of certain Washington Mutual
trusts.
Net interest income increased primarily driven by the net
impact of higher rates and loan growth across the
businesses, partially offset by declines in Markets net
interest income in CIB. The Firm’s average interest-earning
assets were $2.2 trillion, up $79 billion from the prior year,
and the net interest yield on these assets, on a fully taxable
equivalent (“FTE”) basis, was 2.36%, an increase of 11
basis points from the prior year. The net interest yield
excluding CIB Markets was 2.85%, an increase of 26 basis
points from the prior year.
Other income increased reflecting:
• higher operating lease income from growth in auto
operating lease volume in CCB
• fair value gains of $505 million recognized in the first
quarter of 2018 related to the adoption of the new
recognition and measurement accounting guidance for
certain equity investments previously held at cost
• the absence of the impact related to the enactment of the
TCJA, which reduced the value of certain of CIB’s tax-
oriented investments by $520 million in the prior year
partially offset by
• lower investment valuations in AWM, and
• the absence of a legal benefit of $645 million that was
recorded in the prior year in Corporate related to a
settlement with the FDIC receivership for Washington
Mutual and with Deutsche Bank as trustee of certain
Washington Mutual trusts.
For further information, refer to Note 6.
Net interest income increased driven by the impact of
higher rates, loan growth across the businesses, and Card
margin expansion, partially offset by lower CIB Markets net
interest income. The Firm’s average interest-earning assets
were $2.2 trillion, up $49 billion from the prior year, and
the net interest yield on these assets, on an FTE basis, was
2.50%, an increase of 14 basis points from the prior year.
The net interest yield excluding CIB Markets was 3.25%, an
increase of 40 basis points. Net interest yield excluding CIB
markets is a non-GAAP financial measure. For a further
discussion of this measure, refer to Explanation and
Reconciliation of the Firm’s Use of Non-GAAP Financial
Measures and Key Performance Measures on pages 57-59.
2017 compared with 2016
Investment banking fees increased reflecting higher debt
and equity underwriting fees in CIB. The increase in debt
underwriting fees was driven by a higher share of fees and
an overall increase in industry-wide fees; and the increase
in equity underwriting fees was driven by growth in
industry-wide issuance, including a strong initial public
offering (“IPO”) market.
Principal transactions revenue decreased compared with a
strong prior year in CIB, primarily reflecting:
• lower Fixed Income-related revenue driven by sustained
low volatility and tighter credit spreads
partially offset by
• higher Equity-related revenue primarily in Prime
Services, and
• higher Lending-related revenue reflecting lower fair value
losses on hedges of accrual loans.
JPMorgan Chase & Co./2018 Form 10-K
49
Management’s discussion and analysis
Provision for credit losses
Year ended December 31,
(in millions)
2018
2017
Consumer, excluding credit card
$
(63) $
620
$
Credit card
Total consumer
Wholesale
4,818
4,755
116
4,973
5,593
(303)
2016
467
4,042
4,509
852
Total provision for credit losses $ 4,871
$
5,290
$
5,361
2018 compared with 2017
The provision for credit losses decreased as a result of a
decline in the consumer provision, partially offset by an
increase in the wholesale provision
• the decrease in the consumer, excluding credit card
portfolio in CCB was due to
– lower net charge-offs in the residential real estate
portfolio, largely driven by recoveries from loan sales,
and
– lower net charge-offs in the auto portfolio
partially offset by
– a $250 million reduction in the allowance for loan
losses in the residential real estate portfolio — PCI,
reflecting continued improvement in home prices and
lower delinquencies; the reduction was $75 million
lower than the prior year for the residential real estate
portfolio — non credit-impaired
• the prior year also included a net $218 million write-
down recorded in connection with the sale of the student
loan portfolio, and
• the decrease in the credit card portfolio was due to
– a $300 million addition to the allowance for loan
losses, reflecting loan growth and higher loss rates, as
anticipated; the addition was $550 million lower than
the prior year,
largely offset by
– higher net charge-offs due to seasoning of more recent
vintages, as anticipated, and
• in wholesale, the current period expense of $116 million
reflected additions to the allowance for loan losses from
select client downgrades,
largely offset by
– other net portfolio activity, including a reduction in the
allowance for loan losses related to a single name in
the Oil & Gas portfolio in the first quarter of 2018,
compared to a net benefit of $303 million in the prior
year. The prior year benefit reflected a reduction in the
allowance for loan losses on credit quality
improvements in the Oil & Gas, Natural Gas Pipelines,
and Metals and Mining portfolios.
For a more detailed discussion of the credit portfolio and the
allowance for credit losses, refer to the segment discussions of
CCB on pages 62–65, CIB on pages 66-70, CB on pages 71-73,
the Allowance for Credit Losses on pages 120–122 and Note
13.
2017 compared with 2016
The provision for credit losses decreased as a result of:
• a net $422 million reduction in the wholesale allowance for
credit losses, reflecting credit quality improvements in the
Oil & Gas, Natural Gas Pipelines, and Metals & Mining
portfolios, compared with an addition of $511 million in the
prior year driven by downgrades in the same portfolios
predominantly offset by
• a higher consumer provision driven by
– $450 million of higher net charge-offs, primarily in the
credit card portfolio due to growth in newer vintages
which, as anticipated, have higher loss rates than the
more seasoned portion of the portfolio, partially offset by
a decrease in net charge-offs in the residential real estate
portfolio reflecting continued improvement in home
prices and delinquencies,
– a $416 million higher addition to the allowance for credit
losses related to the credit card portfolio driven by higher
loss rates and loan growth, and a lower reduction in the
allowance for the residential real estate portfolio
predominantly driven by continued improvement in home
prices and delinquencies, and
– a net $218 million write-down recorded in connection
with the sale of the student loan portfolio.
50
JPMorgan Chase & Co./2018 Form 10-K
Noninterest expense
Year ended December 31,
(in millions)
2018
2017
2016
Compensation expense
$33,117
$31,208
$30,203
Noncompensation expense:
Occupancy
Technology, communications and
equipment
Professional and outside services
Marketing
Other(a)(b)
3,952
3,723
3,638
8,802
8,502
3,290
5,731
7,715
7,890
2,900
6,079
6,853
7,526
2,897
5,555
Total noncompensation expense
30,277
28,307
26,469
Total noninterest expense
$63,394
$59,515
$56,672
(a) Included Firmwide legal expense/(benefit) of $72 million, $(35) million
and $(317) million for the years ended December 31, 2018, 2017 and
2016, respectively.
(b) Included FDIC-related expense of $1.2 billion, $1.5 billion and $1.3 billion
for the years ended December 31, 2018, 2017 and 2016, respectively.
2018 compared with 2017
Compensation expense increased driven by investments in
headcount across the businesses, including bankers and
advisors, as well as technology and other support staff, and
higher revenue-related compensation expense largely in
CIB.
Noncompensation expense increased as a result of:
• higher depreciation expense due to growth in auto
operating lease volume in CCB
• higher outside services expense primarily due to higher
volume-related transaction costs in CIB and higher
external fees on revenue growth in AWM
• higher investments in technology in the businesses and
marketing in CCB
• a loss of $174 million on the liquidation of a legal entity,
recorded in other expense in Corporate, in the second
quarter of 2018, and
• higher legal expense, with a net benefit in the prior year
partially offset by
• lower FDIC-related expense as a result of the elimination
of the surcharge at the end of the third quarter of 2018,
and
• the absence of an impairment in CB on certain leased
equipment
For additional information on the liquidation of a legal
entity, refer to Note 23.
2017 compared with 2016
Compensation expense increased predominantly driven by
investments in headcount in most businesses, including
bankers and business-related support staff, and higher
performance-based compensation expense, predominantly
in AWM.
Noncompensation expense increased as a result of:
• higher depreciation expense from growth in auto
operating lease volume in CCB
• contributions to the Firm’s Foundation
• a lower legal net benefit compared to the prior year
• higher FDIC-related expense, and
• an impairment in CB on certain leased equipment, the
majority of which was sold subsequent to year-end
partially offset by
• the absence in the current year of two items totaling
$175 million in CCB related to liabilities from a merchant
in bankruptcy and mortgage servicing reserves
For a discussion of legal expense, refer to Note 29.
Income tax expense
Year ended December 31,
(in millions, except rate)
Income before income tax
expense
Income tax expense
Effective tax rate
2018
2017
2016
$40,764
$ 35,900
$ 34,536
8,290
11,459
9,803
20.3%
31.9%
28.4%
2018 compared with 2017
The effective tax rate decreased in 2018 driven by
• the impact of the TCJA, including the reduction in the U.S.
federal statutory income tax rate, a $302 million net
tax benefit resulting from changes in the prior year
estimates related to the remeasurement of certain
deferred taxes and the deemed repatriation tax on non-
U.S. earnings, and the absence of the initial $1.9 billion
impact from the TCJA’s enactment in December 2017
the reduction in the effective tax rate was partially offset by
• the impact of higher pre-tax income, and the change in
mix of income and expense subject to U.S. federal, state
and local taxes. For further information, refer to Note 24.
2017 compared with 2016
The effective tax rate increased in 2017 driven by:
• a $1.9 billion increase to income tax expense
representing the initial impact of the enactment of the
TCJA. The increase was driven by the deemed repatriation
of the Firm’s unremitted non-U.S. earnings and
adjustments to the value of certain tax-oriented
investments, partially offset by a benefit from the
revaluation of the Firm’s net deferred tax liability. The
incremental expense resulted in a 5.4 percentage point
increase in the Firm’s effective tax rate
partially offset by
• benefits resulting from the vesting of employee share-
based awards related to the appreciation of the Firm’s
stock price upon vesting above their original grant price,
and the release of a valuation allowance.
JPMorgan Chase & Co./2018 Form 10-K
51
Management’s discussion and analysis
CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were
applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
Consolidated balance sheets analysis
The following is a discussion of the significant changes between December 31, 2018 and 2017.
Selected Consolidated balance sheets data
December 31, (in millions)
Assets
Cash and due from banks
Deposits with banks
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets
Investment securities
Loans
Allowance for loan losses
Loans, net of allowance for loan losses
Accrued interest and accounts receivable
Premises and equipment
Goodwill, MSRs and other intangible assets
Other assets
Total assets
Cash and due from banks and deposits with banks
decreased primarily as a result of a shift in the deployment
of excess cash in Treasury and Chief Investment Office
(“CIO”) from deposits with Federal Reserve Banks to other
short-term instruments (as noted below), based on market
opportunities. Deposits with banks reflect the Firm’s
placements of its excess cash with various central banks,
including the Federal Reserve Banks.
Federal funds sold and securities purchased under resale
agreements increased primarily due to a shift in the
deployment of excess cash in Treasury and CIO from
deposits with banks to securities purchased under resale
agreements, and higher client-driven market-making
activities in CIB. For additional information on the Firm’s
Liquidity Risk Management, refer to pages 95–100.
Securities borrowed increased driven by higher demand for
securities to cover short positions related to client-driven
market-making activities in CIB.
Trading assets increased as a result of a shift in the
deployment of excess cash in Treasury and CIO from
deposits with banks into short-term instruments as well as
client-driven market-making activities in CIB. For additional
information, refer to Derivative contracts on pages 117–
118, and Notes 2 and 5.
Investment securities increased primarily due to purchases
of U.S. Treasury Bills, reflecting a shift in the deployment of
excess cash in Treasury and CIO from deposits with banks.
The increase was partially offset by net sales, paydowns and
maturities largely of obligations of U.S. states and
municipalities, commercial MBS and non-U.S. government
debt securities. For additional information on investment
2018
2017
Change
$
22,324
$
25,898
256,469
321,588
111,995
413,714
261,828
984,554
(13,445)
971,109
73,200
14,934
54,349
405,406
198,422
105,112
381,844
249,958
930,697
(13,604)
917,093
67,729
14,159
54,392
121,022
113,587
(14)%
(37)
62
7
8
5
6
(1)
6
8
5
—
7
$
2,622,532
$
2,533,600
4 %
securities, refer to Corporate segment results on pages 77–
78, Investment Portfolio Risk Management on page 123
and Notes 2 and 10.
Loans increased reflecting:
• higher loans across the wholesale businesses, primarily
driven by commercial and industrial and financial
institution clients in CIB and Wealth Management clients
globally in AWM, and
• higher consumer loans driven by retention of originated
high-quality prime mortgages in CCB and AWM, and
growth in credit card loans. These were predominantly
offset by mortgage paydowns and loan sales, lower home
equity loans, run-off of PCI loans, and lower auto loans.
The allowance for loan losses decreased driven by:
• a reduction in the consumer allowance due to a $250
million reduction in the CCB allowance for loan losses in
the residential real estate PCI portfolio, reflecting
continued improvement in home prices and lower
delinquencies, as well as a $187 million reduction in the
allowance for write-offs of PCI loans partially due to loan
sales. These reductions were largely offset by a $300
million addition to the allowance in the credit card
portfolio, due to loan growth and higher loss rates, as
anticipated.
For a more detailed discussion of loans and the allowance
for loan losses, refer to Credit and Investment Risk
Management on pages 102-123, and Notes 2, 3, 12 and
13.
52
JPMorgan Chase & Co./2018 Form 10-K
Accrued interest and accounts receivable increased
primarily reflecting higher client receivables related to
client-driven activities in CIB.
Other assets increased reflecting higher auto operating
lease assets from growth in business volume in CCB and
higher alternative energy investments in CIB.
For information on Goodwill and MSRs, refer to Note 15.
Selected Consolidated balance sheets data
December 31, (in millions)
Liabilities
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated variable interest entities (“VIEs”)
Long-term debt
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
2018
2017
Change
$
1,470,666
$
1,443,982
182,320
69,276
144,773
196,710
20,241
282,031
158,916
51,802
123,663
189,383
26,081
284,080
2,366,017
256,515
2,277,907
255,693
$
2,622,532
$
2,533,600
2
15
34
17
4
(22)
(1)
4
—
4%
Deposits increased in CIB and CCB, largely offset by
decreases in AWM and CB.
• The increase in CIB was predominantly driven by growth
in operating deposits related to client activity in CIB’s
Treasury Services business, and in CCB reflecting the
continuation of growth from new accounts.
• The decrease in AWM was driven by balance migration
predominantly into the Firm’s higher-yielding investment-
related products. The decrease in CB was driven by a
reduction in non-operating deposits.
For more information, refer to the Liquidity Risk
Management discussion on pages 95–100; and Notes 2
and 17.
Federal funds purchased and securities loaned or sold
under repurchase agreements increased reflecting higher
client-driven market-making activities and higher secured
financing of trading assets-debt and equity instruments in
CIB.
Short-term borrowings increased reflecting short-term
advances from Federal Home Loan Banks (“FHLBs”) and the
net issuance of commercial paper in Treasury and CIO
primarily for short-term liquidity management. For
additional information, refer to Liquidity Risk Management
on pages 95–100.
Trading liabilities increased predominantly as a result of
client-driven market-making activities in CIB, which resulted
in higher levels of short positions in equity instruments in
Equity Markets, including prime brokerage. For additional
information, refer to Derivative contracts on pages 117–
118, and Notes 2 and 5.
Accounts payable and other liabilities increased partly as a
result of higher client payables related to prime brokerage
activities in CIB.
Beneficial interests issued by consolidated VIEs decreased
due to net maturities of credit card securitizations. For
further information on Firm-sponsored VIEs and loan
securitization trusts, refer to Off-Balance Sheet
Arrangements on pages 55–56 and Note 14 and 27.
Long-term debt decreased primarily driven by lower FHLB
advances, predominantly offset by net issuance of
structured notes in CIB, as well as net issuance of senior
debt in Treasury and CIO. For additional information on the
Firm’s long-term debt activities, refer to Liquidity Risk
Management on pages 95–100 and Note 19.
For information on changes in stockholders’ equity, refer to
page 153, and on the Firm’s capital actions, refer to Capital
actions on pages 91-92.
JPMorgan Chase & Co./2018 Form 10-K
53
Management’s discussion and analysis
Consolidated cash flows analysis
The following is a discussion of cash flow activities during
the years ended December 31, 2018, 2017 and 2016.
Year ended December 31,
(in millions)
2018
2017
2016
Net cash provided by/(used in)
Operating activities
$ 14,187
$ (10,827) $ 21,884
Investing activities
Financing activities
Effect of exchange rate
changes on cash
Net increase/(decrease) in
cash and due from banks
(197,993)
34,158
28,249
14,642
(89,202)
98,271
(2,863)
8,086
(1,482)
$(152,511) $ 40,150
$ 29,471
Operating activities
JPMorgan Chase’s operating assets and liabilities primarily
support the Firm’s lending and capital markets activities.
These assets and liabilities can vary significantly in the
normal course of business due to the amount and timing of
cash flows, which are affected by client-driven and risk
management activities and market conditions. The Firm
believes cash flows from operations, available cash and
other liquidity sources, and its capacity to generate cash
through secured and unsecured sources are sufficient to
meet its operating liquidity needs.
• In 2018, cash provided primarily reflected net income
excluding noncash adjustments, increased trading
liabilities and accounts payable and other liabilities,
partially offset by an increase in trading assets, net
originations of loans held-for-sale, and higher securities
borrowed and other assets.
• In 2017, cash used primarily reflected a decrease in
trading liabilities and accounts payable and other
liabilities, and an increase in accrued interest and
accounts receivable, partially offset by net income
excluding noncash adjustments and a decrease in trading
assets.
• In 2016, cash provided primarily reflected net income
excluding noncash adjustments, partially offset by an
increase in trading assets.
Investing activities
The Firm’s investing activities predominantly include
originating held-for-investment loans and investing in the
securities portfolio and other short-term instruments.
• In 2018, cash used reflected an increase in securities
purchased under resale agreements, higher net
originations of loans and net purchases of investment
securities.
• In 2017, cash provided reflected net proceeds from
paydowns, maturities, sales and purchases of investment
securities and a decrease in securities purchased under
resale agreements, partially offset by net originations of
loans.
• In 2016, cash used reflected net originations of loans,
and an increase in securities purchased under resale
agreements.
Financing activities
The Firm’s financing activities include acquiring customer
deposits and issuing long-term debt, as well as preferred
and common stock.
• In 2018, cash provided reflected higher deposits, short-
term borrowings, and securities loaned or sold under
repurchase agreements.
• In 2017, cash provided reflected higher deposits and
short-term borrowings, partially offset by a net decrease
in long-term borrowings.
• In 2016, cash provided reflected higher deposits, net
proceeds from long-term borrowings, and an increase in
securities loaned or sold under repurchase agreements.
• For all periods, cash was used for repurchases of common
stock and cash dividends on common and preferred stock.
* * *
For a further discussion of the activities affecting the Firm’s
cash flows, refer to Consolidated Balance Sheets Analysis on
pages 52–53 , Capital Risk Management on pages 85-94,
and Liquidity Risk Management on pages 95–100.
54
JPMorgan Chase & Co./2018 Form 10-K
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
In the normal course of business, the Firm enters into
various off-balance sheet arrangements and contractual
obligations that may require future cash payments. Certain
obligations are recognized on-balance sheet, while others
are off-balance sheet under accounting principles generally
accepted in the U.S. (“U.S. GAAP”).
Special-purpose entities
The Firm is involved with several types of off–balance sheet
arrangements, including through nonconsolidated special-
purpose entities (“SPEs”), which are a type of VIE, and
through lending-related financial instruments (e.g.,
commitments and guarantees).
The Firm holds capital, as deemed appropriate, against all
SPE-related transactions and related exposures, such as
derivative contracts and lending-related commitments and
guarantees.
The Firm has no commitments to issue its own stock to
support any SPE transaction, and its policies require that
transactions with SPEs be conducted at arm’s length and
reflect market pricing. Consistent with this policy, no
JPMorgan Chase employee is permitted to invest in SPEs
with which the Firm is involved where such investment
would violate the Firm’s Code of Conduct.
The table below provides an index of where in this 2018 Form 10-K a discussion of the Firm’s various off-balance sheet
arrangements can be found. In addition, refer to Note 1 for information about the Firm’s consolidation policies.
Type of off-balance sheet arrangement
Special-purpose entities: variable interests and other
obligations, including contingent obligations, arising
from variable interests in nonconsolidated VIEs
Off-balance sheet lending-related financial instruments,
guarantees, and other commitments
Location of disclosure
Refer to Note 14
Page references
244–251
Refer to Note 27
271–276
JPMorgan Chase & Co./2018 Form 10-K
55
Management’s discussion and analysis
Contractual cash obligations
The accompanying table summarizes, by remaining
maturity, JPMorgan Chase’s significant contractual cash
obligations at December 31, 2018. The contractual cash
obligations included in the table below reflect the minimum
contractual obligation under legally enforceable contracts
with terms that are both fixed and determinable. Excluded
from the below table are certain liabilities with variable
cash flows and/or no obligation to return a stated amount
of principal at maturity.
The carrying amount of on-balance sheet obligations on the
Consolidated balance sheets may differ from the minimum
contractual amount of the obligations reported below. For a
discussion of mortgage repurchase liabilities and other
obligations, refer to Note 27.
Contractual cash obligations
By remaining maturity at December 31,
(in millions)
On-balance sheet obligations
2019
2020-2021
2018
2022-2023
After 2023
Total
2017
Total
Deposits(a)
$
1,447,407 $
8,958 $
6,227 $
5,439 $
1,468,031 $
1,437,464
Federal funds purchased and securities loaned or
sold under repurchase agreements
Short-term borrowings(a)
Beneficial interests issued by consolidated VIEs
Long-term debt(a)
Other(b)(c)
Total on-balance sheet obligations
Off-balance sheet obligations
Unsettled resale and securities borrowed
agreements(d)
Contractual interest payments(e)
Operating leases(f)
Equity investment commitments(c)(g)
Contractual purchases and capital expenditures(c)
Obligations under co-brand programs
Total off-balance sheet obligations
181,491
62,393
13,502
26,889
5,592
1,737,274
102,008
10,960
1,561
262
1,948
356
117,095
458
—
5,075
75,816
1,687
91,994
—
11,501
2,840
2
1,048
728
16,119
—
—
1,400
37,171
1,669
46,467
—
8,295
2,111
—
543
566
371
—
281
118,782
2,846
182,320
158,916
62,393
20,258
258,658
11,794
42,664
26,036
260,895
13,613
127,719
2,003,454
1,939,588
—
102,008
27,496
4,480
7
60
287
58,252
10,992
271
3,599
1,937
76,859
54,103
9,877
117
3,743
1,434
11,515
32,330
177,059
146,133
Total contractual cash obligations
$
1,854,369 $
108,113 $
57,982 $
160,049 $
2,180,513 $
2,085,721
(a) Excludes structured notes on which the Firm is not obligated to return a stated amount of principal at the maturity of the notes, but is obligated to return
an amount based on the performance of the structured notes.
(b) Primarily includes dividends declared on preferred and common stock, deferred annuity contracts, pension and other postretirement employee benefit
obligations, insurance liabilities and income taxes payable associated with the deemed repatriation under the TCJA.
(c) The prior period amounts have been revised to conform with the current period presentation.
(d) For further information, refer to unsettled resale and securities borrowed agreements in Note 27.
(e) Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes for which the Firm’s payment obligation
is based on the performance of certain benchmarks.
(f) Includes noncancelable operating leases for premises and equipment used primarily for banking purposes. Excludes the benefit of noncancelable sublease
rentals of $825 million and $1.0 billion at December 31, 2018 and 2017, respectively. Refer to Note 28 for more information on lease commitments.
(g) Included unfunded commitments of $40 million at both December 31, 2018 and 2017, to third-party private equity funds, and $231 million and $77
million of unfunded commitments at December 31, 2018 and 2017, respectively, to other equity investments.
56
JPMorgan Chase & Co./2018 Form 10-K
EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES AND KEY
PERFORMANCE MEASURES
Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements in
accordance with U.S. GAAP; these financial statements
appear on pages 150-154. That presentation, which is
referred to as “reported” basis, provides the reader with an
understanding of the Firm’s results that can be tracked
consistently from year-to-year and enables a comparison of
the Firm’s performance with other companies’ U.S. GAAP
financial statements.
In addition to analyzing the Firm’s results on a reported
basis, management reviews Firmwide results, including the
overhead ratio, on a “managed” basis; these Firmwide
managed basis results are non-GAAP financial measures.
The Firm also reviews the results of the lines of business on
a managed basis. The Firm’s definition of managed basis
starts, in each case, with the reported U.S. GAAP results and
includes certain reclassifications to present total net
revenue for the Firm (and each of the reportable business
segments) on an FTE basis. Accordingly, revenue from
investments that receive tax credits and tax-exempt
securities is presented in the managed results on a basis
comparable to taxable investments and securities. These
financial measures allow management to assess the
comparability of revenue from year-to-year arising from
both taxable and tax-exempt sources. The corresponding
income tax impact related to tax-exempt items is recorded
within income tax expense. These adjustments have no
impact on net income as reported by the Firm as a whole or
by the lines of business.
Management also uses certain non-GAAP financial
measures at the Firm and business-segment level, because
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the Firm or of the particular
business segment, as the case may be, and, therefore,
facilitate a comparison of the Firm or the business segment
with the performance of its relevant competitors. For
additional information on these non-GAAP measures, refer
to Business Segment Results on pages 60-78. Non-GAAP
financial measures used by the Firm may not be comparable
to similarly named non-GAAP financial measures used by
other companies.
The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
Year ended
December 31,
(in millions, except ratios)
Reported
Results
Fully taxable-
equivalent
adjustments(a)
Managed
basis
Reported
Results
2018
2017
Fully taxable-
equivalent
adjustments(a)
2016
Managed
basis
Reported
Results
Fully taxable-
equivalent
adjustments(a)
Managed
basis
Other income
$ 5,343
$
1,877 (b) $ 7,220
$ 3,646
$
2,704
$ 6,350
$ 3,799
$
2,265
$ 6,064
Total noninterest revenue
Net interest income
Total net revenue
Pre-provision profit
Income before income tax
expense
Income tax expense
53,970
55,059
109,029
45,635
40,764
8,290
1,877
55,847
628 (b)
55,687
50,608
50,097
2,704
1,313
53,312
51,410
111,534
100,705
4,017
104,722
48,140
41,190
4,017
45,207
2,505
2,505
2,505
43,269
2,505 (b)
10,795
35,900
11,459
39,917
15,476
4,017
4,017
NM
50,486
46,083
96,569
39,897
34,536
9,803
2,265
1,209
52,751
47,292
3,474
100,043
3,474
43,371
3,474
3,474
NM
38,010
13,277
57%
Overhead ratio
58%
NM
57%
59%
57%
59%
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,
accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(a) Predominantly recognized in CIB and CB business segments and Corporate.
(b) The decrease in fully taxable-equivalent adjustments for the year ended December 31, 2018, reflects the impact of the TCJA.
JPMorgan Chase & Co./2018 Form 10-K
57
Calculation of certain U.S. GAAP and non-GAAP financial measures
Certain U.S. GAAP and non-GAAP financial measures are calculated as
follows:
Book value per share (“BVPS”)
Common stockholders’ equity at period-end /
Common shares at period-end
Overhead ratio
Total noninterest expense / Total net revenue
Return on assets (“ROA”)
Reported net income / Total average assets
Return on common equity (“ROE”)
Net income* / Average common stockholders’ equity
Return on tangible common equity (“ROTCE”)
Net income* / Average tangible common equity
Tangible book value per share (“TBVPS”)
Tangible common equity at period-end / Common shares at period-end
* Represents net income applicable to common equity
The Firm also reviews adjusted expense, which is
noninterest expense excluding Firmwide legal expense and
is therefore a non-GAAP financial measure. Additionally,
certain credit metrics and ratios disclosed by the Firm
exclude PCI loans, and are therefore non-GAAP measures.
Management believes these measures help investors
understand the effect of these items on reported results
and provide an alternate presentation of the Firm’s
performance. For additional information on credit metrics
and ratios excluding PCI loans, refer to Credit and
Investment Risk Management on pages 102-123.
Management’s discussion and analysis
Net interest income and net yield excluding CIB’s Markets
businesses
In addition to reviewing net interest income and the net
interest yield on a managed basis, management also
reviews these metrics excluding CIB’s Markets businesses,
as shown below; these metrics, which exclude CIB’s Markets
businesses, are non-GAAP financial measures. Management
reviews these metrics to assess the performance of the
Firm’s lending, investing (including asset-liability
management) and deposit-raising activities. The resulting
metrics that exclude CIB’s Markets businesses are referred
to as non-markets-related net interest income and net yield.
CIB’s Markets businesses are Fixed Income Markets and
Equity Markets. Management believes that disclosure of
non-markets-related net interest income and net yield
provides investors and analysts with other measures by
which to analyze the non-markets-related business trends
of the Firm and provides a comparable measure to other
financial institutions that are primarily focused on lending,
investing and deposit-raising activities.
Year ended December 31,
(in millions, except rates)
Net interest income –
managed basis(a)(b)
Less: CIB Markets net
interest income(c)
2018
2017
2016
$
55,687
$
51,410
$
47,292
3,087
4,630
6,334
Net interest income
excluding CIB Markets(a) $
52,600
$
46,780
$
40,958
Average interest-earning
assets
Less: Average CIB Markets
interest-earning assets(c)
Average interest-earning
assets excluding CIB
Markets
Net interest yield on
average interest-earning
assets – managed basis
Net interest yield on
average CIB Markets
interest-earning assets(c)
Net interest yield on
average interest-earning
assets excluding CIB
Markets
$2,229,188
$2,180,592
$ 2,101,604
609,635
540,835
520,307
$1,619,553
$1,639,757
$ 1,581,297
2.50%
2.36%
2.25%
0.51
0.86
1.22
3.25%
2.85%
2.59%
(a) Interest includes the effect of related hedges. Taxable-equivalent
amounts are used where applicable.
(b) For a reconciliation of net interest income on a reported and managed
basis, refer to reconciliation from the Firm’s reported U.S. GAAP results
to managed basis on page 57.
(c) For further information on CIB’s Markets businesses, refer to page 69.
58
JPMorgan Chase & Co./2018 Form 10-K
Tangible common equity, ROTCE and TBVPS
Tangible common equity (“TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm’s common
stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less goodwill and identifiable intangible assets (other
than MSRs), net of related deferred tax liabilities. ROTCE measures the Firm’s net income applicable to common equity as a
percentage of average TCE. TBVPS represents the Firm’s TCE at period-end divided by common shares at period-end. TCE,
ROTCE and TBVPS are utilized by the Firm, as well as investors and analysts, in assessing the Firm’s use of equity.
The following summary table provides a reconciliation from the Firm’s common stockholders’ equity to TCE.
(in millions, except per share and ratio data)
Common stockholders’ equity
Less: Goodwill
Less: Other intangible assets
Add: Certain deferred tax liabilities(a)(b)
Tangible common equity
Return on tangible common equity
Tangible book value per share
Period-end
Average
Dec 31,
2018
Dec 31,
2017
Year ended December 31,
2018
2017
2016
$
230,447 $
229,625
$ 229,222
$ 230,350
$ 224,631
47,471
47,507
47,491
47,317
47,310
748
2,280
855
2,204
807
2,231
832
3,116
922
3,212
$
184,508 $
183,467
$ 183,155
$ 185,317
$ 179,611
NA
NA
$
56.33 $
53.56
17%
NA
12%
NA
13%
NA
(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted
against goodwill and other intangibles when calculating TCE.
(b) Amounts presented for December 31, 2017 and later periods include the effect from revaluation of the Firm’s net deferred tax liability as a result of the
TCJA.
Key performance measures
The Firm considers the following to be key regulatory
capital measures:
• Capital, risk-weighted assets (“RWA”), and capital and
leverage ratios presented under Basel III Standardized
and Advanced Fully Phased-In rules, and
• SLR calculated under Basel III Advanced Fully Phased-In
rules.
The Firm, as well as banking regulators, investors and
analysts, use these measures to assess the Firm’s regulatory
capital position and to compare the Firm’s regulatory
capital to that of other financial services companies.
For additional information on these measures, refer to
Capital Risk Management on pages 85-94.
Core loans is also considered a key performance measure.
Core loans represents loans considered central to the Firm’s
ongoing businesses, and excludes loans classified as trading
assets, runoff portfolios, discontinued portfolios and
portfolios the Firm has an intent to exit. Core loans is a
measure utilized by the Firm and its investors and analysts
in assessing actual growth in the loan portfolio.
JPMorgan Chase & Co./2018 Form 10-K
59
Management’s discussion and analysis
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 & Wealth 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 the Firm’s Operating
Committee. Segment results are presented on a managed
basis. For a definition of managed basis, refer to
Explanation and Reconciliation of the Firm’s use of Non-
GAAP Financial Measures and Key Performance Measures,
on pages 57-59.
Consumer Businesses
Wholesale Businesses
JPMorgan Chase
Consumer & Community Banking
Corporate & Investment Bank
Commercial
Banking
Asset & Wealth
Management
Consumer &
Business Banking
Home Lending
Card, Merchant
Services & Auto
Banking
Markets &
Investor Services
• Consumer
Banking/
Chase
Wealth
Management
• Business
Banking
• Home
Lending
Production
• Home
Lending
Servicing
• Real Estate
Portfolios
• Card
Services
– Credit Card
– Merchant
Services
• Auto
• Investment
Banking
• Treasury
Services
• Lending
• Fixed
Income
Markets
• Equity
Markets
• Securities
Services
• Credit
Adjustments
& Other
• Asset
Management
• Wealth
Management
• Middle
Market
Banking
• Corporate
Client
Banking
• Commercial
Term
Lending
• Real Estate
Banking
Funds transfer pricing
Funds transfer pricing is the process by which the Firm
allocates interest income and expense to each business
segment and transfers the primary interest rate risk and
liquidity risk exposures to Treasury and CIO within
Corporate. The funds transfer pricing process considers the
interest rate risk, liquidity risk and regulatory requirements
of a business segment as if it were operating independently.
This process is overseen by senior management and
reviewed by the Firm’s Treasurer Committee.
Description of business segment reporting methodology
Results of the business segments are intended to present
each segment as if it were essentially a stand-alone
business. The management reporting process that derives
business segment results includes the allocation of certain
income and expense items described in more detail below.
The Firm also assesses the level of capital required for each
line of business on at least an annual basis. 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 may agree to share revenue from those
transactions. Revenue is recognized in the segment
responsible for the related product or service on a gross
basis, with an allocation to the other segment(s) involved in
the transaction. The segment results reflect these revenue-
sharing agreements.
60
JPMorgan Chase & Co./2018 Form 10-K
Debt expense and preferred stock dividend allocation
As part of the funds transfer pricing process, almost all of
the cost of the credit spread component of outstanding
unsecured long-term debt and preferred stock dividends is
allocated to the reportable business segments, while the
balance of the cost is retained in Corporate. The
methodology to allocate the cost of unsecured long-term
debt and preferred stock dividends to the business
segments is aligned with the Firm’s process to allocate
capital. The allocated cost of unsecured long-term debt is
included in a business segment’s net interest income, and
net income is reduced by preferred stock dividends to arrive
at a business segment’s net income applicable to common
equity.
Business segment capital allocation
The amount of capital assigned to each business is referred
to as equity. On at least an annual basis, the assumptions
and methodologies used in capital allocation are assessed
and as a result, the capital allocated to lines of business
may change. For additional information on business
segment capital allocation, refer to Line of business equity
on page 91.
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 the actual cost and use of services
provided. In contrast, certain other costs related to
corporate support units, or to certain technology and
operations, are not allocated to the business segments and
are retained in Corporate. Expense retained in Corporate
generally includes parent company costs that would not be
incurred if the segments were stand-alone businesses;
adjustments to align corporate support units; and other
items not aligned with a particular business segment.
Segment Results – Managed Basis
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were
applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
Net income in 2018 for each of the business segments reflects the favorable impact of the reduction in the U.S. federal
statutory income tax rate as a result of the TCJA.
The following tables summarize the Firm’s results by segment for the periods indicated.
Year ended December 31,
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
(in millions, except ratios)
2018
2017
2016
2018
2017
2016
2018
2017
2016
Total net revenue
$ 52,079
$ 46,485
$ 44,915
$ 36,448
$ 34,657
$ 35,340
$
9,059
$
8,605
$
7,453
Total noninterest expense
Pre-provision profit/(loss)
Provision for credit losses
Net income/(loss)
Return on equity (“ROE”)
27,835
24,244
4,753
14,852
28%
26,062
20,423
5,572
9,395
17%
24,905
20,010
4,494
9,714
18%
20,918
15,530
19,407
15,250
19,116
16,224
(60)
(45)
563
11,773
10,813
10,815
16%
14%
16%
3,386
5,673
129
4,237
20%
Year ended December 31,
Asset & Wealth Management
Corporate
(in millions, except ratios)
2018
2017
2016
2018
2017
2016
2018
3,327
5,278
(276)
3,539
17%
Total
2017
2,934
4,519
282
2,657
16%
2016
Total net revenue
$ 14,076
$ 13,835
$ 12,822
$
(128)
$ 1,140
$
(487)
$111,534
$104,722
$100,043
Total noninterest expense
10,353
10,218
Pre-provision profit/(loss)
3,723
3,617
Provision for credit losses
Net income/(loss)
Return on equity (“ROE”)
53
2,853
31%
39
2,337
25%
9,255
3,567
26
2,251
24%
902
(1,030)
(4)
501
639
—
(1,241)
(1,643)
NM
NM
462
(949)
(4)
(704)
NM
63,394
48,140
4,871
59,515
45,207
5,290
56,672
43,371
5,361
32,474
24,441
24,733
13%
10%
10%
The following sections provide a comparative discussion of the Firms results by segment as of or for the years ended
December 31, 2018, 2017 and 2016.
JPMorgan Chase & Co./2018 Form 10-K
61
Management’s discussion and analysis
CONSUMER & COMMUNITY BANKING
Consumer & Community Banking offers services to
consumers and businesses through bank branches,
ATMs, digital (including online and mobile) and
telephone banking. CCB is organized into Consumer &
Business Banking (including Consumer Banking/Chase
Wealth Management and Business Banking), Home
Lending (including Home Lending Production, Home
Lending Servicing and Real Estate Portfolios) and Card,
Merchant Services & Auto. Consumer & Business
Banking offers deposit and investment products and
services to consumers, and lending, deposit, and cash
management and payment solutions to small
businesses. Home Lending includes mortgage
origination and servicing activities, as well as
portfolios consisting of residential mortgages and
home equity loans. Card, Merchant Services & Auto
issues credit cards to consumers and small businesses,
offers payment processing services to merchants, and
originates and services auto loans and leases.
Selected income statement data
Year ended December 31,
(in millions, except ratios)
2018
2017
2016
Revenue
Lending- and deposit-related fees $ 3,624
$ 3,431
$ 3,231
Asset management,
administration and
commissions
Mortgage fees and related
income
Card income
All other income
Noninterest revenue
Net interest income
Total net revenue
2,402
2,212
2,093
1,252
4,554
4,428
16,260
35,819
52,079
1,613
4,024
3,430
14,710
31,775
46,485
2,490
4,364
3,077
15,255
29,660
44,915
Provision for credit losses
4,753
5,572
4,494
Noninterest expense
Compensation expense(a)
Noncompensation expense(a)(b)
Total noninterest expense
Income before income tax
expense
10,534
17,301
27,835
10,133
15,929
26,062
9,697
15,208
24,905
19,491
14,851
15,516
Income tax expense
4,639
5,456
5,802
Net income
$ 14,852
$ 9,395
$ 9,714
Revenue by line of business
Consumer & Business Banking
$ 24,805
$ 21,104
$ 18,659
Home Lending
5,484
5,955
7,361
Card, Merchant Services & Auto
21,790
19,426
18,895
Mortgage fees and related
income details:
Net production revenue
Net mortgage servicing
revenue(c)
Mortgage fees and related
income
Financial ratios
Return on equity
Overhead ratio
268
984
636
977
853
1,637
$ 1,252
$ 1,613
$ 2,490
28%
53
17%
56
18%
55
Note: In the discussion and the tables which follow, CCB presents certain
financial measures which exclude the impact of PCI loans; these are non-GAAP
financial measures.
(a) Effective in the first quarter of 2018, certain operations staff were
transferred from CCB to CB. The prior period amounts have been revised to
conform with the current period presentation. For a further discussion of
this transfer, refer to CB segment results on page 71.
(b) Included operating lease depreciation expense of $3.4 billion, $2.7 billion
and $1.9 billion for the years ended December 31, 2018, 2017 and 2016,
respectively.
(c) Included MSR risk management results of $(111) million, $(242) million
and $217 million for the years ended December 31, 2018, 2017 and
2016, respectively.
62
JPMorgan Chase & Co./2018 Form 10-K
2018 compared with 2017
Net income was $14.9 billion, an increase of 58%.
Net revenue was $52.1 billion, an increase of 12%.
Net interest income was $35.8 billion, up 13%, driven by:
• higher deposit margins and growth in deposit balances in
CBB, as well as margin expansion and higher loan balances
in Card,
partially offset by
• higher rates driving loan spread compression in Home
Lending and Auto.
Noninterest revenue was $16.3 billion, up 11%, driven by:
• higher auto lease volume,
• higher card income due to
– lower new account origination costs, and higher merchant
processing fees on higher volumes,
largely offset by
– lower net interchange income reflecting higher rewards
costs and partner payments, largely offset by higher card
sales volumes. The rewards costs included an adjustment
to the credit card rewards liability of approximately $330
million in the second quarter of 2018, driven by an
increase in redemption rate assumptions
• higher deposit-related fees, as well as higher asset
management fees reflecting an increase in client investment
assets,
partially offset by
• lower net production revenue reflecting lower mortgage
production margins and volumes, as well as the impact of a
loan sale.
Refer to Note 15 for further information regarding changes in
value of the MSR asset and related hedges, and mortgage fees
and related income.
Noninterest expense was $27.8 billion, up 7%, driven by:
• investments in technology and marketing, and
• higher auto lease depreciation.
The provision for credit losses was $4.8 billion, a decrease of
15%, reflecting:
• a decrease in the consumer, excluding credit card portfolio
due to
– lower net charge-offs in the residential real estate
portfolio, largely driven by recoveries from loan sales, and
– lower net charge-offs in the auto portfolio
partially offset by
– a $250 million reduction in the allowance for loan losses
in the residential real estate portfolio — PCI, reflecting
continued improvement in home prices and lower
delinquencies; the reduction was $75 million lower than
the prior year for the residential real estate portfolio —
non credit-impaired
• the prior year included a net $218 million write-down
recorded in connection with the sale of the student loan
portfolio, and
• a decrease in the credit card portfolio due to
– a $300 million addition to the allowance for loan losses,
reflecting loan growth and higher loss rates, as
anticipated; the addition was $550 million lower than the
prior year,
largely offset by
– higher net charge-offs due to seasoning of more recent
vintages, as anticipated.
2017 compared with 2016
Net income was $9.4 billion, a decrease of 3%.
Net revenue was $46.5 billion, an increase of 3%.
Net interest income was $31.8 billion, up 7%, driven by:
• growth in deposit balances and higher deposit margins in
CBB, as well as higher loan balances in Card,
partially offset by
• loan spread compression from higher rates, including the
impact of higher funding costs in Home Lending and Auto,
and
• the impact of the sale of the student loan portfolio.
Noninterest revenue was $14.7 billion, down 4%, driven by:
• higher new account origination costs in Card,
• lower MSR risk management results,
• the absence in the current year of a gain on the sale of Visa
Europe interests,
• lower net production revenue reflecting lower mortgage
production margins and volumes, and
• lower mortgage servicing revenue as a result of a lower level
of third-party loans serviced
largely offset by
• higher auto lease volume and
• higher card- and deposit-related fees.
Noninterest expense was $26.1 billion, up 5%, driven by:
• higher auto lease depreciation, and
• continued business growth
partially offset by
• two items totaling $175 million included in the prior year
related to liabilities from a merchant bankruptcy and
mortgage servicing reserves.
The provision for credit losses was $5.6 billion, an increase of
24%, reflecting:
• $445 million of higher net charge-offs, primarily in the
credit card portfolio due to growth in newer vintages which,
as anticipated, have higher loss rates than the more
seasoned portion of the portfolio, partially offset by a
decrease in net charge-offs in the residential real estate
portfolio reflecting continued improvement in home prices
and delinquencies,
• a $415 million higher addition to the allowance for credit
losses related to the credit card portfolio driven by higher
loss rates and loan growth, and a lower reduction in the
allowance for the residential real estate portfolio
predominantly driven by continued improvement in home
prices and delinquencies, and
• a net $218 million impact in connection with the sale of the
student loan portfolio.
The sale of the student loan portfolio during 2017 did not have
a material impact on the Firm’s Consolidated Financial
Statements.
JPMorgan Chase & Co./2018 Form 10-K
63
Management’s discussion and analysis
Selected metrics
As of or for the year ended
December 31,
Selected metrics
As of or for the year ended
December 31,
(in millions, except headcount)
2018
2017
2016
(in millions, except ratio data)
2018
2017
2016
Selected balance sheet data
(period-end)
Total assets
Loans:
$ 557,441
$ 552,601
$ 535,310
Nonaccrual loans(a)(b)
$ 3,339
$ 4,084
$ 4,708
Credit data and quality
statistics
Consumer & Business Banking
Home equity
26,612
36,013
25,789
42,751
24,307
50,296
Residential mortgage
203,859
197,339
181,196
Home Lending
239,872
240,090
231,492
Card
Auto
Student
Total loans
Core loans
Deposits
Equity
Selected balance sheet data
(average)
Total assets
Loans:
156,632
149,511
141,816
63,573
66,242
—
—
65,814
7,057
486,689
481,632
470,486
434,466
415,167
382,608
678,854
659,885
618,337
51,000
51,000
51,000
$ 547,368
$ 532,756
$ 516,354
Consumer & Business Banking
Home equity
26,197
39,133
24,875
46,398
23,431
54,545
Residential mortgage
202,624
190,242
177,010
Home Lending
241,757
236,640
231,555
Card
Auto
Student
Total loans
Core loans
Deposits
Equity
145,652
140,024
131,165
64,675
—
65,395
2,880
63,573
7,623
478,281
469,814
457,347
419,066
393,598
361,316
670,388
640,219
586,637
51,000
51,000
51,000
(a) Effective in the first quarter of 2018, certain operations staff were
transferred from CCB to CB. The prior period amounts have been revised to
conform with the current period presentation. For a further discussion of
this transfer, refer to CB segment results on page 71.
(b) During the third quarter of 2018, approximately 1,200 employees
transferred from CCB to CIB as part of the reorganization of the Commercial
Card business.
Headcount(a)(b)
129,518
133,721
132,384
90+ day delinquency rate -
Net charge-offs/(recoveries)(c)
Consumer & Business
Banking
Home equity
Residential mortgage
Home Lending
Card
Auto
Student
Total net charge-offs/
(recoveries)
Net charge-off/(recovery)
rate(c)
Consumer & Business
Banking
Home equity(d)
Residential mortgage(d)
Home Lending(d)
Card
Auto
Student
Total net charge-offs/
(recovery) rate(d)
30+ day delinquency rate
236
(7)
(287)
(294)
257
63
(16)
47
4,518
4,123
243
—
331
498
(g)
257
184
14
198
3,442
285
162
$ 4,703
$ 5,256
(g) $ 4,344
0.90% 1.03 %
1.10%
(0.02)
(0.16)
(0.14)
3.10
0.38
—
0.18
(0.01)
0.02
2.95
0.51
NM
0.45
0.01
0.10
2.63
0.45
2.13
1.04
1.21
(g)
1.04
Home Lending(e)(f)
0.77% 1.19%
1.23%
Card
Auto
Student
1.83
0.93
—
1.80
0.89
—
1.61
1.19
1.60
0.81
(h)
Card
0.92
0.92
Allowance for loan losses
Consumer & Business
Banking
Home Lending, excluding
PCI loans
Home Lending — PCI loans(c)
Card
Auto
Student
$
796
$ 796
$
753
1,003
1,788
5,184
464
—
1,003
2,225
4,884
464
—
1,328
2,311
4,034
474
249
Total allowance for loan
losses(c)
$ 9,235
$ 9,372
$ 9,149
(a) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as each of the pools is performing.
(b) At December 31, 2018, 2017 and 2016, nonaccrual loans excluded mortgage
loans 90 or more days past due and insured by U.S. government agencies of $2.6
billion, $4.3 billion and $5.0 billion, respectively. At December 31, 2016,
nonaccrual loans also excluded student loans insured by U.S. government
agencies under the Federal Family Education Loan Program (“FFELP”) of $263
million. These amounts have been excluded based upon the government
guarantee.
(c) Net charge-offs/(recoveries) and the net charge-off/(recovery) rates for the
years ended December 31, 2018, 2017 and 2016, excluded $187 million, $86
million and $156 million, respectively, of write-offs in the PCI portfolio. These
write-offs decreased the allowance for loan losses for PCI loans. For further
64
JPMorgan Chase & Co./2018 Form 10-K
information on PCI write-offs, refer to Summary of changes in the allowance for
credit losses on page 121.
(d) Excludes the impact of PCI loans. For the years ended December 31, 2018, 2017
and 2016, the net charge-off/(recovery) rates including the impact of PCI loans
were as follows: (1) home equity of (0.02)%, 0.14% and 0.34%, respectively;
(2) residential mortgage of (0.14)%, (0.01)% and 0.01%, respectively; (3)
Home Lending of (0.12)%, 0.02% and 0.09%, respectively; and (4) total CCB of
0.98%, 1.12% and 0.95%, respectively.
(e) At December 31, 2018, 2017 and 2016, excluded mortgage loans insured by
U.S. government agencies of $4.1 billion, $6.2 billion and $7.0 billion,
respectively, that are 30 or more days past due. These amounts have been
excluded based upon the government guarantee.
(f) Excludes PCI loans. The 30+ day delinquency rate for PCI loans was 9.16%,
10.13% and 9.82% at December 31, 2018, 2017 and 2016, respectively.
(g) Excluding net charge-offs of $467 million related to the student loan portfolio
transfer, the total net charge-off rates for the full year 2017 would have been
1.10%.
(h) Excluded student loans insured by U.S. government agencies under FFELP of
$468 million at December 31, 2016 that are 30 or more days past due. This
amount has been excluded based upon the government guarantee.
Selected metrics
As of or for the year ended
December 31,
(in billions, except ratios and
where otherwise noted)
Business Metrics
2018
2017
2016
CCB households (in millions)(a)
Number of branches
61.7
5,036
61.1
5,130
60.5
5,258
Active digital customers
(in thousands)(b)
Active mobile customers
(in thousands)(c)
Debit and credit card sales
volume
Consumer & Business Banking
49,254
46,694
43,836
33,260
30,056
26,536
$ 1,016.9
$
916.9
$
821.6
Average deposits
Deposit margin
$
656.5
$
625.6
$
570.8
2.38%
1.98%
1.81%
Business banking origination
volume
$
6.7
$
7.3
$
7.3
Client investment assets
282.5
273.3
234.5
Home Lending
Mortgage origination volume
by channel
Retail
Correspondent
Total mortgage
origination volume(d)
Total loans serviced
(period-end)
Third-party mortgage loans
serviced (period-end)
MSR carrying value
(period-end)
Ratio of MSR carrying value
(period-end) to third-party
mortgage loans serviced
(period-end)
$
$
$
38.3
41.1
79.4
789.8
$
$
$
40.3
57.3
97.6
816.1
$
$
$
44.3
59.3
103.6
846.6
519.6
553.5
591.5
6.1
6.0
6.1
1.17%
1.08%
1.03%
MSR revenue multiple(e)
3.34x
3.09x
2.94x
Card, excluding Commercial Card
Credit card sales volume
$
692.4
$
622.2
$
545.4
New accounts opened
(in millions)
Card Services
Net revenue rate
Merchant Services
7.8
8.4
10.4
11.27%
10.57%
11.29%
Merchant processing volume
$ 1,366.1
$ 1,191.7
$ 1,063.4
Auto
Loan and lease origination
volume
Average Auto operating lease
assets
$
31.8
$
33.3
$
35.4
18.8
15.2
11.0
(a) The prior period amounts have been revised to conform with the current period
presentation.
(b) Users of all web and/or mobile platforms who have logged in within the past 90
days.
(c) Users of all mobile platforms who have logged in within the past 90 days.
(d) Firmwide mortgage origination volume was $86.9 billion, $107.6 billion and
$117.4 billion for the years ended December 31, 2018, 2017 and 2016,
respectively.
(e) Represents the ratio of MSR carrying value (period-end) to third-party mortgage
loans serviced (period-end) divided by the ratio of loan servicing-related revenue
to third-party mortgage loans serviced (average).
JPMorgan Chase & Co./2018 Form 10-K
65
Management’s discussion and analysis
CORPORATE & INVESTMENT BANK
The Corporate & Investment Bank, which consists of
Banking and Markets & Investor Services, offers a
broad suite of investment banking, market-making,
prime brokerage, and treasury and securities products
and services to a global client base of corporations,
investors, financial institutions, government and
municipal entities. Banking offers a full range of
investment banking products and services in all major
capital markets, including advising on corporate
strategy and structure, capital-raising in equity and
debt markets, as well as loan origination and
syndication. Banking also includes Treasury Services,
which provides transaction services, consisting of cash
management and liquidity solutions. Markets &
Investor Services is a global market-maker in cash
securities and derivative instruments, and also offers
sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services
also includes Securities Services, a leading global
custodian which provides custody, fund accounting and
administration, and securities lending products
principally for asset managers, insurance companies
and public and private investment funds.
Effective January 1, 2018, the Firm adopted several new
accounting standards; the guidance which had the most
significant impact on the CIB segment results was revenue
recognition, and recognition and measurement of financial
assets. The revenue recognition guidance was applied
retrospectively and, accordingly, prior period amounts were
revised. For additional information, refer to Note 1.
Selected income statement data
Year ended December 31,
(in millions)
Revenue
2018
2017
2016
Investment banking fees
$
7,473
$
7,356
$
6,548
Principal transactions
Lending- and deposit-related fees
Asset management,
administration and commissions
All other income
Noninterest revenue
Net interest income
Total net revenue(a)(b)
12,271
1,497
4,488
1,239
26,968
9,480
36,448
10,873
1,531
4,207
572
24,539
10,118
34,657
11,089
1,581
4,062
1,169
24,449
10,891
35,340
Provision for credit losses
(60)
(45)
563
Noninterest expense
Compensation expense
Noncompensation expense
Total noninterest expense
Income before income tax
expense
Income tax expense
Net income(a)
66
10,215
10,703
20,918
9,531
9,876
9,540
9,576
19,407
19,116
15,590
15,295
15,661
3,817
4,482
4,846
$ 11,773
$ 10,813
$ 10,815
(a) The full year 2017 results reflect the impact of the enactment of the TCJA
including a decrease to net revenue of $259 million and a benefit to net
income of $141 million. For additional information related to the impact of
the TCJA, refer to Note 24.
(b) Included tax-equivalent adjustments, predominantly due to income tax
credits related to alternative energy investments; income tax credits and
amortization of the cost of investments in affordable housing projects; and
tax-exempt income from municipal bonds of $1.7 billion, $2.4 billion and
$2.0 billion for the years ended December 31, 2018, 2017 and 2016,
respectively.
Selected income statement data
Year ended December 31,
(in millions, except ratios)
2018
2017
2016
Financial ratios
Return on equity
Overhead ratio
Compensation expense as
percentage of total net
revenue
Revenue by business
Investment Banking
Treasury Services
Lending
Total Banking
Fixed Income Markets
Equity Markets
Securities Services
16%
57
14%
56
16%
54
28
28
27
$ 6,987
$ 6,852
$ 6,074
4,697
1,298
12,982
12,706
6,888
4,245
4,172
1,429
12,453
12,812
5,703
3,917
3,643
1,208
10,925
15,259
5,740
3,591
Credit Adjustments & Other(a)
(373)
(228)
(175)
Total Markets & Investor
Services
23,466
22,204
24,415
Total net revenue
$36,448
$34,657
$ 35,340
(a) Consists primarily of credit valuation adjustments (“CVA”) managed
centrally within CIB and funding valuation adjustments (“FVA”) on
derivatives. Results are primarily reported in principal transactions
revenue. Results are presented net of associated hedging activities and net
of CVA and FVA amounts allocated to Fixed Income Markets and Equity
Markets. For additional information, refer to Notes 2, 3 and 23.
2018 compared with 2017
Net income was $11.8 billion, up 9%.
Net revenue was $36.4 billion, up 5%.
Banking revenue was $13.0 billion, up 4%. Investment
Banking revenue was $7.0 billion, up 2% compared to a
strong prior year, predominantly driven by higher advisory
and equity underwriting fees, predominantly offset by lower
debt underwriting fees. The Firm maintained its #1 ranking
for Global Investment Banking fees with overall share gains,
according to Dealogic. Advisory fees were $2.5 billion, up
17%, driven by a higher number of large completed
transactions. Equity underwriting fees were $1.7 billion, up
15% driven by a higher share of fees reflecting strong
performance across products. Debt underwriting fees were
$3.3 billion, down 12%, compared to a strong prior year,
primarily driven by declines in industry-wide fee levels.
Treasury Services revenue was $4.7 billion, up 13%, driven
by the impact of higher interest rates and growth in
operating deposits as well as higher fees on increased
payments volume. Lending revenue was $1.3 billion, down
JPMorgan Chase & Co./2018 Form 10-K
9%, driven by lower net interest income primarily reflecting
a change in the portfolio mix and overall spread
compression, and higher gains in the prior year on
securities received from restructurings.
Markets & Investor Services revenue was $23.5 billion, up
6%. The results included a reduction of approximately
$620 million in tax-equivalent adjustments as a result of
the TCJA, and approximately $500 million of fair value
gains in the first quarter of 2018 related to the adoption of
the new recognition and measurement accounting guidance
for certain equity investments previously held at cost. Prior
year results included a reduction of $259 million resulting
from the enactment of the TCJA. Fixed Income Markets
revenue was $12.7 billion, down 1%. Excluding the impact
of the TCJA and fair value gains mentioned above, Fixed
Income Markets revenue was down 2%. Rates and Credit
revenue declined reflecting challenging market conditions
in the fourth quarter of 2018 while lower revenue in Fixed
Income Financing was driven by compressed margins. This
decline was predominantly offset by strong performance
including higher client activity in Currencies & Emerging
Markets, and higher Commodities revenue compared to a
challenging prior year. Equity Markets revenue was $6.9
billion, up 21%, or up 18% excluding the fair value loss of
$143 million on a margin loan to a single client in the prior
year, driven by strength across derivatives, prime brokerage
and cash equities, reflecting strong client activity. Securities
Services revenue was $4.2 billion, up 8%, driven by fee
growth, higher interest rates and operating deposit growth
partially offset by the impact of a business exit. Credit
Adjustments & Other was a loss of $373 million, largely
driven by higher funding spreads on derivatives.
The provision for credit losses was a benefit of $60 million,
driven by a reduction in the allowance for credit losses in
the first quarter of 2018 related to a single name in the Oil
& Gas portfolio, predominantly offset by other net portfolio
activity, which includes additions to the allowance for credit
losses from select client downgrades. The prior year was a
benefit of $45 million primarily driven by a net reduction in
the allowance for credit losses in the Oil & Gas and Metals &
Mining portfolios partially offset by a net increase in the
allowance for credit losses for a single client.
Noninterest expense was $20.9 billion, up 8%,
predominantly driven by investments in technology and
bankers, higher performance-related compensation
expense, volume-related transaction costs, and legal
expense.
2017 compared with 2016
Net income was $10.8 billion, flat compared with the prior
year, reflecting lower net revenue and higher noninterest
expense, offset by a lower provision for credit losses, and a
tax benefit resulting from the vesting of employee share-
based awards. The current year included a $141 million
benefit to net income as a result of the enactment of the
TCJA.
Net revenue was $34.7 billion, down 2%.
Banking revenue was $12.5 billion, up 14% compared with
the prior year. Investment banking revenue was $6.9 billion,
up 13% from the prior year, driven by higher debt and
equity underwriting fees. The Firm maintained its #1
ranking for Global Investment Banking fees, according to
Dealogic. Debt underwriting fees were $3.7 billion, up 16%
driven by a higher share of fees and an overall increase in
industry-wide fees; the Firm maintained its #1 ranking
globally in fees across high-grade, high-yield, and loan
products. Equity underwriting fees were $1.5 billion, up
21% driven by growth in industry-wide issuance including a
strong IPO market; the Firm ranked #2 in equity
underwriting fees globally. Advisory fees were $2.2 billion,
up 2%; the Firm maintained its #2 ranking for M&A.
Treasury Services revenue was $4.2 billion, up 15%, driven
by the impact of higher interest rates and growth in
operating deposits. Lending revenue was $1.4 billion, up
18% from the prior year, reflecting lower fair value losses
on hedges of accrual loans.
Markets & Investor Services revenue was $22.2 billion,
down 9% from the prior year. Fixed Income Markets
revenue was $12.8 billion, down 16%, as lower revenue
across products was driven by sustained low volatility,
tighter credit spreads, and the impact from the TCJA on tax-
oriented investments of $259 million, against a strong prior
year. Equity Markets revenue was $5.7 billion, down 1%
from the prior year, and included a fair value loss of $143
million on a margin loan to a single client. Excluding the fair
value loss, Equity Markets revenue was higher driven by
higher revenue in Prime Services and cash equities,
partially offset by lower revenue in derivatives. Securities
Services revenue was $3.9 billion, up 9%, driven by the
impact of higher interest rates and deposit growth, as well
as higher asset-based fees driven by higher market levels.
Credit Adjustments & Other was a loss of $228 million,
driven by valuation adjustments.
The provision for credit losses was a benefit of $45 million,
which included a net reduction in the allowance for credit
losses driven by the Oil & Gas and Metals & Mining
portfolios partially offset by a net increase in the allowance
for credit losses for a single client. The prior year was an
expense of $563 million, which included an addition to the
allowance for credit losses driven by the Oil & Gas and
Metals & Mining portfolios.
Noninterest expense was $19.4 billion, up 2% compared
with the prior year.
JPMorgan Chase & Co./2018 Form 10-K
67
Management’s discussion and analysis
Selected metrics
As of or for the year ended
December 31,
(in millions, except headcount)
Selected balance sheet data
(period-end)
Assets
Loans:
2018
2017
2016
$ 903,051
$ 826,384
$ 803,511
Loans retained(a)
129,389
108,765
111,872
Loans held-for-sale and
loans at fair value
Total loans
Core loans
Equity
Selected balance sheet data
(average)
Assets
Trading assets-debt and equity
instruments
Trading assets-derivative
receivables
Loans:
13,050
4,321
3,781
142,439
113,086
115,653
142,122
112,754
115,243
70,000
70,000
64,000
$ 922,758
$ 857,060
$ 815,321
349,169
342,124
300,606
60,552
56,466
63,387
Loans retained(a)
114,417
108,368
111,082
Loans held-for-sale and
loans at fair value
Total loans
Core loans
Equity
Headcount(b)
6,412
4,995
3,812
120,829
113,363
114,894
120,560
113,006
114,455
70,000
70,000
64,000
54,480
51,181
48,748
(a) Loans retained includes credit portfolio loans, loans held by
consolidated Firm-administered multi-seller conduits, trade finance
loans, other held-for-investment loans and overdrafts.
(b) During the third quarter of 2018 approximately 1,200 employees
transferred from CCB to CIB as part of the reorganization of the
Commercial Card business.
Investment banking fees
(in millions)
Advisory
Equity underwriting
Debt underwriting(a)
Total investment banking fees
(a) Includes loan syndications.
Selected metrics
As of or for the year ended
December 31,
(in millions, except ratios)
Credit data and quality
statistics
Net charge-offs/
(recoveries)
Nonperforming assets:
Nonaccrual loans:
Nonaccrual loans
retained(a)
Nonaccrual loans held-
for-sale and loans at
fair value
Total nonaccrual loans
Derivative receivables
Assets acquired in loan
satisfactions
Total nonperforming
assets
Allowance for credit losses:
Allowance for loan
losses
Allowance for lending-
related commitments
Total allowance for credit
losses
Net charge-off/(recovery)
rate(b)
Allowance for loan losses to
period-end loans
retained
Allowance for loan losses to
period-end loans retained,
excluding trade finance
and conduits(c)
Allowance for loan losses to
nonaccrual loans
retained(a)
Nonaccrual loans to total
period-end loans
2018
2017
2016
$
93
$
71
$
168
443
220
663
60
57
780
812
—
812
130
85
1,027
467
109
576
223
79
878
1,199
1,379
1,420
754
727
801
1,953
2,106
2,221
0.08%
0.07%
0.15%
0.93
1.27
1.27
1.24
1.92
1.86
271
0.47
170
0.72
304
0.50
(a) Allowance for loan losses of $174 million, $316 million and $113
million were held against these nonaccrual loans at December 31,
2018, 2017 and 2016, respectively.
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
(c) Management uses allowance for loan losses to period-end loans
retained, excluding trade finance and conduits, a non-GAAP financial
measure, to provide a more meaningful assessment of CIB’s allowance
coverage ratio.
Year ended December 31,
2018
2017
2016
$
$
2,509
$
2,150
$
1,684
3,280
1,468
3,738
7,473
$
7,356
$
2,110
1,213
3,225
6,548
68
JPMorgan Chase & Co./2018 Form 10-K
League table results – wallet share
Year ended
December 31,
Based on fees(a)
Long-term debt(b)
Global
U.S.
Equity and equity-related
Global(c)
U.S.
M&A(d)
Global
U.S.
Loan syndications
Global
U.S.
Global investment banking fees (e)
2018
2017
2016
Rank
Share
Rank
Share
Rank
Share
#1
1
7.3% #1
2
11.2
7.8% #1
1
11.1
6.8%
11.1
1
1
2
2
1
1
#1
9.1
12.3
8.9
9.1
2
1
2
2
7.1
11.6
8.4
9.1
1
1
2
2
7.4
13.4
8.3
9.8
9.5
12.1
1
1
8.7% #1
9.3
11.0
1
2
8.1% #1
9.3
11.9
7.9%
(a) Source: Dealogic as of January 1, 2019. Reflects the ranking of revenue wallet and market share.
(b) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and mortgage-
backed securities (“MBS”); and exclude money market, short-term debt, and U.S. municipal securities.
(c) Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(d) Global M&A reflects the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(e) Global investment banking fees exclude money market, short-term debt and shelf deals.
Markets revenue
The following table summarizes select income statement
data for the Markets businesses. Markets includes both
Fixed Income Markets and Equity Markets. Markets revenue
comprises principal transactions, fees, commissions and
other income, as well as net interest income. The Firm
assesses its Markets business performance on a total
revenue basis, as offsets may occur across revenue line
items. For example, securities that generate net interest
income may be risk-managed by derivatives that are
recorded in principal transactions revenue. For a
description of the composition of these income statement
line items, refer to Notes 6 and 7.
Principal transactions reflects revenue on financial
instruments and commodities transactions that arise from
client-driven market making activity. Principal transactions
revenue includes amounts recognized upon executing new
transactions with market participants, as well as “inventory-
related revenue”, which is revenue recognized from gains
and losses on derivatives and other instruments that the
Firm has been holding in anticipation of, or in response to,
client demand, and changes in the fair value of instruments
used by the Firm to actively manage the risk exposure
arising from such inventory. Principal transactions revenue
recognized upon executing new transactions with market
participants is driven by many factors including the level of
client activity, the bid-offer spread (which is the difference
between the price at which a market participant is willing to
sell an instrument to the Firm and the price at which
another market participant is willing to buy it from the
Firm, and vice versa), market liquidity and volatility. These
factors are interrelated and sensitive to the same factors
that drive inventory-related revenue, which include general
market conditions, such as interest rates, foreign exchange
rates, credit spreads, and equity and commodity prices, as
well as other macroeconomic conditions.
For the periods presented below, the predominant source of
principal transactions revenue was the amount recognized
upon executing new transactions.
2018
2017
2016
Year ended December 31,
(in millions, except where
otherwise noted)
Fixed
Income
Markets
Equity
Markets
Total
Markets
Fixed
Income
Markets
Equity
Markets
Total
Markets
Fixed
Income
Markets
Equity
Markets
Total
Markets
Principal transactions
Lending- and deposit-related fees
Asset management,
administration and commissions
All other income
Noninterest revenue
Net interest income(a)
Total net revenue
Loss days(b)
$
7,560 $
197
5,566 $ 13,126
203
6
$
7,393 $
191
3,855 $ 11,248
197
6
$
8,347 $
220
3,130 $ 11,477
222
2
410
1,794
2,204
390
1,635
2,025
388
1,551
1,939
952
9,119
3,587
$ 12,706 $
974
22
16,507
7,388
(500)
3,087
6,888 $ 19,594
436
8,410
4,402
$ 12,812 $
(21)
5,475
228
415
13,885
4,630
5,703 $ 18,515
1,014
9,969
5,290
$ 15,259 $
1,027
13
14,665
4,696
1,044
6,334
5,740 $ 20,999
5
4
0
(a) Declines in Markets net interest income in 2018 and 2017 were driven by higher funding costs.
(b) Loss days represent the number of days for which Markets posted losses. The loss days determined under this measure differ from the disclosure of daily
market risk-related gains and losses for the Firm in the value-at-risk (“VaR”) back-testing discussion on pages 126-128.
JPMorgan Chase & Co./2018 Form 10-K
69
Management’s discussion and analysis
Selected metrics
As of or for the year ended
December 31,
(in millions, except where otherwise noted)
Assets under custody (“AUC”) by asset class (period-end) (in billions):
Fixed Income
Equity
Other(a)
Total AUC
Client deposits and other third party liabilities (average)(b)
2018
2017
2016
$
$
$
12,440
$
13,043
$
8,078
2,699
23,217
434,422
$
$
7,863
2,563
23,469
408,911
$
$
12,166
6,428
1,926
20,520
376,287
(a) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.
(b) Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses.
International metrics
Year ended December 31,
(in millions, except where
otherwise noted)
Total net revenue(a)
2018
2017
2016
Europe/Middle East/Africa
$ 12,102
$ 11,328
$ 10,786
Asia/Pacific
Latin America/Caribbean
Total international net revenue
North America
Total net revenue
5,219
1,394
18,715
17,733
4,525
1,125
16,978
17,679
4,915
1,225
16,926
18,414
$ 36,448
$ 34,657
$ 35,340
Loans retained (period-end)(a)
Europe/Middle East/Africa
$ 26,524
$ 25,931
$ 26,696
Asia/Pacific
Latin America/Caribbean
Total international loans
North America
16,778
15,248
5,060
48,362
81,027
6,546
47,725
61,040
14,508
7,607
48,811
63,061
Total loans retained
$129,389
$108,765
$ 111,872
Client deposits and other third-
party liabilities (average)(a)(b)
Europe/Middle East/Africa
$162,846
$154,582
$ 135,979
Asia/Pacific
Latin America/Caribbean
82,867
26,668
76,744
25,419
68,110
22,914
Total international
$272,381
$256,745
$ 227,003
North America
162,041
152,166
149,284
Total client deposits and other
third-party liabilities
$434,422
$408,911
$ 376,287
AUC (period-end)(a)
(in billions)
North America
All other regions
Total AUC
$ 14,359
$ 13,971
$ 12,290
8,858
9,498
8,230
$ 23,217
$ 23,469
$ 20,520
(a) Total net revenue is based predominantly on the domicile of the client
or location of the trading desk, as applicable. Loans outstanding
(excluding loans held-for-sale and loans at fair value), client deposits
and other third-party liabilities, and AUC are based predominantly on
the domicile of the client.
(b) Client deposits and other third party liabilities pertain to the Treasury
Services and Securities Services businesses.
70
JPMorgan Chase & Co./2018 Form 10-K
COMMERCIAL BANKING
Commercial Banking delivers extensive industry
knowledge, local expertise and dedicated service to
U.S. and U.S. multinational clients, including
corporations, municipalities, financial institutions and
nonprofit entities with annual revenue generally
ranging from $20 million to $2 billion. In addition, CB
provides financing to real estate investors and owners.
Partnering with the Firm’s other businesses, CB
provides comprehensive financial solutions, including
lending, treasury services, investment banking and
asset management to meet its clients’ domestic and
international financial needs.
Selected income statement data
Year ended December 31,
(in millions)
2018
2017
2016
Revenue
Lending- and deposit-related fees
Asset management, administration
and commissions
All other income(a)
Noninterest revenue
Net interest income
Total net revenue(b)
$
870
$
919
$
917
73
1,400
2,343
6,716
9,059
68
1,535
2,522
6,083
8,605
69
1,334
2,320
5,133
7,453
Provision for credit losses
129
(276)
282
Noninterest expense
Compensation expense(c)
Noncompensation expense(c)
Total noninterest expense
Income before income tax expense
Income tax expense
Net income
1,694
1,692
3,386
5,544
1,307
1,534
1,793
3,327
5,554
2,015
1,396
1,538
2,934
4,237
1,580
$ 4,237
$ 3,539
$ 2,657
(a) Includes revenue from investment banking products and commercial
card transactions.
(b) Total net revenue included tax-equivalent adjustments from income tax
credits related to equity investments in designated community
development entities that provide loans to qualified businesses in low-
income communities, as well as tax-exempt income related to
municipal financing activities of $444 million, $699 million and $505
million for the years ended December 31, 2018, 2017 and 2016,
respectively. The decrease in taxable-equivalent adjustments reflects
the impact of TCJA.
(c) Effective in the first quarter of 2018, certain Operations and
Compliance staff were transferred from CCB and Corporate,
respectively, to CB. As a result, expense for this staff is now reflected in
CB’s compensation expense with a corresponding adjustment for
expense allocations reflected in noncompensation expense. CB’s,
Corporate’s and CCB’s previously reported headcount, compensation
expense and noncompensation expense have been revised to reflect
this transfer.
2018 compared with 2017
Net income was $4.2 billion, an increase of 20%.
Net revenue was $9.1 billion, an increase of 5%. Net
interest income was $6.7 billion, an increase of 10%,
reflecting higher deposit margins and loan growth, partially
offset by lower loan spreads. Noninterest revenue was $2.3
billion, a decrease of 7%, reflecting lower Community
Development Banking revenue, which was also impacted by
the absence of the TCJA benefit in the prior year, and lower
deposit fees, partially offset by higher investment banking
revenue.
Noninterest expense was $3.4 billion, an increase of 2%,
with continued investments in banker coverage and
technology in the current year predominantly offset by the
absence of an impairment on certain leased equipment in
the prior year.
The provision for credit losses was an expense of $129
million, driven by select client downgrades. The prior year
provision for credit losses was a benefit of $276 million.
2017 compared with 2016
Net income was $3.5 billion, an increase of 33%, driven by
higher net revenue and a lower provision for credit losses,
partially offset by higher noninterest expense.
Net revenue was $8.6 billion, an increase of 15%. Net
interest income was $6.1 billion, an increase of 19%,
driven by higher deposit spreads and loan growth.
Noninterest revenue was $2.5 billion, an increase of 9%,
predominantly driven by higher Community Development
Banking revenue, including a $115 million benefit for the
impact of the TCJA on certain investments, and higher
investment banking revenue.
Noninterest expense was $3.3 billion, an increase of 13%
driven by hiring of bankers and business-related support
staff, investments in technology, and an impairment of
approximately $130 million on certain leased equipment,
the majority of which was sold subsequent to year-end.
The provision for credit losses was a benefit of $276
million, driven by net reductions in the allowance for credit
losses, including in the Oil & Gas, Natural Gas Pipelines and
Metals & Mining portfolios. The prior year provision for
credit losses was $282 million driven by downgrades in the
Oil & Gas portfolio and select client downgrades in other
industries.
JPMorgan Chase & Co./2018 Form 10-K
71
Management’s discussion and analysis
CB product revenue consists of the following:
Lending includes a variety of financing alternatives, which
are primarily provided on a secured basis; collateral
includes receivables, inventory, equipment, real estate or
other assets. Products include term loans, revolving lines of
credit, bridge financing, asset-based structures, leases, and
standby letters of credit.
Treasury services includes revenue from a broad range of
products and services that enable CB clients to manage
payments and receipts, as well as invest and manage funds.
Investment banking includes revenue from a range of
products providing CB clients with sophisticated capital-
raising alternatives, as well as balance sheet and risk
management tools through advisory, equity underwriting,
and loan syndications. Revenue from Fixed Income and
Equity Markets products used by CB clients is also included.
Other product revenue primarily includes tax-equivalent
adjustments generated from Community Development
Banking activities and certain income derived from principal
transactions.
CB is divided into four primary client segments: Middle
Market Banking, Corporate Client Banking, Commercial
Term Lending, and Real Estate Banking.
Middle Market Banking covers corporate, municipal and
nonprofit clients, with annual revenue generally ranging
between $20 million and $500 million.
Corporate Client Banking covers clients with annual
revenue generally ranging between $500 million and $2
billion and focuses on clients that have broader investment
banking needs.
Commercial Term Lending primarily provides term
financing to real estate investors/owners for multifamily
properties as well as office, retail and industrial properties.
Real Estate Banking provides full-service banking to
investors and developers of institutional-grade real estate
investment properties.
Other primarily includes lending and investment-related
activities within the Community Development Banking
business.
Selected income statement data (continued)
Year ended December 31,
(in millions, except ratios)
2018
2017
2016
Revenue by product
Lending
Treasury services
Investment banking(a)
Other
Total Commercial Banking net
revenue
$ 4,049
$ 4,094
$ 3,795
4,074
3,444
2,797
852
84
805
262
785
76
$ 9,059
$ 8,605
$ 7,453
Investment banking revenue, gross(b) $ 2,491
$ 2,385
$ 2,331
Revenue by client segment
Middle Market Banking
Corporate Client Banking
Commercial Term Lending
Real Estate Banking
Other
Total Commercial Banking net
revenue
Financial ratios
Return on equity
Overhead ratio
$ 3,708
$ 3,341
$ 2,848
2,984
1,366
681
320
2,727
1,454
604
479
2,429
1,408
456
312
$ 9,059
$ 8,605
$ 7,453
20%
37
17%
39
16%
39
(a) Includes total Firm revenue from investment banking products sold to
CB clients, net of revenue sharing with the CIB.
(b) Represents total Firm revenue from investment banking products sold
to CB clients. As a result of the adoption of the revenue recognition
guidance, prior period amounts have been revised to conform with the
current period presentation. For additional information, refer to Note
1.
72
JPMorgan Chase & Co./2018 Form 10-K
Selected metrics
As of or for the year ended
December 31, (in millions, except
ratios)
Credit data and quality statistics
2018
2017
2016
Net charge-offs/(recoveries)
$
53
$
39
$
163
Nonperforming assets
Nonaccrual loans:
Nonaccrual loans retained(a)
Nonaccrual loans held-for-sale
and loans at fair value
Total nonaccrual loans
Assets acquired in loan
satisfactions
Total nonperforming assets
Allowance for credit losses:
511
—
511
2
513
617
—
617
3
620
1,149
—
1,149
1
1,150
Allowance for loan losses
2,682
2,558
2,925
Allowance for lending-related
commitments
Total allowance for credit losses
254
2,936
300
2,858
248
3,173
Net charge-off/(recovery) rate(b)
0.03%
0.02%
0.09%
Allowance for loan losses to
period-end loans retained
Allowance for loan losses to
nonaccrual loans retained(a)
Nonaccrual loans to period-end
total loans
1.31
1.26
525
415
0.25
0.30
1.55
255
0.61
(a) Allowance for loan losses of $92 million, $92 million and $155 million
was held against nonaccrual loans retained at December 31, 2018,
2017 and 2016, respectively.
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
Selected metrics
As of or for the year ended
December 31, (in millions,
except headcount)
Selected balance sheet data
(period-end)
Total assets
Loans:
2018
2017
2016
$ 220,229
$ 221,228
$ 214,341
Loans retained
204,219
202,400
188,261
Loans held-for-sale and
loans at fair value
Total loans
Core loans
Equity
Period-end loans by client
segment
1,978
1,286
734
$ 206,197
$ 203,686
$ 188,995
206,039
203,469
188,673
20,000
20,000
16,000
Middle Market Banking
$ 56,656
$ 56,965
$ 53,929
Corporate Client Banking
Commercial Term Lending
Real Estate Banking
Other
Total Commercial Banking
loans
Selected balance sheet data
(average)
Total assets
Loans:
48,343
76,720
17,563
6,915
46,963
74,901
17,796
7,061
43,027
71,249
14,722
6,068
$ 206,197
$ 203,686
$ 188,995
$ 218,259
$ 217,047
$ 207,532
Loans retained
204,243
197,203
178,670
Loans held-for-sale and
loans at fair value
Total loans
Core loans
Client deposits and other
third-party liabilities
Equity
Average loans by client
segment
1,258
909
723
$ 205,501
$ 198,112
$ 179,393
205,320
197,846
178,875
170,901
177,018
174,396
20,000
20,000
16,000
Middle Market Banking
$ 57,092
$ 55,474
$ 52,242
Corporate Client Banking
Commercial Term Lending
Real Estate Banking
Other
Total Commercial Banking
loans
47,780
75,694
17,808
7,127
46,037
73,428
16,525
6,648
41,756
66,700
13,063
5,632
$ 205,501
$ 198,112
$ 179,393
Headcount(a)
11,042
10,061
9,352
(a) Effective in the first quarter of 2018, certain Operations and
Compliance staff were transferred from CCB and Corporate,
respectively, to CB. The prior period amounts have been revised to
conform with the current period presentation. For a further discussion
of this transfer, refer to page 71, Selected income statement data,
footnote (c).
JPMorgan Chase & Co./2018 Form 10-K
73
Management’s discussion and analysis
ASSET & WEALTH MANAGEMENT
Asset & Wealth Management, with client assets of $2.7
trillion, is a global leader in investment and wealth
management. AWM clients include institutions, high-
net-worth individuals and retail investors in many
major markets throughout the world. AWM offers
investment management across most major asset
classes including equities, fixed income, alternatives
and money market funds. AWM also offers multi-asset
investment management, providing solutions for a
broad range of clients’ investment needs. For Wealth
Management clients, AWM also provides retirement
products and services, brokerage and banking services
including trusts and estates, loans, mortgages and
deposits. The majority of AWM’s client assets are in
actively managed portfolios.
Effective January 1, 2018, the Firm adopted several new
accounting standards; the guidance which had the most
significant impact on the AWM segment results was revenue
recognition. The revenue recognition guidance was applied
retrospectively and, accordingly, prior period amounts were
revised. For additional information, refer to Note 1.
Selected income statement data
Year ended December 31,
(in millions, except ratios
and headcount)
2018
2017
2016
Revenue
Asset management, administration
and commissions
All other income
Noninterest revenue
Net interest income
Total net revenue
$10,171
$ 9,856
$ 9,187
368
600
10,539
10,456
3,537
3,379
602
9,789
3,033
14,076
13,835
12,822
Provision for credit losses
53
39
26
Noninterest expense
Compensation expense
Noncompensation expense
5,495
4,858
5,317
4,901
Total noninterest expense
10,353
10,218
Income before income tax expense
3,670
3,578
1,241
817
5,063
4,192
9,255
3,541
1,290
Income tax expense
Net income
Revenue by line of business
Asset Management
Wealth Management
Total net revenue
Financial ratios
Return on common equity
Overhead ratio
Pre-tax margin ratio:
Asset Management
Wealth Management
Asset & Wealth Management
$ 2,853
$ 2,337
$ 2,251
$ 7,163
$ 7,257
$ 6,747
6,913
6,578
6,075
$14,076
$ 13,835
$ 12,822
31%
74
25%
74
24%
72
26
26
26
22
30
26
27
28
28
2018 compared with 2017
Net income was $2.9 billion, an increase of 22%.
Net revenue was $14.1 billion, an increase of 2%. Net
interest income was $3.5 billion, up 5%, driven by deposit
margin expansion and loan growth. Noninterest revenue
was $10.5 billion, up 1%, driven by higher management
fees on higher average market levels and the cumulative
impact of net inflows, predominantly offset by fee
compression, lower investment valuations and lower
performance fees.
Revenue from Asset Management was $7.2 billion, down
1%, driven by lower investment valuations, fee
compression and lower performance fees, predominantly
offset by higher management fees on higher average
market levels and the cumulative impact of net inflows.
Revenue from Wealth Management was $6.9 billion, up 5%,
reflecting higher management fees on the cumulative
impact of net inflows and higher average market levels as
well as higher net interest income from deposit margin
expansion and continued loan growth, partially offset by fee
compression.
Noninterest expense was $10.4 billion, an increase of 1%,
driven by investments in advisors and technology and
higher external fees on revenue growth, largely offset by
lower legal expense.
2017 compared with 2016
Net income was $2.3 billion, an increase of 4% compared
with the prior year, reflecting higher revenue and a tax
benefit resulting from the vesting of employee share-based
awards, offset by higher noninterest expense.
Net revenue was $13.8 billion, an increase of 8%. Net
interest income was $3.4 billion, up 11%, driven by higher
deposit spreads. Noninterest revenue was $10.5 billion, up
7%, driven by higher market levels, partially offset by the
absence of a gain in the prior year on the disposal of an
asset.
Revenue from Asset Management was $7.3 billion, up 8%
from the prior year, driven by higher market levels, partially
offset by the absence of a gain in prior year on the disposal
of an asset.
Revenue from Wealth Management was $6.6 billion, up 8%
from the prior year, reflecting higher net interest income
from higher deposit spreads.
Noninterest expense was $10.2 billion, an increase of 10%,
predominantly driven by higher legal expense and
compensation expense on higher revenue and headcount.
Headcount
23,920
22,975
21,082
Number of Wealth Management
client advisors
2,865
2,605
2,504
74
JPMorgan Chase & Co./2018 Form 10-K
AWM’s lines of business consist of the following:
Asset Management provides comprehensive global investment
services, including asset management, pension analytics, asset-liability
management and active risk-budgeting strategies.
Wealth Management offers investment advice and wealth
management, including investment management, capital markets and
risk management, tax and estate planning, banking, lending and
specialty-wealth advisory services.
AWM’s client segments consist of the following:
Private Banking clients include high- and ultra-high-net-worth
individuals, families, money managers, business owners and small
corporations worldwide.
Institutional clients include both corporate and public institutions,
endowments, foundations, nonprofit organizations and governments
worldwide.
Retail clients include financial intermediaries and individual investors.
Asset Management has two high-level measures of its
overall fund performance.
• Percentage of mutual fund assets under management in funds
rated 4- or 5-star: Mutual fund rating services rank funds based on
their risk-adjusted performance over various periods. A 5-star rating
is the best rating and represents the top 10% of industry-wide ranked
funds. A 4-star rating represents the next 22.5% of industry-wide
ranked funds. A 3-star rating represents the next 35% of industry-
wide ranked funds. A 2-star rating represents the next 22.5% of
industry-wide ranked funds. A 1-star rating is the worst rating and
represents the bottom 10% of industry-wide ranked funds. The
“overall Morningstar rating” is derived from a weighted average of the
performance associated with a fund’s three-, five- and ten-year (if
applicable) Morningstar Rating metrics. For U.S. domiciled funds,
separate star ratings are given at the individual share class level. The
Nomura “star rating” is based on three-year risk-adjusted
performance only. Funds with fewer than three years of history are
not rated and hence excluded from this analysis. All ratings, the
assigned peer categories and the asset values used to derive this
analysis are sourced from these fund rating providers mentioned in
footnote (a). The data providers re-denominate the asset values into
U.S. dollars. This % of AUM is based on star ratings at the share class
level for U.S. domiciled funds, and at a “primary share class” level to
represent the star rating of all other funds except for Japan where
Nomura provides ratings at the fund level. The “primary share class”,
as defined by Morningstar, denotes the share class recommended as
being the best proxy for the portfolio and in most cases will be the
most retail version (based upon annual management charge,
minimum investment, currency and other factors). The performance
data could have been different if all funds/accounts would have been
included. Past performance is not indicative of future results.
• Percentage of mutual fund assets under management in funds
ranked in the 1st or 2nd quartile (one, three and five years): All
quartile rankings, the assigned peer categories and the asset values
used to derive this analysis are sourced from the fund ranking
providers mentioned in footnote (b). Quartile rankings are done on
the net-of-fee absolute return of each fund. The data providers re-
denominate the asset values into U.S. dollars. This % of AUM is based
on fund performance and associated peer rankings at the share class
level for U.S. domiciled funds, at a “primary share class” level to
represent the quartile ranking of the U.K., Luxembourg and Hong
Kong funds and at the fund level for all other funds. The “primary
share class”, as defined by Morningstar, denotes the share class
recommended as being the best proxy for the portfolio and in most
cases will be the most retail version (based upon annual management
charge, minimum investment, currency and other factors). Where
peer group rankings given for a fund are in more than one “primary
share class” territory both rankings are included to reflect local
market competitiveness (applies to “Offshore Territories” and “HK
SFC Authorized” funds only). The performance data could have been
different if all funds/accounts would have been included. Past
performance is not indicative of future results.
Selected metrics
As of or for the year ended
December 31,
(in millions, except ranking
data and ratios)
% of JPM mutual fund assets
rated as 4- or 5-star(a)
% of JPM mutual fund assets
ranked in 1st or 2nd
quartile:(b)
1 year
3 years
5 years
Selected balance sheet data
(period-end)
Total assets
Loans
Core loans
Deposits
Equity
Selected balance sheet data
(average)
Total assets
Loans
Core loans
Deposits
Equity
2018
2017
2016
58%
60%
63%
68
73
85
64
75
83
54
72
79
$ 170,024
$ 151,909
$ 138,384
147,632
130,640
147,632
130,640
138,546
146,407
9,000
9,000
118,039
118,039
161,577
9,000
$ 160,269
$ 144,206
$ 132,875
138,622
123,464
138,622
123,464
137,272
148,982
9,000
9,000
112,876
112,876
153,334
9,000
Credit data and quality
statistics
Net charge-offs
Nonaccrual loans
Allowance for credit losses:
Allowance for loan losses
Allowance for lending-
related commitments
Total allowance for credit
losses
$
10
$
14
$
263
326
16
342
375
290
10
300
Net charge-off rate
0.01%
0.01%
Allowance for loan losses to
period-end loans
Allowance for loan losses to
nonaccrual loans
Nonaccrual loans to period-
end loans
0.22
124
0.18
0.22
77
0.29
16
390
274
4
278
0.01%
0.23
70
0.33
(a) Represents the “overall star rating” derived from Morningstar for the
U.S., the U.K., Luxembourg, Hong Kong and Taiwan domiciled funds;
and Nomura “star rating” for Japan domiciled funds. Includes only
Asset Management retail open-ended mutual funds that have a rating.
Excludes money market funds, Undiscovered Managers Fund, and
Brazil domiciled funds.
(b) Quartile ranking sourced from: Lipper for the U.S. and Taiwan
domiciled funds; Morningstar for the U.K., Luxembourg and Hong Kong
domiciled funds; Nomura for Japan domiciled funds and Fund Doctor
for South Korea domiciled funds. Includes only Asset Management
retail open-ended mutual funds that are ranked by the aforementioned
sources. Excludes money market funds, Undiscovered Managers Fund,
and Brazil domiciled funds.
JPMorgan Chase & Co./2018 Form 10-K
75
Management’s discussion and analysis
Client assets
2018 compared with 2017
Client assets were $2.7 trillion, a decrease of 2%. Assets
under management were $2.0 trillion, a decrease of 2%
reflecting lower spot market levels, largely offset by net
inflows into liquidity and long-term products.
2017 compared with 2016
Client assets were $2.8 trillion, an increase of 14%
compared with the prior year. Assets under management
were $2.0 trillion, an increase of 15% from the prior year
reflecting higher market levels, and net inflows into long-
term and liquidity products.
Client assets
December 31,
(in billions)
Assets by asset class
Liquidity
Fixed income
Equity
Multi-asset and alternatives
2018
2017
2016
$
480 $
459 $
464
384
659
474
428
673
436
420
351
564
Total assets under management
1,987
2,034
1,771
Custody/brokerage/
administration/deposits
746
755
682
Total client assets
$
2,733 $
2,789 $
2,453
Memo:
Alternatives client assets(a)
Assets by client segment
Private Banking
Institutional
Retail
$
$
171 $
166 $
154
552 $
526 $
926
509
968
540
435
869
467
Client assets (continued)
Year ended December 31,
(in billions)
Assets under management
rollforward
Beginning balance
Net asset flows:
Liquidity
Fixed income
Equity
Multi-asset and alternatives
2018
2017
2016
$
2,034 $
1,771 $
1,723
31
(1)
2
24
9
36
(11)
43
186
24
30
(29)
22
1
Market/performance/other impacts
(103)
Ending balance, December 31
$
1,987 $
2,034 $
1,771
Client assets rollforward
Beginning balance
Net asset flows
Market/performance/other impacts
$
2,789 $
2,453 $
2,350
88
(144)
93
243
63
40
Ending balance, December 31
$
2,733 $
2,789 $
2,453
International metrics
Year ended December 31,
(in billions, except where otherwise
noted)
Total net revenue (in millions)(a)
2018
2017
2016
Europe/Middle East/Africa
$
2,721 $
2,715 $
2,425
Asia/Pacific
Latin America/Caribbean
Total international net revenue
1,518
904
5,143
1,385
844
4,944
1,278
726
4,429
North America
Total net revenue
8,933
8,891
8,393
$ 14,076 $ 13,835 $ 12,822
Total assets under management $
1,987 $
2,034 $
1,771
Assets under management
Private Banking
Institutional
Retail
$
1,274 $
1,256 $
1,098
946
513
990
543
886
469
Total client assets
$
2,733 $
2,789 $
2,453
(a) Represents assets under management, as well as client balances in
brokerage accounts.
Europe/Middle East/Africa
$
355 $
384 $
Asia/Pacific
Latin America/Caribbean
Total international assets under
management
162
63
580
160
61
605
309
123
45
477
North America
1,407
1,429
1,294
Total assets under management
$
1,987 $
2,034 $
1,771
Client assets
Europe/Middle East/Africa
$
414 $
441 $
Asia/Pacific
Latin America/Caribbean
Total international client assets
222
155
791
225
154
820
359
177
114
650
North America
Total client assets
1,942
1,969
1,803
$
2,733 $
2,789 $
2,453
(a) Regional revenue is based on the domicile of the client.
76
JPMorgan Chase & Co./2018 Form 10-K
2018 compared with 2017
Net loss was $1.2 billion.
Net revenue was a loss of $128 million, compared with net
revenue of $1.1 billion in the prior year. The current year
includes markdowns on certain legacy private equity
investments and investment securities losses related to the
repositioning of the investment securities portfolio, partially
offset by higher net interest income primarily driven by
higher rates. The prior year included a $645 million benefit
from a legal settlement.
Noninterest expense of $902 million includes a pre-tax loss
of $174 million on the liquidation of a legal entity recorded
in the second quarter of 2018, as well as investments in
technology and real estate.
Current period income tax expense reflects a net benefit of
$302 million resulting from changes in estimates under the
TCJA related to the remeasurement of certain deferred
taxes and the deemed repatriation tax on non-U.S. earnings.
This amount was more than offset by changes to certain tax
reserves and other tax adjustments. The prior year income
tax expense included a $2.7 billion expense related to the
impact of the TCJA.
2017 compared with 2016
Net loss was $1.6 billion, compared with a net loss of $704
million in the prior year. The current year net loss included
a $2.7 billion increase to income tax expense related to the
impact of the TCJA.
Net revenue was $1.1 billion, compared with a loss of $487
million in the prior year. The increase in current year net
revenue was driven by a $645 million benefit from a legal
settlement with the FDIC receivership for Washington
Mutual and with Deutsche Bank as trustee of certain
Washington Mutual trusts and by the net impact of higher
interest rates.
Net interest income was $55 million, compared with a loss
of $1.4 billion in the prior year. The gain in the current year
was primarily driven by higher interest income on deposits
with banks due to higher interest rates and balances,
partially offset by higher interest expense on long-term
debt primarily driven by higher interest rates.
CORPORATE
The Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff functions and expense that is centrally
managed. Treasury and CIO is predominantly
responsible for measuring, monitoring, reporting and
managing the Firm’s liquidity, funding, capital,
structural interest rate and foreign exchange risks. The
major Other Corporate functions include Real Estate,
Technology, Legal, Corporate Finance, Human
Resources, Internal Audit, Risk Management,
Compliance, Control Management, Corporate
Responsibility and various Other Corporate groups.
Selected income statement and balance sheet data
Year ended December 31,
(in millions, except headcount)
2018
2017
2016
Revenue
Principal transactions
Securities gains/(losses)
All other income/(loss)(a)
Noninterest revenue
Net interest income
Total net revenue(b)
Provision for credit losses
Noninterest expense(c)
Income/(loss) before income
tax benefit
Income tax expense/(benefit)
Net income/(loss)
Total net revenue
Treasury and CIO
Other Corporate
Total net revenue
Net income/(loss)
Treasury and CIO
Other Corporate
Total net income/(loss)
$
(426) $
(395)
558
(263)
135
(128)
(4)
902
(1,026)
284
(66)
867
1,085
55
1,140
—
501
639
215
2,282
$ (1,241) $ (1,643) $
510
(638)
(128) $
566
574
1,140
$
$
(69)
(1,172)
60
(1,703)
$ (1,241) $ (1,643) $
$
210
140
588
938
(1,425)
(487)
(4)
462
(945)
(241)
(704)
(787)
300
(487)
(715)
11
(704)
Total assets (period-end)
Loans (period-end)
Core loans(d)
Headcount(e)
$771,787
1,597
1,597
37,145
$ 781,478
1,653
1,653
34,601
$ 799,426
1,592
1,589
31,789
(a) Included revenue related to a legal settlement of $645 million for the year
ended December 31, 2017.
(b) Included tax-equivalent adjustments, driven by tax-exempt income from
municipal bond investments, of $382 million, $905 million and $885
million for the years ended December 31, 2018, 2017 and 2016,
respectively. The decrease in taxable-equivalent adjustments reflects the
impact of the TCJA.
(c) Included legal expense/(benefit) of $(241) million, $(593) million and
$(385) million for the years ended December 31, 2018, 2017 and 2016,
respectively.
(d) Average core loans were $1.7 billion, $1.6 billion and $1.9 billion for the
years ended December 31, 2018, 2017 and 2016, respectively.
(e) Effective in the first quarter of 2018, certain Compliance staff were
transferred from Corporate to CB. The prior period amounts have been revised
to conform with the current period presentation. For a further discussion of
this transfer, refer to CB segment results on page 71.
JPMorgan Chase & Co./2018 Form 10-K
77
Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions)
2018
2017
2016
Investment securities gains/
(losses)
Available-for-sale (“AFS”)
investment securities
(average)
Held-to-maturity (“HTM”)
investment securities
(average)
Investment securities portfolio
(average)
AFS investment securities
(period-end)
HTM investment securities
(period-end)
Investment securities portfolio
(period–end)
$
(395) $
(78) $
132
203,449
219,345
226,892
31,747
47,927
51,358
235,197
267,272
278,250
228,681
200,247
236,670
31,434
47,733
50,168
260,115
247,980
286,838
As permitted by the new hedge accounting guidance, the Firm elected to
transfer certain investment securities from HTM to AFS in the first quarter
of 2018. For additional information, refer to Notes 1 and 10.
Management’s discussion and analysis
Treasury and CIO overview
Treasury and CIO is predominantly responsible for
measuring, monitoring, reporting and managing the Firm’s
liquidity, funding, capital, structural interest rate and
foreign exchange risks. The risks managed by Treasury and
CIO arise from the activities undertaken by the Firm’s four
major reportable business segments to serve their
respective client bases, which generate both on- and off-
balance sheet assets and liabilities.
Treasury and CIO seek to achieve the Firm’s asset-liability
management objectives generally by investing in high-
quality securities that are managed for the longer-term as
part of the Firm’s investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm’s asset-
liability management objectives. For further information on
derivatives, refer to Note 5. In addition, Treasury and CIO
manage the Firm’s cash position primarily through
depositing at central banks and investing in short-term
instruments. For further information on liquidity and
funding risk, refer to Liquidity Risk Management on pages
95–100. For information on interest rate, foreign exchange
and other risks, refer to Market Risk Management on pages
124–131.
The investment securities portfolio primarily consists of
agency and nonagency mortgage-backed securities, U.S.
and non-U.S. government securities, obligations of U.S.
states and municipalities, other ABS and corporate debt
securities. At December 31, 2018, the investment securities
portfolio was $260.1 billion, and the average credit rating
of the securities comprising the portfolio was AA+ (based
upon external ratings where available and, where not
available, based primarily upon internal ratings that
correspond to ratings as defined by S&P and Moody’s).
Refer to Note 10 for further information on the Firm’s
investment securities portfolio.
78
JPMorgan Chase & Co./2018 Form 10-K
ENTERPRISE-WIDE RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chase’s business
activities. When the Firm extends a consumer or wholesale
loan, advises customers on their investment decisions,
makes markets in securities, or offers other products or
services, the Firm takes on some degree of risk. The Firm’s
overall objective is to manage its businesses, and the
associated risks, in a manner that balances serving the
interests of its clients, customers and investors and protects
the safety and soundness of the Firm.
The Firm believes that effective risk management requires:
• Acceptance of responsibility, including identification and
escalation of risk issues, by all individuals within the
Firm;
• Ownership of risk identification, assessment, data and
management within each of the lines of business and
Corporate; and
• Firmwide structures for risk governance.
The Firm strives for continual improvement through efforts
to enhance controls, ongoing employee training and
development, talent retention, and other measures. The
Firm follows a disciplined and balanced compensation
framework with strong internal governance and
independent Board oversight. The impact of risk and control
issues are carefully considered in the Firm’s performance
evaluation and incentive compensation processes.
Firmwide Risk Management is overseen and managed on an
enterprise-wide basis. The Firm’s risk management
governance and oversight framework involves
understanding drivers of risks, types of risks, and impacts of
risks.
Drivers of Risks
Drivers of risks include, but are not limited to, the economic
environment, regulatory or government policy, competitor
or market evolution, business decisions, process or
judgment error, deliberate wrongdoing, dysfunctional
markets, and natural disasters.
JPMorgan Chase & Co./2018 Form 10-K
Types of Risks
The Firm’s risks are generally categorized in the following
four risk types:
• Strategic risk is the risk associated with the Firm’s
current and future business plans and objectives,
including capital risk, liquidity risk, and the impact to
the Firm’s reputation.
• Credit and investment risk is the risk associated with the
default or change in credit profile of a client,
counterparty or customer; or loss of principal or a
reduction in expected returns on investments, including
consumer credit risk, wholesale credit risk, and
investment portfolio risk.
• Market risk is the risk associated with the effect of
changes in market factors, such as interest and foreign
exchange rates, equity and commodity prices, credit
spreads or implied volatilities, on the value of assets and
liabilities held for both the short and long term.
• Operational risk is the risk associated with inadequate or
failed internal processes, people and systems, or from
external events and includes compliance risk, conduct
risk, legal risk, and estimations and model risk.
Impacts of Risks
There may be many consequences of risks manifesting,
including quantitative impacts such as reduction in earnings
and capital, liquidity outflows, and fines or penalties, or
qualitative impacts, such as reputation damage, loss of
clients, and regulatory and enforcement actions.
Governance and Oversight Functions
The Firm manages its risk through risk governance and
oversight functions. The scope of a particular function may
include one or more drivers, types and/or impacts of risk.
For example, Country Risk Management oversees country
risk which may be a driver of risk or an aggregation of
exposures that could give rise to multiple risk types such as
credit or market risk.
The following sections discusses the risk governance and
oversight functions in place to manage the risks inherent in
the Firms business activities.
Risk governance and oversight functions
Strategic risk
Capital risk
Liquidity risk
Reputation risk
Consumer credit risk
Wholesale credit risk
Investment portfolio risk
Market risk
Country risk
Operational risk
Compliance risk
Conduct risk
Legal risk
Estimations and Model risk
Page
84
85–94
95–100
101
106-111
112-119
123
124-131
132–133
134-136
137
138
139
140
79
Management’s discussion and analysis
Governance and oversight
The Firm’s overall appetite for risk is governed by a “Risk
Appetite” framework. The framework and the Firm’s risk
appetite are set and approved by the Firm’s Chief Executive
Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief
Risk Officer (“CRO”). LOB-level risk appetite is set by the
respective LOB CEO, CFO and CRO and is approved by the
Firm’s CEO, CFO and CRO. Quantitative parameters and
qualitative factors are used to monitor and measure the
Firm’s capacity to take risk consistent with its stated risk
appetite. Quantitative parameters have been established to
assess select strategic risks, credit risks and market risks.
Qualitative factors have been established to assess select
operational risks, and impact to the Firm’s reputation. Risk
Appetite results are reported quarterly to the Board of
Directors’ Risk Policy Committee (“DRPC”).
The Firm has an Independent Risk Management (“IRM”)
function, which consists of the Risk Management and
Compliance organizations. The CEO appoints, subject to
DRPC approval, the Firm’s CRO to lead the IRM organization
and manage the risk governance structure of the Firm. The
framework is subject to approval by the DRPC in the form of
the primary risk management policies. The Firm’s CRO
oversees and delegates authorities to LOB CROs, Firmwide
Risk Executives (“FREs”), and the Firm’s Chief Compliance
Officer (“CCO”). The CCO oversees and delegates authorities
to the LOB CCOs, and is responsible for the creation and
effective execution of the Global Compliance Program.
The Firm places reliance on each of its LOBs and other
functional areas giving rise to risk to operate within the
parameters identified by the IRM function, and within its
own management-identified risk and control standards.
Each LOB and Treasury and CIO, inclusive of their aligned
Operations, Technology and Control Management are
considered the “first line of defense” and owns the
identification of risks, as well as the design and execution of
controls, inclusive of IRM-specified controls, to manage
those risks. The first line of defense is responsible for
adherence to applicable laws, rules, and regulations and for
the implementation of the risk management structure
(which may include policy, standards, limits, thresholds and
controls) established by IRM.
The IRM function is independent of the businesses and is
“the second line of defense”. The IRM function sets and
oversees the risk management structure for firmwide risk
governance, and independently assesses and challenges the
first line of defense risk management practices. IRM is also
responsible for its own adherence to applicable laws, rules,
regulations and for the implementation of policies and
standards established by IRM with respect to its own
processes.
The Internal Audit function operates independently from
other parts of the Firm and performs independent testing
and evaluation of processes and controls across the entire
enterprise as the Firm’s “third line of defense”. The Internal
Audit Function is headed by the General Auditor, who
reports to the Audit Committee.
In addition, there are other functions that contribute to the
firmwide control environment including Finance, Human
Resources, Legal, and Control Management.
80
JPMorgan Chase & Co./2018 Form 10-K
The independent status of the IRM function is supported by a governance structure that provides for escalation of risk issues to
senior management, the Firmwide Risk Committee, and the Board of Directors, as appropriate.
The chart below illustrates the Board of Directors and key senior management level committees in the Firm’s risk governance
structure. In addition, there are other committees, forums and paths of escalation that support the oversight of risk which are
not shown in the chart below.
The Firm’s Operating Committee, which consists of the
Firm’s CEO, CRO, CFO and other senior executives, is
accountable to and may refer matters to the Firm’s Board of
Directors. The Operating Committee is responsible to
escalate to the Board the information necessary to facilitate
the Board’s exercise of its duties.
The Board of Directors provides oversight of risk. The DRPC
is the principal committee that oversees risk matters. The
Audit Committee oversees the control environment, and the
Compensation & Management Development Committee
oversees compensation and other management-related
matters. Each committee of the Board oversees reputation
risk and/or conduct risk issues within its scope of
responsibility.
The Directors’ Risk Policy Committee of the Board assists the
board in its oversight of the Firm’s global risk management
framework and approves the primary risk management
policies of the Firm. The Committee’s responsibilities
include oversight of management’s exercise of its
responsibility to assess and manage the Firm’s risks, and its
capital and liquidity planning and analysis. Breaches in risk
appetite, capital and liquidity issues that may have a
material adverse impact on the Firm and other significant
risk-related matters are escalated to the DRPC.
JPMorgan Chase & Co./2018 Form 10-K
81
Management’s discussion and analysis
The Audit Committee of the Board assists the Board in its
oversight of management’s responsibilities to assure that
there is an effective system of controls reasonably designed
to safeguard the assets and income of the Firm, assure the
integrity of the Firm’s financial statements and maintain
compliance with the Firm’s ethical standards, policies, plans
and procedures, and with laws and regulations. In addition,
the Audit Committee assists the Board in its oversight of the
Firm’s independent registered public accounting firm’s
qualifications, independence and performance, and of the
performance of the Firm’s Internal Audit function.
The Compensation & Management Development Committee
(“CMDC”) of the Board assists the Board in its oversight of
the Firm’s compensation programs and reviews and
approves the Firm’s overall compensation philosophy,
incentive compensation pools, and compensation practices
consistent with key business objectives and safety and
soundness. The CMDC reviews Operating Committee
members’ performance against their goals, and approves
their compensation awards. The CMDC also periodically
reviews the Firm’s diversity programs and management
development and succession planning, and provides
oversight of the Firm’s culture, including reviewing
management updates regarding significant conduct issues
and any related employee actions, including but not limited
to compensation actions.
The Public Responsibility Committee of the Board assists the
Board in its oversight of the Firm's positions and practices
on public responsibility matters such as community
investment, fair lending, sustainability, consumer practices
and other public policy issues that reflect the Firm's values
and character and impact the Firm's reputation among all of
its stakeholders. The Committee also provides guidance on
these matters to management and the Board as
appropriate.
Among the Firm’s senior management-level committees that
are primarily responsible for key risk-related functions are:
The Firmwide Risk Committee (“FRC”) is the Firm’s highest
management-level risk committee. It provides oversight of
the risks inherent in the Firm’s businesses. The FRC is co-
chaired by the Firm’s CEO and CRO. The FRC serves as an
escalation point for risk topics and issues raised by its
members, the Line of Business Risk Committees, Firmwide
Control Committee, Firmwide Fiduciary Risk Governance
Committee, Firmwide Estimations Risk Committee, Conduct
Risk Steering Committee and Regional Risk Committees, as
appropriate. The FRC escalates significant issues to the
DRPC, as appropriate.
The Firmwide Control Committee (“FCC”) provides a forum
for senior management to review and discuss firmwide
operational risks, including existing and emerging issues
and operational risk metrics, and to review operational risk
management execution in the context of the Operational
Risk Management Framework (“ORMF”). The ORMF provides
the framework for the governance, risk identification and
assessment, measurement, monitoring and reporting of
operational risk. The FCC is co-chaired by the Chief Control
Manager and the Firmwide Risk Executive for Operational
Risk Management. The FCC relies on the prompt escalation
of operational risk and control issues from businesses and
functions as the primary owners of the operational risk.
Operational risk and control issues may be escalated by
business or function control committees to the FCC, which in
turn, may escalate to the FRC, as appropriate.
The Firmwide Fiduciary Risk Governance Committee
(“FFRGC”) is a forum for risk matters related to the Firm’s
fiduciary activities. The FFRGC oversees the governance
framework for fiduciary risk inherent in each of the Firm’s
LOBs. The governance framework supports the consistent
identification and escalation of fiduciary risk or fiduciary
related conflict of interest risk. The FFRGC approves risk or
compliance policy exceptions and reviews periodic reports
from the LOBs and control functions including fiduciary
metrics and control trends. The FFRGC is co-chaired by the
Wealth Management CEO and the Asset & Wealth
Management CRO. The FFRGC escalates significant fiduciary
issues to the FRC, the DRPC and the Audit Committee, as
appropriate.
The Firmwide Estimations Risk Committee (“FERC”) reviews
and oversees governance and execution activities related to
quantitative and qualitative estimations, such as those used
in risk management, budget forecasting and capital
planning and analysis. The FERC is chaired by the Firmwide
Risk Executive for Model Risk Governance and Review. The
FERC serves as an escalation channel for relevant topics and
issues raised by its members and the Line of Business
Estimation Risk Committees. The FERC escalates significant
issues to the FRC, as appropriate.
The Conduct Risk Steering Committee (“CRSC”) provides
oversight of the Firm’s conduct initiatives to develop a more
holistic view of conduct risks and to connect key programs
across the Firm to identify opportunities and emerging
areas of focus. The CRSC is co-chaired by the Conduct Risk
Compliance Executive and the Human Resources Chief
Administrative Officer. The CRSC may escalate systemic
conduct risk issues to the FRC and as appropriate to the
DRPC.
Line of Business and Regional Risk Committees review the
ways in which the particular line of business or the business
operating in a particular region could be exposed to adverse
outcomes with a focus on identifying, accepting, escalating
and/or requiring remediation of matters brought to these
committees. These committees may escalate matters to the
FRC, as appropriate. LOB risk committees are co-chaired by
the LOB CEO and the LOB CRO. Each LOB risk committee
may create sub-committees with requirements for
escalation. The regional committees are established
similarly, as appropriate, for the region.
Line of Business and Corporate Control Committees oversee
the control environment of their respective business or
function. As part of that mandate, they are responsible for
reviewing data that indicates the quality and stability of the
82
JPMorgan Chase & Co./2018 Form 10-K
processes in a business or function, addressing key
operational risk issues, focusing on processes with control
concerns and overseeing control remediation. These
committees escalate issues to the FCC, as appropriate.
The Firmwide Asset and Liability Committee (“ALCO”), chaired
by the Firm’s Treasurer and Chief Investment Officer, is
responsible for overseeing the Firm’s asset and liability
management (“ALM”) activities and the management of
liquidity risk, balance sheet, interest rate risk, and capital
risk. The ALCO is supported by the Treasurer Committee and
the Capital Governance Committee. The Treasurer
Committee is responsible for monitoring the Firm’s overall
balance sheet, liquidity risk and interest rate risk. The
Capital Governance Committee is responsible for overseeing
the Firm’s strategic end-to-end capital management and
governance framework, including capital planning, capital
strategy, and the implementation of regulatory capital
requirements.
The Firmwide Valuation Governance Forum (“VGF”) is
composed of senior finance and risk executives and is
responsible for overseeing the management of fair value
risks arising from valuation activities conducted across the
Firm. The VGF is chaired by the Firmwide head of the
Valuation Control Group (“VCG”) under the direction of the
Firm’s Controller, and includes sub-forums covering the
Corporate & Investment Bank, Consumer & Community
Banking, Commercial Banking, Asset & Wealth Management
and Corporate, including Treasury and CIO.
In addition, the JPMorgan Chase Bank, N.A. Board of
Directors is responsible for the oversight of management of
the bank. The JPMorgan Chase Bank, N.A. Board
accomplishes this function acting directly and through the
principal standing committees of the Firm’s Board of
Directors. Risk and control oversight on behalf of JPMorgan
Chase Bank N.A. is primarily the responsibility of the DRPC
and the Audit Committee of the Firm’s Board of Directors,
respectively, and, with respect to compensation and other
management-related matters, the Compensation &
Management Development Committee of the Firm’s Board
of Directors.
Risk Identification
The Firm has a Risk Identification process designed to
facilitate the first line of defense’s responsibility to identify
material risks inherent to the Firm, catalog them in a
central repository and review the most material risks on a
regular basis. The second line of defense reviews and
challenges the first line’s identification of risks, maintains
the central repository and provides the consolidated
Firmwide results to the FRC and DRPC.
JPMorgan Chase & Co./2018 Form 10-K
83
The Firm’s balance sheet strategy, which focuses on risk-
adjusted returns, strong capital and robust liquidity, is key
to management of strategic risk. For further information on
capital risk, refer to Capital Risk Management on pages
85-94. For further information on liquidity risk, refer to
Liquidity Risk Management on pages 95–100
For further information on reputation risk, refer to
Reputation Risk Management on page 101.
Governance and oversight
On at least an annual basis, the Firm’s Operating Committee
defines the most significant strategic priorities and
initiatives, including those of the Firm, the LOBs and
Corporate, for the coming year and evaluates performance
against the prior year. As part of the strategic planning
process, IRM conducts a qualitative assessment of those
significant initiatives to determine the impact on the risk
profile of the Firm. The Firm’s priorities, initiatives and
IRM’s assessment are provided to the Board for its review.
As part of its ongoing oversight and management of risk
across the Firm, IRM is regularly engaged in significant
discussions and decision-making across the Firm, including
decisions to pursue new business opportunities or modify
or exit existing businesses.
Management’s discussion and analysis
STRATEGIC RISK MANAGEMENT
Strategic risk is the risk associated with the Firm’s current
and future business plans and objectives. Strategic risk
includes the risk to current or anticipated earnings, capital,
liquidity, enterprise value, or the Firm’s reputation arising
from adverse business decisions, poor implementation of
business decisions, or lack of responsiveness to changes in
the industry or external environment.
Overview
The Operating Committee and the senior leadership of each
LOB and Corporate are responsible for managing the Firm’s
most significant strategic risks. Strategic risks are overseen
by IRM through participation in business reviews, LOB and
Corporate senior management committees, ongoing
management of the Firm’s risk appetite and limit
framework, and other relevant governance forums. The
Board of Directors oversees management’s strategic
decisions, and the DRPC oversees IRM and the Firm’s risk
management framework.
The Firm’s strategic planning process, which includes the
development and execution of strategic priorities and
initiatives by the Operating Committee and the
management teams of the lines of business and Corporate,
is an important process for managing the Firm’s strategic
risk. Guided by the Firm’s How We Do Business Principles
(the “Principles”), the strategic priorities and initiatives are
updated annually and include evaluating performance
against prior year initiatives, assessment of the operating
environment, refinement of existing strategies and
development of new strategies.
These strategic priorities and initiatives are then
incorporated in the Firm’s budget, and are reviewed by the
Board of Directors.
In the process of developing the strategic initiatives, line of
business and Corporate leadership identify the strategic
risks associated with their strategic initiatives and those
risks are incorporated into the Firmwide Risk Identification
process and monitored and assessed as part of the
Firmwide Risk Appetite framework. For further information
on Risk Identification, refer to Enterprise-Wide Risk
Management on page 79. For further information on the
Risk Appetite framework, refer to Enterprise-Wide Risk
Management on page 80.
84
JPMorgan Chase & Co./2018 Form 10-K
CAPITAL RISK MANAGEMENT
Capital risk is the risk the Firm has an insufficient level and
composition of capital to support the Firm’s business
activities and associated risks during normal economic
environments and under stressed conditions.
A strong capital position is essential to the Firm’s business
strategy and competitive position. Maintaining a strong
balance sheet to manage through economic volatility is
considered a strategic imperative of the Firm’s Board of
Directors, CEO and Operating Committee. The Firm’s
fortress balance sheet philosophy focuses on risk-adjusted
returns, strong capital and robust liquidity. The Firm’s
capital risk management strategy focuses on maintaining
long-term stability to enable it to build and invest in
market-leading businesses, even in a highly stressed
environment. Senior management considers the
implications on the Firm’s capital prior to making any
significant decisions that could impact future business
activities. In addition to considering the Firm’s earnings
outlook, senior management evaluates all sources and uses
of capital with a view to ensuring the Firm’s capital
strength.
Capital management
Treasury & CIO assumed responsibility for capital
management in March 2018.
The primary objectives of effective capital management are
to:
• Maintain sufficient capital in order to continue to build
and invest in the Firm’s businesses through the cycle and
in stressed environments;
• Retain flexibility to take advantage of future investment
opportunities;
• Promote the Firm’s ability to serve as a source of
strength to its subsidiaries;
• Ensure the Firm operates above the minimum regulatory
capital ratios as well as maintain “well-capitalized”
status for the Firm and its insured depository institution
(“IDI”) subsidiaries at all times under applicable
regulatory capital requirements;
• Meet capital distribution objectives; and
• Maintain sufficient capital resources to operate
throughout a resolution period in accordance with the
Firm’s preferred resolution strategy.
The Firm meets these objectives through the establishment
of internal minimum capital requirements and a strong
capital management governance framework, both in
business as usual conditions and in the event of stress.
Capital risk management is intended to be flexible in order
to react to a range of potential events. In its management of
capital, the Firm takes into consideration economic risk and
all applicable regulatory capital requirements to determine
the level of capital needed.
The Firm’s minimum capital levels are based on the most
binding of three pillars: an internal assessment of the Firm’s
capital needs; an estimate of required capital under the
CCAR and other stress testing requirements; and Basel III
Fully Phased-In regulatory minimums. Where necessary,
each pillar may include a management-established buffer.
The capital governance framework requires regular
monitoring of the Firm’s capital positions, stress testing and
defining escalation protocols, both at the Firm and material
legal entity levels.
Contingency capital plan
The Firm’s contingency capital plan, which is approved by
the firmwide ALCO and the DRPC, establishes the capital
management framework for the Firm and specifies the
principles underlying the Firm’s approach towards capital
management in normal economic times and during stress.
The contingency capital plan defines how the Firm
calibrates its targeted capital levels and meets minimum
capital requirements, monitors the ongoing appropriateness
of planned distributions, and sets out the capital
contingency actions that must be taken or considered at
various levels of capital depletion during a period of stress.
Capital planning and stress testing
Comprehensive Capital Analysis and Review
The Federal Reserve requires large bank holding
companies, including the Firm, to submit on an annual basis
a capital plan that has been reviewed and approved by the
Board of Directors. The Federal Reserve uses the CCAR and
other stress testing processes to ensure that large BHCs
have sufficient capital during periods of economic and
financial stress, and have robust, forward-looking capital
assessment and planning processes in place that address
each BHC’s unique risks to enable it to absorb losses under
certain stress scenarios. Through CCAR, the Federal Reserve
evaluates each BHC’s capital adequacy and internal capital
adequacy assessment processes (“ICAAP”), as well as its
plans to make capital distributions, such as dividend
payments or stock repurchases.
On June 28, 2018, the Federal Reserve informed the Firm
that it did not object, on either a quantitative or qualitative
basis, to the Firm’s 2018 capital plan. For information on
actions taken by the Firm’s Board of Directors following the
2018 CCAR results, refer to Capital actions on pages 91-92.
Internal Capital Adequacy Assessment Process
Annually, the Firm prepares the ICAAP, which informs the
Board of Directors of the ongoing assessment of the Firm’s
processes for managing the sources and uses of capital as
well as compliance with supervisory expectations for capital
planning and capital adequacy. The Firm’s ICAAP integrates
stress testing protocols with capital planning. The Firm’s
Audit Committee is responsible for reviewing and approving
the capital stress testing control framework.
The CCAR and other stress testing processes assess the
potential impact of alternative economic and business
scenarios on the Firm’s earnings and capital. Economic
scenarios, and the parameters underlying those scenarios,
are defined centrally and applied uniformly across the
JPMorgan Chase & Co./2018 Form 10-K
85
Management’s discussion and analysis
businesses. These scenarios are articulated in terms of
macroeconomic factors, which are key drivers of business
results; global market shocks, which generate short-term
but severe trading losses; and idiosyncratic operational risk
events. The scenarios are intended to capture and stress
key vulnerabilities and idiosyncratic risks facing the Firm.
However, when defining a broad range of scenarios, actual
events can always be worse. Accordingly, management
considers additional stresses outside these scenarios, as
necessary. These results are reviewed by management and
the Board of Directors.
Capital management oversight
With the reorganization of the Capital Management group
into the Treasury and CIO organization, the Firm established
a Capital Management oversight function within the CTC risk
function. The CTC CRO, who reports to the Firm’s CRO, is
responsible for Firmwide Capital Management Oversight.
Capital Management’s Oversight responsibilities include:
• Establishing, calibrating and monitoring capital risk
limits and indicators, including capital risk appetite
tolerances;
• Performing independent assessment of the Firm’s capital
management activities; and
• Monitoring the Firm’s capital position and balance sheet
activities
In addition, the Basel Independent Review function (“BIR”),
which is now a part of the IRM function, conducts
independent assessments of the Firm’s regulatory capital
framework. These assessments are intended to ensure
compliance with the applicable regulatory capital rules in
support of senior management’s responsibility for
managing capital and for the DRPC’s oversight of
management in executing that responsibility.
Governance
Committees responsible for overseeing the Firm’s capital
management include the Capital Governance Committee,
the Treasurer Committee and the ALCO. Capital
management oversight is governed through the CTC risk
committee. In addition, the DRPC approves the Firm’s
capital management oversight policy and reviews and
recommends to the Board of Directors, for formal approval,
the Firm’s capital risk tolerances. For additional discussion
on the DRPC and the ALCO, refer to Enterprise-wide Risk
Management on pages 79-140.
Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements for the Firm’s national
banks, including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A. The U.S. capital requirements
generally follow the Capital Accord of the Basel Committee,
as amended from time to time.
Basel III Overview
Capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies (“BHC”)
and banks, including the Firm and its IDI subsidiaries. Basel
III sets forth two comprehensive approaches for calculating
RWA: a standardized approach (“Basel III Standardized”),
and an advanced approach (“Basel III Advanced”). Certain
of the requirements of Basel III were subject to phase-in
periods that began on January 1, 2014 and continued
through the end of 2018 (“transitional period”). While the
required capital remained subject to the transitional rules
during 2018, the Firm’s capital ratios as of December 31,
2018 were equivalent whether calculated on a transitional
or fully phased-in basis.
Basel III establishes capital requirements for calculating
credit risk RWA and market risk RWA, and in the case of
Basel III Advanced, operational risk RWA. Key differences in
the calculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches which
largely rely on the use of internal credit models and
parameters, whereas for Basel III Standardized, credit risk
RWA is generally based on supervisory risk-weightings
which vary primarily by counterparty type and asset class.
Market risk RWA is calculated on a generally consistent
basis between Basel III Standardized and Basel III
Advanced. In addition to the RWA calculated under these
methodologies, the Firm may supplement such amounts to
incorporate management judgment and feedback from its
regulators.
Basel III also includes a requirement for Advanced
Approach banking organizations, including the Firm, to
calculate the SLR. For additional information on the SLR,
refer to page 91.
Key Regulatory Developments
Banking supervisors globally continue to consider
refinements and enhancements to the Basel III capital
framework for financial institutions, and in December 2017,
the Basel Committee issued Basel III: Finalizing post-crisis
reforms (“Basel III Reforms”). The Basel Committee expects
national regulatory authorities to implement the Basel III
Reforms in the laws of their respective jurisdictions and to
require banking organizations subject to such laws to meet
most of the revised requirements by January 1, 2022, with
certain elements being phased in through January 1, 2027.
86
JPMorgan Chase & Co./2018 Form 10-K
In April 2018, the Federal Reserve proposed the
introduction of a stress buffer framework that would create
a single, integrated set of capital requirements by
combining the supervisory stress test results of the CCAR
assessment and those under the Dodd-Frank Act with
current point-in-time capital requirements. The U.S. banking
regulators will be proposing final requirements applicable
to U.S. financial institutions.
Risk-based Capital Regulatory Minimums
Also in April 2018, the Federal Reserve and the OCC
released a proposal to revise the enhanced supplementary
leverage ratio (“eSLR”) requirements applicable to the U.S.
global systemically important banks (“GSIBs”) and their IDIs
and to make conforming changes to the rules which are
applicable to U.S. GSIBs relating to TLAC and external long-
term debt that must satisfy certain eligibility criteria.
The following chart presents the Basel III minimum CET1 capital ratio during the transitional periods and on a fully phased-in
basis under the Basel III rules currently in effect.
The capital adequacy of the Firm and its IDI subsidiaries,
both during the transitional period and upon full phase-in,
is evaluated against the Basel III approach (Standardized or
Advanced) which, for each quarter, results in the lower
ratio. The Firm’s Basel III Standardized Fully Phased-In risk-
based ratios are currently more binding than the Basel III
Advanced Fully Phased-In risk-based ratios, and the Firm
expects that this will remain the case for the foreseeable
future.
Additional information regarding the Firm’s capital ratios, as
well as the U.S. federal regulatory capital standards to
which the Firm is subject, is presented in Note 26. For
further information on the Firm’s Basel III measures, refer
to the Firm’s Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm’s website (https://
jpmorganchaseco.gcs-web.com/financial-information/basel-
pillar-3-us-lcr-disclosures).
All banking institutions are currently required to have a
minimum CET1 capital ratio of 4.5% of risk weighted
assets. Certain banking organizations, including the Firm,
are required to hold additional amounts of capital to serve
as a “capital conservation buffer”. The capital conservation
buffer is intended to be used to absorb potential losses in
times of financial or economic stress. The capital
conservation buffer was subject to a phase-in period that
began January 1, 2016 and continued through the end of
2018.
As an expansion of the capital conservation buffer, the Firm
is also required to hold additional levels of capital in the
form of a GSIB surcharge and a countercyclical capital
buffer.
Under the Federal Reserve’s final rule, the Firm is required
to calculate its GSIB surcharge on an annual basis under two
separately prescribed methods, and is subject to the higher
of the two. The first (“Method 1”), reflects the GSIB
surcharge as prescribed by the Basel Committee’s
assessment methodology, and is calculated across five
criteria: size, cross-jurisdictional activity,
interconnectedness, complexity and substitutability. The
second (“Method 2”), modifies the Method 1 requirements
to include a measure of short-term wholesale funding in
place of substitutability, and introduces a GSIB score
“multiplication factor”. The following table represents the
Firm’s GSIB surcharge.
Fully Phased-In:
Method 1
Method 2
2018
2017
2.50%
3.50%
2.50%
3.50%
Transitional(a)
1.75%
(a) The GSIB surcharge is subject to transition provisions (in 25% increments)
2.625%
through the end of 2018.
JPMorgan Chase & Co./2018 Form 10-K
87
Management’s discussion and analysis
The Firm’s effective GSIB surcharge as calculated under
Method 2 for 2019 is anticipated to be 3.5%.
The Federal Reserve's framework for setting the
countercyclical capital buffer takes into account the macro
financial environment in which large, internationally active
banks function. As of December 31, 2018, the U.S.
countercyclical capital buffer remained at 0%. The Federal
Reserve will continue to review the buffer at least annually.
The buffer can be increased if the Federal Reserve, FDIC and
OCC determine that credit growth in the economy has
become excessive and can be calibrated up to an additional
2.5% of RWA subject to a 12-month implementation period.
Failure to maintain regulatory capital equal to or in excess
of the risk-based regulatory capital minimum plus the
capital conservation buffer (inclusive of the GSIB surcharge)
and any countercyclical buffer may result in limitations to
the amount of capital that the Firm may distribute, such as
through dividends and common equity repurchases.
Leverage-based Capital Regulatory Minimums
Supplementary leverage ratio
The SLR is defined as Tier 1 capital under Basel III divided
by the Firm’s total leverage exposure. Total leverage
exposure is calculated by taking the Firm’s total average on
balance sheet assets, less amounts permitted to be
deducted for Tier 1 capital, and adding certain off-balance
sheet exposures, such as undrawn commitments and
derivatives potential future exposure.
Failure to maintain an SLR ratio equal to or greater than the
regulatory minimum may result in limitations on the
amount of capital that the Firm may distribute.
In addition to meeting the capital ratio requirements of
Basel III, the Firm and its IDI subsidiaries also must
maintain minimum capital and leverage ratios in order to be
“well-capitalized” under the regulations issued by the
Federal Reserve and the Prompt Corrective Action (“PCA”)
requirements of the FDIC Improvement Act (“FDICIA”),
respectively. For additional information, refer to Note 26.
88
JPMorgan Chase & Co./2018 Form 10-K
The following tables present the Firm’s Transitional and Fully Phased-In risk-based and leverage-based capital metrics under
both the Basel III Standardized and Advanced Approaches. The Firm’s Basel III ratios exceeded both the Transitional and Fully
Phased-In regulatory minimums as of December 31, 2018 and 2017.
Leverage-based capital metrics:
Adjusted average assets(a)
$
2,589,887
December 31, 2018
(in millions, except ratios)
Risk-based capital metrics:
CET1 capital
Tier 1 capital
Total capital
Risk-weighted assets
CET1 capital ratio
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio
Total leverage exposure
SLR(b)
December 31, 2017
(in millions, except ratios)
Risk-based capital metrics:
CET1 capital
Tier 1 capital
Total capital
Risk-weighted assets
CET1 capital ratio
Tier 1 capital ratio
Total capital ratio
Leverage based capital metrics:
Transitional/Fully Phased-In(c)
Transitional
Fully Phased-In
Standardized
Advanced
Minimum capital ratios
Minimum capital ratios
$
183,474
209,093
237,511
1,528,916
12.0%
13.7
15.5
$
$
$
183,474
209,093
227,435
1,421,205
12.9%
14.7
16.0
2,589,887
8.1%
3,269,988
6.4%
9.0%
10.5
12.5
4.0%
NA
10.5%
12.0
14.0
4.0%
5.0% (b)
8.1%
NA
NA
Transitional
Fully Phased-In
Standardized
Advanced
Minimum
capital ratios
Standardized
Advanced
Minimum
capital ratios
$
183,300
$
183,300
$ 183,244
$
183,244
208,644
238,395
208,644
227,933
208,564
237,960
208,564
227,498
1,499,506
1,435,825
1,509,762
1,446,696
12.2%
13.9
15.9
12.8%
14.5
15.9
7.50%
9.00
11.00
12.1%
13.8
15.8
12.7%
14.4
15.7
10.5%
12.0
14.0
Adjusted average assets(a)
$ 2,514,270
$ 2,514,270
$ 2,514,822
$ 2,514,822
Tier 1 leverage ratio
Total leverage exposure
SLR
8.3%
NA
NA
8.3%
4.0%
$ 3,204,463
6.5%
NA
8.3%
NA
NA
8.3%
4.0%
$ 3,205,015
6.5%
5.0% (b)
(a) Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assets that are
subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
(b) Effective January 1, 2018, the SLR was fully phased-in under Basel III. The December 31, 2017 amounts were calculated under the Basel III Transitional rules.
(c) The Firm’s capital ratios as of December 31, 2018 were equivalent whether calculated on a transitional or fully phased-in basis.
The Firm believes that it will operate with a Basel III CET1 capital ratio between 11% and 12% over the medium term.
For additional information on the Firm, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.’s capital, RWA and capital ratios
under Basel III Standardized and Advanced Fully Phased-In rules and the SLR calculated under the Basel III Advanced Fully
Phased-In rules, all of which are considered key regulatory capital measures, refer to Explanation and Reconciliation of the
Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59.
JPMorgan Chase & Co./2018 Form 10-K
89
Management’s discussion and analysis
Capital components
The following table presents reconciliations of total
stockholders’ equity to Basel III Fully Phased-In CET1
capital, Tier 1 capital and Basel III Advanced and
Standardized Fully Phased-In Total capital as of December
31, 2018 and 2017.
Capital rollforward
The following table presents the changes in Basel III Fully
Phased-In CET1 capital, Tier 1 capital and Tier 2 capital for
the year ended December 31, 2018.
Year Ended December 31, (in millions)
2018
Standardized/Advanced CET1 capital at December 31, 2017 $ 183,244
(in millions)
Total stockholders’ equity
Less: Preferred stock
Common stockholders’ equity
Less:
Goodwill
Other intangible assets
Other CET1 capital adjustments
Add:
December 31,
2018
256,515 $
December 31,
2017
255,693
$
26,068
230,447
26,068
229,625
47,471
748
1,034
47,507
855
223
Deferred tax liabilities(a)
2,280
2,204
Net income applicable to common equity
Dividends declared on common stock
Net purchase of treasury stock
Changes in additional paid-in capital
Changes related to AOCI
Adjustment related to DVA(a)
Changes related to other CET1 capital adjustments
Increase in Standardized/Advanced CET1 capital
Standardized/Advanced CET1 capital at
December 31, 2018
Standardized/Advanced Fully Phased-
In CET1 capital
Preferred stock
Less:
183,474
26,068
183,244
26,068
Standardized/Advanced Tier 1 capital at
December 31, 2017
Change in CET1 capital
Net issuance of noncumulative perpetual preferred stock
Other Tier 1 adjustments
449
748
Other
Increase in Standardized/Advanced Tier 1 capital
Standardized/Advanced Tier 1 capital at
December 31, 2018
Standardized Tier 2 capital at December 31, 2017
29,396
Change in long-term debt and other instruments qualifying
as Tier 2
28,418
29,396
Change in qualifying allowance for credit losses
Standardized/Advanced Fully Phased-
In Tier 1 capital
Long-term debt and other instruments
qualifying as Tier 2 capital
Qualifying allowance for credit losses
Other
Standardized Fully Phased-In Tier 2
capital
Standardized Fully Phased-in Total
capital
Adjustment in qualifying allowance for
credit losses for Advanced Tier 2
capital
Advanced Fully Phased-In Tier 2
capital
209,093
208,564
13,772
14,500
146
14,827
14,672
(103)
237,511
237,960
(10,076)
(10,462)
18,342
18,934
Other
Decrease in Standardized Tier 2 capital
Standardized Tier 2 capital at December 31, 2018
Standardized Total capital at December 31, 2018
Advanced Tier 2 capital at December 31, 2017
Change in long-term debt and other instruments qualifying
as Tier 2
Advanced Fully Phased-In Total capital $
227,435 $
227,498
(a) Represents certain deferred tax liabilities related to tax-deductible
Change in qualifying allowance for credit losses
goodwill and identifiable intangibles created in nontaxable
transactions, which are netted against goodwill and other intangibles
when calculating TCE.
Other
Decrease in Advanced Tier 2 capital
Advanced Tier 2 capital at December 31, 2018
Advanced Total capital at December 31, 2018
18,342
$ 227,435
(a) Includes DVA related to structured notes recorded in AOCI.
90
JPMorgan Chase & Co./2018 Form 10-K
30,923
(9,214)
(17,899)
(1,417)
(1,203)
(1,165)
205
230
183,474
208,564
230
—
299
529
209,093
(1,055)
(172)
249
(978)
28,418
237,511
18,934
(1,055)
214
249
(592)
RWA rollforward
The following table presents changes in the components of RWA under Basel III Standardized and Advanced Fully Phased-In for
the year ended December 31, 2018. The amounts in the rollforward categories are estimates, based on the predominant
driver of the change.
Standardized
Advanced
Year ended December 31, 2018
(in millions)
December 31, 2017
Model & data changes(a)
Portfolio runoff(b)
Movement in portfolio levels(c)
Changes in RWA
Credit risk RWA
$
1,386,060 $
Market risk
RWA
123,702 $
Total RWA
Credit risk RWA
1,509,762
$
922,905 $
Market risk
RWA
123,791 $
Operational
risk
400,000 $
Total RWA
1,446,696
(10,431)
(8,381)
55,805
36,993
(13,191)
—
(4,648)
(17,839)
(23,622)
(8,381)
51,157
19,154
3,750
(10,161)
10,153
3,742
(13,191)
—
(4,624)
(17,815)
—
—
(11,418)
(11,418)
(9,441)
(10,161)
(5,889)
(25,491)
December 31, 2018
$
1,423,053 $
105,863 $
1,528,916
$
926,647 $
105,976 $
388,582 $
1,421,205
(a) Model & data changes refer to material movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rule
changes).
(b) Portfolio runoff for credit risk RWA primarily reflects reduced risk from position rolloffs in legacy portfolios in Home Lending.
(c) Movement in portfolio levels (inclusive of rule changes) refers to: changes in book size, composition, credit quality, and market movements for credit risk RWA;
changes in position and market movements for market risk RWA; and updates to cumulative losses for operational risk RWA.
Supplementary leverage ratio
The following table presents the components of the Firm’s
Fully Phased-In SLR as of December 31, 2018 and 2017.
December 31,
2018
December 31,
2017
$
209,093
2,636,505
$
$
208,564
2,562,155
The table below presents the Firm’s assessed level of capital
allocated to each line of business as of the dates indicated.
Line of business equity (Allocated capital)
(in billions)
December 31,
January 1,
2019
2018
2017
Consumer & Community Banking
$
46,618
2,589,887
680,101
47,333
2,514,822
690,193
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
$
3,269,988
$
3,205,015
Corporate
52.0
80.0
22.0
10.5
65.9
$
51.0 $
70.0
20.0
9.0
80.4
51.0
70.0
20.0
9.0
79.6
(in millions, except ratio)
Tier 1 capital
Total average assets
Less: Adjustments for deductions
from Tier 1 capital
Total adjusted average assets(a)
Off-balance sheet exposures(b)
Total leverage exposure
SLR
6.4%
6.5%
Total common stockholders’ equity $
230.4
$ 230.4 $ 229.6
(a) Adjusted average assets, for purposes of calculating the SLR, includes
total quarterly average assets adjusted for on-balance sheet assets
that are subject to deduction from Tier 1 capital, predominantly
goodwill and other intangible assets.
(b) Off-balance sheet exposures are calculated as the average of the three
month-end spot balances during the reporting quarter.
For JPMorgan Chase Bank, N.A.’s and Chase Bank USA,
N.A.’s SLR ratios, refer to Note 26.
Line of business equity
Each business segment is allocated capital by taking into
consideration capital levels of similarly rated peers and
applicable regulatory capital requirements. ROE is
measured and internal targets for expected returns are
established as key measures of a business segment’s
performance.
The Firm’s allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, leverage, the
GSIB surcharge, and a simulation of capital in a severe
stress environment. On at least an annual basis, the
assumptions and methodologies used in capital allocation
are assessed and as a result, the capital allocated to lines of
business may change. As of January 1, 2019, line of
business capital allocations have increased due to a
combination of changes in the relative weights toward
Standardized RWA and stress, a higher capitalization rate,
updated stress simulations, and general business growth.
Capital actions
Preferred stock
Preferred stock dividends declared were $1.6 billion for the
year ended December 31, 2018.
On January 24, 2019, the Firm issued $1.85 billion of
6.00% non-cumulative preferred stock, Series EE, and on
January 30, 2019, the Firm announced that it will redeem
all $925 million of its outstanding 6.70% non-cumulative
preferred stock, Series T, on March 1, 2019. On September
21, 2018, the Firm issued $1.7 billion of 5.75% non-
cumulative preferred stock, Series DD. On October 30,
2018, the Firm redeemed $1.7 billion of its fixed-to-
floating rate non-cumulative perpetual preferred stock,
Series I.
On October 20, 2017, the Firm issued $1.3 billion of fixed-
to-floating rate non-cumulative preferred stock, Series CC,
with an initial dividend rate of 4.625%. On December 1,
2017, the Firm redeemed all $1.3 billion of its outstanding
5.50% non-cumulative preferred stock, Series O.
For additional information on the Firm’s preferred stock,
refer to Note 20.
JPMorgan Chase & Co./2018 Form 10-K
91
Management’s discussion and analysis
Trust preferred securities
On September 10, 2018, the Firm’s last remaining issuer of
outstanding trust preferred securities (“issuer trust”) was
liquidated, resulting in $475 million of trust preferred
securities and $15 million of trust common securities
originally issued by the issuer trust being cancelled.
On December 18, 2017, the Delaware trusts that issued
seven series of outstanding trust preferred securities were
liquidated, and $1.6 billion of trust preferred and $56
million of trust common securities originally issued by those
trusts were cancelled.
For additional information, refer to Note 19.
Common stock dividends
The Firm’s common stock dividends are planned as part of
the Capital Management governance framework in line with
the Firm’s capital management objectives.
On September 18, 2018, the Firm announced that its Board
of Directors increased the quarterly common stock dividend
from $0.56 per share to $0.80 per share, effective with the
dividend paid on October 31, 2018. The Firm’s dividends
are subject to the Board of Directors’ approval on a
quarterly basis.
For information regarding dividend restrictions, refer to
Note 20 and Note 25.
The following table shows the common dividend payout
ratio based on net income applicable to common equity.
Year ended December 31,
Common dividend payout ratio
2018
30%
2017
33%
2016
30%
Common equity
During the year ended December 31, 2018, warrant
holders exercised their right to purchase 14.9 million
shares of the Firm’s common stock. The Firm issued from
treasury stock 9.4 million shares of its common stock as a
result of these exercises. There were no warrants
outstanding at December 31, 2018, as any warrants that
were not exercised on or before October 29, 2018, have
expired. At December 31, 2017, the Firm had 15.0 million
warrants outstanding.
Effective June 28, 2018, the Firm’s Board of Directors
authorized the repurchase of up to $20.7 billion of common
equity between July 1, 2018 and June 30, 2019, as part of
its annual capital plan. As of December 31, 2018, $10.4
billion of authorized repurchase capacity remained under
the common equity repurchase program.
The following table sets forth the Firm’s repurchases of
common equity for the years ended December 31, 2018,
2017 and 2016. There were no repurchases of warrants
during the years ended December 31, 2018, 2017 and
2016.
Year ended December 31, (in millions)
2018
2017
2016
Total number of shares of common stock
repurchased
Aggregate purchase price of common
stock repurchases
181.5
166.6
140.4
$19,983
$15,410
$ 9,082
The Firm from time to time enters into written trading plans
under Rule 10b5-1 of the Securities Exchange Act of 1934
to facilitate repurchases in accordance with the common
equity repurchase program. A Rule 10b5-1 repurchase plan
allows the Firm to repurchase its equity during periods
when it would not otherwise be repurchasing common
equity — for example, during internal trading blackout
periods. All purchases under Rule 10b5-1 plans must be
made according to predefined schedules established when
the Firm is not aware of material nonpublic information.
The authorization to repurchase common equity will be
utilized at management’s discretion, and the timing of
purchases and the exact amount of common equity that
may be repurchased is subject to various factors, including
market conditions; legal and regulatory considerations
affecting the amount and timing of repurchase activity; the
Firm’s capital position (taking into account goodwill and
intangibles); internal capital generation; and alternative
investment opportunities. The repurchase program does not
include specific price targets or timetables; may be
executed through open market purchases or privately
negotiated transactions, or utilizing Rule 10b5-1 plans; and
may be suspended by management at any time.
For additional information regarding repurchases of the
Firm’s equity securities, refer to Part II, Item 5: Market for
Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities on page 30.
92
JPMorgan Chase & Co./2018 Form 10-K
Other capital requirements
Total Loss-Absorbing Capacity (“TLAC”)
On December 15, 2016, the Federal Reserve issued its final
TLAC rule which requires the top-tier holding companies of
eight U.S. GSIB holding companies, including the Firm, to
maintain minimum levels of external TLAC and external
long-term debt that satisfies certain eligibility criteria
(“eligible LTD”), effective January 1, 2019.
The minimum external TLAC and the minimum level of
eligible long-term debt requirements are shown below:
The following table presents the eligible external TLAC and
LTD amounts, as well as a representation of the amounts as
a percentage of the Firm’s total RWA and total leverage
exposure.
December 31, 2018
(in billions, except ratio)
Total eligible TLAC & LTD
% of RWA
Minimum requirement
Surplus/(shortfall)
% of total leverage exposure
Minimum requirement(a)
Surplus/(shortfall)
Eligible
External TLAC
Eligible LTD
$
$
$
380.5
$
160.5
24.9%
10.5%
23.0
28.9
$
11.6%
9.5
69.9
$
9.5
15.3
4.9%
4.5
13.4
For information on the financial consequences to holders of
the Firm’s debt and equity securities in a resolution
scenario, refer to Part I, Item 1A: Risk Factors on pages
7-28 of the Firm’s 2018 Form 10-K.
(a) RWA is the greater of Standardized and Advanced.
Failure to maintain TLAC equal to or in excess of the
regulatory minimum plus applicable buffers may result in
limitations to the amount of capital that the Firm may
distribute, such as through dividends and common equity
repurchases.
The final TLAC rule permanently grandfathered all long-
term debt issued before December 31, 2016, to the extent
these securities would be ineligible because they contained
impermissible acceleration rights or were governed by non-
U.S. law. As of December 31, 2018, the Firm exceeded the
minimum requirements under the rule to which it became
subject to on January 1, 2019.
JPMorgan Chase & Co./2018 Form 10-K
93
Management’s discussion and analysis
Broker-dealer regulatory capital
J.P. Morgan Securities
JPMorgan Chase’s principal U.S. broker-dealer subsidiary is
J.P. Morgan Securities. J.P. Morgan Securities is subject to
Rule 15c3-1 under the Securities Exchange Act of 1934
(the “Net Capital Rule”). J.P. Morgan Securities is also
registered as a futures commission merchant and subject to
Rule 1.17 of the CFTC.
J.P. Morgan Securities has elected to compute its minimum
net capital requirements in accordance with the “Alternative
Net Capital Requirements” of the Net Capital Rule.
Under the market and credit risk standards of Appendix E of
the Net Capital Rule, J.P. Morgan Securities is eligible to use
the alternative method of computing net capital if, in
addition to meeting its minimum net capital requirements,
it maintains tentative net capital of at least $1.0 billion. J.P.
Morgan Securities is required to notify the SEC in the event
that tentative net capital is less than $5.0 billion. As of
December 31, 2018, J.P. Morgan Securities maintained
tentative net capital in excess of the minimum and
notification requirements.
The following table presents J.P.Morgan Securities’ net
capital information:
December 31, 2018
(in millions)
J.P. Morgan Securities
Net capital
Actual
Minimum
$
16,648 $
3,069
J.P. Morgan Securities plc
J.P. Morgan Securities plc is a wholly-owned subsidiary of JPMorgan Chase Bank, N.A. and is the Firm’s principal operating
subsidiary in the U.K. It has authority to engage in banking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the PRA and the FCA. J.P. Morgan Securities plc is subject to the European
Union Capital Requirements Regulation and the PRA capital rules, each of which implemented Basel III and thereby subject J.P.
Morgan Securities plc to its requirements.
The following table presents J.P. Morgan Securities plc’s capital information:
December 31, 2018
(in millions, except ratios)
J.P. Morgan Securities plc
Total capital(a)
CET1 ratio
Total capital ratio
Estimated
Estimated
Minimum
Estimated
Minimum
$
53,086
17.4%
4.5%
22.5%
8.0%
(a) Includes the tier 2 qualifying subordinated debt securities issued to meet the MREL requirements to which J.P. Morgan Securities plc became subject to on
January 1, 2019. For additional information on MREL, refer to Supervision & Regulation on pages 1-6
94
JPMorgan Chase & Co./2018 Form 10-K
LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Firm will be unable to meet
its contractual and contingent financial obligations as they
arise or that it does not have the appropriate amount,
composition and tenor of funding and liquidity to support
its assets and liabilities.
Liquidity risk oversight
The Firm has a liquidity risk oversight function whose
primary objective is to provide assessment, measurement,
monitoring, and control of liquidity risk across the Firm.
Liquidity risk oversight is managed through a dedicated
firmwide Liquidity Risk Oversight group. The CTC CRO, who
reports to the Firm’s CRO, is responsible for firmwide
Liquidity Risk Oversight. Liquidity Risk Oversight’s
responsibilities include:
• Establishing and monitoring limits and indicators,
including liquidity risk appetite tolerances;
• Monitoring and reporting internal firmwide and legal
entity liquidity stress tests as well as regulatory defined
liquidity stress tests;
• Approving or escalating for review new or updated
liquidity stress assumptions;
• Monitoring liquidity positions, balance sheet variances
and funding activities;
• Conducting ad hoc analysis to identify potential
emerging liquidity risks; and
• Performing independent review of liquidity risk
management processes.
Liquidity management
Treasury and CIO is responsible for liquidity management.
The primary objectives of effective liquidity management
are to:
• Ensure that the Firm’s core businesses and material legal
entities are able to operate in support of client needs
and meet contractual and contingent financial
obligations through normal economic cycles as well as
during stress events, and
• Manage an optimal funding mix and availability of
liquidity sources.
As part of the Firm’s overall liquidity management strategy,
the Firm manages liquidity and funding using a centralized,
global approach in order to:
•
Optimize liquidity sources and uses;
• Monitor exposures;
•
Identify constraints on the transfer of liquidity between
the Firm’s legal entities; and
• Maintain the appropriate amount of surplus liquidity at
a firmwide and legal entity level, where relevant.
In the context of the Firm’s liquidity management, Treasury
and CIO is responsible for:
• Analyzing and understanding the liquidity characteristics
of the assets and liabilities of the Firm, lines of business
and legal entities, taking into account legal, regulatory,
and operational restrictions;
• Developing internal liquidity stress testing assumptions;
• Defining and monitoring firmwide and legal entity-
specific liquidity strategies, policies, reporting and
contingency funding plans;
• Managing liquidity within the Firm’s approved liquidity
risk appetite tolerances and limits;
• Managing compliance with regulatory requirements
related to funding and liquidity risk; and
• Setting transfer pricing in accordance with underlying
liquidity characteristics of balance sheet assets and
liabilities as well as certain off-balance sheet items.
Risk governance
Committees responsible for liquidity governance include the
firmwide ALCO as well as line of business and regional
ALCOs, the Treasurer Committee, and the CTC Risk
Committee. In addition, the DRPC reviews and recommends
to the Board of Directors, for formal approval, the Firm’s
liquidity risk tolerances, liquidity strategy, and liquidity
policy at least annually. For further discussion of ALCO and
other risk-related committees, refer to Enterprise-wide Risk
Management on pages 79–140.
Internal stress testing
Liquidity stress tests are intended to ensure that the Firm
has sufficient liquidity under a variety of adverse scenarios,
including scenarios analyzed as part of the Firm’s resolution
and recovery planning. Stress scenarios are produced for
JPMorgan Chase & Co. (“Parent Company”) and the Firm’s
material legal entities on a regular basis, and ad hoc stress
tests are performed, as needed, in response to specific
market events or concerns. Liquidity stress tests assume all
of the Firm’s contractual financial obligations are met and
take into consideration:
• Varying levels of access to unsecured and secured
funding markets,
• Estimated non-contractual and contingent cash outflows,
and
• Potential impediments to the availability and
transferability of liquidity between jurisdictions and
material legal entities such as regulatory, legal or other
restrictions.
Liquidity outflow assumptions are modeled across a range
of time horizons and currency dimensions and contemplate
both market and idiosyncratic stresses.
Results of stress tests are considered in the formulation of
the Firm’s funding plan and assessment of its liquidity
position. The Parent Company acts as a source of funding
for the Firm through equity and long-term debt issuances,
and the IHC provides funding support to the ongoing
operations of the Parent Company and its subsidiaries, as
necessary. The Firm maintains liquidity at the Parent
Company and the IHC, in addition to liquidity held at the
JPMorgan Chase & Co./2018 Form 10-K
95
there was a decrease in the amount of HQLA in JPMorgan
Chase Bank, N.A. and Chase Bank USA, N.A. that was
determined to be transferable to non-bank affiliates. This
decrease was based on a change in the Firm’s interpretation
of amounts available for transfer.
The Firm’s average LCR decreased for the three months
ended December 31, 2018, compared with the prior year
period, due to a reduction in average HQLA primarily driven
by (a) long-term debt maturities and CIB activities, and (b)
a decrease in the amount of HQLA in JPMorgan Chase Bank,
N.A. and Chase Bank USA, N.A that was determined to be
transferable to non-bank affiliates based on a change in the
Firm’s interpretation of amounts available for transfer.
The Firm’s average LCR may fluctuate from period to period,
due to changes in its HQLA and estimated net cash outflows
under the LCR as a result of ongoing business activity. The
Firm’s HQLA are expected to be available to meet its
liquidity needs in a time of stress. For a further discussion
of the Firm’s LCR, refer to the Firm’s US LCR Disclosure
reports, which are available on the Firm’s website at:
(https://jpmorganchaseco.gcs-web.com/financial-
information/basel-pillar-3-us-lcr-disclosures).
Other liquidity sources
As of December 31, 2018, in addition to assets reported in
the Firm’s HQLA under the LCR rule, the Firm had
approximately $226 billion of unencumbered marketable
securities, such as equity securities and fixed income debt
securities, available to raise liquidity, if required. This
includes HQLA-eligible securities included as part of the
excess liquidity at JPMorgan Chase Bank, N.A. that are not
transferable to non-bank affiliates.
As of December 31, 2018, the Firm also had approximately
$276 billion of available borrowing capacity at various
FHLBs, discount windows at the Federal Reserve Banks and
various other central banks as a result of collateral pledged
by the Firm to such banks. This borrowing capacity excludes
the benefit of securities reported in the Firm’s HQLA or
other unencumbered securities that are currently pledged
at the Federal Reserve Bank discount windows. Although
available, the Firm does not view the borrowing capacity at
Federal Reserve Bank discount windows and the various
other central banks as a primary source of liquidity.
Management’s discussion and analysis
operating subsidiaries, at levels sufficient to comply with
liquidity risk tolerances and minimum liquidity
requirements, and to manage through periods of stress
where access to normal funding sources is disrupted.
Contingency funding plan
The Firm’s contingency funding plan (“CFP”), which is
approved by the firmwide ALCO and the DRPC, is a
compilation of procedures and action plans for managing
liquidity through stress events. The CFP incorporates the
limits and indicators set by the Liquidity Risk Oversight
group. These limits and indicators are reviewed regularly to
identify emerging risks or vulnerabilities in the Firm’s
liquidity position. The CFP identifies the alternative
contingent funding and liquidity resources available to the
Firm and its legal entities in a period of stress.
Liquidity Coverage Ratio
The LCR rule requires the Firm to maintain an amount of
unencumbered High Quality Liquid Assets (“HQLA”) that is
sufficient to meet its estimated total net cash outflows over
a prospective 30 calendar-day period of significant stress.
HQLA is the amount of liquid assets that qualify for
inclusion in the LCR. HQLA primarily consist of
unencumbered cash and certain high quality liquid
securities as defined in the LCR rule.
Under the LCR rule, the amounts of HQLA held by JPMorgan
Chase Bank N.A. and Chase Bank USA, N.A that are in excess
of each entity’s standalone 100% minimum LCR
requirement, and that are not transferable to non-bank
affiliates, must be excluded from the Firm’s reported HQLA.
The LCR is required to be a minimum of 100%.
The following table summarizes the Firm’s average LCR for
the three months ended December 31, 2018, September
30, 2018 and December 31, 2017 based on the Firm’s
current interpretation of the finalized LCR framework.
Average amount
(in millions)
December 31,
2018
September
30, 2018
December 31,
2017
Three months ended
HQLA
Eligible cash(a)
$
297,069
$
344,660
Eligible securities(b)(c)
Total HQLA(d)
Net cash outflows
LCR
Net excess HQLA (d)
232,201
529,270
467,704
113%
61,566
$
$
$
190,349
535,009
466,803
115%
68,206
$
$
$
$
$
$
$
370,126
189,955
560,081
472,078
119%
88,003
(a) Represents cash on deposit at central banks, primarily Federal Reserve
Banks.
(b) Predominantly U.S. Treasuries, U.S. Agency MBS, and sovereign bonds
net of applicable haircuts under the LCR rules.
(c) HQLA eligible securities may be reported in securities borrowed or
purchased under resale agreements, trading assets, or investment
securities on the Firm’s Consolidated balance sheets.
(d) Excludes average excess HQLA at JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A. that are not transferable to non-bank affiliates.
The Firm’s average LCR decreased during the three months
ended December 31, 2018, compared with the three month
period ended September 30, 2018 due to a decrease in the
average amount of reportable HQLA. Although HQLA
increased in JPMorgan Chase Bank, N.A. during the period,
96
JPMorgan Chase & Co./2018 Form 10-K
Funding
Sources of funds
Management believes that the Firm’s unsecured and
secured funding capacity is sufficient to meet its on- and
off-balance sheet obligations.
The Firm funds its global balance sheet through diverse
sources of funding including a stable deposit franchise as
well as secured and unsecured funding in the capital
markets. The Firm’s loan portfolio is funded with a portion
of the Firm’s deposits, through securitizations and, with
respect to a portion of the Firm’s real estate-related loans,
with secured borrowings from the FHLBs. Deposits in excess
of the amount utilized to fund loans are primarily invested
by Treasury and CIO in the Firm’s investment securities
portfolio or deployed in cash or other short-term liquid
investments based on their interest rate and liquidity risk
characteristics. Securities borrowed or purchased under
resale agreements and trading assets-debt and equity
instruments are primarily funded by the Firm’s securities
loaned or sold under agreements to repurchase, trading
liabilities–debt and equity instruments, and a portion of the
Firm’s long-term debt and stockholders’ equity. In addition
to funding securities borrowed or purchased under resale
agreements and trading assets-debt and equity
instruments, proceeds from the Firm’s debt and equity
issuances are used to fund certain loans and other financial
and non-financial assets, or may be invested in the Firm’s
investment securities portfolio. Refer to the discussion
below for additional information relating to Deposits, Short-
term funding, and Long-term funding and issuance.
Deposits
The table below summarizes, by line of business, the period-end and average deposit balances as of and for the years ended
December 31, 2018 and 2017.
Deposits
As of or for the year ended December 31,
(in millions)
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
Corporate
Total Firm
A key strength of the Firm is its diversified deposit
franchise, through each of its lines of business, which
provides a stable source of funding and limits reliance on
the wholesale funding markets. A significant portion of the
Firm’s deposits are consumer and wholesale operating
deposits, which are both considered to be stable sources of
liquidity. Wholesale operating deposits are considered to be
stable sources of liquidity because they are generated from
customers that maintain operating service relationships
with the Firm.
The table below shows the loan and deposit balances, the
loans-to-deposits ratios, and deposits as a percentage of
total liabilities, as of December 31, 2018 and 2017.
As of December 31,
(in billions except ratios)
Deposits
Deposits as a % of total liabilities
Loans
Loans-to-deposits ratio
2018
2017
$
1,470.7
$
1,444.0
62%
984.6
67%
63%
930.7
64%
The Firm believes that average deposit balances are
generally more representative of deposit trends than
period-end deposit balances.
Year ended December 31,
Average
2018
2017
2018
2017
$
678,854 $
659,885
$
670,388 $
640,219
482,084
170,859
138,546
323
455,883
181,512
146,407
295
477,250
170,822
137,272
729
447,697
176,884
148,982
3,604
$
1,470,666 $
1,443,982
$
1,456,461 $
1,417,386
Average deposits increased for the year ended December
31, 2018 in CCB and CIB, partially offset by decreases in
AWM, CB and Corporate.
•
•
The increase in CCB reflects the continuation of growth
from new accounts, and in CIB reflects growth in
operating deposits in both Treasury Services and
Securities Services driven by growth in client activity.
The decrease in AWM was driven by balance migration
predominantly into the Firm’s investment-related
products. The decrease in CB was driven by a reduction
in non-operating deposits. The decrease in Corporate
was predominantly due to maturities of wholesale non-
operating deposits, consistent with the Firm’s efforts to
reduce such deposits.
For further information on deposit and liability balance
trends, refer to the discussion of the Firm’s Business
Segment Results and the Consolidated Balance Sheets
Analysis on pages 60-78 and pages 52–53, respectively.
JPMorgan Chase & Co./2018 Form 10-K
97
Management’s discussion and analysis
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2018 and 2017,
and average balances for the years ended December 31, 2018 and 2017. For additional information, refer to the Consolidated
Balance Sheets Analysis on pages 52–53 and Note 19.
Sources of funds (excluding deposits)
As of or for the year ended December 31,
(in millions)
Commercial paper
Other borrowed funds(a)
Total short-term unsecured funding(a)
Securities sold under agreements to repurchase(a)(b)
Securities loaned(a)(b)
Other borrowed funds(a)(c)
Obligations of Firm-administered multi-seller conduits(d)
Total short-term secured funding(a)
Senior notes
Trust preferred securities
Subordinated debt
Structured notes(e)
Total long-term unsecured funding
Credit card securitization(d)
Other securitizations(d)(f)
Federal Home Loan Bank (“FHLB”) advances
Other long-term secured funding(g)
Total long-term secured funding
Preferred stock(h)
Common stockholders’ equity(h)
2018
2017
2018
2017
Average
30,059 $ 24,186
10,727
38,848 $ 34,913
8,789
171,975 $147,713
9,211
16,889
3,045
216,727 $176,858
9,481
30,428
4,843
162,733 $155,852
—
690
16,743
16,553
53,090
45,727
232,566 $218,822
13,404 $ 21,278
—
—
44,455
60,617
5,010
4,641
62,869 $ 86,536
26,068 $ 26,068
230,447 $229,625
$
$
$
$
$
$
$
$
$
$
27,834 $
11,369
39,203 $
177,629 $
10,692
24,320
3,396
216,037 $
19,920
10,755
30,675
173,450
12,798
15,857
3,206
205,311
153,162 $
154,352
471
16,178
49,640
2,276
18,832
42,918
219,451 $
218,378
15,900 $
25,933
—
52,121
4,842
626
69,916
3,195
72,863 $
99,670
26,249 $
26,212
229,222 $
230,350
$
$
$
$
$
$
$
$
$
$
(a) The prior period amounts have been revised to conform with the current period presentation.
(b) Primarily consists of short-term securities loaned or sold under agreements to repurchase.
(c) Includes FHLB advances with original maturities of less than one year of $11.4 billion as of December 31, 2018; there were no FHLB advances with original
maturities of less than one year as of December 31, 2017.
(d) Included in beneficial interests issued by consolidated variable interest entities on the Firm’s Consolidated balance sheets.
(e) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
(f) Other securitizations includes securitizations of student loans. The Firm deconsolidated the student loan securitization entities in the second quarter of 2017 as it no
longer had a controlling financial interest in these entities as a result of the sale of the student loan portfolio. The Firm’s wholesale businesses also securitize loans
for client-driven transactions, which are not considered to be a source of funding for the Firm and are not included in the table.
(g) Includes long-term structured notes which are secured.
(h) For additional information on preferred stock and common stockholders’ equity refer to Capital Risk Management on pages 85-94, Consolidated statements of
changes in stockholders’ equity, Note 20 and Note 21.
Short-term funding
The Firm’s sources of short-term secured funding primarily
consist of securities loaned or sold under agreements to
repurchase. These instruments are secured predominantly
by high-quality securities collateral, including government-
issued debt and agency MBS, and constitute a significant
portion of the federal funds purchased and securities
loaned or sold under repurchase agreements on the
Consolidated balance sheets. The increase at December 31,
2018, compared to December 31, 2017, was primarily due
to higher client-driven market-making activities and higher
secured financing of trading assets-debt and equity
instruments in CIB. The balances associated with securities
loaned or sold under agreements to repurchase fluctuate
over time due to customers’ investment and financing
activities; the Firm’s demand for financing; the ongoing
management of the mix of the Firm’s liabilities, including its
secured and unsecured financing (for both the investment
securities and market-making portfolios); and other market
and portfolio factors.
The Firm’s sources of short-term unsecured funding
primarily consist of issuance of wholesale commercial
paper. The increase in commercial paper was due to higher
net issuance primarily for short-term liquidity management.
Long-term funding and issuance
Long-term funding provides additional sources of stable
funding and liquidity for the Firm. The Firm’s long-term
funding plan is driven primarily by expected client activity,
liquidity considerations, and regulatory requirements,
including TLAC. Long-term funding objectives include
maintaining diversification, maximizing market access and
optimizing funding costs. The Firm evaluates various
funding markets, tenors and currencies in creating its
optimal long-term funding plan.
98
JPMorgan Chase & Co./2018 Form 10-K
The significant majority of the Firm’s long-term unsecured funding is issued by the Parent Company to provide maximum
flexibility in support of both bank and non-bank subsidiary funding needs. The Parent Company advances substantially all net
funding proceeds to its subsidiary, the IHC. The IHC does not issue debt to external counterparties. The following table
summarizes long-term unsecured issuance and maturities or redemptions for the years ended December 31, 2018 and 2017.
For additional information, refer to Note 19.
Long-term unsecured funding
Year ended December 31,
(Notional in millions)
Issuance
Senior notes issued in the U.S. market
Senior notes issued in non-U.S. markets
Total senior notes
Structured notes(a)
Total long-term unsecured funding – issuance
Maturities/redemptions
Senior notes
Subordinated debt
Structured notes
2018
2017
2018
2017
Parent Company(b)
Subsidiaries(b)
$
22,000 $
21,250
$
9,562 $
1,502
23,502
2,444
2,220
23,470
2,516
—
9,562
25,410
62
—
62
26,524
25,946 $
25,986
$
34,972 $
26,586
19,141 $
20,971
$
4,466 $
136
2,678
3,401
5,440
1,366
3,500
—
15,049
17,141
$
$
Total long-term unsecured funding – maturities/redemptions
$
21,955 $
29,812
$
19,515 $
22,007
(a) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
(b) The prior period amounts have been revised to conform with the current period presentation.
The Firm raises secured long-term funding through securitization of consumer credit card loans and advances from the FHLBs.
The following table summarizes the securitization issuance and FHLB advances and their respective maturities or redemptions
for the years ended December 31, 2018 and 2017.
Long-term secured funding
Year ended December 31,
(in millions)
Credit card securitization
Other securitizations(a)
FHLB advances
Other long-term secured funding(b)
Total long-term secured funding
Issuance
Maturities/Redemptions
2018
2017
2018
2017
$
1,396 $
1,545
$
9,250 $
11,470
—
9,000
377
—
—
—
55
25,159
18,900
2,354
289
731
$
10,773 $
3,899
$
34,698 $
31,156
(a) Other securitizations includes securitizations of student loans. The Firm deconsolidated the student loan securitization entities in the second quarter of
2017 as it no longer had a controlling financial interest in these entities as a result of the sale of the student loan portfolio.
(b) Includes long-term structured notes which are secured.
The Firm’s wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are
not considered to be a source of funding for the Firm and are not included in the table above. For further description of the
client-driven loan securitizations, refer to Note 14.
JPMorgan Chase & Co./2018 Form 10-K
99
Management’s discussion and analysis
Credit ratings
The cost and availability of financing are influenced by
credit ratings. Reductions in these ratings could have an
adverse effect on the Firm’s access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. Additionally,
the Firm’s funding requirements for VIEs and other third-
party commitments may be adversely affected by a decline
in credit ratings. For additional information on the impact of
a credit ratings downgrade on the funding requirements for
VIEs, and on derivatives and collateral agreements, refer to
SPEs on page 55, and liquidity risk and credit-related
contingent features in Note 5.
The credit ratings of the Parent Company and the Firm’s principal bank and non-bank subsidiaries as of December 31, 2018,
were as follows.
JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.
Chase Bank USA, N.A.
J.P. Morgan Securities LLC
J.P. Morgan Securities plc
December 31, 2018
Moody’s Investors Service
Standard & Poor’s
Fitch Ratings
Long-term
issuer
Short-term
issuer
A2
A-
AA-
P-1
A-2
F1+
Outlook
Stable
Stable
Stable
Long-term
issuer
Short-term
issuer
Aa2
A+
AA
P-1
A-1
F1+
Outlook
Stable
Stable
Stable
Long-term
issuer
Short-term
issuer
Aa3
A+
AA
P-1
A-1
F1+
Outlook
Stable
Stable
Stable
On October 25, 2018, Moody’s upgraded the Parent
Company’s long-term issuer rating to A2 (previously A3)
and short-term issuer rating to P-1 (previously P-2). The
long-term issuer ratings were also upgraded for JPMorgan
Chase Bank, N.A. and Chase Bank USA, N.A. to Aa2
(previously Aa3), and for J.P. Morgan Securities LLC and J.P.
Morgan Securities plc to Aa3 (previously A1).
On June 21, 2018, Fitch upgraded the Parent Company’s
long-term issuer rating to AA- (previously A+) and short-
term issuer rating to F1+ (previously F1). The long-term
issuer ratings were also upgraded to AA for JPMorgan Chase
Bank, N.A, Chase Bank USA, N.A., J.P. Morgan Securities LLC
and J.P. Morgan Securities plc (all previously AA-).
Downgrades of the Firm’s long-term ratings by one or two
notches could result in an increase in its cost of funds, and
access to certain funding markets could be reduced. The
nature and magnitude of the impact of ratings downgrades
depends on numerous contractual and behavioral factors
which the Firm believes are incorporated in its liquidity risk
and stress testing metrics. The Firm believes that it
maintains sufficient liquidity to withstand a potential
decrease in funding capacity due to ratings downgrades.
JPMorgan Chase’s unsecured debt does not contain
requirements that would call for an acceleration of
payments, maturities or changes in the structure of the
existing debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm’s credit ratings, financial ratios,
earnings, or stock price.
Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital and
liquidity ratios, strong credit quality and risk management
controls, and diverse funding sources. Rating agencies
continue to evaluate economic and geopolitical trends,
regulatory developments, future profitability, risk
management practices, and litigation matters, as well as
their broader ratings methodologies. Changes in any of
these factors could lead to changes in the Firm’s credit
ratings.
100
JPMorgan Chase & Co./2018 Form 10-K
REPUTATION RISK MANAGEMENT
Reputation risk is the potential that an action, inaction,
transaction, investment or event will reduce trust in the
Firm’s integrity or competence by its various constituents,
including clients, counterparties, customers, investors,
regulators, employees, communities or the broader public.
Organization and management
Reputation Risk Management is an independent risk
management function that establishes the governance
framework for managing reputation risk across the Firm.
The Firmwide Risk Executive for Reputation Risk reports to
the Firm’s CRO.
The Firm’s reputation risk management function includes
the following activities:
•
Establishing a firmwide Reputation Risk Governance
policy and standards
• Managing the governance infrastructure and processes
that support consistent identification, escalation,
management and monitoring of reputation risk issues
firmwide
•
Providing oversight to LOB Reputation Risk Offices
(“RRO”) on certain situations that have the potential to
damage the reputation of the LOB or the Firm
The types of events that give rise to reputation risk are
broad and could be introduced in various ways, including by
the Firm’s employees and the clients, customers and
counterparties with which the Firm does business. These
events could result in financial losses, litigation and
regulatory fines, as well as other damages to the Firm. As
reputation risk is inherently difficult to identify, manage,
and quantify, an independent reputation risk management
governance function is critical.
Governance and oversight
The Firm’s Reputation Risk Governance policy establishes
the principles for managing reputation risk for the Firm, and
is approved annually by the Directors’ Risk Policy
Committee. It is the responsibility of employees in each LOB
and Corporate to consider the reputation of the Firm when
deciding whether to offer a new product, engage in a
transaction or client relationship, enter a new jurisdiction,
initiate a business process or other matters. Increasingly,
sustainability, social responsibility and environmental
impacts are important considerations in assessing the
Firm’s reputation risk, and are considered as part of
reputation risk governance.
The Firm’s reputation risk governance framework applies to
each LOB and Corporate. Each LOB RRO advises their
business on potential reputation risk issues and provides
oversight of policy and standards created to guide the
identification and assessment of reputation risk. LOB
Reputation Risk Committees and forums review and assess
reputation risk for their respective businesses. Each
function also applies appropriate diligence to reputation
risk arising from their day-to-day activities. Reputation risk
issues deemed significant are escalated to the appropriate
LOB Risk Committee and/or to the Firmwide Risk
Committee.
JPMorgan Chase & Co./2018 Form 10-K
101
Management’s discussion and analysis
CREDIT AND INVESTMENT RISK MANAGEMENT
Credit and investment risk is the risk associated with the
default or change in credit profile of a client, counterparty
or customer; or loss of principal or a reduction in expected
returns on investments, including consumer credit risk,
wholesale credit risk, and investment portfolio risk.
Credit risk management
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer. The
Firm provides credit to a variety of customers, ranging from
large corporate and institutional clients to individual
consumers and small businesses. In its consumer
businesses, the Firm is exposed to credit risk primarily
through its home lending, credit card, auto, and business
banking businesses. In its wholesale businesses, the Firm is
exposed to credit risk through its underwriting, lending,
market-making, and hedging activities with and for clients
and counterparties, as well as through its operating services
activities (such as cash management and clearing
activities), securities financing activities, investment
securities portfolio, and cash placed with banks.
Credit Risk Management is an independent risk
management function that monitors, measures and
manages credit risk throughout the Firm and defines credit
risk policies and procedures. The credit risk function reports
to the Firm’s CRO. The Firm’s credit risk management
governance includes the following activities:
• Establishing a comprehensive credit risk policy
framework
• Monitoring, measuring and managing credit risk across all
portfolio segments, including transaction and exposure
approval
• Setting industry and geographic concentration limits, as
appropriate, and establishing underwriting guidelines
• Assigning and managing credit authorities in connection
with the approval of all credit exposure
• Managing criticized exposures and delinquent loans
• Estimating credit losses and ensuring appropriate credit
risk-based capital management
Risk identification and measurement
The Credit Risk Management function monitors, measures,
manages and limits credit risk across the Firm’s businesses.
To measure credit risk, the Firm employs several
methodologies for estimating the likelihood of obligor or
counterparty default. Methodologies for measuring credit
risk vary depending on several factors, including type of
asset (e.g., consumer versus wholesale), risk measurement
parameters (e.g., delinquency status and borrower’s credit
score versus wholesale risk-rating) and risk management
and collection processes (e.g., retail collection center versus
centrally managed workout groups). Credit risk
measurement is based on the probability of default of an
obligor or counterparty, the loss severity given a default
event and the exposure at default.
Based on these factors and related market-based inputs,
the Firm estimates credit losses for its exposures. Probable
credit losses inherent in the consumer and wholesale held-
for-investment loan portfolios are reflected in the allowance
for loan losses, and probable credit losses inherent in
lending-related commitments are reflected in the allowance
for lending-related commitments. These losses are
estimated using statistical analyses and other factors as
described in Note 13. In addition, potential and unexpected
credit losses are reflected in the allocation of credit risk
capital and represent the potential volatility of actual losses
relative to the established allowances for loan losses and
lending-related commitments. The analyses for these losses
include stress testing that considers alternative economic
scenarios as described in the Stress testing section below.
For further information, refer to Critical Accounting
Estimates used by the Firm on pages 141-143.
The methodologies used to estimate credit losses depend
on the characteristics of the credit exposure, as described
below.
Scored exposure
The scored portfolio is generally held in CCB and
predominantly includes residential real estate loans, credit
card loans, and certain auto and business banking loans.
For the scored portfolio, credit loss estimates are based on
statistical analysis of credit losses over discrete periods of
time. The statistical analysis uses portfolio modeling, credit
scoring, and decision-support tools, which consider loan-
level factors such as delinquency status, credit scores,
collateral values, and other risk factors. Credit loss analyses
also consider, as appropriate, uncertainties and other
factors, including those related to current macroeconomic
and political conditions, the quality of underwriting
standards, and other internal and external factors. The
factors and analysis are updated on a quarterly basis or
more frequently as market conditions dictate.
102
JPMorgan Chase & Co./2018 Form 10-K
Risk-rated exposure
Risk-rated portfolios are generally held in CIB, CB and AWM,
but also include certain business banking and auto dealer
loans held in CCB that are risk-rated because they have
characteristics similar to commercial loans. For the risk-
rated portfolio, credit loss estimates are based on estimates
of the probability of default (“PD”) and loss severity given a
default. The probability of default is the likelihood that a
borrower will default on its obligation; the loss given default
(“LGD”) is the estimated loss on the loan that would be
realized upon default and takes into consideration collateral
and structural support for each credit facility. The
estimation process includes assigning risk ratings to each
borrower and credit facility to differentiate risk within the
portfolio. These risk ratings are reviewed regularly by Credit
Risk Management and revised as needed to reflect the
borrower’s current financial position, risk profile and
related collateral. The calculations and assumptions are
based on both internal and external historical experience
and management judgment and are reviewed regularly.
Stress testing
Stress testing is important in measuring and managing
credit risk in the Firm’s credit portfolio. The process
assesses the potential impact of alternative economic and
business scenarios on estimated credit losses for the Firm.
Economic scenarios and the underlying parameters are
defined centrally, articulated in terms of macroeconomic
factors and applied across the businesses. The stress test
results may indicate credit migration, changes in
delinquency trends and potential losses in the credit
portfolio. In addition to the periodic stress testing
processes, management also considers additional stresses
outside these scenarios, including industry and country-
specific stress scenarios, as necessary. The Firm uses stress
testing to inform decisions on setting risk appetite both at a
Firm and LOB level, as well as to assess the impact of stress
on individual counterparties.
Risk monitoring and management
The Firm has developed policies and practices that are
designed to preserve the independence and integrity of the
approval and decision-making process of extending credit to
ensure credit risks are assessed accurately, approved
properly, monitored regularly and managed actively at both
the transaction and portfolio levels. The policy framework
establishes credit approval authorities, concentration limits,
risk-rating methodologies, portfolio review parameters and
guidelines for management of distressed exposures. In
addition, certain models, assumptions and inputs used in
evaluating and monitoring credit risk are independently
validated by groups that are separate from the line of
businesses.
Consumer credit risk is monitored for delinquency and other
trends, including any concentrations at the portfolio level,
as certain of these trends can be modified through changes
in underwriting policies and portfolio guidelines. Consumer
Risk Management evaluates delinquency and other trends
against business expectations, current and forecasted
economic conditions, and industry benchmarks. Historical
and forecasted economic performance and trends are
incorporated into the modeling of estimated consumer
credit losses and are part of the monitoring of the credit
risk profile of the portfolio.
Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry, and individual client and counterparty
level with established concentration limits that are reviewed
and revised as deemed appropriate by management,
typically on an annual basis. Industry and counterparty
limits, as measured in terms of exposure and economic risk
appetite, are subject to stress-based loss constraints. In
addition, wrong-way risk — the risk that exposure to a
counterparty is positively correlated with the impact of a
default by the same counterparty, which could cause
exposure to increase at the same time as the counterparty’s
capacity to meet its obligations is decreasing — is actively
monitored as this risk could result in greater exposure at
default compared with a transaction with another
counterparty that does not have this risk.
Management of the Firm’s wholesale credit risk exposure is
accomplished through a number of means, including:
• Loan underwriting and credit approval process
• Loan syndications and participations
• Loan sales and securitizations
• Credit derivatives
• Master netting agreements
• Collateral and other risk-reduction techniques
JPMorgan Chase & Co./2018 Form 10-K
103
Management’s discussion and analysis
In addition to Credit Risk Management, an independent
Credit Review function is responsible for:
• Independently validating or changing the risk grades
assigned to exposures in the Firm’s wholesale and
commercial-oriented retail credit portfolios, and
assessing the timeliness of risk grade changes initiated by
responsible business units; and
• Evaluating the effectiveness of business units’ credit
management processes, including the adequacy of credit
analyses and risk grading/LGD rationales, proper
monitoring and management of credit exposures, and
compliance with applicable grading policies and
underwriting guidelines.
For further discussion of consumer and wholesale loans,
refer to Note 12.
Risk reporting
To enable monitoring of credit risk and effective decision-
making, aggregate credit exposure, credit quality forecasts,
concentration levels and risk profile changes are reported
regularly to senior members of Credit Risk Management.
Detailed portfolio reporting of industry; clients,
counterparties and customers; product and geographic
concentrations occurs monthly, and the appropriateness of
the allowance for credit losses is reviewed by senior
management at least on a quarterly basis. Through the risk
reporting and governance structure, credit risk trends and
limit exceptions are provided regularly to, and discussed
with, risk committees, senior management and the Board of
Directors as appropriate.
104
JPMorgan Chase & Co./2018 Form 10-K
CREDIT PORTFOLIO
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer.
Total credit portfolio
In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale; and
certain loans accounted for at fair value. The following
tables do not include loans which the Firm accounts for at
fair value and classifies as trading assets. For further
information regarding these loans, refer to Notes 2 and 3.
For additional information on the Firm’s loans, lending-
related commitments and derivative receivables, including
the Firm’s accounting policies, refer to Notes 12, 27, and 5,
respectively.
For further information regarding the credit risk inherent in
the Firm’s cash placed with banks, refer to Wholesale credit
exposure – industry exposures on pages 113–115 ; for
information regarding the credit risk inherent in the Firm’s
investment securities portfolio, refer to Note 10; and for
information regarding credit risk inherent in the securities
financing portfolio, refer to Note 11.
For a further discussion of the consumer credit environment
and consumer loans, refer to Consumer Credit Portfolio on
pages 106–111 and Note 12. For a further discussion of the
wholesale credit environment and wholesale loans, refer to
Wholesale Credit Portfolio on pages 112–119 and Note 12.
December 31,
(in millions)
Credit exposure
Nonperforming(d)(e)
2018
2017
2018
2017
Loans retained
$
969,415 $
924,838
$
4,611 $
5,943
Loans held-for-sale
Loans at fair value
Total loans – reported
Derivative receivables
Receivables from
customers and other(a)
Total credit-related
assets
Assets acquired in loan
satisfactions
Real estate owned
Other
Total assets acquired in
loan satisfactions
Lending-related
commitments
11,988
3,151
984,554
54,213
3,351
2,508
930,697
56,523
30,217
26,272
—
220
4,831
60
—
—
—
5,943
130
—
1,068,984
1,013,492
4,891
6,073
NA
NA
NA
NA
NA
NA
1,039,258
991,482
269
30
299
469
311
42
353
731
Total credit portfolio
$ 2,108,242 $ 2,004,974
$
5,659 $
7,157
$
(12,682) $
(17,609) $
— $
—
(15,322)
(16,108)
NA
NA
Credit derivatives used
in credit portfolio
management
activities(b)
Liquid securities and
other cash collateral
held against
derivatives(c)
Year ended December 31,
(in millions, except ratios)
Net charge-offs(f)
Average retained loans
Loans
Loans – reported, excluding
residential real estate PCI loans
Net charge-off rates(f)
Loans
Loans – excluding PCI
2018
2017
$
4,856
$
5,387
936,829
898,979
909,386
865,887
0.52%
0.53
0.60%
0.62
(a) Receivables from customers and other primarily represents held-for-
investment margin loans to brokerage customers.
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives used to manage both performing and
nonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. For additional
information, refer to Credit derivatives on page 119 and Note 5.
(c) Includes collateral related to derivative instruments where an
appropriate legal opinion has not been either sought or obtained.
(d) Excludes PCI loans. The Firm is recognizing interest income on each
pool of PCI loans as each of the pools is performing.
(e) At December 31, 2018 and 2017, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $2.6 billion and $4.3 billion, respectively, and
real estate owned (“REO”) insured by U.S. government agencies of $75
million and $95 million, respectively. These amounts have been
excluded based upon the government guarantee. In addition, the
Firm’s policy is generally to exempt credit card loans from being placed
on nonaccrual status as permitted by regulatory guidance issued by
the Federal Financial Institutions Examination Council (“FFIEC”).
(f) For the year ended December 31, 2017, excluding net charge-offs of
$467 million related to the student loan portfolio transfer, the net
charge-off rate for loans would have been 0.55% and for loans -
excluding PCI would have been 0.57%.
JPMorgan Chase & Co./2018 Form 10-K
105
Management’s discussion and analysis
CONSUMER CREDIT PORTFOLIO
The Firm’s retained consumer portfolio consists primarily of
residential real estate loans, credit card loans, auto loans,
and business banking loans, as well as associated lending-
related commitments. The Firm’s focus is on serving
primarily the prime segment of the consumer credit market.
Originated mortgage loans are retained in the mortgage
portfolio, securitized or sold to U.S. government agencies
and U.S. government-sponsored enterprises; other types of
consumer loans are typically retained on the balance sheet.
The credit performance of the consumer portfolio continues
to benefit from discipline in credit underwriting as well as
improvement in the economy driven by low unemployment
and increasing home prices. The total amount of residential
real estate loans delinquent 30+ days, excluding government
guaranteed and purchased credit-impaired loans, decreased
from December 31, 2017 due to improved credit
performance and the impact of loans that were delinquent in
2017 due to hurricanes. The Credit Card 30+ day
delinquency rate and the net charge-off rate increased from
the prior year, in line with expectations. For further
information on consumer loans, refer to Note 12. For further
information on lending-related commitments, refer to Note
27.
106
JPMorgan Chase & Co./2018 Form 10-K
The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime
mortgage and home equity loans held by AWM, and prime mortgage loans held by Corporate. For further information about the
Firm’s nonaccrual and charge-off accounting policies, refer to Note 12.
Total loans, excluding PCI loans and loans held-for-sale
349,603
341,977
3,461
4,209
Consumer credit portfolio
As of or for the year ended December 31,
(in millions, except ratios)
Consumer, excluding credit card
Loans, excluding PCI loans and loans held-for-sale
Residential mortgage
Home equity
Auto(a)(b)
Consumer & Business Banking(b)(c)
Student(d)
Loans – PCI
Home equity
Prime mortgage
Subprime mortgage
Option ARMs(e)
Total loans – PCI
Total loans – retained
Loans held-for-sale
Total consumer, excluding credit card loans
Lending-related commitments(f)
Receivables from customers(g)
Total consumer exposure, excluding credit card
Credit Card
Loans retained(h)
Loans held-for-sale
Total credit card loans
Lending-related commitments(f)
Total credit card exposure
Total consumer credit portfolio
Memo: Total consumer credit portfolio, excluding PCI
Credit exposure
Nonaccrual loans(i)(j)
Net charge-offs/
(recoveries)(d)(k)
Net charge-off/
(recovery) rate(d)(k)(l)
2018
2017
2018
2017
2018
2017
2018
2017
$
231,078
$
216,496
$
1,765 $
2,175
$
(291) $
(10)
(0.13)%
—%
28,340
63,573
26,612
—
33,450
66,242
25,789
—
1,323
1,610
128
245
—
141
283
—
8,963
4,690
1,945
8,436
24,034
373,637
95
373,732
46,066
154
419,952
10,799
6,479
2,609
10,689
30,576
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
372,553
3,461
4,209
128
—
—
372,681
3,461
4,209
48,553
133
421,367
(5)
243
236
—
183
NA
NA
NA
NA
NA
183
—
183
69
331
257
498
1,145
NA
NA
NA
NA
NA
(0.02)
0.38
0.90
—
0.05
NA
NA
NA
NA
NA
1,145
—
1,145
0.05
—
0.05
0.19
0.51
1.03
NM
0.34
NA
NA
NA
NA
NA
0.31
—
0.31
156,616
149,387
16
156,632
605,379
762,011
124
149,511
572,831
722,342
—
—
—
—
—
—
4,518
4,123
—
—
4,518
4,123
3.10
—
3.10
2.95
—
2.95
$
$
1,181,963
1,157,929
$
$
1,143,709
1,113,133
$
$
3,461 $
4,209
3,461 $
4,209
$
$
4,701 $
5,268
4,701 $
5,268
0.90 %
0.95 %
1.04%
1.11%
(a) At December 31, 2018 and 2017, excluded operating lease assets of $20.5 billion and $17.1 billion, respectively. These operating lease assets are included
in other assets on the Firm’s Consolidated balance sheets. The risk of loss on these assets relates to the residual value of the leased vehicles, which is
managed through projection of the lease residual value at lease origination, periodic review of residual values, and through arrangements with certain auto
manufacturers that mitigates this risk.
(b) Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses; these
loans are managed by CCB, and therefore, for consistency in presentation, are included within the consumer portfolio.
(c) Predominantly includes Business Banking loans.
(d) For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for Total
consumer, excluding credit card and PCI loans and loans held-for-sale would have been 0.20%; Total consumer - retained excluding credit card loans would
have been 0.18%; Total consumer credit portfolio would have been 0.95%; and Total consumer credit portfolio, excluding PCI loans would have been 1.01%.
(e) At December 31, 2018 and 2017, approximately 69% and 68%, respectively, of the PCI option adjustable rate mortgages (“ARMs”) portfolio has been
modified into fixed-rate, fully amortizing loans.
(f) Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and
does not anticipate, that all available lines of credit would be used at the same time. For credit card commitments, and if certain conditions are met, home
equity commitments, the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without
notice. For further information, refer to Note 27.
(g) Receivables from customers represent held-for-investment margin loans to brokerage customers that are collateralized through assets maintained in the
clients’ brokerage accounts. These receivables are reported within accrued interest and accounts receivable on the Firm’s Consolidated balance sheets.
(h) Includes billed interest and fees net of an allowance for uncollectible interest and fees.
(i) At December 31, 2018 and 2017, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $2.6
billion and $4.3 billion, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the Firm’s
policy is generally to exempt credit card loans from being placed on nonaccrual status, as permitted by regulatory guidance issued by the FFIEC.
(j) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing.
(k) Net charge-offs/(recoveries) and net charge-off/(recovery) rates excluded write-offs in the PCI portfolio of $187 million and $86 million for the years ended
December 31, 2018 and 2017, respectively. These write-offs decreased the allowance for loan losses for PCI loans. Refer to Allowance for Credit Losses on
pages 120–122 for further information.
(l) Average consumer loans held-for-sale were $387 million and $1.5 billion for the years ended December 31, 2018 and 2017, respectively. These amounts
were excluded when calculating net charge-off/(recovery) rates.
JPMorgan Chase & Co./2018 Form 10-K
107
Management’s discussion and analysis
Consumer, excluding credit card
Portfolio analysis
Consumer loan balances increased from December 31,
2017 predominantly due to originations of high-quality
prime mortgage loans that have been retained on the
balance sheet, largely offset by paydowns and the charge-
off or liquidation of delinquent loans.
PCI loans are excluded from the following discussions of
individual loan products and are addressed separately
below. For further information about the Firm’s consumer
portfolio, including information about delinquencies, loan
modifications and other credit quality indicators, refer to
Note 12.
Residential mortgage: The residential mortgage portfolio,
including loans held-for-sale, predominantly consists of
high-quality prime mortgage loans with approximately 1%
consisting of subprime mortgage loans, which continue to
run off. The residential mortgage portfolio increased from
December 31, 2017 driven by the retention of originated
high-quality prime mortgage loans, which exceeded
paydowns and mortgage loan sales. Residential mortgage
30+ day delinquencies decreased from December 31, 2017.
Nonaccrual loans decreased from December 31, 2017 due
to lower delinquencies. Net recoveries for the year ended
December 31, 2018 improved when compared with the
prior year, reflecting loan sales and continued improvement
in home prices and delinquencies.
At December 31, 2018 and 2017, the Firm’s residential
mortgage portfolio included $21.6 billion and $20.2 billion,
respectively, of interest-only loans. These loans have an
interest-only payment period generally followed by an
adjustable-rate or fixed-rate fully amortizing payment
period to maturity and are typically originated as higher-
balance loans to higher-income borrowers. Performance of
this portfolio for the year ended December 31, 2018 was in
line with the performance of the broader residential
mortgage portfolio for the same period. The Firm continues
to monitor the risks associated with these loans.
The following table provides a summary of the Firm’s
residential mortgage portfolio insured and/or guaranteed
by U.S. government agencies, including loans held-for-sale.
The Firm monitors its exposure to certain potential
unrecoverable claim payments related to government
insured loans and considers this exposure in estimating the
allowance for loan losses.
(in millions)
Current
30-89 days past due
90 or more days past due
December 31,
2018
December 31,
2017
$
2,884 $
1,528
2,600
2,401
1,958
4,264
8,623
Total government guaranteed loans
$
7,012 $
Home equity: The home equity portfolio declined from
December 31, 2017 primarily reflecting loan paydowns.
The amount of 30+ day delinquencies decreased from
December 31, 2017. Nonaccrual loans decreased from
December 31, 2017 due to lower delinquencies. There was
a net recovery for the year ended December 31, 2018
compared to a net charge-off for the prior year, as a result
of continued improvement in home prices and lower
delinquencies.
At December 31, 2018, approximately 90% of the Firm’s
home equity portfolio consists of home equity lines of credit
(“HELOCs”) and the remainder consisted of home equity
loans (“HELOANs”). HELOANs are generally fixed-rate,
closed-end, amortizing loans, with terms ranging from 3–30
years. In general, HELOCs originated by the Firm are
revolving loans for a 10-year period, after which time the
HELOC recasts into a loan with a 20-year amortization
period.
The carrying value of HELOCs outstanding was $26 billion at
December 31, 2018. This amount included $12 billion of
HELOCs that have recast from interest-only to fully
amortizing payments or have been modified and $4 billion
of interest-only balloon HELOCs, which primarily mature
after 2030. The Firm manages the risk of HELOCs during
their revolving period by closing or reducing the undrawn
line to the extent permitted by law when borrowers are
exhibiting a material deterioration in their credit risk
profile.
108
JPMorgan Chase & Co./2018 Form 10-K
The Firm monitors risks associated with junior lien loans
where the borrower has a senior lien loan that is either
delinquent or has been modified. These loans are
considered “high-risk seconds” and are classified as
nonaccrual as they are considered to pose a higher risk of
default than other junior lien loans. At December 31, 2018,
the Firm estimated that the carrying value of its home
equity portfolio contained approximately $550 million of
current junior lien loans that were considered high-risk
seconds, compared with approximately $725 million at
December 31, 2017.
Auto: The auto loan portfolio, which predominantly consists
of prime-quality loans, declined when compared with
December 31, 2017, as paydowns and the charge-off or
liquidation of delinquent loans were predominantly offset
by new originations. Nonaccrual loans decreased from
December 31, 2017. Net charge-offs for the year ended
December 31, 2018 declined when compared with the prior
year primarily as a result of an incremental adjustment
recorded in 2017 in accordance with regulatory guidance
regarding the timing of loss recognition for certain loans in
bankruptcy and loans where assets were acquired in loan
satisfactions.
Consumer & Business banking: Consumer & Business
Banking loans increased when compared with
December 31, 2017 due to loan originations,
predominantly offset by paydowns and charge-offs of
delinquent loans. Nonaccrual loans and net charge-offs
decreased when compared with the prior year.
Purchased credit-impaired loans: PCI loans represent
certain loans that were acquired and deemed to be credit-
impaired on the acquisition date. PCI loans decreased from
December 31, 2017 due to portfolio run off and loan sales.
As of December 31, 2018, approximately 10% of the
option ARM PCI loans were delinquent and approximately
69% of the portfolio had been modified into fixed-rate, fully
amortizing loans. The borrowers for substantially all of the
remaining option ARM loans are making amortizing
payments, although such payments are not necessarily fully
amortizing. This latter group of loans is subject to the risk of
payment shock due to future payment recast. Default rates
generally increase on option ARM loans when payment
recast results in a payment increase. The expected increase
in default rates is considered in the Firm’s quarterly
impairment assessment.
The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or
the allowance for loan losses.
Summary of PCI loans lifetime principal loss estimates
December 31, (in billions)
Home equity
Prime mortgage
Subprime mortgage
Option ARMs
Total
Lifetime loss estimates(a)
2017
2018
Life-to-date liquidation losses(b)
2018
2017
$
$
14.1
4.1
3.3
10.3
31.8
$
$
14.2
4.0
3.3
10.0
31.5
$
$
13.0
3.9
3.2
9.9
30.0
$
$
12.9
3.8
3.1
9.7
29.5
(a) Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses
recognized subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was
$512 million and $842 million at December 31, 2018 and 2017, respectively.
(b) Represents both realization of loss upon loan resolution and any principal forgiven upon modification.
For further information on the Firm’s PCI loans, including write-offs, refer to Note 12.
Geographic composition of residential real estate loans
At December 31, 2018, $160.3 billion, or 63% of the total
retained residential real estate loan portfolio, excluding
mortgage loans insured by U.S. government agencies and
PCI loans, were concentrated in California, New York,
Illinois, Texas and Florida, compared with $152.8 billion, or
63%, at December 31, 2017. For additional information on
the geographic composition of the Firm’s residential real
estate loans, refer to Note 12.
Current estimated loan-to-values of residential real
estate loans
Average current estimated loan-to-value (“LTV”) ratios have
declined consistent with improvements in home prices,
customer pay downs, and charge-offs or liquidations of
higher LTV loans. For further information on current
estimated LTVs of residential real estate loans, refer to Note
12.
Loan modification activities for residential real estate
loans
The performance of modified loans generally differs by
product type due to differences in both the credit quality
and the types of modifications provided. Performance
metrics for modifications to the residential real estate
portfolio, excluding PCI loans, that have been seasoned
more than six months show weighted-average redefault
rates of 22% for residential mortgages and 20% for home
equity. Performance metrics for modifications to the PCI
residential real estate portfolio that have been seasoned
more than six months show weighted average redefault
rates of 19% for home equity, 18% for prime mortgages,
16% for option ARMs and 32% for subprime mortgages.
The cumulative redefault rates reflect the performance of
modifications completed from October 1, 2009 through
December 31, 2018.
JPMorgan Chase & Co./2018 Form 10-K
109
Management’s discussion and analysis
Certain modified loans have interest rate reset provisions
(“step-rate modifications”) where the interest rates on
these loans generally began to increase commencing in
2014 by 1% per year, and will continue to do so until the
rate reaches a specified cap. The cap on these loans is
typically at a prevailing market interest rate for a fixed-rate
mortgage loan as of the modification date. At December 31,
2018, the carrying value of non-PCI loans and the unpaid
principal balance of PCI loans modified in step-rate
modifications, which have not yet met their specified caps,
were $2 billion and $3 billion, respectively. The Firm
continues to monitor this risk exposure and the impact of
these potential interest rate increases is considered in the
Firm’s allowance for loan losses.
The following table presents information as of
December 31, 2018 and 2017, relating to modified
retained residential real estate loans for which concessions
have been granted to borrowers experiencing financial
difficulty. For further information on modifications for the
years ended December 31, 2018 and 2017, refer to Note
12.
Modified residential real estate loans
2018
2017
Retained
loans
Nonaccrual
retained
loans(d)
Retained
loans
Nonaccrual
retained
loans(d)
December 31,
(in millions)
Modified residential
real estate loans,
excluding PCI loans(a)(b)
Residential mortgage
$ 4,565 $
1,459 $ 5,620 $
2,012
955
2,118
Home equity
Total modified
residential real estate
loans, excluding PCI
loans
Modified PCI loans(c)
Home equity
Prime mortgage
Subprime mortgage
Option ARMs
$ 6,577 $
2,414 $ 7,738 $
2,775
$ 2,086
NA $ 2,277
3,179
2,041
6,410
NA
NA
NA
4,490
2,678
8,276
1,743
1,032
NA
NA
NA
NA
NA
Total modified PCI loans $13,716
NA $17,721
(a) Amounts represent the carrying value of modified residential real
estate loans.
(b) At December 31, 2018 and 2017, $4.1 billion and $3.8 billion,
respectively, of loans modified subsequent to repurchase from Ginnie
Mae in accordance with the standards of the appropriate government
agency (i.e., Federal Housing Administration (“FHA”), U.S. Department
of Veterans Affairs (“VA”), Rural Housing Service of the U.S.
Department of Agriculture (“RHS”)) are not included in the table
above. When such loans perform subsequent to modification in
accordance with Ginnie Mae guidelines, they are generally sold back
into Ginnie Mae loan pools. Modified loans that do not re-perform
become subject to foreclosure. For additional information about sales
of loans in securitization transactions with Ginnie Mae, refer to Note
14.
(c) Amounts represent the unpaid principal balance of modified PCI loans.
(d) As of December 31, 2018 and 2017, nonaccrual loans included $2.0
billion and $2.2 billion, respectively, of troubled debt restructurings
(“TDRs”) for which the borrowers were less than 90 days past due. For
additional information about loans modified in a TDR that are on
nonaccrual status, refer to Note 12.
Nonperforming assets
The following table presents information as of
December 31, 2018 and 2017, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets(a)
December 31, (in millions)
Nonaccrual loans(b)
Residential real estate
Other consumer
Total nonaccrual loans
Assets acquired in loan satisfactions
Real estate owned
Other
Total assets acquired in loan satisfactions
2018
2017
$ 3,088
$
3,785
373
3,461
424
4,209
210
30
240
225
40
265
Total nonperforming assets
$ 3,701
$
4,474
(a) At December 31, 2018 and 2017, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $2.6 billion and $4.3 billion, respectively, and
real estate owned (“REO”) insured by U.S. government agencies of $75
million and $95 million, respectively. These amounts have been
excluded based upon the government guarantee.
(b) Excludes PCI loans which are accounted for on a pool basis. Since each
pool is accounted for as a single asset with a single composite interest
rate and an aggregate expectation of cash flows, the past-due status of
the pools, or that of individual loans within the pools, is not
meaningful. The Firm is recognizing interest income on each pool of
loans as each of the pools is performing.
Nonaccrual loans in the residential real estate portfolio at
December 31, 2018 decreased to $3.1 billion from $3.8
billion at December 31, 2017, of which 24% and 26% were
greater than 150 days past due, respectively. In the
aggregate, the unpaid principal balance of residential real
estate loans greater than 150 days past due was charged
down by approximately 32% and 40% to the estimated net
realizable value of the collateral at December 31, 2018 and
2017, respectively.
Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans for
the years ended December 31, 2018 and 2017.
Nonaccrual loan activity
Year ended December 31,
(in millions)
Beginning balance
Additions
Reductions:
Principal payments and other(a)
Charge-offs
Returned to performing status
Foreclosures and other liquidations
Total reductions
Net changes
Ending balance
2018
4,209 $
2,799
1,407
468
1,399
273
3,547
(748)
3,461 $
2017
4,820
3,525
1,577
699
1,509
351
4,136
(611)
4,209
$
$
(a) Other reductions includes loan sales.
Active and suspended foreclosure: For information on
loans that were in the process of active or suspended
foreclosure, refer to Note 12.
110
JPMorgan Chase & Co./2018 Form 10-K
Credit card
Total credit card loans increased from December 31, 2017
due to new account growth and higher sales volume. The
December 31, 2018 30+ day delinquency rate increased to
1.83% from 1.80% at December 31, 2017, but the
December 31, 2018 90+ day delinquency rate of 0.92%
was flat compared to December 31, 2017. Net charge-offs
increased for the year ended December 31, 2018 when
compared with the prior year, primarily due to the
seasoning of more recent vintages with higher loss rates, as
anticipated given underwriting standards at the time of
origination.
Consistent with the Firm’s policy, all credit card loans
typically remain on accrual status until charged off.
However, the Firm establishes an allowance, which is offset
against loans and reduces interest income, for the
estimated uncollectible portion of accrued and billed
interest and fee income.
Geographic and FICO composition of credit card loans
At December 31, 2018, $71.2 billion, or 45% of the total
retained credit card loan portfolio, were concentrated in
California, Texas, New York, Florida and Illinois, compared
with $67.2 billion, or 45%, at December 31, 2017. For
additional information on the geographic and FICO
composition of the Firm’s credit card loans, refer to Note
12.
Modifications of credit card loans
At December 31, 2018 and 2017, the Firm had $1.3 billion
and $1.2 billion, respectively, of credit card loans
outstanding that have been modified in TDRs. For additional
information about loan modification programs to
borrowers, refer to Note 12.
JPMorgan Chase & Co./2018 Form 10-K
111
Management’s discussion and analysis
WHOLESALE CREDIT PORTFOLIO
In its wholesale businesses, the Firm is exposed to credit
risk primarily through its underwriting, lending, market-
making, and hedging activities with and for clients and
counterparties, as well as through various operating
services (such as cash management and clearing activities),
securities financing activities and cash placed with banks. A
portion of the loans originated or acquired by the Firm’s
wholesale businesses is generally retained on the balance
sheet. The Firm distributes a significant percentage of the
loans that it originates into the market as part of its
syndicated loan business and to manage portfolio
concentrations and credit risk.
The credit quality of the wholesale portfolio was stable for
the year ended December 31, 2018, characterized by low
levels of criticized exposure, nonaccrual loans and charge-
offs. Refer to the industry discussion on pages 113–115 for
further information. Retained loans increased across all
wholesale lines of business, primarily driven by commercial
and industrial and financial institution clients in CIB, and
Wealth Management clients globally in AWM. The wholesale
portfolio is actively managed, in part by conducting
ongoing, in-depth reviews of client credit quality and
transaction structure inclusive of collateral where
applicable, and of industry, product and client
concentrations.
In the following tables, the Firm’s wholesale credit portfolio
includes exposure held in CIB, CB, AWM and Corporate, and
excludes all exposure managed by CCB.
Wholesale credit portfolio
December 31,
(in millions)
Loans retained
Loans held-for-sale
Loans at fair value
Credit exposure
Nonperforming(c)
2018
2017
2018
2017
$439,162 $402,898
$ 1,150 $ 1,734
11,877
3,151
3,099
2,508
—
220
—
—
Loans – reported
454,190
408,505
1,370
1,734
Derivative receivables
54,213
56,523
30,063
26,139
60
—
130
—
Receivables from
customers and other(a)
Total wholesale credit-
related assets
Lending-related
commitments
Total wholesale credit
exposure
Credit derivatives used
538,466
491,167
1,430
1,864
387,813
370,098
469
731
$926,279 $861,265
$ 1,899 $ 2,595
in credit portfolio
management activities(b) $ (12,682) $ (17,609) $
— $
—
Liquid securities and
other cash collateral
held against derivatives
(15,322)
(16,108)
NA
NA
(a) Receivables from customers and other include $30.1 billion and $26.0
billion of held-for-investment margin loans at December 31, 2018 and
2017, respectively, to prime brokerage customers in CIB and AWM;
these are classified in accrued interest and accounts receivable on the
Consolidated balance sheets.
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives used to manage both performing and
nonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. For additional
information, refer to Credit derivatives on page 119, and Note 5.
(c) Excludes assets acquired in loan satisfactions.
112
JPMorgan Chase & Co./2018 Form 10-K
The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2018 and
2017. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to the ratings assigned by S&P
and Moody’s. For additional information on wholesale loan portfolio risk ratings, refer to Note 12.
Wholesale credit exposure – maturity and ratings profile
Maturity profile(d)
Ratings profile
Due in 1
year or less
Due after
1 year
through
5 years
Due after 5
years
Total
Investment-
grade
AAA/Aaa to
BBB-/Baa3
Noninvestment-
grade
BB+/Ba1 &
below
Total
Total %
of IG
$ 138,458 $ 196,974 $ 103,730 $ 439,162
$
339,729
$
99,433
$ 439,162
77%
11,038
79,400
9,169
294,855
18,684
13,558
54,213
(15,322)
38,891
387,813
228,896
500,998
135,972
865,866
31,794
288,724
660,247
7,097
99,089
205,619
15,028
30,063
$ 910,957
54,213
(15,322)
38,891
387,813
865,866
15,028
30,063
$ 910,957
82
74
76
$
(447) $
(9,318) $
(2,917) $
(12,682) $
(11,213)
$
(1,469)
$ (12,682)
88%
Maturity profile(d)
Due in 1
year or less
Due after
1 year
through
5 years
Due after 5
years
Total
Investment-
grade
AAA/Aaa to
BBB-/Baa3
Ratings profile
Noninvestment-
grade
BB+/Ba1 &
below
Total
Total %
of IG
$ 121,643 $ 177,033 $ 104,222 $ 402,898
$
311,681
$
91,217
$ 402,898
77%
56,523
(16,108)
40,415
370,098
5,607
26,139
$ 845,157
32,373
274,127
618,181
8,042
95,971
195,230
56,523
(16,108)
40,415
370,098
813,411
5,607
26,139
$ 845,157
80
74
76
December 31, 2018
(in millions, except ratios)
Loans retained
Derivative receivables
Less: Liquid securities and other cash collateral
held against derivatives
Total derivative receivables, net of all collateral
Lending-related commitments
Subtotal
Loans held-for-sale and loans at fair value(a)
Receivables from customers and other
Total exposure – net of liquid securities and other
cash collateral held against derivatives
Credit derivatives used in credit portfolio
management activities(b)(c)
December 31, 2017
(in millions, except ratios)
Loans retained
Derivative receivables
Less: Liquid securities and other cash collateral
held against derivatives
Loans held-for-sale and loans at fair value(a)
Receivables from customers and other
Total exposure – net of liquid securities and other
cash collateral held against derivatives
Credit derivatives used in credit portfolio
management activities (b)(c)
Total derivative receivables, net of all collateral
9,882
10,463
Lending-related commitments
80,273
275,317
20,070
14,508
Subtotal
211,798
462,813
138,800
813,411
$
(1,807) $
(11,011) $
(4,791) $
(17,609) $
(14,984)
$
(2,625)
$ (17,609)
85%
(a) Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(b) These derivatives do not qualify for hedge accounting under U.S. GAAP.
(c) The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference
entity on which protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection used
in credit portfolio management activities are executed with investment-grade counterparties.
(d) The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivative
contracts that are in a receivable position at December 31, 2018, may become payable prior to maturity based on their cash flow profile or changes in
market conditions.
Wholesale credit exposure – industry exposures
The Firm focuses on the management and diversification of
its industry exposures, and pays particular attention to
industries with actual or potential credit concerns.
Exposures deemed criticized align with the U.S. banking
regulators’ definition of criticized exposures, which consist
of the special mention, substandard and doubtful
categories. The total criticized component of the portfolio,
excluding loans held-for-sale and loans at fair value, was
$12.1 billion at December 31, 2018, compared with $15.6
billion at December 31, 2017. The decrease was driven by
Oil & Gas, including credit quality improvements in the
portfolio, and a loan sale in the first quarter of 2018.
JPMorgan Chase & Co./2018 Form 10-K
113
Management’s discussion and analysis
Below are summaries of the Firm’s exposures as of December 31, 2018 and 2017. The industry of risk category is generally
based on the client or counterparty’s primary business activity. For additional information on industry concentrations, refer to
Note 4.
As a result of continued growth and the relative size of the portfolio, exposure to “Individuals,” which was previously disclosed
in “All Other,” is now separately disclosed in the table below as “Individuals and Individual Entities.” This category
predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment companies
and personal and testamentary trusts. Predominantly all of this exposure is secured, largely by cash and marketable securities.
In the table below, prior period amounts have been revised to conform with the current period presentation.
Wholesale credit exposure – industries(a)
As of or for the year ended
December 31, 2018
(in millions)
Credit
exposure(f)
Investment-
grade
Noncriticized
Criticized
performing
Criticized
nonperforming
Noninvestment-grade
Selected metrics
30 days or
more past
due and
accruing
loans
Net charge-
offs/
(recoveries)
Credit
derivative
hedges(g)
Liquid
securities
and other
cash
collateral
held against
derivative
receivables
Real Estate
$
143,316 $
117,988 $
24,174 $
1,019 $
135 $
70 $
(20) $
(2) $
Individuals and Individual Entities(b)
Consumer & Retail
Technology, Media &
Telecommunications
Industrials
Banks & Finance Cos
Healthcare
Asset Managers
Oil & Gas
Utilities
State & Municipal Govt(c)
Central Govt
Automotive
Chemicals & Plastics
Transportation
Metals & Mining
Insurance
Financial Markets Infrastructure
Securities Firms
All other(d)
Subtotal
97,077
94,815
72,646
58,528
49,920
48,142
42,807
42,600
28,172
27,351
18,456
17,339
16,035
15,660
15,359
12,639
7,484
4,558
86,581
60,678
46,334
38,487
34,120
36,687
36,722
23,356
23,558
26,746
18,251
9,637
11,490
10,508
8,188
9,777
6,746
3,099
68,284
64,664
10,164
31,901
24,081
18,594
15,496
10,625
6,067
17,451
4,326
603
124
7,310
4,427
4,699
6,767
2,830
738
1,459
3,606
174
2,033
2,170
1,311
299
761
4
1,158
138
2
81
392
118
393
385
—
—
—
12
158
203
61
136
5
69
14
635
150
—
—
—
—
60
19
32
—
—
2
703
43
8
171
11
23
10
6
—
18
4
1
4
21
1
—
—
—
2
12
55
12
20
—
(5)
—
36
38
(1)
—
—
—
6
—
—
—
—
2
—
(248)
(1,011)
(207)
(575)
(150)
—
(248)
(142)
—
(7,994)
(125)
—
(31)
(174)
(36)
—
(158)
(1,581)
(1)
(915)
(14)
(12)
(29)
(2,290)
(133)
(5,829)
—
(60)
(42)
(2,130)
—
—
(112)
(22)
(2,080)
(26)
(823)
(804)
$
881,188 $
673,617 $
195,442 $
10,450 $
1,679 $
1,096 $
155 $ (12,682) $
(15,322)
Loans held-for-sale and loans at fair
value
Receivables from customers and other
Total(e)
15,028
30,063
$
926,279
114
JPMorgan Chase & Co./2018 Form 10-K
As of or for the year ended
December 31, 2017
(in millions)
Credit
exposure(f)
Investment-
grade
Noncriticized
Criticized
performing
Criticized
nonperforming
Noninvestment-grade
Selected metrics
30 days or
more past
due and
accruing
loans
Net charge-
offs/
(recoveries)
Credit
derivative
hedges(g)
Liquid
securities
and other
cash
collateral
held against
derivative
receivables
Real Estate
$
139,409 $
115,401 $
23,012 $
859 $
137 $
254 $
(4) $
Individuals and Individual Entities(b)
Consumer & Retail
Technology, Media &
Telecommunications
Industrials
Banks & Finance Cos
Healthcare
Asset Managers
Oil & Gas
Utilities
State & Municipal Govt(c)
Central Govt
Automotive
Chemicals & Plastics
Transportation
Metals & Mining
Insurance
Financial Markets Infrastructure
Securities Firms
All other(d)
Subtotal
87,371
87,679
59,274
55,272
49,037
55,997
32,531
41,317
29,317
28,633
19,182
14,820
15,945
15,797
14,171
14,089
5,036
4,113
77,029
55,737
36,510
37,198
34,654
42,643
28,029
21,430
24,486
27,977
18,741
9,321
11,107
9,870
6,989
11,028
4,775
2,559
60,529
57,081
10,024
29,619
20,453
16,770
13,767
12,731
4,484
14,854
4,383
656
376
5,278
4,764
5,302
6,822
2,981
261
1,553
3,259
80
1,791
2,258
1,159
612
585
4
4,046
227
—
65
221
74
527
321
—
—
1
180
238
532
53
145
4
38
14
987
221
—
—
—
—
98
39
80
—
—
9
899
30
14
150
1
82
27
22
—
12
4
10
4
9
3
1
—
—
2
— $
—
(275)
(910)
(196)
(1,216)
—
—
(747)
(160)
(130)
(10,095)
(284)
—
(32)
(316)
(157)
—
(274)
10
34
(12)
(1)
6
(1)
—
71
11
5
—
1
—
14
(13)
—
—
—
(2)
(2,817)
(2)
(762)
(9)
(19)
(21)
(3,174)
(207)
(5,290)
(1)
(56)
(524)
(2,520)
—
—
(131)
(1)
(2,195)
(23)
(335)
(838)
$
829,519 $
632,565 $
181,349 $
13,010 $
2,595 $
1,524 $
119 $ (17,609) $
(16,108)
Loans held-for-sale and loans at fair
value
Receivables from customers and other
Total(e)
5,607
26,139
$
861,265
(a) The industry rankings presented in the table as of December 31, 2017, are based on the industry rankings of the corresponding exposures at
December 31, 2018, not actual rankings of such exposures at December 31, 2017.
(b) Individuals and Individual Entities predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment
companies and personal and testamentary trusts.
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2018 and 2017, noted above, the
Firm held: $7.8 billion and $9.8 billion, respectively, of trading securities; $37.7 billion and $32.3 billion, respectively, of AFS securities; and $4.8 billion
and $14.4 billion, respectively, of held-to-maturity (“HTM”) securities, issued by U.S. state and municipal governments. For further information, refer to
Note 2 and Note 10.
(d) All other includes: SPEs and Private education and civic organizations, representing approximately 92% and 8%, respectively, at December 31, 2018 and
90% and 10%, respectively, at December 31, 2017.
(e) Excludes cash placed with banks of $268.1 billion and $421.0 billion, at December 31, 2018 and 2017, respectively, which is predominantly placed with
various central banks, primarily Federal Reserve Banks.
(f) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against
derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(g) Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives
do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices.
JPMorgan Chase & Co./2018 Form 10-K
115
Management’s discussion and analysis
Real Estate
Presented below is additional information on the Real Estate industry to which the Firm has significant exposure.
Real Estate exposure increased $3.9 billion to $143.3 billion during the year ended December 31, 2018, while the investment-
grade percentage of the portfolio remained relatively flat at 82%. For further information on Real Estate loans, refer to Note
12.
(in millions, except ratios)
Multifamily(a)
Other
Total Real Estate Exposure(b)
(in millions, except ratios)
Multifamily(a)
Other
Total Real Estate Exposure(b)
Loans and
Lending-related
Commitments
$
85,683
57,469
143,152
Loans and
Lending-related
Commitments
$
84,635
54,620
139,255
December 31, 2018
Derivative
Receivables
Credit
exposure
$
$
33
131
164
$
85,716
57,600
143,316
December 31, 2017
Derivative
Receivables
Credit
exposure
34
120
154
$
84,669
54,740
139,409
%
Investment-
grade
89%
72
82
%
Investment-
grade
89%
74
83
% Drawn(c)
92%
63
81
% Drawn(c)
92%
66
82
(a) Multifamily exposure is largely in California.
(b) Real Estate exposure is predominantly secured; unsecured exposure is predominantly investment-grade.
(c) Represents drawn exposure as a percentage of credit exposure.
Loans
In the normal course of its wholesale business, the Firm
provides loans to a variety of clients, ranging from large
corporate and institutional clients to high-net-worth
individuals. For a further discussion on loans, including
information on credit quality indicators and sales of loans,
refer to Note 12.
The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2018 and
2017.
Wholesale nonaccrual loan activity
Year ended December 31, (in millions)
Beginning balance
Additions
Reductions:
Paydowns and other
Gross charge-offs
Returned to performing status
Sales
Total reductions
Net changes
Ending balance
2018
2017
$
1,734 $
2,063
1,188
1,482
692
299
234
327
1,552
(364)
1,137
200
189
285
1,811
(329)
$
1,370 $
1,734
The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, for
the years ended December 31, 2018 and 2017. The
amounts in the table below do not include gains or losses
from sales of nonaccrual loans.
Wholesale net charge-offs/(recoveries)
Year ended December 31,
(in millions, except ratios)
2018
2017
Loans – reported
Average loans retained
$ 416,828
$ 392,263
Gross charge-offs
Gross recoveries
Net charge-offs
Net charge-off rate
313
(158)
155
212
(93)
119
0.04%
0.03%
116
JPMorgan Chase & Co./2018 Form 10-K
Lending-related commitments
The Firm uses lending-related financial instruments, such as
commitments (including revolving credit facilities) and
guarantees, to address the financing needs of its clients.
The contractual amounts of these financial instruments
represent the maximum possible credit risk should the
clients draw down on these commitments or the Firm fulfill
its obligations under these guarantees, and the clients
subsequently fail to perform according to the terms of these
contracts. Most of these commitments and guarantees are
refinanced, extended, cancelled, or expire without being
drawn upon or a default occurring. In the Firm’s view, the
total contractual amount of these wholesale lending-related
commitments is not representative of the Firm’s expected
future credit exposure or funding requirements. For further
information on wholesale lending-related commitments,
refer to Note 27.
Clearing services
The Firm provides clearing services for clients entering into
certain securities and derivative contracts. Through the
provision of these services the Firm is exposed to the risk of
non-performance by its clients and may be required to
share in losses incurred by CCPs. Where possible, the Firm
seeks to mitigate its credit risk to its clients through the
collection of adequate margin at inception and throughout
the life of the transactions and can also cease provision of
clearing services if clients do not adhere to their obligations
under the clearing agreement. For further discussion of
clearing services, refer to Note 27.
Derivative contracts
Derivatives enable clients and counterparties to manage
risks including credit risk and risks arising from fluctuations
in interest rates, foreign exchange, equities, and
commodities. The Firm makes markets in derivatives in
order to meet these needs and uses derivatives to manage
certain risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. The Firm also uses
derivative instruments to manage its own credit and other
market risk exposure. The nature of the counterparty and
the settlement mechanism of the derivative affect the credit
risk to which the Firm is exposed. For OTC derivatives the
Firm is exposed to the credit risk of the derivative
counterparty. For exchange-traded derivatives (“ETD”),
such as futures and options, and “cleared” over-the-counter
(“OTC-cleared”) derivatives, the Firm is generally exposed
to the credit risk of the relevant CCP. Where possible, the
Firm seeks to mitigate its credit risk exposures arising from
derivative contracts through the use of legally enforceable
master netting arrangements and collateral agreements.
For a further discussion of derivative contracts,
counterparties and settlement types, refer to Note 5.
The following table summarizes the net derivative
receivables for the periods presented.
Derivative receivables
December 31, (in millions)
Total, net of cash collateral
Liquid securities and other cash collateral
held against derivative receivables(a)
Total, net of all collateral
2018
2017
54,213 $
56,523
(15,322)
(16,108)
38,891 $
40,415
$
$
(a) Includes collateral related to derivative instruments where appropriate
legal opinions have not been either sought or obtained with respect to
master netting agreements.
The fair value of derivative receivables reported on the
Consolidated balance sheets were $54.2 billion and $56.5
billion at December 31, 2018 and 2017, respectively.
Derivative receivables represent the fair value of the
derivative contracts after giving effect to legally enforceable
master netting agreements and cash collateral held by the
Firm. However, in management’s view, the appropriate
measure of current credit risk should also take into
consideration additional liquid securities (primarily U.S.
government and agency securities and other group of seven
nations (“G7”) government securities) and other cash
collateral held by the Firm aggregating $15.3 billion and
$16.1 billion at December 31, 2018 and 2017,
respectively, that may be used as security when the fair
value of the client’s exposure is in the Firm’s favor.
In addition to the collateral described in the preceding
paragraph, the Firm also holds additional collateral
(primarily cash, G7 government securities, other liquid
government-agency and guaranteed securities, and
corporate debt and equity securities) delivered by clients at
the initiation of transactions, as well as collateral related to
contracts that have a non-daily call frequency and collateral
that the Firm has agreed to return but has not yet settled as
of the reporting date. Although this collateral does not
reduce the balances and is not included in the table above,
it is available as security against potential exposure that
could arise should the fair value of the client’s derivative
contracts move in the Firm’s favor. The derivative
receivables fair value, net of all collateral, also does not
include other credit enhancements, such as letters of credit.
For additional information on the Firm’s use of collateral
agreements, refer to Note 5.
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture the
potential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, three
measures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent (“DRE”), and Average exposure
(“AVG”). These measures all incorporate netting and
collateral benefits, where applicable.
Peak represents a conservative measure of potential
exposure to a counterparty calculated in a manner that is
broadly equivalent to a 97.5% confidence level over the life
of the transaction. Peak is the primary measure used by the
Firm for setting of credit limits for derivative contracts,
senior management reporting and derivatives exposure
management. DRE exposure is a measure that expresses the
risk of derivative exposure on a basis intended to be
JPMorgan Chase & Co./2018 Form 10-K
117
credit derivative contracts, as well as interest rate, foreign
exchange, equity and commodity derivative contracts.
The accompanying graph shows exposure profiles to the
Firm’s current derivatives portfolio over the next 10 years
as calculated by the Peak, DRE and AVG metrics. The three
measures generally show that exposure will decline after
the first year, if no new trades are added to the portfolio.
Exposure profile of derivatives measures
December 31, 2018
(in billions)
Management’s discussion and analysis
equivalent to the risk of loan exposures. DRE is a less
extreme measure of potential credit loss than Peak and is
used as an input for aggregating derivative credit risk
exposures with loans and other credit risk.
Finally, AVG is a measure of the expected fair value of the
Firm’s derivative receivables at future time periods,
including the benefit of collateral. AVG over the total life of
the derivative contract is used as the primary metric for
pricing purposes and is used to calculate credit risk capital
and the CVA, as further described below.
The fair value of the Firm’s derivative receivables
incorporates CVA to reflect the credit quality of
counterparties. CVA is based on the Firm’s AVG to a
counterparty and the counterparty’s credit spread in the
credit derivatives market. The Firm believes that active risk
management is essential to controlling the dynamic credit
risk in the derivatives portfolio. In addition, the Firm’s risk
management process takes into consideration the potential
impact of wrong-way risk, which is broadly defined as the
potential for increased correlation between the Firm’s
exposure to a counterparty (AVG) and the counterparty’s
credit quality. Many factors may influence the nature and
magnitude of these correlations over time. To the extent
that these correlations are identified, the Firm may adjust
the CVA associated with that counterparty’s AVG. The Firm
risk manages exposure to changes in CVA by entering into
The following table summarizes the ratings profile of the Firm’s derivative receivables, including credit derivatives, net of all
collateral, at the dates indicated. The ratings scale is based on the Firm’s internal ratings, which generally correspond to the
ratings as assigned by S&P and Moody’s.
Ratings profile of derivative receivables
Rating equivalent
December 31,
(in millions, except ratios)
AAA/Aaa to AA-/Aa3
A+/A1 to A-/A3
BBB+/Baa1 to BBB-/Baa3
BB+/Ba1 to B-/B3
CCC+/Caa1 and below
Total
2018
2017
Exposure net of
all collateral
% of exposure net
of all collateral
Exposure net of
all collateral
% of exposure net
of all collateral
$
$
11,831
7,428
12,536
6,373
723
38,891
31% $
19
32
16
2
100% $
11,529
6,919
13,925
7,397
645
40,415
29%
17
34
18
2
100%
As previously noted, the Firm uses collateral agreements to
mitigate counterparty credit risk. The percentage of the
Firm’s over-the-counter derivative transactions subject to
collateral agreements — excluding foreign exchange spot
trades, which are not typically covered by collateral
agreements due to their short maturity and centrally
cleared trades that are settled daily — was approximately
90% at both December 31, 2018, and December 31, 2017.
118
JPMorgan Chase & Co./2018 Form 10-K
Credit derivatives
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker, and second, as an
end-user, to manage the Firm’s own credit risk associated
with various exposures. For a detailed description of credit
derivatives, refer to Credit derivatives in Note 5.
Credit portfolio management activities
Included in the Firm’s end-user activities are credit
derivatives used to mitigate the credit risk associated with
traditional lending activities (loans and unfunded
commitments) and derivatives counterparty exposure in the
Firm’s wholesale businesses (collectively, “credit portfolio
management” activities). Information on credit portfolio
management activities is provided in the table below. For
further information on derivatives used in credit portfolio
management activities, refer to Credit derivatives in Note 5.
The Firm also uses credit derivatives as an end-user to
manage other exposures, including credit risk arising from
certain securities held in the Firm’s market-making
businesses. These credit derivatives are not included in
credit portfolio management activities; for further
information on these credit derivatives as well as credit
derivatives used in the Firm’s capacity as a market-maker in
credit derivatives, refer to Credit derivatives in Note 5.
Credit derivatives used in credit portfolio management
activities
December 31, (in millions)
Credit derivatives used to manage:
Notional amount of
protection
purchased and sold (a)
2018
2017
Loans and lending-related commitments
$
1,272
$
1,867
Derivative receivables
11,410
15,742
Credit derivatives used in credit portfolio
management activities
$
12,682
$
17,609
(a) Amounts are presented net, considering the Firm’s net protection
purchased or sold with respect to each underlying reference entity or
index.
The credit derivatives used in credit portfolio management
activities do not qualify for hedge accounting under U.S.
GAAP; these derivatives are reported at fair value, with
gains and losses recognized in principal transactions
revenue. In contrast, the loans and lending-related
commitments being risk-managed are accounted for on an
accrual basis. This asymmetry in accounting treatment,
between loans and lending-related commitments and the
credit derivatives used in credit portfolio management
activities, causes earnings volatility that is not
representative, in the Firm’s view, of the true changes in
value of the Firm’s overall credit exposure.
The effectiveness of credit default swaps (“CDS”) as a hedge
against the Firm’s exposures may vary depending on a
number of factors, including the named reference entity
(i.e., the Firm may experience losses on specific exposures
that are different than the named reference entities in the
purchased CDS); the contractual terms of the CDS (which
may have a defined credit event that does not align with an
actual loss realized by the Firm); and the maturity of the
Firm’s CDS protection (which in some cases may be shorter
than the Firm’s exposures). However, the Firm generally
seeks to purchase credit protection with a maturity date
that is the same or similar to the maturity date of the
exposure for which the protection was purchased, and
remaining differences in maturity are actively monitored
and managed by the Firm.
JPMorgan Chase & Co./2018 Form 10-K
119
Management’s discussion and analysis
ALLOWANCE FOR CREDIT LOSSES
The Firm’s allowance for credit losses covers the retained
consumer and wholesale loan portfolios, as well as the
Firm’s wholesale and certain consumer lending-related
commitments.
For further information on the components of the allowance
for credit losses and related management judgments, refer
to Critical Accounting Estimates Used by the Firm on pages
141-143 and Note 13.
At least quarterly, the allowance for credit losses is
reviewed by the CRO, the CFO and the Controller of the
Firm. As of December 31, 2018, JPMorgan Chase deemed
the allowance for credit losses to be appropriate and
sufficient to absorb probable credit losses inherent in the
portfolio.
The allowance for credit losses decreased compared with
December 31, 2017 driven by:
• a reduction in the consumer allowance due to a $250
million reduction in the CCB allowance for loan losses in
the residential real estate PCI portfolio, reflecting
continued improvement in home prices and lower
delinquencies, as well as a $187 million reduction in the
allowance for write-offs of PCI loans partially due to loan
sales. These reductions were largely offset by a $300
million addition to the allowance in the credit card
portfolio, due to loan growth and higher loss rates, as
anticipated.
For additional information on the consumer and wholesale
credit portfolios, refer to Consumer Credit Portfolio on
pages 106–111, Wholesale Credit Portfolio on pages 112–
119 and Note 12.
120
JPMorgan Chase & Co./2018 Form 10-K
Summary of changes in the allowance for credit losses
Year ended December 31,
(in millions, except ratios)
Allowance for loan losses
2018
2017
Consumer,
excluding
credit card
Credit card
Wholesale
Total
Consumer,
excluding
credit card
Credit card
Wholesale
Total
Beginning balance at January 1,
$
4,579
$
4,884
$
4,141
$ 13,604
$
5,198
$
4,034
$
4,544
$ 13,776
Gross charge-offs
Gross recoveries
Net charge-offs(a)
Write-offs of PCI loans(b)
Provision for loan losses
Other
Ending balance at December 31,
Impairment methodology
Asset-specific(c)
Formula-based
PCI
Total allowance for loan losses
Allowance for lending-related commitments
Beginning balance at January 1,
Provision for lending-related commitments
Other
Ending balance at December 31,
Impairment methodology
Asset-specific
Formula-based
Total allowance for lending-related
commitments(d)
Total allowance for credit losses
Memo:
$
$
$
$
$
$
$
$
1,025
(842)
183
187
(63)
—
4,146
196
2,162
1,788
$
$
5,011
(493)
4,518
—
4,818
—
5,184
440
4,744
—
313
(158)
155
—
130
(1)
6,349
(1,493)
4,856
187
4,885
(1)
$
$
4,115
$ 13,445
297
$
933
3,818
—
10,724
1,788
4,146
$
5,184
$
4,115
$ 13,445
33
$
— $
1,035
$
1,068
—
—
—
—
(14)
1
33
$
— $
1,022
— $
33
33
4,179
$
$
— $
—
99
923
— $
1,022
$
1,055
5,184
$
5,137
$ 14,500
(14)
1
1,055
99
956
$
$
1,779
(634)
1,145
86
613
(1)
4,579
246
2,108
2,225
$
$
4,521
(398)
4,123
—
4,973
—
4,884
383
4,501
—
212
(93)
119
—
(286)
2
6,512
(1,125)
5,387
86
5,300
1
$
$
4,141
$ 13,604
461
$
1,090
3,680
—
10,289
2,225
4,579
$
4,884
$
4,141
$ 13,604
26
$
7
—
33
—
33
33
4,612
$
$
$
$
—
—
—
—
—
—
—
4,884
$
1,052
$
1,078
(17)
—
1,035
187
848
$
$
(10)
—
1,068
187
881
1,035
$
1,068
5,176
$ 14,672
$
$
$
$
$
$
$
$
$
$
$
$
Retained loans, end of period
$ 373,637
$ 156,616
$ 439,162
$ 969,415
$ 372,553
$ 149,387
$ 402,898
$ 924,838
Retained loans, average
PCI loans, end of period
Credit ratios
374,395
145,606
416,828
936,829
366,798
139,918
392,263
898,979
24,034
—
3
24,037
30,576
—
3
30,579
Allowance for loan losses to retained loans
1.11%
3.31%
0.94%
1.39%
1.23%
3.27%
1.03%
1.47%
Allowance for loan losses to retained nonaccrual
loans(e)
Allowance for loan losses to retained nonaccrual
loans excluding credit card
Net charge-off rates(a)
Credit ratios, excluding residential real estate
PCI loans
Allowance for loan losses to
retained loans
Allowance for loan losses to retained
nonaccrual loans(e)
Allowance for loan losses to retained nonaccrual
loans excluding credit card
120
120
0.05
NM
NM
3.10
0.67
3.31
68
68
NM
NM
358
358
0.04
0.94
358
358
292
179
0.52
1.23
253
140
109
109
0.31
NM
NM
2.95
0.69
3.27
56
56
NM
NM
239
239
0.03
1.03
239
239
229
147
0.60
1.27
191
109
Net charge-off rates(a)
0.05%
3.10%
0.04%
0.53%
0.34%
2.95%
0.03%
0.62%
Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures.
(a) For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio transfer, the net charge-off rate for
Consumer, excluding credit card would have been 0.18%; total Firm would have been 0.55%; Consumer, excluding credit card and PCI loans would have
been 0.20%; and total Firm, excluding PCI would have been 0.57%.
(b) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as
purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool.
(c) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance
for loan losses modified in a TDR is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates.
(d) The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
(e) The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
JPMorgan Chase & Co./2018 Form 10-K
121
Management’s discussion and analysis
Provision for credit losses
The following table presents the components of the Firm’s provision for credit losses:
Year ended December 31,
(in millions)
Provision for loan losses
Provision for
lending-related commitments
Total provision for credit losses
2018
2017
2016
2018
2017
2016
2018
2017
Consumer, excluding credit card
$
(63) $
613 $
467
$
— $
7 $
— $
(63) $
620 $
Credit card
Total consumer
Wholesale
Total
4,818
4,755
130
4,973
5,586
(286)
4,042
4,509
571
—
—
—
7
(14)
(17)
$
4,885 $
5,300 $
5,080
$
(14) $
(10) $
—
—
281
281
4,818
4,755
116
4,973
5,593
(303)
$
4,871 $
5,290 $
5,361
2016
467
4,042
4,509
852
• in wholesale, the current period expense of $116 million
reflected additions to the allowance for loan losses from
select client downgrades,
largely offset by
– other net portfolio activity, including a reduction in the
allowance for loan losses related to a single name in
the Oil & Gas portfolio in the first quarter of 2018,
compared to a net benefit of $303 million in the prior
year. The prior year benefit reflected a reduction in the
allowance for loan losses on credit quality
improvements in the Oil & Gas, Natural Gas Pipelines,
and Metals and Mining portfolios.
Provision for credit losses
The provision for credit losses decreased for the year
ended December 31, 2018 as a result of a decline in the
consumer provision, partially offset by an increase in the
wholesale provision
• the decrease in the consumer, excluding credit card
portfolio in CCB was due to
– lower net charge-offs in the residential real estate
portfolio, largely driven by recoveries from loan sales,
and
– lower net charge-offs in the auto portfolio
partially offset by
– a $250 million reduction in the allowance for loan
losses in the residential real estate portfolio — PCI,
reflecting continued improvement in home prices and
lower delinquencies; the reduction was $75 million
lower than the prior year for the residential real estate
portfolio — non credit-impaired
• the prior year also included a net $218 million write-
down recorded in connection with the sale of the student
loan portfolio, and
• the decrease in the credit card portfolio was due to
– a $300 million addition to the allowance for loan
losses, reflecting loan growth and higher loss rates, as
anticipated; the addition was $550 million lower than
the prior year,
largely offset by
– higher net charge-offs due to seasoning of more recent
vintages, as anticipated, and
122
JPMorgan Chase & Co./2018 Form 10-K
INVESTMENT PORTFOLIO RISK MANAGEMENT
Investment portfolio risk is the risk associated with the loss
of principal or a reduction in expected returns on
investments arising from the investment securities portfolio
held predominantly by Treasury and CIO in connection with
the Firm’s balance sheet or asset-liability management
objectives or from principal investments managed in
various LOBs and Corporate in predominantly privately-held
financial instruments. Investments are typically intended to
be held over extended periods and, accordingly, the Firm
has no expectation for short-term realized gains with
respect to these investments.
Investment securities risk
Investment securities risk includes the exposure associated
with a default in the payment of principal and interest. This
risk is minimized given that Treasury and CIO substantially
invest in high-quality securities. At December 31, 2018, the
investment securities portfolio was $260.1 billion, and the
average credit rating of the securities comprising the
portfolio was AA+ (based upon external ratings where
available and where not available, based primarily upon
internal ratings that correspond to ratings as defined by
S&P and Moody’s). For further information on the
investment securities portfolio, refer to Corporate segment
results on pages 77–78 and Note 10. For further
information on the market risk inherent in the portfolio,
refer to Market Risk Management on pages 124–131. For
further information on related liquidity risk, refer to
Liquidity Risk on pages 95–100.
Governance and oversight
Investment securities risks are governed by the Firm’s Risk
Appetite framework, and discussed at the CIO, Treasury and
Corporate (CTC) Risk Committee with regular updates to the
DRPC.
The Firm’s independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investment securities in accordance with relevant policies.
Approved levels for investment securities are established
for each risk category, including capital and credit risks.
Principal investment risk
Principal investments are typically private non-traded
financial instruments representing ownership or other
forms of junior capital. Principal investments cover multiple
asset classes and are made either in stand-alone investing
businesses or as part of a broader business platform. In
general, new principal investments include tax-oriented
investments, as well as investments made to enhance or
accelerate LOB and Corporate strategic business initiatives.
The Firm’s principal investments are managed by the
various LOBs and Corporate and are reflected within their
respective financial results. Effective January 1, 2018, the
Firm adopted new accounting guidance related to the
recognition and measurement of financial assets, which
requires fair value adjustments upon observable price
changes to certain equity investments previously held at
cost in the principal investment portfolios. For additional
information, refer to Notes 1 and 2.
As of December 31, 2018 and 2017, the aggregate
carrying values of the principal investment portfolios were
$22.2 billion and $19.5 billion, respectively, which included
tax-oriented investments (e.g., affordable housing and
alternative energy investments) of $16.6 billion and $14.0
billion, respectively, and private equity, various debt and
equity instruments, and real assets of $5.6 billion and $5.5
billion, respectively.
Governance and oversight
The Firm’s approach to managing principal risk is consistent
with the Firm’s general risk governance structure. A
Firmwide risk policy framework exists for all principal
investing activities. All investments are approved by
investment committees that include executives who are
independent from the investing businesses.
The Firm’s independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investments in accordance with relevant policies. As part of
the risk governance structure, approved levels for
investments are established and monitored for each
relevant business or segment in order to manage the overall
size of the portfolios. The Firm also conducts stress testing
on these portfolios using specific scenarios that estimate
losses based on significant market moves and/or other risk
events.
JPMorgan Chase & Co./2018 Form 10-K
123
Management’s discussion and analysis
MARKET RISK MANAGEMENT
Market risk is the risk associated with the effect of changes
in market factors such as interest and foreign exchange
rates, equity and commodity prices, credit spreads or
implied volatilities, on the value of assets and liabilities held
for both the short and long term.
Market Risk Management
Market Risk Management monitors market risks throughout
the Firm and defines market risk policies and procedures.
The Market Risk Management function reports to the Firm’s
CRO.
Market Risk Management seeks to manage risk, facilitate
efficient risk/return decisions, reduce volatility in operating
performance and provide transparency into the Firm’s
market risk profile for senior management, the Board of
Directors and regulators. Market Risk Management is
responsible for the following functions:
• Establishment of a market risk policy framework
• Independent measurement, monitoring and control of
line of business, Corporate, and firmwide market risk
• Definition, approval and monitoring of limits
• Performance of stress testing and qualitative risk
assessments
Risk measurement
Measures used to capture market risk
There is no single measure to capture market risk and
therefore the Firm uses various metrics, both statistical and
nonstatistical, to assess risk including:
• Value-at-risk (VaR)
• Stress testing
• Profit and loss drawdowns
• Earnings-at-risk
• Other sensitivity-based measures
Risk monitoring and control
Market risk exposure is managed primarily through a series
of limits set in the context of the market environment and
business strategy. In setting limits, the Firm takes into
consideration factors such as market volatility, product
liquidity, accommodation of client business, and
management experience. The Firm maintains different
levels of limits. Firm level limits include VaR and stress
limits. Similarly, line of business and Corporate limits
include VaR and stress limits and may be supplemented by
certain nonstatistical risk measures such as profit and loss
drawdowns. Limits may also be set within the lines of
business and Corporate, as well as at the portfolio and/or
legal entity level.
Market Risk Management sets limits and regularly reviews
and updates them as appropriate, with any changes
approved by line of business or Corporate management and
Market Risk Management. Senior management, including
the Firm’s CEO and CRO, are responsible for reviewing and
approving certain of these risk limits on an ongoing basis.
Limits that have not been reviewed within specified time
periods by Market Risk Management are escalated to senior
management. The lines of business and Corporate are
responsible for adhering to established limits against which
exposures are monitored and reported.
Limit breaches are required to be reported in a timely
manner to limit approvers, which include Market Risk
Management and senior management. In the event of a
breach, Market Risk Management consults with senior
management of the Firm and of the line of business or
Corporate to determine the appropriate course of action
required to return the applicable positions to compliance,
which may include a reduction in risk in order to remedy the
breach or granting a temporary increase in limits to
accommodate an expected increase in client activity and/or
market volatility. Certain Firm, Corporate or line of
business-level limits that have been breached are escalated
to senior management, the LOB Risk Committee, and/or the
Firmwide Risk Committee.
124
JPMorgan Chase & Co./2018 Form 10-K
The following table summarizes, by line of business and Corporate, the predominant business activities that give rise to market
risks, and certain measures used to capture those risks.
Predominant business activities that give rise to market risk by line of business and Corporate
LOBs and
Corporate
Positions included in Risk
Management VaR
Predominant business
activities(a)
Positions included in
earnings-at-risk
Related market risks
Positions included in other
sensitivity-based measures
CCB
• Services mortgage
loans
• Originates loans and
takes deposits
• Non-linear risk primarily
from prepayment options
embedded in mortgages
and changes in the
probability of newly
originated mortgage
commitments actually
closing
• Basis risk from
• Retained loan portfolio
• Deposits
• Mortgage pipeline loans,
classified as derivatives
• Warehouse loans, classified
as trading assets – debt
instruments
• MSRs
• Hedges of pipeline loans,
differences in the relative
movements of the rate
indices underlying
mortgage exposure and
other interest rates
•
warehouse loans and MSRs,
classified as derivatives
Interest-only securities,
classified as trading assets
debt instruments, and
related hedges, classified as
derivatives
CIB
• Makes markets and
services clients across
fixed income, foreign
exchange, equities and
commodities
• Originates loans and
takes deposits
• Risk of loss from adverse
movements in market
prices across interest
rate, credit, currency,
commodity and equity
risk factors
• Trading assets/liabilities –
debt and marketable equity
instruments, and
derivatives, including
hedges of the retained loan
portfolio
• Retained loan portfolio
• Deposits
• Privately held equity and
other investments
measured at fair value
• Derivatives FVA and fair
value option elected
liabilities DVA
• Certain securities
purchased, loaned or sold
under resale agreements
and securities borrowed
• Fair value option elected
liabilities
• Derivative CVA and
associated hedges
• Marketable equity
investments
CB
• Originates loans and
•
takes deposits
Interest rate risk and
prepayment risk
• Retained loan portfolio
• Deposits
AWM
• Provides initial capital
• Risk from changes in
• Debt securities held in
market factors (e.g., rates
and credit spreads)
advance of distribution to
clients, classified as trading
assets - debt instruments(b)
investments in
products such as
mutual funds and
capital invested
alongside third-party
investors
• Originates loans and
takes deposits
• Retained loan portfolio
• Deposits
•
Initial seed capital
investments and related
hedges, classified as
derivatives
Corporate
• Manages the Firm’s
liquidity, funding,
capital, structural
interest rate and
foreign exchange risks
• Structural interest rate
risk from the Firm’s
traditional banking
activities
• Structural non-USD
foreign exchange risks
• Derivative positions
measured at fair value
through noninterest
revenue in earnings
• Marketable equity
investments
• Deposits with banks
•
Investment securities
portfolio and related
interest rate hedges
• Long-term debt and
related interest rate
hedges
• Capital invested alongside
third-party investors,
typically in privately
distributed collective
vehicles managed by AWM
(i.e., co-investments)
• Privately held equity and
other investments
measured at fair value
• Foreign exchange exposure
related to Firm-issued non-
USD long-term debt (“LTD”)
and related hedges
(a) In addition to the predominant business activities, each of the LOBs and Corporate may engage in principal investing activities. To the extent principal investments are
deemed market risk sensitive, they are reflected in relevant risk measures (i.e., VaR or Other sensitivity-based measures) and captured in the table above. For additional
discussion on principal investments refer to Investment Portfolio Risk Management on page 123.
(b) The AWM contribution to Firmwide average VaR was not material for the year ended December 31, 2018 and 2017.
JPMorgan Chase & Co./2018 Form 10-K
125
Management’s discussion and analysis
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, to
estimate the potential loss from adverse market moves in
the current market environment. The Firm has a single VaR
framework used as a basis for calculating Risk Management
VaR and Regulatory VaR.
The framework is employed across the Firm using historical
simulation based on data for the previous 12 months. The
framework’s approach assumes that historical changes in
market values are representative of the distribution of
potential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a daily
measure of risk that is closely aligned to risk management
decisions made by the lines of business and Corporate, and
provides the appropriate information needed to respond to
risk events.
The Firm’s Risk Management VaR is calculated assuming a
one-day holding period and an expected tail-loss
methodology which approximates a 95% confidence level.
Risk Management VaR provides a consistent framework to
measure risk profiles and levels of diversification across
product types and is used for aggregating risks and
monitoring limits across businesses. VaR results are
reported to senior management, the Board of Directors and
regulators.
Under the Firm’s Risk Management VaR methodology,
assuming current changes in market values are consistent
with the historical changes used in the simulation, the Firm
would expect to incur VaR “back-testing exceptions,”
defined as losses greater than that predicted by VaR
estimates, an average of five times every 100 trading days.
The number of VaR back-testing exceptions observed can
differ from the statistically expected number of back-testing
exceptions if the current level of market volatility is
materially different from the level of market volatility
during the 12 months of historical data used in the VaR
calculation.
Underlying the overall VaR model framework are individual
VaR models that simulate historical market returns for
individual risk factors and/or product types. To capture
material market risks as part of the Firm’s risk management
framework, comprehensive VaR model calculations are
performed daily for businesses whose activities give rise to
market risk. These VaR models are granular and incorporate
numerous risk factors and inputs to simulate daily changes
in market values over the historical period; inputs are
selected based on the risk profile of each portfolio, as
sensitivities and historical time series used to generate daily
market values may be different across product types or risk
management systems. The VaR model results across all
portfolios are aggregated at the Firm level.
As VaR is based on historical data, it is an imperfect
measure of market risk exposure and potential future
losses. In addition, based on their reliance on available
historical data, limited time horizons, and other factors, VaR
measures are inherently limited in their ability to measure
certain risks and to predict losses, particularly those
associated with market illiquidity and sudden or severe
shifts in market conditions.
For certain products, specific risk parameters are not
captured in VaR due to the lack of inherent liquidity and
availability of appropriate historical data. The Firm uses
proxies to estimate the VaR for these and other products
when daily time series are not available. It is likely that
using an actual price-based time series for these products,
if available, would affect the VaR results presented. The
Firm therefore considers other nonstatistical measures such
as stress testing, in addition to VaR, to capture and manage
its market risk positions.
The daily market data used in VaR models may be different
than the independent third-party data collected for VCG
price testing in its monthly valuation process. For example,
in cases where market prices are not observable, or where
proxies are used in VaR historical time series, the data
sources may differ. For further information on the Firm’s
valuation process, refer to Valuation process in Note 2.
Because VaR model calculations require daily data and a
consistent source for valuation, it may not be practical to
use the data collected in the VCG monthly valuation process
for VaR model calculations.
The Firm’s VaR model calculations are periodically
evaluated and enhanced in response to changes in the
composition of the Firm’s portfolios, changes in market
conditions, improvements in the Firm’s modeling techniques
and measurements, and other factors. Such changes may
affect historical comparisons of VaR results. For information
regarding model reviews and approvals, refer to Estimations
and Model Risk Management on page 140.
The Firm calculates separately a daily aggregated VaR in
accordance with regulatory rules (“Regulatory VaR”), which
is used to derive the Firm’s regulatory VaR-based capital
requirements under Basel III. This Regulatory VaR model
framework currently assumes a ten business-day holding
period and an expected tail loss methodology which
approximates a 99% confidence level. Regulatory VaR is
applied to “covered” positions as defined by Basel III, which
may be different than the positions included in the Firm’s
Risk Management VaR. For example, credit derivative
hedges of accrual loans are included in the Firm’s Risk
Management VaR, while Regulatory VaR excludes these
credit derivative hedges. In addition, in contrast to the
Firm’s Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain VaR models.
126
JPMorgan Chase & Co./2018 Form 10-K
For additional information on Regulatory VaR and the other
components of market risk regulatory capital for the Firm
(e.g., VaR-based measure, stressed VaR-based measure and
the respective backtesting), refer to JPMorgan Chase’s Basel
III Pillar 3 Regulatory Capital Disclosures reports, which are
available on the Firm’s website at: (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level.
Total VaR
As of or for the year ended December 31,
(in millions)
CIB trading VaR by risk type
Fixed income
Foreign exchange
Equities
Commodities and other
Diversification benefit to CIB trading VaR
CIB trading VaR
Credit portfolio VaR
Diversification benefit to CIB VaR
CIB VaR
CCB VaR
Corporate VaR
Diversification benefit to other VaR
Other VaR
Diversification benefit to CIB and other VaR
Total VaR
$
Avg.
33
6
17
8
(26) (a)
38
3
(2) (a)
39
1
12
(1) (a)
12
(10) (a)
41
$
2018
Min
$
25
3
13
4
NM (b)
26 (b)
3
NM (b)
26 (b)
—
9
NM (b)
9 (b)
NM (b)
28 (b) $
$
Max
Avg.
2017
Min
$
46
15
26
13
$
28
10
12
7
NM (b)
58 (b)
4
NM (b)
59 (b)
3
14
NM (b)
14 (b)
NM (b)
62 (b)
(30) (a)
27
7
(6) (a)
28
2
4
(1) (a)
5
(4) (a)
29
$
$
20
$
4
8
4
NM (b)
14 (b)
3
NM (b)
17 (b)
1
1
NM (b)
2 (b)
NM (b)
17 (b) $
$
Max
40
20
19
10
NM (b)
38 (b)
12
NM (b)
39 (b)
4
16
NM (b)
16 (b)
NM (b)
42 (b)
(a) Average portfolio VaR is less than the sum of the VaR of the components described above, which is due to portfolio diversification. The diversification
effect reflects that the risks are not perfectly correlated.
(b) Diversification benefit represents the difference between the total VaR and each reported level and the sum of its individual components. Diversification
benefit reflects the non-additive nature of VaR due to imperfect correlation across lines of business, Corporate, and risk types. The maximum and
minimum VaR for each portfolio may have occurred on different trading days than the components and consequently diversification benefit is not
meaningful.
Average Total VaR increased $12 million for the year-ended
December 31, 2018 as compared with the prior year.
The increase was primarily due to changes in the risk profile
for Fixed Income and Equities risk types, the inclusion of
certain CIB marketable equity investments and a Corporate
private equity position that became publicly traded in the
fourth quarter of 2017, as well as increased volatility in the
one-year historical look-back period.
In addition, average Credit Portfolio VaR has declined by $4
million, reflecting the sale of select positions in the prior
year.
VaR can vary significantly over time as positions change,
market volatility fluctuates, and diversification benefits
change.
VaR back-testing
The Firm evaluates the effectiveness of its VaR methodology
by back-testing, which compares the daily Risk Management
VaR results with the daily gains and losses actually
recognized on market-risk related revenue.
The Firm’s definition of market risk-related gains and losses
is consistent with the definition used by the banking
regulators under Basel III. Under this definition, market
risk-related gains and losses are defined as: gains and
losses on the positions included in the Firm’s Risk
Management VaR, excluding fees, commissions, certain
valuation adjustments, net interest income, and gains and
losses arising from intraday trading.
JPMorgan Chase & Co./2018 Form 10-K
127
Management’s discussion and analysis
The following chart compares actual daily market risk-related gains and losses with the Firm’s Risk Management VaR for the
year ended December 31, 2018. As the chart presents market risk-related gains and losses related to those positions included
in the Firm’s Risk Management VaR, the results in the table below differ from the results of back-testing disclosed in the Market
Risk section of the Firm’s Basel III Pillar 3 Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to
covered positions. The chart shows that for the year ended December 31, 2018 the Firm observed ten VaR back-testing
exceptions and posted gains on 128 of the 259 days.
Daily Market Risk-Related Gains and Losses
vs. Risk Management VaR (1-day, 95% Confidence level)
Year ended December 31, 2018
Market Risk-Related Gains and Losses
Risk Management VaR
First Quarter
2018
Second Quarter
2018
Third Quarter
2018
Fourth Quarter
2018
128
JPMorgan Chase & Co./2018 Form 10-K
Other risk measures
Stress testing
Along with VaR, stress testing is an important tool used to
assess risk. While VaR reflects the risk of loss due to
adverse changes in markets using recent historical market
behavior, stress testing reflects the risk of loss from
hypothetical changes in the value of market risk sensitive
positions applied simultaneously. Stress testing measures
the Firm’s vulnerability to losses under a range of stressed
but possible economic and market scenarios. The results
are used to understand the exposures responsible for those
potential losses and are measured against limits.
The Firm’s stress framework covers Corporate and all lines
of business with market risk sensitive positions. The
framework is used to calculate multiple magnitudes of
potential stress for both market rallies and market sell-offs,
assuming significant changes in market factors such as
credit spreads, equity prices, interest rates, currency rates
and commodity prices, and combines them in multiple ways
to capture an array of hypothetical economic and market
scenarios.
The Firm generates a number of scenarios that focus on tail
events in specific asset classes and geographies, including
how the event may impact multiple market factors
simultaneously. Scenarios also incorporate specific
idiosyncratic risks and stress basis risk between different
products. The flexibility in the stress framework allows the
Firm to construct new scenarios that can test the outcomes
against possible future stress events. Stress testing results
are reported on a regular basis to the respective LOBs,
Corporate and the Firm’s senior management.
Stress scenarios are governed by an overall stress
framework and are subject to the standards outlined in the
Firm’s policies related to model risk management.
Significant changes to the framework are reviewed by the
relevant LOB Risk Committees on an annual basis or as
changing market conditions warrant and may be redefined
to reflect current or expected market conditions.
The Firm’s stress testing framework is utilized in calculating
the Firm’s CCAR and other stress test results, which are
reported to the Board of Directors. In addition, stress
testing results are incorporated into the Firm’s Risk Appetite
framework, and are reported quarterly to the DRPC.
Profit and loss drawdowns
Profit and loss drawdowns are used to highlight trading
losses above certain levels of risk tolerance. Profit and loss
drawdowns are defined as the decline in net profit and loss
since the year-to-date peak revenue level.
Earnings-at-risk
The VaR and sensitivity measures illustrate the economic
sensitivity of the Firm’s Consolidated balance sheets to
changes in market variables.
The effect of interest rate exposure on the Firm’s reported
net income is also important as interest rate risk represents
one of the Firm’s significant market risks. Interest rate risk
arises not only from trading activities but also from the
Firm’s traditional banking activities, which include extension
of loans and credit facilities, taking deposits and issuing
debt. The Firm evaluates its structural interest rate risk
exposure through earnings-at-risk, which measures the
extent to which changes in interest rates will affect the
Firm’s net interest income and interest rate-sensitive fees.
For a summary by line of business and Corporate,
identifying positions included in earnings-at-risk, refer to
the table on page 125.
The CTC Risk Committee establishes the Firm’s structural
interest rate risk policy and related limits, which are subject
to approval by the DRPC. Treasury and CIO, working in
partnership with the lines of business, calculates the Firm’s
structural interest rate risk profile and reviews it with senior
management, including the CTC Risk Committee. In addition,
oversight of structural interest rate risk is managed through
a dedicated risk function reporting to the CTC CRO. This risk
function is responsible for providing independent oversight
and governance around assumptions and establishing and
monitoring limits for structural interest rate risk. The Firm
manages structural interest rate risk generally through its
investment securities portfolio and interest rate derivatives.
JPMorgan Chase & Co./2018 Form 10-K
129
assumed rates paid which may differ from actual rates paid
due to timing lags and other factors. The Firm’s earnings-at-
risk scenarios are periodically evaluated and enhanced in
response to changes in the composition of the Firm’s
balance sheet, changes in market conditions, improvements
in the Firm’s simulation and other factors.
The Firm’s U.S. dollar sensitivities are presented in the table
below.
December 31,
(in billions)
Parallel shift:
+100 bps shift in rates
-100 bps shift in rates
Steeper yield curve:
2018
2017
$
0.9
$
(2.1)
+100 bps shift in long-term rates
-100 bps shift in short-term rates
Flatter yield curve:
+100 bps shift in short-term rates
-100 bps shift in long-term rates
0.5
(1.2)
0.4
(0.9)
1.7
(3.6)
0.7
(2.2)
1.0
(1.4)
The Firm’s sensitivity to rates is largely a result of assets
repricing at a faster pace than deposits.
The Firm’s net U.S. dollar sensitivities as of December 31,
2018 decreased when compared to December 31, 2017
primarily as a result of updating the Firm’s baseline to
reflect higher interest rates. As higher interest rates are
now reflected in the Firm’s baselines, sensitivities to
changes in rates are expected to be less significant.
The Firm’s non-U.S. dollar sensitivities are presented in the
table below.
December 31,
(in billions)
Parallel shift:
2018
2017
+100 bps shift in rates
$
0.5
$
Flatter yield curve:
+100 bps shift in short-term rates
0.5
0.5
0.5
The results of the non-U.S. dollar interest rate scenario
involving a steeper yield curve with long-term rates rising
by 100 basis points and short-term rates staying at current
levels were not material to the Firm’s earnings-at-risk at
December 31, 2018 and 2017.
Management’s discussion and analysis
Structural interest rate risk can occur due to a variety of
factors, including:
• Differences in the timing among the maturity or repricing
of assets, liabilities and off-balance sheet instruments
• Differences in the amounts of assets, liabilities and off-
balance sheet instruments that are repricing at the same
time
• Differences in the amounts by which short-term and long-
term market interest rates change (for example, changes
in the slope of the yield curve)
• The impact of changes in the maturity of various assets,
liabilities or off-balance sheet instruments as interest
rates change
The Firm manages interest rate exposure related to its
assets and liabilities on a consolidated, firmwide basis.
Business units transfer their interest rate risk to Treasury
and CIO through funds transfer pricing, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of interest,
contractual principal payment schedules, expected
prepayment experience, interest rate reset dates and
maturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products. All
transfer-pricing assumptions are dynamically reviewed.
The Firm generates a baseline for net interest income and
certain interest rate-sensitive fees, and then conducts
simulations of changes for interest rate-sensitive assets and
liabilities denominated in U.S. dollars and other currencies
(“non-U.S. dollar” currencies). This simulation primarily
includes retained loans, deposits, deposits with banks,
investment securities, long term debt and any related
interest rate hedges, and excludes other positions in risk
management VaR and other sensitivity-based measures as
described on page 125.
Earnings-at-risk scenarios estimate the potential change in
this baseline, over the following 12 months utilizing
multiple assumptions. These scenarios include a parallel
shift involving changes to both short-term and long-term
rates by an equal amount; a steeper yield curve involving
holding short-term rates constant and increasing long-term
rates or decreasing short-term rates and holding long-term
rates constant; and a flatter yield curve involving holding
short-term rates constant and decreasing long-term rates or
increasing short-term rates and holding long-term rates
constant. These scenarios consider the impact on exposures
as a result of changes in interest rates from baseline rates,
as well as pricing sensitivities of deposits, optionality and
changes in product mix. The scenarios include forecasted
balance sheet changes, as well as modeled prepayment and
reinvestment behavior, but do not include assumptions
about actions that could be taken by the Firm in response to
any such instantaneous rate changes. Mortgage prepayment
assumptions are based on the interest rates used in the
scenarios compared with underlying contractual rates, the
time since origination, and other factors which are updated
periodically based on historical experience. The pricing
sensitivity of deposits in the baseline and scenarios use
130
JPMorgan Chase & Co./2018 Form 10-K
Non-U.S. dollar foreign exchange risk
Non-U.S. dollar FX risk is the risk that changes in foreign
exchange rates affect the value of the Firm’s assets or
liabilities or future results. The Firm has structural non-U.S.
dollar FX exposures arising from capital investments,
forecasted expense and revenue, the investment securities
portfolio and non-U.S. dollar-denominated debt issuance.
Treasury and CIO, working in partnership with the lines of
business, primarily manage these risks on behalf of the
Firm. Treasury and CIO may hedge certain of these risks
using derivatives within risk limits governed by the CTC Risk
Committee.
Other sensitivity-based measures
The Firm quantifies the market risk of certain investment and funding activities by assessing the potential impact on net
revenue and OCI due to changes in relevant market variables. For additional information on the positions captured in other
sensitivity-based measures, refer to the table Predominant business activities that give rise to market risk on page 125.
The table below represents the potential impact to net revenue or OCI for market risk sensitive instruments that are not
included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are reported along with the
positions being hedged. The sensitivities disclosed in the table below may not be representative of the actual gain or loss that
would have been realized at December 31, 2018 and 2017, as the movement in market parameters across maturities may
vary and are not intended to imply management’s expectation of future deterioration in these sensitivities.
Year ended December 31,
Gain/(loss) (in millions)
Activity
Description
Sensitivity measure
2018
2017
Investment activities(a)
Investment management activities
Consists of seed capital and related hedges;
and fund co-investments
10% decline in market
value
$
(102) $
Other investments
Consists of privately held equity and other
investments held at fair value
10% decline in market
value
Funding activities
Non-USD LTD cross-currency basis
Represents the basis risk on derivatives
used to hedge the foreign exchange risk on
the non-USD LTD(b)
1 basis point parallel
tightening of cross currency
basis
Non-USD LTD hedges foreign currency
(“FX”) exposure
Derivatives – funding spread risk
Primarily represents the foreign exchange
revaluation on the fair value of the
derivative hedges(b)
10% depreciation of
currency
Impact of changes in the spread related to
derivatives FVA
1 basis point parallel
increase in spread
Fair value option elected liabilities –
funding spread risk
Impact of changes in the spread related to
fair value option elected liabilities DVA(b)
1 basis point parallel
increase in spread
Fair value option elected liabilities –
interest rate sensitivity
Interest rate sensitivity on fair value option
liabilities resulting from a change in the
Firm’s own credit spread(b)
1 basis point parallel
increase in spread
(218)
(13)
17
(4)
30
1
(110)
(338)
(10)
(13)
(6)
22
(1)
(a) Excludes equity securities without readily determinable fair values that are measured under the measurement alternative. Refer to Note 2 for additional
information.
(b) Impact recognized through OCI.
JPMorgan Chase & Co./2018 Form 10-K
131
Management’s discussion and analysis
COUNTRY RISK MANAGEMENT
The Firm, through its lines of business and Corporate, may
be exposed to country risk resulting from financial,
economic, political or other significant developments which
adversely affect the value of the Firm’s exposures related to
a particular country or set of countries. The Country Risk
Management group actively monitors the various portfolios
which may be impacted by these developments and
measures the extent to which the Firm’s exposures are
diversified given the Firm’s strategy and risk tolerance
relative to a country.
Organization and management
Country Risk Management is an independent risk
management function that assesses, manages and monitors
country risk originated across the Firm. The Firmwide Risk
Executive for Country Risk reports to the Firm’s CRO.
The Firm’s country risk management function includes the
following activities:
• Establishing policies, procedures and standards
consistent with a comprehensive country risk framework
• Assigning sovereign ratings, assessing country risks and
establishing risk tolerance relative to a country
• Measuring and monitoring country risk exposure and
stress across the Firm
• Managing and approving country limits and reporting
trends and limit breaches to senior management
• Developing surveillance tools, such as signaling models
and ratings indicators, for early identification of
potential country risk concerns
• Providing country risk scenario analysis
Sources and measurement
The Firm is exposed to country risk through its lending and
deposits, investing, and market-making activities, whether
cross-border or locally funded. Country exposure includes
activity with both government and private-sector entities in
a country. Under the Firm’s internal country risk
management approach, attribution of exposure to a specific
country is based on the country where the largest
proportion of the assets of the counterparty, issuer, obligor
or guarantor are located or where the largest proportion of
its revenue is derived, which may be different than the
domicile (i.e. legal residence) or country of incorporation of
the counterparty, issuer, obligor or guarantor. Country
exposures are generally measured by considering the Firm’s
risk to an immediate default of the counterparty, issuer,
obligor or guarantor, with zero recovery. Assumptions are
sometimes required in determining the measurement and
allocation of country exposure, particularly in the case of
certain non-linear or index exposures. The use of different
measurement approaches or assumptions could affect the
amount of reported country exposure.
During the fourth quarter of 2018, the Firm refined its
country exposure measurement approach to exclude capital
invested in local entities. With this change, country
exposure more directly measures the Firm’s risk to an
immediate default of a counterparty, issuer, obligor or
guarantor. The risk associated with capital invested in local
entities will continue to be examined in tailored stress
scenarios, depending on the vulnerabilities being tested.
For more on the Firm’s country risk stress testing, refer to
page 133.
Under the Firm’s internal country risk measurement
framework:
• Lending exposures are measured at the total committed
amount (funded and unfunded), net of the allowance for
credit losses and eligible cash and marketable securities
collateral received
• Deposits are measured as the cash balances placed with
central and commercial banks
• Securities financing exposures are measured at their
receivable balance, net of eligible collateral received
• Debt and equity securities are measured at the fair value
of all positions, including both long and short positions
• Counterparty exposure on derivative receivables is
measured at the derivative’s fair value, net of the fair
value of the eligible collateral received
• Credit derivatives protection purchased and sold is
reported based on the underlying reference entity and is
measured at the notional amount of protection
purchased or sold, net of the fair value of the recognized
derivative receivable or payable. Credit derivatives
protection purchased and sold in the Firm’s market-
making activities is measured on a net basis, as such
activities often result in selling and purchasing
protection related to the same underlying reference
entity; this reflects the manner in which the Firm
manages these exposures
Some activities may create contingent or indirect exposure
related to a country (for example, providing clearing
services or secondary exposure to collateral on securities
financing receivables). These exposures are managed in the
normal course of business through the Firm’s credit,
market, and operational risk governance, rather than
through Country Risk Management.
The Firm’s internal country risk reporting differs from the
reporting provided under the FFIEC bank regulatory
requirements. For further information on the FFIEC’s
reporting methodology, refer to Cross-border outstandings
on page 306 of the 2018 Form 10-K.
132
JPMorgan Chase & Co./2018 Form 10-K
Stress testing
Stress testing is an important component of the Firm’s
country risk management framework, which aims to
estimate and limit losses arising from a country crisis by
measuring the impact of adverse asset price movements to
a country based on market shocks combined with
counterparty specific assumptions. Country Risk
Management periodically designs and runs tailored stress
scenarios to test vulnerabilities to individual countries or
sets of countries in response to specific or potential market
events, sector performance concerns, sovereign actions and
geopolitical risks. These tailored stress results are used to
inform potential risk reduction across the Firm, as
necessary.
Risk reporting
To enable effective risk management of country risk to the
Firm, country exposure and stress are measured and
reported weekly, and used by Country Risk Management to
identify trends, and monitor high usages and breaches
against limits.
The following table presents the Firm’s top 20 exposures by
country (excluding the U.S.) as of December 31, 2018, and
their comparative exposures as of December 31, 2017. The
selection of countries represents the Firm’s largest total
exposures by country, based on the Firm’s internal country
risk management approach, and does not represent the
Firm’s view of any actual or potentially adverse credit
conditions. Country exposures may fluctuate from period to
period due to client activity and market flows.
As discussed on page 132, during the fourth quarter of
2018 the Firm refined its country exposure measurement
approach to exclude capital invested in local entities. While
this change did not have a material impact to country
exposure, prior period amounts have been revised within
the following table to conform with the current period
presentation.
Top 20 country exposures (excluding the U.S.)(a)
December 31,
(in billions)
2018
2017(f)
Lending
and
deposits(b)
Trading and
investing(c)(d)
Other(e)
Total
exposure
Total
exposure
$
53.7 $
8.1 $
0.3 $
62.1
$
57.4
28.0
25.4
9.5
10.8
10.8
7.2
9.1
6.1
10.5
4.2
4.4
3.9
2.4
5.0
3.7
2.4
4.7
3.8
1.8
10.1
3.3
7.1
6.5
3.4
5.4
0.6
4.0
0.5
3.2
2.9
1.4
3.8
0.4
1.8
1.1
0.6
1.3
1.1
2.6
0.4
2.7
0.6
0.1
0.4
3.1
1.7
—
0.2
—
1.5
0.2
0.4
—
1.9
—
—
1.4
40.7
29.1
19.3
17.9
14.3
13.0
12.8
11.8
11.0
7.6
7.3
6.8
6.4
5.8
5.5
5.4
5.3
5.1
4.3
44.9
30.8
16.3
19.4
14.9
11.4
13.9
12.3
9.5
6.8
4.6
6.3
6.7
8.0
5.2
4.2
4.5
6.8
3.0
Germany
United
Kingdom
Japan
China
France
Canada
Australia
Switzerland
India
Luxembourg
South Korea
Brazil
Singapore
Italy
Netherlands
Mexico
Hong Kong
Saudi Arabia
Spain
Malaysia
(a) Country exposures presented in the table reflect 87% and 86% of
total firmwide non-U.S. exposure, where exposure is attributed to a
specific country, for the periods ending December 31, 2018 and 2017,
respectively.
(b) Lending and deposits includes loans and accrued interest receivable
(net of eligible collateral and the allowance for loan losses), deposits
with banks (including central banks), acceptances, other monetary
assets, issued letters of credit net of participations, and unused
commitments to extend credit. Excludes intra-day and operating
exposures, such as those from settlement and clearing activities.
(c) Includes market-making inventory, AFS securities, and counterparty
exposure on derivative and securities financings net of eligible
collateral and hedging.
(d) Includes single reference entity (“single-name”), index and other
multiple reference entity transactions for which one or more of the
underlying reference entities is in a country listed in the above table.
(e) Predominantly includes physical commodity inventory.
(f) The country rankings presented in the table as of December 31, 2017,
are based on the country rankings of the corresponding exposures at
December 31, 2018, not actual rankings of such exposures at
December 31, 2017.
JPMorgan Chase & Co./2018 Form 10-K
133
Management’s discussion and analysis
OPERATIONAL RISK MANAGEMENT
Operational risk is the risk associated with inadequate or
failed internal processes, people and systems, or from
external events and includes compliance risk, conduct risk,
legal risk, and estimations and model risk. Operational risk
is inherent in the Firm’s activities and can manifest itself in
various ways, including fraudulent acts, business
interruptions, cybersecurity attacks, inappropriate
employee behavior, failure to comply with applicable laws
and regulations or failure of vendors to perform in
accordance with their agreements. These events could
result in financial losses, litigation and regulatory fines, as
well as other damages to the Firm. The goal is to keep
operational risk at appropriate levels in light of the Firm’s
financial position, the characteristics of its businesses, and
the markets and regulatory environments in which it
operates.
Operational Risk Management Framework
To monitor and control operational risk, the Firm has an
Operational Risk Management Framework (“ORMF”) which
is designed to enable the Firm to maintain a sound and
well-controlled operational environment. The ORMF has
four main components: Governance, Operational Risk
Identification and Assessment, Operational Risk
Measurement, and Operational Risk Monitoring and
Reporting.
Governance
The lines of business and Corporate are responsible for
applying the ORMF in order to manage the operational risk
that arises from their activities. The Control Management
organization, which consists of control managers within
each line of business and Corporate, is responsible for the
day-to-day execution of the ORMF.
Line of business and Corporate control committees are
responsible for reviewing data that indicates the quality and
stability of processes, addressing key operational risk
issues, focusing on processes with control concerns, and
overseeing control remediation. These committees escalate
operational risk issues to the FCC, as appropriate. For
additional information on the FCC, refer to Enterprise-wide
Risk Management on pages 79–140.
The Firmwide Risk Executive for Operational Risk
Management (“ORM”), a direct report to the CRO, is
responsible for defining the ORMF and establishing
minimum standards for its execution. Operational Risk
Officers report to both the line of business CROs and to the
Firmwide Risk Executive for ORM, and are independent of
the respective businesses or corporate functions they
oversee.
The Firm’s Operational Risk Management Policy is approved
by the DRPC. This policy establishes the Operational Risk
Management Framework for the Firm.
Operational Risk identification and assessment
The Firm utilizes a structured risk and control self-
assessment process which is executed by the lines of
business and Corporate in accordance with the minimum
standards established by ORM, to identify, assess, mitigate
and manage its operational risk. As part of this process,
lines of business and Corporate identify key operational
risks inherent in their activities, address gaps or
deficiencies identified, and define actions to reduce residual
risk. Action plans are developed for identified control issues
and lines of business and Corporate are held accountable
for tracking and resolving issues in a timely manner.
Operational Risk Officers independently challenge the
execution of the self-assessment and evaluate the
appropriateness of the residual risk results.
In addition to the self-assessment process, the Firm tracks
and monitors events that have led to or could lead to actual
operational risk losses, including litigation-related events.
Responsible lines of business and Corporate analyze their
losses to evaluate the effectiveness of their control
environment to assess where controls have failed, and to
determine where targeted remediation efforts may be
required. ORM provides oversight of these activities and
may also perform independent assessments of significant
operational risk events and areas of concentrated or
emerging risk.
Operational Risk Measurement
In addition to the level of actual operational risk losses,
operational risk measurement includes operational risk-
based capital and operational risk loss projections under
both baseline and stressed conditions.
The primary component of the operational risk capital
estimate is the Loss Distribution Approach (“LDA”)
statistical model, which simulates the frequency and
severity of future operational risk loss projections based on
historical data. The LDA model is used to estimate an
aggregate operational risk loss over a one-year time
horizon, at a 99.9% confidence level. The LDA model
incorporates actual internal operational risk losses in the
quarter following the period in which those losses were
realized, and the calculation generally continues to reflect
such losses even after the issues or business activities
giving rise to the losses have been remediated or reduced.
As required under the Basel III capital framework, the Firm’s
operational risk-based capital methodology, which uses the
Advanced Measurement Approach (“AMA”), incorporates
internal and external losses as well as management’s view
of tail risk captured through operational risk scenario
analysis, and evaluation of key business environment and
internal control metrics. The Firm does not reflect the
impact of insurance in its AMA estimate of operational risk
capital.
134
JPMorgan Chase & Co./2018 Form 10-K
The Firm considers the impact of stressed economic
conditions on operational risk losses and develops a
forward looking view of material operational risk events
that may occur in a stressed environment. The Firm’s
operational risk stress testing framework is utilized in
calculating results for the Firm’s CCAR and other stress
testing processes.
For information related to operational risk RWA, CCAR or
ICAAP, refer to Capital Risk Management section, pages
85-94.
Operational Risk Monitoring and reporting
ORM has established standards for consistent operational
risk monitoring and reporting. Operational risk reports are
produced on a firmwide basis as well as by line of business
and Corporate. Reporting includes the evaluation of key
risk indicators against established thresholds as well as the
assessment of different types of operational risk against
stated risk appetite. The standards reinforce escalation
protocols to senior management and to the Board of
Directors.
Subcategories and examples of operational risks
Operational risk can manifest itself in various ways.
Operational risk subcategories such as Compliance risk,
Conduct risk, Legal risk and Estimations and Model risk, as
well as other operational risks, can lead to losses which are
captured through the Firm’s operational risk measurement
processes. For more information on Compliance risk,
Conduct risk, Legal risk and Estimations and Model risk,
refer to pages 137, 138, 139 and 140, respectively. Details
on other select examples of operational risks are provided
below.
Cybersecurity risk
Cybersecurity risk is an important, continuous and evolving
focus for the Firm. The Firm devotes significant resources to
protecting and continuing to improve the security of the
Firm’s computer systems, software, networks and other
technology assets. The Firm’s security efforts are designed
to protect against, among other things, cybersecurity
attacks by unauthorized parties attempting to obtain access
to confidential information, destroy data, disrupt or
degrade service, sabotage systems or cause other damage.
The Firm continues to make significant investments in
enhancing its cyberdefense capabilities and to strengthen
its partnerships with the appropriate government and law
enforcement agencies and other businesses in order to
understand the full spectrum of cybersecurity risks in the
operating environment, enhance defenses and improve
resiliency against cybersecurity threats. The Firm actively
participates in discussions of cybersecurity risks with law
enforcement, government officials, peer and industry
groups, and has significantly increased efforts to educate
employees and certain clients on the topic.
Third parties with which the Firm does business or that
facilitate the Firm’s business activities (e.g., vendors,
exchanges, clearing houses, central depositories, and
financial intermediaries) could also be sources of
cybersecurity risk to the Firm. Third party cybersecurity
incidents such as system breakdowns or failures,
misconduct by the employees of such parties, or
cyberattacks could affect their ability to deliver a product or
service to the Firm or result in lost or compromised
information of the Firm or its clients. Clients can also be
sources of cybersecurity risk to the Firm, particularly when
their activities and systems are beyond the Firm’s own
security and control systems. As a result, the Firm engages
in regular and ongoing discussions with certain vendors and
clients regarding cybersecurity risks and opportunities to
improve security. However, where cybersecurity incidents
are due to client failure to maintain the security of their
own systems and processes, clients will generally be
responsible for losses incurred.
To protect the confidentiality, integrity and availability of
the Firm’s infrastructure, resources and information, the
Firm maintains a cybersecurity program to prevent, detect,
and respond to cyberattacks. The Global Chief Information
Officer, Chief Technology Control Officer, and Chief
Information Security Officer (“CISO”) update the Audit
Committee of the Board of Directors at least annually on the
Firm’s Information Security Program, recommended
changes, cybersecurity policies and practices, ongoing
efforts to improve security, as well as its efforts regarding
significant cybersecurity events. In addition, the Firm has a
detailed cybersecurity incident response plan (“IRP”)
designed to enable the Firm to respond to attempted
cybersecurity incidents, coordinate such responses with law
enforcement and other government agencies, and notify
clients and customers. Among other key focus areas, the
IRP is designed to mitigate the risk of insider trading
connected to a cybersecurity incident, and includes various
escalation points in this regard including Compliance and
the Legal Department.
The Cybersecurity and Technology Control functions are
responsible for governance and oversight of the Firm’s
Information Security Program. In partnership with the
Firm’s lines of business, the Cybersecurity and Technology
Control organization identifies information security risk
issues and champions programs for the technological
protection of the Firm’s information resources including
applications, infrastructure as well as confidential and
personal information related to the Firm’s customers. The
Cybersecurity and Technology Control organization
comprises Governance and Control, Assessments, Assurance
and Training, Cybersecurity Operations, business aligned
control officers, Identity and Access Management, and
resiliency functions that execute the Information Security
Program.
The Global Cybersecurity and Technology Control
governance structure is designed to identify, escalate, and
mitigate information security risks. This structure uses key
governance forums to disseminate information and monitor
technology efforts. These forums are established at
multiple levels throughout the Firm and include
representatives from each line of business and Corporate.
JPMorgan Chase & Co./2018 Form 10-K
135
Management’s discussion and analysis
Reports containing overviews of key technology risks and
efforts to enhance related controls are produced for these
forums, and are reviewed by management at multiple levels
including technology management, Firmwide management
and the Operating Committee. The forums are used to
escalate information security risks or other matters as
appropriate to the FCC.
IRM provides oversight of the activities which identify,
assess, manage and mitigate cybersecurity risk. As integral
participants in cybersecurity governance forums, the IRM
organization actively monitors and oversees the
Cybersecurity and Technology Control functions.
The Firm’s Security Awareness Program includes training
that reinforces the Firm's Information Technology Risk and
Security Management policies, standards and practices, as
well as the expectation that employees comply with these
policies. The Security Awareness Program engages
personnel through training on how to identify potential
cybersecurity risks and protect the Firm’s resources and
information. This training is mandatory for all employees
globally on an annual basis, and it is supplemented by
firmwide testing initiatives, including quarterly phishing
tests. Finally, the Firm’s Global Privacy Program requires all
employees to take annual awareness training on data
privacy. This privacy-focused training includes information
about confidentiality and security, as well as responding to
unauthorized access to or use of information.
Business and technology resiliency risk
Business disruptions can occur due to forces beyond the
Firm’s control such as severe weather, power or
telecommunications loss, flooding, transit strikes, terrorist
threats or infectious disease. The safety of the Firm’s
employees and customers is of the highest priority. The
Firm’s global resiliency program is intended to enable the
Firm to recover its critical business functions and
supporting assets (i.e., staff, technology and facilities) in
the event of a business interruption. The program includes
corporate governance, awareness training, and testing of
recovery strategies, as well as strategic and tactical
initiatives to identify, assess, and manage business
interruption and public safety risks.
The strength and proficiency of the Firm’s global resiliency
program has played an integral role in maintaining the
Firm’s business operations during and after various events.
Payment fraud risk
Payment fraud risk is the risk of external and internal
parties unlawfully obtaining personal monetary benefit
through misdirected or otherwise improper payment. Over
the past year, the risk of payment fraud remained at a
heightened level across the industry. The complexities of
these incidents and the strategies used by perpetrators
continue to evolve. A Payments Control Program including
the LOBs and Corporate develop methods for managing the
risk, implementing controls and providing employee and
client education and awareness training. The Firm’s
monitoring of customer behavior is periodically evaluated
and enhanced in an effort to detect and mitigate new
strategies implemented by fraud perpetrators. The Firm’s
consumer and wholesale businesses collaborate closely to
deploy risk mitigation controls across their businesses.
Third-party outsourcing risk
To identify and manage the operational risk inherent in its
outsourcing activities, the Firm has a Third-Party Oversight
(“TPO”) framework to assist the lines of business and
Corporate in selecting, documenting, onboarding,
monitoring and managing their supplier relationships. The
objective of the TPO framework is to hold third parties to
the same high level of operational performance as is
expected of the Firm’s internal operations. The Corporate
Third-Party Oversight group is responsible for Firmwide TPO
training, monitoring, reporting and standards.
Insurance
One of the ways in which operational risk may be mitigated
is through insurance maintained by the Firm. The Firm
purchases insurance from commercial insurers and utilizes
a wholly-owned captive insurer, Park Assurance Company,
as needed to comply with local laws and regulations (e.g.,
workers compensation), as well as to serve other needs
(e.g., property loss and public liability). Insurance may also
be required by third parties with whom the Firm does
business. The insurance purchased is reviewed and
approved by senior management.
136
JPMorgan Chase & Co./2018 Form 10-K
COMPLIANCE RISK MANAGEMENT
Compliance risk, a subcategory of operational risk, is the
risk of failure to comply with legal or regulatory obligations
or codes of conduct and standards of self-regulatory
organizations applicable to the business activities of the
Firm.
Overview
Each line of business and Corporate hold primary ownership
of and accountability for managing compliance risk. The
Firm’s Compliance Organization (“Compliance”), which is
independent of the lines of business, works closely with
senior management to provide independent review,
monitoring and oversight of business operations with a
focus on compliance with the legal and regulatory
obligations applicable to the delivery of the Firm’s products
and services to clients and customers.
These compliance risks relate to a wide variety of legal and
regulatory obligations, depending on the line of business
and the jurisdiction, and include those related to financial
products and services, relationships and interactions with
clients and customers, and employee activities. For
example, compliance risks include those associated with
anti-money laundering compliance, trading activities,
market conduct, and complying with the rules and
regulations related to the offering of products and services
across jurisdictional borders, among others. Compliance
risk is also inherent in the Firm’s fiduciary activities,
including the failure to exercise the applicable standard of
care (such as the duties of loyalty or care), to act in the best
interest of clients and customers or to treat clients and
customers fairly.
Other Functions provide oversight of significant regulatory
obligations that are specific to their respective areas of
responsibility.
Compliance implements various practices designed to
identify and mitigate compliance risk by establishing
policies and standards, testing, monitoring, training and
providing guidance.
Governance and oversight
Compliance is led by the Firms’ CCO who reports to the
Firm’s CRO.
The Firm maintains oversight and coordination of its
Compliance Risk Management practices through the Firm’s
CCO, lines of business CCOs and regional CCOs to implement
the Compliance program globally across the lines of
business and regions. The Firm’s CCO is a member of the
FCC and the FRC. The Firm’s CCO also provides regular
updates to the Audit Committee and DRPC. In addition,
certain Special Purpose Committees of the Board have been
established to oversee the Firm’s compliance with
regulatory Consent Orders.
The Firm has a Code of Conduct (the “Code”). Each
employee is given annual training on the Code and is
required annually to affirm his or her compliance with the
Code. All new hires must complete Code training shortly
after their start date with the Firm. The Code sets forth the
Firm’s expectation that employees will conduct themselves
with integrity at all times and provides the principles that
govern employee conduct with clients, customers,
shareholders and one another, as well as with the markets
and communities in which the Firm does business. The Code
requires employees to promptly report any known or
suspected violation of the Code, any internal Firm policy, or
any law or regulation applicable to the Firm’s business. It
also requires employees to report any illegal conduct, or
conduct that violates the underlying principles of the Code,
by any of the Firm’s employees, customers, suppliers,
contract workers, business partners, or agents. The Code
prohibits retaliation against anyone who raises an issue or
concern in good faith. Specified compliance officers are
specially trained and designated as “code specialists” who
act as a resource to employees on questions related to the
Code. Employees can report any known or suspected
violations of the Code through the Code Reporting Hotline
by phone or the internet. The Hotline is anonymous, except
in certain non-U.S. jurisdictions where laws prohibit
anonymous reporting, and is available 24/7 globally, with
translation services. It is maintained by an outside service
provider. Annually, the Audit Committee receives a report
on the Code of Conduct program, including an update on the
employee completion rate for Code of Conduct training and
affirmation.
JPMorgan Chase & Co./2018 Form 10-K
137
Management’s discussion and analysis
CONDUCT RISK MANAGEMENT
Conduct risk, a subcategory of operational risk, is the risk
that any action or inaction by an employee or employees
could lead to unfair client or customer outcomes, impact
the integrity of the markets in which the Firm operates, or
compromise the Firm’s reputation.
Overview
Each line of business and Corporate is accountable for
identifying and managing its conduct risk to provide
appropriate engagement, ownership and sustainability of a
culture consistent with the Firm’s How We Do Business
Principles (the “Principles”). The Principles serve as a guide
for how employees are expected to conduct themselves.
With the Principles serving as a guide, the Firm’s Code sets
out the Firm’s expectations for each employee and provides
information and resources to help employees conduct
business ethically and in compliance with the law
everywhere the Firm operates. For further discussion of the
Code, refer to Compliance Risk Management on page 137.
Governance and oversight
The Conduct Risk Program is governed by a Board-level
approved Conduct Risk Governance Policy. The Conduct Risk
Governance Policy establishes the framework for
ownership, assessment, managing and escalating conduct
risk in the Firm.
The CRSC provides oversight of the Firm’s conduct initiatives
to develop a more holistic view of conduct risks and to
connect key programs across the Firm in order to identify
opportunities and emerging areas of focus.
The CRSC may escalate systemic conduct risk issues to the
FRC and as appropriate to the DRPC. The misconduct
(actual or potential) of individuals involved in material risk
and control issues are escalated to the HR Control Forum.
Certain committees of the Board oversee conduct risk issues
within the scope of their responsibilities.
Conduct risk management encompasses various aspects of
people management practices throughout the employee life
cycle, including recruiting, onboarding, training and
development, performance management, promotion and
compensation processes. Each LOB, Treasury and CIO, and
designated corporate function completes an assessment of
conduct risk quarterly, reviews metrics and issues which
may involve conduct risk, and provides business conduct
training as appropriate.
138
JPMorgan Chase & Co./2018 Form 10-K
LEGAL RISK MANAGEMENT
Legal risk, a subcategory of operational risk, is the risk of
loss primarily caused by the actual or alleged failure to
meet legal obligations that arise from the rule of law in
jurisdictions in which the Firm operates, agreements with
clients and customers, and products and services offered by
the Firm.
Overview
The global Legal function (“Legal”) provides legal services
and advice to the Firm. Legal is responsible for managing
the Firm’s exposure to Legal risk by:
• managing actual and potential litigation and
enforcement matters, including internal reviews and
investigations related to such matters
• advising on products and services, including contract
negotiation and documentation
• advising on offering and marketing documents and new
business initiatives
• managing dispute resolution
•
interpreting existing laws, rules and regulations, and
advising on changes thereto
• advising on advocacy in connection with contemplated
and proposed laws, rules and regulations, and
• providing legal advice to the LOBs and Corporate, in
alignment with the lines of defense described under
Enterprise-wide Risk Management.
Legal selects, engages and manages outside counsel for the
Firm on all matters in which outside counsel is engaged. In
addition, Legal advises the Firm’s Conflicts Office which
reviews the Firm’s wholesale transactions that may have the
potential to create conflicts of interest for the Firm.
Governance and oversight
The Firm’s General Counsel reports to the CEO and is a
member of the Operating Committee, the Firmwide Risk
Committee and the Firmwide Control Committee. The
General Counsel’s leadership team includes a General
Counsel for each line of business, the heads of the Litigation
and Corporate & Regulatory practices, as well as the Firm’s
Corporate Secretary. Each region (e.g., Latin America, Asia
Pacific) has a General Counsel who is responsible for
managing legal risk across all lines of business and
functions in the region.
The Firm’s General Counsel and other members of Legal
report on significant legal matters at each meeting of the
Firm’s Board of Directors, at least quarterly to the Audit
Committee, and periodically to the DRPC.
Legal serves on and advises various committees (including
new business initiative and reputation risk committees) and
advises the Firm’s businesses to protect the Firm’s
reputation beyond any particular legal requirements.
JPMorgan Chase & Co./2018 Form 10-K
139
Management’s discussion and analysis
ESTIMATIONS AND MODEL RISK MANAGEMENT
Estimations and Model risk, a subcategory of operational
risk, is the potential for adverse consequences from
decisions based on incorrect or misused estimation outputs.
The Firm uses models and other analytical and judgment-
based estimations across various businesses and functions.
The estimation methods are of varying levels of
sophistication and are used for many purposes, such as the
valuation of positions and measurement of risk, assessing
regulatory capital requirements, conducting stress testing,
and making business decisions. A dedicated independent
function, Model Risk Governance and Review (“MRGR”),
defines and governs the Firm’s model risk management
policies and certain analytical and judgment-based
estimations, such as those used in risk management, budget
forecasting and capital planning and analysis. MRGR reports
to the Firm’s CRO.
The governance of analytical and judgment-based
estimations within MRGR’s scope follows a consistent
approach to the approach used for models, which is
described in detail below.
Model risks are owned by the users of the models within the
Firm based on the specific purposes of such models. Users
and developers of models are responsible for developing,
implementing and testing their models, as well as referring
models to the Model Risk function for review and approval.
Once models have been approved, model users and
developers are responsible for maintaining a robust
operating environment, and must monitor and evaluate the
performance of the models on an ongoing basis. Model
users and developers may seek to enhance models in
response to changes in the portfolios and in product and
market developments, as well as to capture improvements
in available modeling techniques and systems capabilities.
Models are tiered based on an internal standard according
to their complexity, the exposure associated with the model
and the Firm’s reliance on the model. This tiering is subject
to the approval of the Model Risk function. In its review of a
model, the Model Risk function considers whether the
model is suitable for the specific purposes for which it will
be used. The factors considered in reviewing a model
include whether the model accurately reflects the
characteristics of the product and its significant risks, the
selection and reliability of model inputs, consistency with
models for similar products, the appropriateness of any
model-related adjustments, and sensitivity to input
parameters and assumptions that cannot be observed from
the market. When reviewing a model, the Model Risk
function analyzes and challenges the model methodology
and the reasonableness of model assumptions and may
perform or require additional testing, including back-testing
of model outcomes. Model reviews are approved by the
appropriate level of management within the Model Risk
function based on the relevant model tier.
Under the Firm’s Estimations and Model Risk Management
Policy, the Model Risk function reviews and approves new
models, as well as material changes to existing models,
prior to implementation in the operating environment. In
certain circumstances, the head of the Model Risk function
may grant exceptions to the Firm’s policy to allow a model
to be used prior to review or approval. The Model Risk
function may also require the user to take appropriate
actions to mitigate the model risk if it is to be used in the
interim. These actions will depend on the model and may
include, for example, limitation of trading activity.
For a summary of model-based valuations and other
valuation techniques, refer to Critical Accounting Estimates
Used by the Firm on pages 141-143 and Note 2.
140
JPMorgan Chase & Co./2018 Form 10-K
CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
JPMorgan Chase’s accounting policies and use of estimates
are integral to understanding its reported results. The
Firm’s most complex accounting estimates require
management’s judgment to ascertain the appropriate
carrying value of assets and liabilities. The Firm has
established policies and control procedures intended to
ensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently from
period to period. The methods used and judgments made
reflect, among other factors, the nature of the assets or
liabilities and the related business and risk management
strategies, which may vary across the Firm’s businesses and
portfolios. In addition, the policies and procedures are
intended to ensure that the process for changing
methodologies occurs in an appropriate manner. The Firm
believes its estimates for determining the carrying value of
its assets and liabilities are appropriate. The following is a
brief description of the Firm’s critical accounting estimates
involving significant judgments.
Allowance for credit losses
JPMorgan Chase’s allowance for credit losses covers the
retained consumer and wholesale loan portfolios, as well as
the Firm’s wholesale and certain consumer lending-related
commitments. The allowance for loan losses is intended to
adjust the carrying value of the Firm’s loan assets to reflect
probable credit losses inherent in the loan portfolio as of
the balance sheet date. Similarly, the allowance for lending-
related commitments is established to cover probable credit
losses inherent in the lending-related commitments
portfolio as of the balance sheet date.
The allowance for credit losses includes a formula-based
component, an asset-specific component, and a component
related to PCI loans. The determination of each of these
components involves significant judgment on a number of
matters. For further information on these components,
areas of judgment and methodologies used in establishing
the Firm’s allowance for credit losses, refer to Allowance for
credit losses on pages 120–122 and Note 13.
Allowance for credit losses sensitivity
The Firm’s allowance for credit losses is sensitive to
numerous factors, which may differ depending on the
portfolio. Changes in economic conditions or in the Firm’s
assumptions and estimates could affect its estimate of
probable credit losses inherent in the portfolio at the
balance sheet date. The Firm uses its best judgment to
assess these economic conditions and loss data in
estimating the allowance for credit losses and these
estimates are subject to periodic refinement based on
changes to underlying external or Firm-specific historical
data. Refer to Note 13 for further discussion.
To illustrate the potential magnitude of certain alternate
judgments, the Firm estimates that changes in the following
inputs would have the following effects on the Firm’s
modeled credit loss estimates as of December 31, 2018,
without consideration of any offsetting or correlated effects
of other inputs in the Firm’s allowance for loan losses:
• A combined 5% decline in housing prices and a 100
basis point increase in unemployment rates from current
levels could imply:
an increase to modeled credit loss estimates of
approximately $425 million for PCI loans.
an increase to modeled annual credit loss estimates
of approximately $50 million for residential real
estate loans, excluding PCI loans.
• For credit card loans, a 100 basis point increase in
unemployment rates from current levels could imply an
increase to modeled annual credit loss estimates of
approximately $875 million.
• An increase in probability of default (“PD”) factors
consistent with a one-notch downgrade in the Firm’s
internal risk ratings for its entire wholesale loan
portfolio could imply an increase in the Firm’s modeled
credit loss estimates of approximately $1.6 billion.
• A 100 basis point increase in estimated loss given
default (“LGD”) for the Firm’s entire wholesale loan
portfolio could imply an increase in the Firm’s modeled
credit loss estimates of approximately $175 million.
The purpose of these sensitivity analyses is to provide an
indication of the isolated impacts of hypothetical
alternative assumptions on modeled loss estimates. The
changes in the inputs presented above are not intended to
imply management’s expectation of future deterioration of
those risk factors. In addition, these analyses are not
intended to estimate changes in the overall allowance for
loan losses, which would also be influenced by the judgment
management applies to the modeled loss estimates to
reflect the uncertainty and imprecision of these modeled
loss estimates based on then-current circumstances and
conditions.
It is difficult to estimate how potential changes in specific
factors might affect the overall allowance for credit losses
because management considers a variety of factors and
inputs in estimating the allowance for credit losses.
Changes in these factors and inputs may not occur at the
same rate and may not be consistent across all geographies
or product types, and changes in factors may be
directionally inconsistent, such that improvement in one
factor may offset deterioration in other factors. In addition,
it is difficult to predict how changes in specific economic
conditions or assumptions could affect borrower behavior
or other factors considered by management in estimating
the allowance for credit losses. Given the process the Firm
follows and the judgments made in evaluating the risk
factors related to its loss estimates, management believes
that its current estimate of the allowance for credit losses is
appropriate.
Fair value
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. The majority of such assets and liabilities are
measured at fair value on a recurring basis, including,
derivatives and structured note products. Certain assets
and liabilities are measured at fair value on a nonrecurring
basis, including certain mortgage, home equity and other
JPMorgan Chase & Co./2018 Form 10-K
141
Management’s discussion and analysis
loans, where the carrying value is based on the fair value of
the underlying collateral.
Assets measured at fair value
The following table includes the Firm’s assets measured at
fair value and the portion of such assets that are classified
within level 3 of the valuation hierarchy. For further
information, refer to Note 2.
December 31, 2018
(in billions, except ratios)
Total assets at
fair value
Total level
3 assets
Trading debt and equity instruments
Derivative receivables(a)
Trading assets
$
AFS securities
Loans
MSRs
Other
Total assets measured at fair value on
a recurring basis
Total assets measured at fair value on a
nonrecurring basis
Total assets measured at fair value
Total Firm assets
Level 3 assets as a percentage of total
Firm assets(a)
Level 3 assets as a percentage of total
Firm assets at fair value(a)
$
359.5
54.2
413.7
230.4
3.2
6.1
27.2
680.6
1.4
$
$
682.0
$
2,622.5
4.2
5.8
10.0
—
0.1
6.1
1.0
17.2
1.1
18.3
0.7%
2.7%
(a) For purposes of the table above, the derivative receivables total reflects the impact
of netting adjustments; however, the $5.8 billion of derivative receivables classified
as level 3 does not reflect the netting adjustment as such netting is not relevant to
a presentation based on the transparency of inputs to the valuation of an asset.
The level 3 balances would be reduced if netting were applied, including the netting
benefit associated with cash collateral.
Valuation
Details of the Firm’s processes for determining fair value
are set out in Note 2. Estimating fair value requires the
application of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed valuation models and
other valuation techniques that use significant
unobservable inputs and are therefore classified within
level 3 of the valuation hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation technique to use. Second, the lack of
observability of certain significant inputs requires
management to assess all relevant empirical data in
deriving valuation inputs including, for example, transaction
details, yield curves, interest rates, prepayment rates,
default rates, volatilities, correlations, equity or debt prices,
valuations of comparable instruments, foreign exchange
rates and credit curves. For further discussion of the
valuation of level 3 instruments, including unobservable
inputs used, refer to Note 2.
For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level of
valuation adjustments to reflect counterparty credit quality,
the Firm’s creditworthiness, market funding rates, liquidity
considerations, unobservable parameters, and for
portfolios that meet specified criteria, the size of the net
open risk position. The judgments made are typically
affected by the type of product and its specific contractual
terms, and the level of liquidity for the product or within the
market as a whole. For a further discussion of valuation
adjustments applied by the Firm, refer to Note 2.
Imprecision in estimating unobservable market inputs or
other factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm’s businesses and
portfolios.
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of methodologies
or assumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. For a detailed discussion of the Firm’s valuation
process and hierarchy, and its determination of fair value
for individual financial instruments, refer to Note 2.
Goodwill impairment
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The Firm’s
process and methodology used to conduct goodwill
impairment testing is described in Note 15.
Management applies significant judgment when testing
goodwill for impairment. The goodwill associated with each
business combination is allocated to the related reporting
units for goodwill impairment testing.
For the year ended December 31, 2018, the Firm reviewed
current economic conditions, business performance,
estimated market cost of equity, and projections of business
performance for all its businesses. Based upon such reviews,
the Firm concluded that the goodwill allocated to its
reporting units was not impaired as of December 31, 2018.
The fair values of these reporting units exceeded their
carrying values by approximately 20% or higher and did not
indicate a significant risk of goodwill impairment based on
current projections and valuations.
The projections for all of the Firm’s reporting units are
consistent with management’s current short-term business
outlook assumptions, and in the longer term, incorporate a
set of macroeconomic assumptions and the Firm’s best
estimates of long-term growth and returns on equity of its
businesses. Where possible, the Firm uses third-party and
peer data to benchmark its assumptions and estimates.
Declines in business performance, increases in credit losses,
increases in capital requirements, as well as deterioration in
economic or market conditions, adverse regulatory or
legislative changes or increases in the estimated market cost
of equity, could cause the estimated fair values of the Firm’s
reporting units or their associated goodwill to decline in the
future, which could result in a material impairment charge to
earnings in a future period related to some portion of the
associated goodwill.
For additional information on goodwill, refer to Note 15.
142
JPMorgan Chase & Co./2018 Form 10-K
management’s estimates and assumptions regarding future
taxable income, which also incorporates various tax
planning strategies, including strategies that may be
available to utilize NOLs before they expire. In connection
with these reviews, if it is determined that a deferred tax
asset is not realizable, a valuation allowance is established.
The valuation allowance may be reversed in a subsequent
reporting period if the Firm determines that, based on
revised estimates of future taxable income or changes in
tax planning strategies, it is more likely than not that all or
part of the deferred tax asset will become realizable. As of
December 31, 2018, management has determined it is
more likely than not that the Firm will realize its deferred
tax assets, net of the existing valuation allowance.
Prior to December 31, 2017, U.S. federal income taxes had
not been provided on the undistributed earnings of certain
non-U.S. subsidiaries, to the extent that such earnings had
been reinvested abroad for an indefinite period of time. The
Firm is no longer maintaining the indefinite reinvestment
assertion on the undistributed earnings of those non-U.S.
subsidiaries in light of the enactment of the TCJA. The U.S.
federal and state and local income taxes associated with the
undistributed and previously untaxed earnings of those
non-U.S. subsidiaries was included in the deemed
repatriation charge recorded as of December 31, 2017. The
Firm will recognize any taxes it may incur on global
intangible low tax income as income tax expense in the
period in which the tax is incurred.
The Firm adjusts its unrecognized tax benefits as necessary
when additional information becomes available. Uncertain
tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of benefit
to recognize. An uncertain tax position is measured at the
largest amount of benefit that management believes is
more likely than not to be realized upon settlement. It is
possible that the reassessment of JPMorgan Chase’s
unrecognized tax benefits may have a material impact on its
effective income tax rate in the period in which the
reassessment occurs.
The income tax expense for the current year includes a
change in estimate recorded under SEC Staff Accounting
Bulletin No. 118 (SAB 118) resulting from the enactment of
the TCJA. The accounting under SAB 118 is complete.
For additional information on income taxes, refer to Note
24.
Litigation reserves
For a description of the significant estimates and judgments
associated with establishing litigation reserves, refer to
Note 29.
Credit card rewards liability
JPMorgan Chase offers credit cards with various rewards
programs which allow cardholders to earn rewards points
based on their account activity and the terms and
conditions of the rewards program. Generally, there are no
limits on the points that an eligible cardholder can earn, nor
do they expire, and these points can be redeemed for a
variety of rewards, including cash (predominantly in the
form of account credits), gift cards and travel. The Firm
maintains a rewards liability which represents the estimated
cost of rewards points earned and expected to be redeemed
by cardholders. The rewards liability is sensitive to various
assumptions, including cost per point and redemption rates
for each of the various rewards programs, which are
evaluated periodically. The liability is accrued as the
cardholder earns the benefit and is reduced when the
cardholder redeems points. This liability was $5.8 billion
and $4.9 billion at December 31, 2018 and 2017,
respectively, and is recorded in accounts payable and other
liabilities on the Consolidated balance sheets.
Income taxes
JPMorgan Chase is subject to the income tax laws of the
various jurisdictions in which it operates, including U.S.
federal, state and local, and non-U.S. jurisdictions. These
laws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including the
provision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions and
judgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, as
well as make judgments regarding the timing of when
certain items may affect taxable income in the U.S. and
non-U.S. tax jurisdictions.
JPMorgan Chase’s interpretations of tax laws around the
world are subject to review and examination by the various
taxing authorities in the jurisdictions where the Firm
operates, and disputes may occur regarding its view on a
tax position. These disputes over interpretations with the
various taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systems
of the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may be
assessed additional income taxes as a result of the
resolution of these matters, and the Firm records additional
reserves as appropriate. In addition, the Firm may revise its
estimate of income taxes due to changes in income tax
laws, legal interpretations, and business strategies. It is
possible that revisions in the Firm’s estimate of income
taxes may materially affect the Firm’s results of operations
in any reporting period.
The Firm’s provision for income taxes is composed of
current and deferred taxes. Deferred taxes arise from
differences between assets and liabilities measured for
financial reporting versus income tax return purposes.
Deferred tax assets are recognized if, in management’s
judgment, their realizability is determined to be more likely
than not. The Firm has also recognized deferred tax assets
in connection with certain tax attributes, including NOLs.
The Firm performs regular reviews to ascertain whether its
deferred tax assets are realizable. These reviews include
JPMorgan Chase & Co./2018 Form 10-K
143
Management’s discussion and analysis
ACCOUNTING AND REPORTING DEVELOPMENTS
Financial Accounting Standards Board (“FASB”) Standards Adopted during 2018
Standard
Summary of guidance
Effects on financial statements
Revenue
recognition –
revenue from
contracts with
customers
Issued May 2014
Recognition and
measurement of
financial assets
and financial
liabilities
Issued January
2016
Classification of
certain cash
receipts and cash
payments in the
statement of cash
flows
Issued August
2016
Treatment of
restricted cash on
the statement of
cash flows
Issued November
2016
• Requires that revenue from
contracts with customers be
recognized upon transfer of
control of a good or service in the
amount of consideration expected
to be received.
• Changes the accounting for
certain contract costs, including
whether they may be offset
against revenue in the
Consolidated statements of
income, and requires additional
disclosures about revenue and
contract costs.
• Requires that certain equity
instruments be measured at fair
value, with changes in fair value
recognized in earnings.
• Provides a measurement
alternative for equity securities
without readily determinable fair
values to be measured at cost less
impairment (if any), plus or minus
observable price changes from an
identical or similar investment of
the same issuer. Any such price
changes are reflected in earnings
beginning in the period of
adoption.
• Provides targeted amendments to
the classification of certain cash
flows, including the treatment of
settlement payments for zero
coupon debt instruments and
distributions received from equity
method investments.
• Adopted January 1, 2018.
• For further information, refer to Note 1.
• Adopted January 1, 2018.
• For further information, refer to Note 1.
• Adopted January 1, 2018.
• The adoption of the guidance had no material impact as the Firm was
either in compliance with the amendments or the amounts to which it was
applied were immaterial.
• Requires restricted cash to be
• Adopted January 1, 2018
• For further information, refer to Note 1.
combined with unrestricted cash
when reconciling the beginning
and ending cash balances on the
Consolidated statements of cash
flows.
• Requires additional disclosures to
supplement the Consolidated
statements of cash flows.
144
JPMorgan Chase & Co./2018 Form 10-K
FASB Standards Adopted during 2018 (continued)
Standard
Summary of guidance
Effects on financial statements
• Narrows the definition of a
• Adopted January 1, 2018.
• The adoption of the guidance had no impact because it is applied
prospectively. Subsequent to adoption, fewer transactions will be treated
as acquisitions or dispositions of a business.
business and clarifies that, to be
considered a business,
substantially all of the fair value of
the gross assets acquired (or
disposed of) may not be
concentrated in a single
identifiable asset or a group of
similar assets.
• In addition, a business must now
include, at a minimum, an input
and a substantive process that
together significantly contribute
to the ability to create outputs.
• Requires the service cost
• Adopted January 1, 2018.
• For further information, refer to Note 1.
component of net periodic
pension and postretirement
benefit cost to be reported
separately in the Consolidated
statements of income from the
other cost components.
• Requires amortization of
premiums to the earliest call date
on certain debt securities.
• Adopted January 1, 2018.
• For further information, refer to Note 1.
Definition of a
business
Issued January
2017
Presentation of net
periodic pension
cost and net
periodic
postretirement
benefit cost
Issued March 2017
Premium
amortization on
purchased callable
debt securities
Issued March 2017
• Adopted January 1, 2018.
• For further information, refer to Note 1.
Hedge accounting
• Aligns the accounting with the
Issued August
2017
economics of the risk
management activities.
• Expands the ability for certain
hedges of interest rate risk to
qualify for hedge accounting.
• Allows recognition of
ineffectiveness in cash flow
hedges and net investment hedges
in OCI.
• Permits an election at adoption to
transfer certain investment
securities classified as held-to-
maturity to available-for-sale.
• Simplifies hedge documentation
requirements.
Reclassification of
certain tax effects
from AOCI
Issued February
2018
• Permits reclassification of the
income tax effects of the TCJA on
items within AOCI to retained
earnings so that the tax effects of
items within AOCI reflect the
appropriate tax rate.
• Adopted January 1, 2018.
• For further information, refer to Note 1.
JPMorgan Chase & Co./2018 Form 10-K
145
Management’s discussion and analysis
FASB Standards Issued but not adopted as of December 31, 2018
Standard
Leases
Issued February
2016
Financial
instruments –
credit losses
Issued June 2016
Goodwill
Issued January
2017
Summary of guidance
Effects on financial statements
• Requires lessees to recognize all
leases longer than twelve months
on the Consolidated balance
sheets as a lease liability with a
corresponding right-of-use asset.
• Requires lessees and lessors to
classify most leases using
principles similar to existing lease
accounting, but eliminates the
“bright line” classification tests.
• Expands qualitative and
quantitative leasing disclosures.
• Adopted January 1, 2019.
• The Firm elected the practical expedient to adopt and implement the new
lease guidance as of January 1, 2019 through a cumulative-effect
adjustment without revising prior comparative periods. Upon adoption,
the Firm recognized lease right-of-use (“ROU”) assets and lease liabilities
on the Consolidated balance sheet of $8.1 billion and $8.2 billion,
respectively. The impact to the Firm’s CET1 capital ratio was a reduction
of approximately 6 bps. The adoption of the new lease guidance did not
have a material impact on the Firm’s Consolidated statement of income.
• The Firm elected the available practical expedients to not reassess
whether existing contracts contain a lease or whether classification or
unamortized initial lease costs would be different under the new lease
guidance.
• Replaces existing incurred loss
• Required effective date: January 1, 2020.(a)
impairment guidance and
establishes a single allowance
framework for financial assets
carried at amortized cost, which
will reflect management’s
estimate of credit losses over the
full remaining expected life of the
financial assets and will consider
expected future changes in
macroeconomic conditions.
• Eliminates existing guidance for
PCI loans, and requires
recognition of the nonaccretable
difference as an increase to the
allowance for expected credit
losses on financial assets
purchased with more than
insignificant credit deterioration
since origination, which will be
offset by an increase in the
recorded investment of the
related loans.
• Amends existing impairment
guidance for AFS securities to
incorporate an allowance, which
will allow for reversals of credit
impairments in the event that the
credit of an issuer improves.
• Requires a cumulative-effect
adjustment to retained earnings
as of the beginning of the
reporting period of adoption.
• Requires an impairment loss to be
recognized when the estimated
fair value of a reporting unit falls
below its carrying value.
• Eliminates the second condition in
the current guidance that requires
an impairment loss to be
recognized only if the estimated
implied fair value of the goodwill
is below its carrying value.
• The Firm has established a Firmwide, cross-discipline governance
structure, which provides implementation oversight. The Firm continues
to test and refine its current expected credit loss models that satisfy the
requirements of the new standard. This review and testing, as well as
efforts to meet expanded disclosure requirements, will extend through
the remainder of 2019.
• The Firm expects that the allowance related to the Firm’s loans and
commitments will increase as it will cover credit losses over the full
remaining expected life of the portfolios. The Firm currently intends to
estimate losses over a two-year forecast period using the weighted-
average of a range of macroeconomic scenarios (established on a
Firmwide basis), and then revert to longer term historical loss experience
to estimate losses over more extended periods.
• The Firm currently expects the increase in the allowance to be in the
range of $4-6 billion, primarily driven by Card. This estimate is subject to
further refinement based on continuing reviews and approvals of models,
methodologies and judgments. The ultimate impact will depend upon the
nature and characteristics of the Firm’s portfolio at the adoption date, the
macroeconomic conditions and forecasts at that date, and other
management judgments.
• The Firm plans to adopt the new guidance on January 1, 2020.
• Required effective date: January 1, 2020.(a)
• Based on current impairment test results, the Firm does not expect a
material effect on the Consolidated Financial Statements. However, the
impact of the new accounting guidance will depend on the performance of
the reporting units and the market conditions at the time of adoption.
• After adoption, the guidance may result in more frequent goodwill
impairment losses due to the removal of the second condition.
• The Firm plans to adopt the new guidance on January 1, 2020.
(a) Early adoption is permitted.
146
JPMorgan Chase & Co./2018 Form 10-K
FORWARD-LOOKING STATEMENTS
From time to time, the Firm has made and will make
forward-looking statements. These statements can be
identified by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements
often use words such as “anticipate,” “target,” “expect,”
“estimate,” “intend,” “plan,” “goal,” “believe,” or other
words of similar meaning. Forward-looking statements
provide JPMorgan Chase’s current expectations or forecasts
of future events, circumstances, results or aspirations.
JPMorgan Chase’s disclosures in this 2018 Form 10-K
contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. The
Firm also may make forward-looking statements in its other
documents filed or furnished with the SEC. In addition, the
Firm’s senior management may make forward-looking
statements orally to investors, analysts, representatives of
the media and others.
All forward-looking statements are, by their nature, subject
to risks and uncertainties, many of which are beyond the
Firm’s control. JPMorgan Chase’s actual future results may
differ materially from those set forth in its forward-looking
statements. While there is no assurance that any list of risks
and uncertainties or risk factors is complete, below are
certain factors which could cause actual results to differ
from those in the forward-looking statements:
• Local, regional and global business, economic and
political conditions and geopolitical events;
• Changes in laws and regulatory requirements, including
capital and liquidity requirements affecting the Firm’s
businesses, and the ability of the Firm to address those
requirements;
• Heightened regulatory and governmental oversight and
scrutiny of JPMorgan Chase’s business practices,
including dealings with retail customers;
• Changes in trade, monetary and fiscal policies and laws;
• Changes in income tax laws and regulations;
• Securities and capital markets behavior, including
changes in market liquidity and volatility;
• Changes in investor sentiment or consumer spending or
savings behavior;
• Ability of the Firm to manage effectively its capital and
liquidity, including approval of its capital plans by
banking regulators;
• Changes in credit ratings assigned to the Firm or its
subsidiaries;
• Damage to the Firm’s reputation;
• Ability of the Firm to appropriately address social and
environmental concerns that may arise from its business
activities;
• Ability of the Firm to deal effectively with an economic
slowdown or other economic or market disruption;
• Technology changes instituted by the Firm, its
counterparties or competitors;
• The effectiveness of the Firm’s control agenda;
• Ability of the Firm to develop or discontinue products
and services, and the extent to which products or
services previously sold by the Firm (including but not
limited to mortgages and asset-backed securities)
require the Firm to incur liabilities or absorb losses not
contemplated at their initiation or origination;
• Acceptance of the Firm’s new and existing products and
services by the marketplace and the ability of the Firm
to innovate and to increase market share;
• Ability of the Firm to attract and retain qualified
employees;
• Ability of the Firm to control expenses;
• Competitive pressures;
• Changes in the credit quality of the Firm’s customers
and counterparties;
• Adequacy of the Firm’s risk management framework,
disclosure controls and procedures and internal control
over financial reporting;
• Adverse judicial or regulatory proceedings;
• Changes in applicable accounting policies, including the
introduction of new accounting standards;
• Ability of the Firm to determine accurate values of
certain assets and liabilities;
• Occurrence of natural or man-made disasters or
calamities or conflicts and the Firm’s ability to deal
effectively with disruptions caused by the foregoing;
• Ability of the Firm to maintain the security of its
financial, accounting, technology, data processing and
other operational systems and facilities;
• Ability of the Firm to withstand disruptions that may be
caused by any failure of its operational systems or those
of third parties;
• Ability of the Firm to effectively defend itself against
cyberattacks and other attempts by unauthorized
parties to access information of the Firm or its
customers or to disrupt the Firm’s systems; and
• The other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in the Firm’s 2018 Form 10-K.
Any forward-looking statements made by or on behalf of
the Firm speak only as of the date they are made, and
JPMorgan Chase does not undertake to update forward-
looking statements. The reader should, however, consult
any further disclosures of a forward-looking nature the
Firm may make in any subsequent Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, or Current Reports
on Form 8-K.
JPMorgan Chase & Co./2018 Form 10-K
147
Management’s report on internal control over financial reporting
Management of JPMorgan Chase & Co. (“JPMorgan Chase”
or the “Firm”) is responsible for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, the Firm’s
principal executive and principal financial officers, or
persons performing similar functions, and effected by
JPMorgan Chase’s Board of Directors, management and
other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with accounting principles generally accepted in the United
States of America.
JPMorgan Chase’s internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records, that, in reasonable detail,
accurately and fairly reflect the transactions and
dispositions of the Firm’s assets; (2) provide reasonable
assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance
with generally accepted accounting principles, and that
receipts and expenditures of the Firm are being made only
in accordance with authorizations of JPMorgan Chase’s
management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Firm’s
assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Management has
completed an assessment of the effectiveness of the Firm’s
internal control over financial reporting as of December 31,
2018. In making the assessment, management used the
“Internal Control — Integrated Framework” (“COSO 2013”)
promulgated by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”).
Based upon the assessment performed, management
concluded that as of December 31, 2018, JPMorgan Chase’s
internal control over financial reporting was effective based
upon the COSO 2013 framework. Additionally, based upon
management’s assessment, the Firm determined that there
were no material weaknesses in its internal control over
financial reporting as of December 31, 2018.
The effectiveness of the Firm’s internal control over
financial reporting as of December 31, 2018, has been
audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.
James Dimon
Chairman and Chief Executive Officer
Marianne Lake
Executive Vice President and Chief Financial Officer
February 26, 2019
148
JPMorgan Chase & Co./2018 Form 10-K
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of JPMorgan
Chase & Co.:
Opinions on the Financial Statements and Internal Control
over Financial Reporting
We have audited the accompanying consolidated balance
sheets of JPMorgan Chase & Co. and its subsidiaries (the
“Firm”) as of December 31, 2018 and 2017, and the related
consolidated statements of income, comprehensive income,
changes in stockholders’ equity and cash flows for each of the
three years in the period ended December 31, 2018,
including the related notes (collectively referred to as the
“consolidated financial statements”). We also have audited
the Firm’s internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Firm as of December 31, 2018 and 2017, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2018 in
conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the Firm
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2018, based on
criteria established in Internal Control – Integrated Framework
(2013) issued by the COSO.
Basis for Opinions
The Firm’s management is responsible for these consolidated
financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Management’s report on
internal control over financial reporting. Our responsibility is
to express opinions on the Firm’s consolidated financial
statements and on the Firm’s internal control over financial
reporting based on our audits. We are a public accounting
firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Firm in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included
performing procedures to assess the risks of material
misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used
and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over
financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included
performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial
Reporting
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the
company are being made only in accordance with
authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
February 26, 2019
We have served as the Firm’s auditor since 1965.
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017
JPMorgan Chase & Co./2018 Form 10-K
149
Consolidated statements of income
Year ended December 31, (in millions, except per share data)
2018
2017
2016
Revenue
Investment banking fees
Principal transactions
Lending- and deposit-related fees
Asset management, administration and commissions
Investment securities gains/(losses)
Mortgage fees and related income
Card income
Other income
Noninterest revenue
Interest income
Interest expense
Net interest income
Total net revenue
Provision for credit losses
Noninterest expense
Compensation expense
Occupancy expense
Technology, communications and equipment expense
Professional and outside services
Marketing
Other expense
Total noninterest expense
Income before income tax expense
Income tax expense
Net income
Net income applicable to common stockholders
Net income per common share data
Basic earnings per share
Diluted earnings per share
Weighted-average basic shares
Weighted-average diluted shares
$
7,550
$
7,412
$
12,059
6,052
17,118
(395)
1,254
4,989
5,343
53,970
77,442
22,383
55,059
11,347
5,933
16,287
(66)
1,616
4,433
3,646
50,608
64,372
14,275
50,097
109,029
100,705
4,871
5,290
6,572
11,566
5,774
15,364
141
2,491
4,779
3,799
50,486
55,901
9,818
46,083
96,569
5,361
33,117
31,208
30,203
3,952
8,802
8,502
3,290
5,731
63,394
40,764
8,290
32,474
30,709
9.04
9.00
3,396.4
3,414.0
$
$
$
3,723
7,715
7,890
2,900
6,079
59,515
35,900
11,459
24,441
22,567
6.35
6.31
3,551.6
3,576.8
$
$
$
3,638
6,853
7,526
2,897
5,555
56,672
34,536
9,803
24,733
22,834
6.24
6.19
3,658.8
3,690.0
$
$
$
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,
accordingly, prior period amounts were revised. For additional information, refer to Note 1.
The Notes to Consolidated Financial Statements are an integral part of these statements.
150
JPMorgan Chase & Co./2018 Form 10-K
Consolidated statements of comprehensive income
Year ended December 31, (in millions)
Net income
Other comprehensive income/(loss), after–tax
Unrealized gains/(losses) on investment securities
Translation adjustments, net of hedges
Fair value hedges
Cash flow hedges
Defined benefit pension and OPEB plans
DVA on fair value option elected liabilities
Total other comprehensive income/(loss), after–tax
Comprehensive income
2018
2017
$
32,474
$
24,441
$
(1,858)
20
(107)
(201)
(373)
1,043
(1,476)
640
(306)
NA
176
738
(192)
1,056
$
30,998
$
25,497
$
2016
24,733
(1,105)
(2)
NA
(56)
(28)
(330)
(1,521)
23,212
Effective January 1, 2018, the Firm adopted several new accounting standards. For additional information, refer to Note 1.
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2018 Form 10-K
151
Consolidated balance sheets
December 31, (in millions, except share data)
2018
2017
Assets
Cash and due from banks
Deposits with banks
Federal funds sold and securities purchased under resale agreements (included 13,235 and $14,732 at fair value)
Securities borrowed (included $5,105 and $3,049 at fair value)
Trading assets (included assets pledged of $89,073 and $109,887)
Investment securities (included $230,394 and $202,225 at fair value and assets pledged of $11,432 and $17,969)
Loans (included $3,151 and $2,508 at fair value)
Allowance for loan losses
Loans, net of allowance for loan losses
Accrued interest and accounts receivable
Premises and equipment
Goodwill, MSRs and other intangible assets
Other assets (included $9,630 and $16,128 at fair value and assets pledged of $3,457 and $7,980)
Total assets(a)
Liabilities
Deposits (included $23,217 and $21,321 at fair value)
Federal funds purchased and securities loaned or sold under repurchase agreements (included $935 and $697 at fair
value)
Short-term borrowings (included $7,130 and $9,191 at fair value)
Trading liabilities
Accounts payable and other liabilities (included $3,269 and $9,208 at fair value)
Beneficial interests issued by consolidated VIEs (included $28 and $45 at fair value)
Long-term debt (included $54,886 and $47,519 at fair value)
Total liabilities(a)
Commitments and contingencies (refer to Notes 27, 28 and 29)
Stockholders’ equity
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,606,750 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Shares held in restricted stock units (“RSU”) trust, at cost (472,953 shares)
Treasury stock, at cost (829,167,674 and 679,635,064 shares)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
22,324
$
256,469
321,588
111,995
413,714
261,828
984,554
(13,445)
971,109
73,200
14,934
54,349
25,898
405,406
198,422
105,112
381,844
249,958
930,697
(13,604)
917,093
67,729
14,159
54,392
121,022
2,622,532
1,470,666
$
$
$
$
113,587
2,533,600
1,443,982
182,320
69,276
144,773
196,710
20,241
282,031
158,916
51,802
123,663
189,383
26,081
284,080
2,366,017
2,277,907
26,068
4,105
89,162
26,068
4,105
90,579
199,202
177,676
(1,507)
(21)
(60,494)
256,515
(119)
(21)
(42,595)
255,693
$
2,622,532
$
2,533,600
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,
accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(a) The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 2018 and 2017. The
assets of the consolidated VIEs are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general
credit of JPMorgan Chase. The assets and liabilities in the table below include third-party assets and liabilities of consolidated VIEs and exclude intercompany
balances that eliminate in consolidation. For a further discussion, refer to Note 14.
December 31, (in millions)
2018
2017
Assets
Trading assets
Loans
All other assets
Total assets
Liabilities
Beneficial interests issued by consolidated VIEs
All other liabilities
Total liabilities
$
$
$
$
1,966
$
59,456
1,013
62,435
20,241
312
20,553
$
$
$
1,449
68,995
2,674
73,118
26,081
349
26,430
The Notes to Consolidated Financial Statements are an integral part of these statements.
152
JPMorgan Chase & Co./2018 Form 10-K
Consolidated statements of changes in stockholders’ equity
Year ended December 31, (in millions, except per share data)
2018
2017
2016
Preferred stock
Balance at January 1
Issuance
Redemption
Balance at December 31
Common stock
Balance at January 1 and December 31
Additional paid-in capital
Balance at January 1
Shares issued and commitments to issue common stock for employee share-based compensation awards, and
related tax effects
Other
Balance at December 31
Retained earnings
Balance at January 1
Cumulative effect of change in accounting principles
Net income
Dividends declared:
Preferred stock
Common stock ($2.72, $2.12 and $1.88 per share for 2018, 2017 and 2016, respectively)
Balance at December 31
Accumulated other comprehensive income
Balance at January 1
Cumulative effect of change in accounting principles
Other comprehensive income/(loss), after-tax
Balance at December 31
Shares held in RSU Trust, at cost
Balance at January 1 and December 31
Treasury stock, at cost
Balance at January 1
Repurchase
Reissuance
Balance at December 31
Total stockholders’ equity
$
26,068
$
26,068
$
26,068
1,696
1,258
(1,696)
26,068
(1,258)
26,068
—
—
26,068
4,105
4,105
4,105
90,579
91,627
92,500
(738)
(679)
(734)
(314)
(334)
(539)
89,162
90,579
91,627
177,676
162,440
146,420
(183)
—
(154)
32,474
24,441
24,733
(1,551)
(9,214)
(1,663)
(7,542)
(1,647)
(6,912)
199,202
177,676
162,440
(119)
88
(1,476)
(1,507)
(1,175)
—
1,056
(119)
192
154
(1,521)
(1,175)
(21)
(21)
(21)
(42,595)
(28,854)
(21,691)
(19,983)
(15,410)
2,084
1,669
(9,082)
1,919
(60,494)
(42,595)
(28,854)
$ 256,515
$ 255,693
$ 254,190
Effective January 1, 2018, the Firm adopted several new accounting standards. For additional information, refer to Note 1.
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2018 Form 10-K
153
Consolidated statements of cash flows
Year ended December 31, (in millions)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Provision for credit losses
Depreciation and amortization
Deferred tax expense
Other
Originations and purchases of loans held-for-sale
Proceeds from sales, securitizations and paydowns of loans held-for-sale
Net change in:
Trading assets
Securities borrowed
Accrued interest and accounts receivable
Other assets
Trading liabilities
Accounts payable and other liabilities
Other operating adjustments
Net cash provided by/(used in) operating activities
Investing activities
Net change in:
2018
2017
2016
$
32,474
$
24,441
$
24,733
4,871
7,791
1,721
2,717
5,290
6,179
2,312
2,136
5,361
5,478
4,651
1,799
(102,141)
(94,628)
(61,107)
93,453
93,270
60,196
(38,371)
5,673
(20,007)
(6,861)
(5,849)
(8,833)
18,290
14,630
295
(8,653)
(15,868)
3,982
(26,256)
(16,508)
2,313
(5,815)
(4,176)
5,198
5,087
7,803
(1,827)
14,187
(10,827)
21,884
Federal funds sold and securities purchased under resale agreements
(123,201)
31,448
(17,468)
Held-to-maturity securities:
Proceeds from paydowns and maturities
Purchases
Available-for-sale securities:
Proceeds from paydowns and maturities
Proceeds from sales
Purchases
Proceeds from sales and securitizations of loans held-for-investment
Other changes in loans, net
All other investing activities, net
Net cash provided by/(used in) investing activities
Financing activities
Net change in:
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Beneficial interests issued by consolidated VIEs
Proceeds from long-term borrowings
Payments of long-term borrowings
Proceeds from issuance of preferred stock
Redemption of preferred stock
Treasury stock repurchased
Dividends paid
All other financing activities, net
Net cash provided by financing activities
Effect of exchange rate changes on cash and due from banks and deposits with banks
Net increase/(decrease) in cash and due from banks and deposits with banks
Cash and due from banks and deposits with banks at the beginning of the period
Cash and due from banks and deposits with banks at the end of the period
Cash interest paid
Cash income taxes paid, net
2,945
(9,368)
4,563
(2,349)
6,218
(143)
37,401
46,067
56,117
90,201
65,950
48,592
(95,091)
(105,309)
(123,959)
29,826
15,791
15,429
(81,586)
(61,650)
(80,996)
(4,986)
(563)
(2,825)
(197,993)
28,249
(89,202)
26,728
23,415
18,476
1,712
71,662
57,022
(6,739)
16,540
(1,377)
56,271
97,336
13,007
(2,461)
(5,707)
83,070
(76,313)
(83,079)
(68,949)
1,696
(1,696)
1,258
(1,258)
(19,983)
(15,410)
(10,109)
(8,993)
(1,430)
34,158
(2,863)
(152,511)
407
14,642
8,086
40,150
—
—
(9,082)
(8,476)
(467)
98,271
(1,482)
29,471
431,304
391,154
361,683
$ 278,793
$ 431,304
$ 391,154
$
21,152
$
14,153
$
3,542
4,325
9,508
2,405
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,
accordingly, prior period amounts were revised. For additional information, refer to Note 1.
The Notes to Consolidated Financial Statements are an integral part of these statements.
154
JPMorgan Chase & Co./2018 Form 10-K
Note 1 – Basis of presentation
JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), a
financial holding company incorporated under Delaware law
in 1968, is a leading global financial services firm and one
of the largest banking institutions in the U.S. with
operations worldwide. The Firm is a leader in investment
banking, financial services for consumers and small
business, commercial banking, financial transaction
processing and asset management. For a discussion of the
Firm’s business segments, refer to Note 31.
The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to U.S. GAAP.
Additionally, where applicable, the policies conform to the
accounting and reporting guidelines prescribed by
regulatory authorities.
Certain amounts reported in prior periods have been
reclassified to conform with the current presentation.
Consolidation
The Consolidated Financial Statements include the accounts
of JPMorgan Chase and other entities in which the Firm has
a controlling financial interest. All material intercompany
balances and transactions have been eliminated.
Assets held for clients in an agency or fiduciary capacity by
the Firm are not assets of JPMorgan Chase and are not
included on the Consolidated balance sheets.
The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is
a voting interest entity or a variable interest entity.
Voting interest entities
Voting interest entities are entities that have sufficient
equity and provide the equity investors voting rights that
enable them to make significant decisions relating to the
entity’s operations. For these types of entities, the Firm’s
determination of whether it has a controlling interest is
primarily based on the amount of voting equity interests
held. Entities in which the Firm has a controlling financial
interest, through ownership of the majority of the entities’
voting equity interests, or through other contractual rights
that give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant
influence over operating and financing decisions (but does
not own a majority of the voting equity interests) are
accounted for (i) in accordance with the equity method of
accounting (which requires the Firm to recognize its
proportionate share of the entity’s net earnings), or (ii) at
fair value if the fair value option was elected. These
investments are generally included in other assets, with
income or loss included in noninterest revenue.
Certain Firm-sponsored asset management funds are
structured as limited partnerships or certain limited liability
companies. For many of these entities, the Firm is the
general partner or managing member, but the non-affiliated
partners or members have the ability to remove the Firm as
the general partner or managing member without cause
(i.e., kick-out rights), based on a simple majority vote, or
the non-affiliated partners or members have rights to
participate in important decisions. Accordingly, the Firm
does not consolidate these voting interest entities. However,
in the limited cases where the non-managing partners or
members do not have substantive kick-out or participating
rights, the Firm evaluates the funds as VIEs and
consolidates the funds if the Firm is the general partner or
managing member and has a potentially significant interest.
The Firm’s investment companies and asset management
funds have investments in both publicly-held and privately-
held entities, including investments in buyouts, growth
equity and venture opportunities. These investments are
accounted for under investment company guidelines and,
accordingly, irrespective of the percentage of equity
ownership interests held, are carried on the Consolidated
balance sheets at fair value, and are recorded in other
assets, with income or loss included in noninterest revenue.
If consolidated, the Firm retains such specialized investment
company guidelines.
Variable interest entities
VIEs are entities that, by design, either (1) lack sufficient
equity to permit the entity to finance its activities without
additional subordinated financial support from other
parties, or (2) have equity investors that do not have the
ability to make significant decisions relating to the entity’s
operations through voting rights, or do not have the
obligation to absorb the expected losses, or do not have the
right to receive the residual returns of the entity.
The most common type of VIE is an SPE. SPEs are commonly
used in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets to
investors. The basic SPE structure involves a company
selling assets to the SPE; the SPE funds the purchase of
those assets by issuing securities to investors. The legal
documents that govern the transaction specify how the cash
earned on the assets must be allocated to the SPE’s
investors and other parties that have rights to those cash
flows. SPEs are generally structured to insulate investors
from claims on the SPE’s assets by creditors of other
entities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has a
controlling financial interest) is required to consolidate the
assets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activities
of the VIE that most significantly impact the VIE’s economic
performance; and (2) through its interests in the VIE, the
obligation to absorb losses or the right to receive benefits
from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct the
activities of a VIE that most significantly impact the VIE’s
economic performance, the Firm considers all the facts and
circumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
JPMorgan Chase & Co./2018 Form 10-K
155
Notes to consolidated financial statements
includes, first, identifying the activities that most
significantly impact the VIE’s economic performance; and
second, identifying which party, if any, has power over those
activities. In general, the parties that make the most
significant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE’s assets) or have
the right to unilaterally remove those decision-makers are
deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb
losses of the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, the Firm
considers all of its economic interests, including debt and
equity investments, servicing fees, and derivatives or other
arrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment in
determining whether these interests, in the aggregate, are
considered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordination
of interests; payment priority; relative share of interests
held across various classes within the VIE’s capital
structure; and the reasons why the interests are held by the
Firm.
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority voting-
interest framework have become VIEs, based on certain
events, and are therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts and
circumstances regarding the Firm’s involvement with a VIE
cause the Firm’s consolidation conclusion to change.
Revenue recognition
Interest income
The Firm records interest income on loans, debt securities,
and other debt instruments, generally on a level-yield basis,
based on the underlying contractual rate. For further
discussion of interest income, refer to Note 7.
Revenue from contracts with customers
JPMorgan Chase records noninterest revenue from certain
contracts with customers under ASC 606, Revenue from
Contracts with customers, in investment banking fees,
deposit-related fees, asset management administration and
commissions, and components of card income. Under this
guidance, revenue is recognized when the Firm’s
performance obligations are satisfied. For further
discussion of the Firm’s revenue from contracts with
customers, refer to Note 6.
Principal transactions revenue
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. Changes in fair value are reported primarily in
principal transactions revenue. For further discussion of fair
value measurement, refer to Notes 2 and 3. For further
discussion of principal transactions revenue, refer to Note
6.
Use of estimates in the preparation of consolidated
financial statements
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenue and expense, and disclosures of contingent assets
and liabilities. Actual results could be different from these
estimates.
Foreign currency translation
JPMorgan Chase revalues assets, liabilities, revenue and
expense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.
Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in OCI
within stockholders’ equity. Gains and losses relating to
nonfunctional currency transactions, including non-U.S.
operations where the functional currency is the U.S. dollar,
are reported in the Consolidated statements of income.
Offsetting assets and liabilities
U.S. GAAP permits entities to present derivative receivables
and derivative payables with the same counterparty and the
related cash collateral receivables and payables on a net
basis on the Consolidated balance sheets when a legally
enforceable master netting agreement exists. U.S. GAAP
also permits securities sold and purchased under
repurchase agreements and securities borrowed or loaned
under securities loan agreements to be presented net when
specified conditions are met, including the existence of a
legally enforceable master netting agreement. The Firm has
elected to net such balances when the specified conditions
are met.
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivative contracts, resale, repurchase, securities
borrowed and securities loaned agreements. A master
netting agreement is a single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due). Upon the exercise of derivatives
termination rights by the non-defaulting party (i) all
transactions are terminated, (ii) all transactions are valued
and the positive values of “in the money” transactions are
netted against the negative values of “out of the money”
transactions and (iii) the only remaining payment obligation
is of one of the parties to pay the netted termination
amount. Upon exercise of default rights under repurchase
agreements and securities loan agreements in general (i) all
transactions are terminated and accelerated, (ii) all values
of securities or cash held or to be delivered are calculated,
and all such sums are netted against each other and (iii) the
only remaining payment obligation is of one of the parties
to pay the netted termination amount.
156
JPMorgan Chase & Co./2018 Form 10-K
AOCI. For additional information, refer to the table below,
and Notes 10 and 23.
Hedge accounting
The adoption of this guidance better aligns hedge
accounting with the economics of the Firm’s risk
management activities. As permitted by the guidance, the
Firm also elected to transfer certain investment securities
from HTM to AFS. The adoption of this guidance resulted in
a cumulative-effect adjustment to retained earnings and
AOCI as a result of the investment securities transfer and
the revised guidance for excluded components. For
additional information, refer to the table below, and Notes
5, 10 and 23.
Treatment of restricted cash on the statement of cash flows
The adoption of this guidance requires restricted cash to be
combined with unrestricted cash when reconciling the
beginning and ending cash balances on the Consolidated
statements of cash flows. To align the Consolidated balance
sheets with the Consolidated statements of cash flows, the
Firm reclassified restricted cash into cash and due from
banks or deposits with banks. In addition, for the Firm’s
Consolidated statements of cash flows, cash is defined as
those amounts included in cash and due from banks and
deposits with banks. This guidance was applied
retrospectively and, accordingly, prior period amounts have
been revised. For additional information, refer to the table
below, and Note 25.
Presentation of net periodic pension cost and net periodic
postretirement benefit cost
The adoption of this guidance requires the service cost
component of net periodic pension cost and net periodic
postretirement benefit cost to be reported separately in the
Consolidated statements of income from the other cost
components. This change was adopted retrospectively and,
accordingly, prior period amounts were revised, which
resulted in an increase in compensation expense and a
reduction in other expense. For additional information,
refer to the table below, and Note 8.
Reclassification of certain tax effects from AOCI
The adoption of this guidance permitted the Firm to reclassify
from AOCI to retained earnings stranded tax effects due to
the revaluation of deferred tax assets and liabilities as a
result of changes in applicable tax rates under the TCJA. The
adoption of this guidance resulted in a cumulative-effect
adjustment to retained earnings and AOCI. For additional
information, refer to the table below, and Note 23.
Typical master netting agreements for these types of
transactions also often contain a collateral/margin
agreement that provides for a security interest in, or title
transfer of, securities or cash collateral/margin to the party
that has the right to demand margin (the “demanding
party”). The collateral/margin agreement typically requires
a party to transfer collateral/margin to the demanding
party with a value equal to the amount of the margin deficit
on a net basis across all transactions governed by the
master netting agreement, less any threshold. The
collateral/margin agreement grants to the demanding
party, upon default by the counterparty, the right to set-off
any amounts payable by the counterparty against any
posted collateral or the cash equivalent of any posted
collateral/margin. It also grants to the demanding party the
right to liquidate collateral/margin and to apply the
proceeds to an amount payable by the counterparty.
For further discussion of the Firm’s derivative instruments,
refer to Note 5. For further discussion of the Firm’s
securities financing agreements, refer to Note 11.
Statements of cash flows
For JPMorgan Chase’s Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks and deposits with banks.
Accounting standards adopted January 1, 2018
Revenue recognition – revenue from contracts with customers
The adoption of this guidance requires gross presentation of
certain costs that were previously offset against revenue.
Adoption of the guidance did not result in any material
changes in the timing of the Firm’s revenue recognition. This
guidance was adopted retrospectively and, accordingly, prior
period amounts were revised, which resulted in an increase in
both noninterest revenue and noninterest expense. The Firm
did not apply any practical expedients. For additional
information, refer to the table on page 158 of this Note, and
Note 6.
Recognition and measurement of financial assets and
financial liabilities
The adoption of this guidance requires that certain equity
instruments be measured at fair value, with changes in fair
value recognized in earnings. The guidance also provides an
alternative to measure equity securities without readily
determinable fair values at cost less impairment (if any), plus
or minus observable price changes from an identical or
similar investment of the same issuer (the “measurement
alternative”). The Firm elected the measurement alternative
for its qualifying equity securities and the adoption of the
guidance resulted in fair value gains of $505 million which
were recognized in other income in the first quarter of 2018.
For additional information, refer to Notes 2 and 10.
Premium amortization on purchased callable debt securities
The adoption of this guidance requires that premiums be
amortized to the earliest call date on certain debt
securities. The adoption of this guidance resulted in a
cumulative-effect adjustment to retained earnings and
JPMorgan Chase & Co./2018 Form 10-K
157
Notes to consolidated financial statements
The following tables present the prior period impact to the
Consolidated statements of income and the Consolidated
balance sheets from the retrospective adoption of the new
accounting standards in the first quarter of 2018:
Selected Consolidated statements of income data
Year ended
December 31, 2017 (in
millions)
Revenue
Reported
Revisions(a)
Revised
Investment banking fees
$
7,248 $
164 $
7,412
The following table presents the adjustment to retained
earnings and AOCI as a result of the adoption of new
accounting standards in the first quarter of 2018:
Increase/(decrease) (in millions)
Premium amortization on purchased callable
debt securities
Hedge accounting
Reclassification of certain tax effects from
AOCI
Total
Retained
earnings
AOCI
$
(505) $
34
288
$
(183) $
261
115
(288)
88
Asset management,
administration and
commissions
Other income
Total net revenue
Noninterest expense
15,377
3,639
99,624
910
7
16,287
3,646
1,081
100,705
Significant accounting policies
The following table identifies JPMorgan Chase’s other
significant accounting policies and the Note and page where
a detailed description of each policy can be found.
Fair value measurement
Fair value option
Derivative instruments
Noninterest revenue
Note 2
Page 159
Note 3
Page 179
Note 5
Page 184
Note 6
Page 198
Interest income and interest expense
Note 7
Page 201
Pension and other postretirement
employee benefit plans
Employee share-based incentives
Investment securities
Securities financing activities
Loans
Allowance for credit losses
Variable interest entities
Note 8
Page 202
Note 9
Page 209
Note 10
Page 211
Note 11
Page 216
Note 12
Page 219
Note 13
Page 239
Note 14
Page 244
Goodwill and Mortgage servicing rights
Note 15
page 252
Premises and equipment
Long-term debt
Income taxes
Off–balance sheet lending-related
financial instruments, guarantees and
other commitments
Litigation
Note 16
page 256
Note 19
page 257
Note 24
page 264
Note 27
page 271
Note 29
page 278
Compensation expense
31,009
199
31,208
Technology, communication
and equipment expense
Professional and outside
services
Other expense
7,706
6,840
6,256
9
7,715
1,050
(177)
7,890
6,079
Total noninterest expense
$
58,434 $
1,081 $
59,515
Year ended
December 31, 2016 (in
millions)
Revenue
Reported
Revisions(a)
Revised
Investment banking fees
$
6,448 $
124 $
6,572
Asset management,
administration and
commissions
Other income
Total net revenue
Noninterest expense
14,591
3,795
95,668
773
4
901
15,364
3,799
96,569
Compensation expense
29,979
224
30,203
Technology, communication
and equipment expense
Professional and outside
services
Other expense
6,846
6,655
5,756
7
6,853
871
(201)
7,526
5,555
Total noninterest expense
$
55,771 $
901 $
56,672
(a) Revisions relate to revenue recognition and pension cost guidance.
Selected Consolidated balance sheets data
December 31, 2017
(in millions)
Reported
Revisions(a)
Revised
Assets
Cash and due from banks
$
25,827 $
71 $
25,898
Deposits with banks
Other assets
Total assets
404,294
114,770
1,112
405,406
(1,183)
113,587
$2,533,600 $
— $2,533,600
(a) Revisions relate to the reclassification of restricted cash.
158
JPMorgan Chase & Co./2018 Form 10-K
Note 2 – Fair value measurement
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets and
liabilities that are measured and reported at fair value on
the Firm’s Consolidated balance sheets). Certain assets
(e.g., held-for-sale loans), liabilities and unfunded lending-
related commitments are measured at fair value on a
nonrecurring basis; that is, they are not measured at fair
value on an ongoing basis but are subject to fair value
adjustments only in certain circumstances (for example,
when there is evidence of impairment).
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. Fair value is based on quoted market
prices or inputs, where available. If prices or quotes are not
available, fair value is based on valuation models and other
valuation techniques that consider relevant transaction
characteristics (such as maturity) and use as inputs
observable or unobservable market parameters, including
yield curves, interest rates, volatilities, equity or debt
prices, foreign exchange rates and credit curves. Valuation
adjustments may be made to ensure that financial
instruments are recorded at fair value, as described below.
The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while the
Firm believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm’s businesses and
portfolios.
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of different
methodologies or assumptions by other market participants
compared with those used by the Firm could result in the
Firm deriving a different estimate of fair value at the
reporting date.
Valuation process
Risk-taking functions are responsible for providing fair value
estimates for assets and liabilities carried on the
Consolidated balance sheets at fair value. The Firm’s VCG,
which is part of the Firm’s Finance function and
independent of the risk-taking functions, is responsible for
verifying these estimates and determining any fair value
adjustments that may be required to ensure that the Firm’s
positions are recorded at fair value. The VGF is composed of
senior finance and risk executives and is responsible for
overseeing the management of risks arising from valuation
activities conducted across the Firm. The Firmwide VGF is
chaired by the Firmwide head of the VCG (under the
direction of the Firm’s Controller), and includes sub-forums
covering the CIB, CCB, CB, AWM and certain corporate
functions including Treasury and CIO.
JPMorgan Chase & Co./2018 Form 10-K
159
Notes to consolidated financial statements
Price verification process
The VCG verifies fair value estimates provided by the risk-
taking functions by leveraging independently derived prices,
valuation inputs and other market data, where available.
Where independent prices or inputs are not available, the
VCG performs additional review to ensure the
reasonableness of the estimates. The additional review may
include evaluating the limited market activity including
client unwinds, benchmarking valuation inputs to those
used for similar instruments, decomposing the valuation of
structured instruments into individual components,
comparing expected to actual cash flows, reviewing profit
and loss trends, and reviewing trends in collateral valuation.
There are also additional levels of management review for
more significant or complex positions.
The VCG determines any valuation adjustments that may be
required to the estimates provided by the risk-taking
functions. No adjustments to quoted prices are applied for
instruments classified within level 1 of the fair value
hierarchy (refer to below for further information on the fair
value hierarchy). For other positions, judgment is required
to assess the need for valuation adjustments to
appropriately reflect liquidity considerations, unobservable
parameters, and, for certain portfolios that meet specified
criteria, the size of the net open risk position. The
determination of such adjustments follows a consistent
framework across the Firm:
• Liquidity valuation adjustments are considered where an
observable external price or valuation parameter exists
but is of lower reliability, potentially due to lower market
activity. Liquidity valuation adjustments are applied and
determined based on current market conditions. Factors
that may be considered in determining the liquidity
adjustment include analysis of: (1) the estimated bid-
offer spread for the instrument being traded; (2)
alternative pricing points for similar instruments in
active markets; and (3) the range of reasonable values
that the price or parameter could take.
• The Firm manages certain portfolios of financial
instruments on the basis of net open risk exposure and,
as permitted by U.S. GAAP, has elected to estimate the
fair value of such portfolios on the basis of a transfer of
the entire net open risk position in an orderly
transaction. Where this is the case, valuation
adjustments may be necessary to reflect the cost of
exiting a larger-than-normal market-size net open risk
position. Where applied, such adjustments are based on
factors that a relevant market participant would
consider in the transfer of the net open risk position,
including the size of the adverse market move that is
likely to occur during the period required to reduce the
net open risk position to a normal market-size.
• Unobservable parameter valuation adjustments may be
made when positions are valued using prices or input
parameters to valuation models that are unobservable
due to a lack of market activity or because they cannot
be implied from observable market data. Such prices or
parameters must be estimated and are, therefore,
subject to management judgment. Unobservable
parameter valuation adjustments are applied to reflect
the uncertainty inherent in the resulting valuation
estimate.
• Where appropriate, the Firm also applies adjustments to
its estimates of fair value in order to appropriately
reflect counterparty credit quality (CVA), the Firm’s own
creditworthiness (DVA) and the impact of funding (FVA),
using a consistent framework across the Firm. For more
information on such adjustments refer to Credit and
funding adjustments on page 175 of this Note.
Valuation model review and approval
If prices or quotes are not available for an instrument or a
similar instrument, fair value is generally determined using
valuation models that consider relevant transaction data
such as maturity and use as inputs market-based or
independently sourced parameters. Where this is the case
the price verification process described above is applied to
the inputs to those models.
Under the Firm’s Estimations and Model Risk Management
Policy, the Model Risk function reviews and approves new
models, as well as material changes to existing models,
prior to implementation in the operating environment. In
certain circumstances, the head of the Model Risk function
may grant exceptions to the Firm’s policy to allow a model
to be used prior to review or approval. The Model Risk
function may also require the user to take appropriate
actions to mitigate the model risk if it is to be used in the
interim. These actions will depend on the model and may
include, for example, limitation of trading activity.
Valuation hierarchy
A three-level valuation hierarchy has been established
under U.S. GAAP for disclosure of fair value measurements.
The valuation hierarchy is based on the transparency of
inputs to the valuation of an asset or liability as of the
measurement date. The three levels are defined as follows.
• Level 1 – inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or
liabilities in active markets.
• Level 2 – inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
• Level 3 – one or more inputs to the valuation
methodology are unobservable and significant to the fair
value measurement.
A financial instrument’s categorization within the valuation
hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
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JPMorgan Chase & Co./2018 Form 10-K
The following table describes the valuation methodologies generally used by the Firm to measure its significant products/
instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
Product/instrument
Valuation methodology
Classifications in the valuation
hierarchy
Securities financing agreements
Valuations are based on discounted cash flows, which consider:
Predominantly level 2
• Derivative features: for further information refer to the discussion
of derivatives below.
• Market rates for the respective maturity
• Collateral characteristics
Loans and lending-related commitments — wholesale
Loans carried at fair value
(e.g., trading loans and non-
trading loans) and associated
lending-related commitments
Where observable market data is available, valuations are based on:
Level 2 or 3
• Observed market prices (circumstances are infrequent)
• Relevant broker quotes
• Observed market prices for similar instruments
Where observable market data is unavailable or limited, valuations
are based on discounted cash flows, which consider the following:
• Credit spreads derived from the cost of CDS; or benchmark credit
curves developed by the Firm, by industry and credit rating
• Prepayment speed
• Collateral characteristics
Loans — consumer
Trading loans — conforming
residential mortgage loans
expected to be sold (CCB, CIB)
Investment and trading
securities
Fair value is based on observable prices for mortgage-backed
securities with similar collateral and incorporates adjustments to
these prices to account for differences between the securities and the
value of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.
Predominantly level 2
Quoted market prices are used where available.
Level 1
In the absence of quoted market prices, securities are valued based
on:
Level 2 or 3
• Observable market prices for similar securities
• Relevant broker quotes
• Discounted cash flows
In addition, the following inputs to discounted cash flows are used for
the following products:
Mortgage- and asset-backed securities specific inputs:
• Collateral characteristics
• Deal-specific payment and loss allocations
• Current market assumptions related to yield, prepayment speed,
conditional default rates and loss severity
Collateralized loan obligations (“CLOs”) specific inputs:
• Collateral characteristics
• Deal-specific payment and loss allocations
• Expected prepayment speed, conditional default rates, loss
severity
• Credit spreads
• Credit rating data
Physical commodities
Valued using observable market prices or data.
Level 1 and 2
JPMorgan Chase & Co./2018 Form 10-K
161
Notes to consolidated financial statements
Product/instrument
Valuation methodology
Classifications in the valuation
hierarchy
Derivatives
Exchange-traded derivatives that are actively traded and valued using
the exchange price.
Level 1
Level 2 or 3
Derivatives that are valued using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models
that may use observable or unobservable valuation inputs as well as
considering the contractual terms.
The key valuation inputs used will depend on the type of derivative and
the nature of the underlying instruments and may include equity prices,
commodity prices, interest rate yield curves, foreign exchange rates,
volatilities, correlations, CDS spreads and recovery rates. Additionally,
the credit quality of the counterparty and of the Firm as well as market
funding levels may also be considered.
In addition, specific inputs used for derivatives that are valued based on
models with significant unobservable inputs are as follows:
Structured credit derivatives specific inputs include:
• CDS spreads and recovery rates
• Credit correlation between the underlying debt instruments
Equity option specific inputs include:
• Equity volatilities
• Equity correlation
• Equity-FX correlation
• Equity-IR correlation
Interest rate and FX exotic options specific inputs include:
• Interest rate spread volatility
• Interest rate correlation
• Foreign exchange correlation
• Interest rate-FX correlation
Commodity derivatives specific inputs include:
• Commodity volatility
• Forward commodity price
Additionally, adjustments are made to reflect counterparty credit quality
(CVA) and the impact of funding (FVA). Refer to page 175 of this Note.
Mortgage servicing rights
Refer to Mortgage servicing rights in Note 15.
Private equity direct
investments
Fund investments (e.g.,
mutual/collective investment
funds, private equity funds,
hedge funds, and real estate
funds)
Beneficial interests issued by
consolidated VIEs
Fair value is estimated using all available information; the range of
potential inputs include:
• Transaction prices
• Trading multiples of comparable public companies
• Operating performance of the underlying portfolio company
• Adjustments as required, since comparable public companies are not
identical to the company being valued, and for company-specific
issues and lack of liquidity.
• Additional available inputs relevant to the investment.
Net asset value
• NAV is supported by the ability to redeem and purchase at the NAV
level.
• Adjustments to the NAV as required, for restrictions on redemption
(e.g., lock-up periods or withdrawal limitations) or where observable
activity is limited.
Valued using observable market information, where available.
In the absence of observable market information, valuations are based
on the fair value of the underlying assets held by the VIE.
Level 3
Level 2 or 3
Level 1
Level 2 or 3(a)
Level 2 or 3
(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.
162
JPMorgan Chase & Co./2018 Form 10-K
Product/instrument
Valuation methodology
Classification in the valuation
hierarchy
Structured notes (included in
deposits, short-term
borrowings and long-term
debt)
• Valuations are based on discounted cash flow analyses that consider
the embedded derivative and the terms and payment structure of
the note.
Level 2 or 3
• The embedded derivative features are considered using models such
as the Black-Scholes option pricing model, simulation models, or a
combination of models that may use observable or unobservable
valuation inputs, depending on the embedded derivative. The
specific inputs used vary according to the nature of the embedded
derivative features, as described in the discussion above regarding
derivatives valuation. Adjustments are then made to this base
valuation to reflect the Firm’s own credit risk (DVA). Refer to page
175 of this Note.
JPMorgan Chase & Co./2018 Form 10-K
163
Notes to consolidated financial statements
The following table presents the assets and liabilities reported at fair value as of December 31, 2018 and 2017, by major
product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
Fair value hierarchy
December 31, 2018 (in millions)
Level 1
Level 2
Level 3
— $
—
13,235
5,105
$
$
—
—
Derivative
netting
adjustments
Total fair value
— $
—
13,235
5,105
Federal funds sold and securities purchased under resale agreements
$
Securities borrowed
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies(a)
Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies(a)
Obligations of U.S. states and municipalities
Certificates of deposit, bankers’ acceptances and commercial paper
Non-U.S. government debt securities
Corporate debt securities
Loans(b)
Asset-backed securities
Total debt instruments
Equity securities
Physical commodities(c)
Other
Total debt and equity instruments(d)
Derivative receivables:
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total derivative receivables(e)
Total trading assets(f)
Available-for-sale securities:
Mortgage-backed securities:
U.S. government agencies(a)
Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets(f)(g)
Total assets measured at fair value on a recurring basis
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Trading liabilities:
Debt and equity instruments(d)
Derivative payables:
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total derivative payables(e)
Total trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIEs
Long-term debt
—
—
—
—
51,477
—
—
27,878
—
—
—
79,355
71,119
5,182
—
155,656
682
—
771
—
—
1,453
157,109
—
—
—
—
56,059
—
—
15,313
—
—
—
1,526
—
695
—
—
2,221
82,420
3,063
—
—
Total liabilities measured at fair value on a recurring basis
$
85,483 $
71,372
—
—
7,810
236,291 $
— $
—
—
$
$
80,199
22,755
76,249
1,798
1,501
79,548
7,702
7,121
1,214
27,056
18,655
40,047
2,756
184,099
482
1,855
13,192
199,628
266,380
19,235
166,238
46,777
20,339
518,969
718,597
68,646
8,519
6,654
83,819
—
37,723
75
8,789
1,918
19,437
7,260
159,021
3,029
—
195
899,182
19,048
935
5,607
239,576
19,309
163,549
46,462
21,158
490,054
512,809
196
27
35,468
574,090
549
64
11
624
—
689
—
155
334
1,706
127
3,635
232
—
301
4,168
1,642
860
676
2,508
131
5,817
9,985
—
1
—
1
—
—
—
—
—
—
—
1
122
6,130
927
17,165
4,169
—
1,523
50
1,680
967
973
4,733
1,260
9,613
9,663
10
1
19,418
34,784
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(245,490)
(19,483)
(154,235)
(39,339)
(13,479)
(472,026)
(472,026)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
(472,026) $
— $
—
—
—
(234,998)
(18,609)
(152,432)
(41,034)
(13,046)
(460,119)
(460,119)
—
—
—
$
(460,119) $
76,798
1,862
1,512
80,172
59,179
7,810
1,214
55,089
18,989
41,753
2,883
267,089
71,833
7,037
13,493
359,452
23,214
612
13,450
9,946
6,991
54,213
413,665
68,646
8,520
6,654
83,820
56,059
37,723
75
24,102
1,918
19,437
7,260
230,394
3,151
6,130
8,932
680,612
23,217
935
7,130
103,004
7,784
1,667
12,785
10,161
9,372
41,769
144,773
3,269
28
54,886
234,238
$
$
$
164
JPMorgan Chase & Co./2018 Form 10-K
December 31, 2017 (in millions)
Level 1
Level 2
Level 3
Derivative
netting
adjustments
Fair value hierarchy
— $
—
14,732
3,049
$
$
—
—
Total fair value
$
14,732
3,049
—
—
—
—
30,758
—
—
28,887
—
—
—
59,645
87,346
4,924
—
151,915
181
—
841
—
—
1,022
152,937
—
—
—
—
22,745
—
—
18,140
—
—
—
Federal funds sold and securities purchased under resale agreements
$
Securities borrowed
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies(a)
Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies(a)
Obligations of U.S. states and municipalities
Certificates of deposit, bankers’ acceptances and commercial paper
Non-U.S. government debt securities
Corporate debt securities
Loans(b)
Asset-backed securities
Total debt instruments
Equity securities
Physical commodities(c)
Other
Total debt and equity instruments(d)
Derivative receivables:
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total derivative receivables(e)
Total trading assets(f)
Available-for-sale securities:
Mortgage-backed securities:
U.S. government agencies(a)
Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
Equity securities(g)
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets(f)(g)
Total assets measured at fair value on a recurring basis
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Trading liabilities:
Debt and equity instruments(d)
Derivative payables:
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total derivative payables(e)
Total trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIEs
Long-term debt
Total liabilities measured at fair value on a recurring basis
547
41,432
—
—
13,795
208,164 $
— $
—
—
$
$
64,664
21,183
170
—
794
—
—
964
65,628
9,074
—
—
74,702 $
$
282,825
22,009
154,075
39,668
21,017
519,594
540,777
121
6
31,394
597,700
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(291,319)
(22,335)
(144,081)
(32,158)
(13,137)
(503,030)
(503,030)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
(503,030)
—
—
—
—
(277,306)
(21,954)
(143,349)
(36,203)
(14,217)
(493,029)
(493,029)
—
—
—
(493,029)
$
$
41,822
1,895
1,656
45,373
37,234
9,811
226
57,796
24,458
37,961
3,437
216,296
87,838
6,246
14,887
325,267
24,673
869
16,151
7,882
6,948
56,523
381,790
70,280
11,367
5,025
86,672
22,745
32,338
59
27,294
2,757
20,996
8,817
547
202,225
2,508
6,030
15,403
625,737
21,321
697
9,191
85,886
7,129
1,299
12,473
9,192
7,684
37,777
123,663
9,208
45
47,519
211,644
41,515
1,835
1,645
44,995
6,475
9,067
226
28,831
24,146
35,242
3,284
152,266
197
1,322
14,197
167,982
314,107
21,995
158,834
37,722
19,875
552,533
720,515
70,280
11,366
5,025
86,671
—
32,338
59
9,154
2,757
20,720
8,817
—
160,516
2,232
—
343
901,387
17,179
697
7,526
307
60
11
378
1
744
—
78
312
2,719
153
4,385
295
—
690
5,370
1,704
1,209
557
2,318
210
5,998
11,368
—
1
—
1
—
—
—
—
—
276
—
—
277
276
6,030
1,265
19,216
4,142
—
1,665
39
1,440
1,244
953
5,727
884
10,248
10,287
13
39
16,125
32,271
$
$
$
(a) At December 31, 2018 and 2017, included total U.S. government-sponsored enterprise obligations of $92.3 billion and $78.0 billion, respectively, which
were predominantly mortgage-related.
(b) At December 31, 2018 and 2017, included within trading loans were $13.2 billion and $11.4 billion, respectively, of residential first-lien mortgages, and
$2.3 billion and $4.2 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated
with the intent to sell to U.S. government agencies of $7.6 billion and $5.7 billion, respectively, and reverse mortgages of zero and $836 million,
respectively.
JPMorgan Chase & Co./2018 Form 10-K
165
Notes to consolidated financial statements
(c) Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. “Net realizable value” is a term defined in U.S.
GAAP as not exceeding fair value less costs to sell (“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not
applicable or immaterial to the value of the inventory. Therefore, net realizable value approximates fair value for the Firm’s physical commodities
inventories. When fair value hedging has been applied (or when net realizable value is below cost), the carrying value of physical commodities
approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the
Firm’s hedge accounting relationships, refer to Note 5. To provide consistent fair value disclosure information, all physical commodities inventories have
been included in each period presented.
(d) Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
(e) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid
when a legally enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and
derivative payables balances for this netting adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a
presentation based on the transparency of inputs to the valuation of an asset or liability. The level 3 balances would be reduced if netting were applied,
including the netting benefit associated with cash collateral.
(f) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be
classified in the fair value hierarchy. At December 31, 2018 and 2017, the fair values of these investments, which include certain hedge funds, private
equity funds, real estate and other funds, were $747 million and $779 million, respectively. Included in these balances at December 31, 2018 and 2017,
were trading assets of $49 million and $54 million, respectively, and other assets of $698 million and $725 million, respectively.
(g) Effective January 1, 2018, the Firm adopted the recognition and measurement guidance. Equity securities that were previously reported as AFS securities
were reclassified to other assets upon adoption.
166
JPMorgan Chase & Co./2018 Form 10-K
In the Firm’s view, the input range and the weighted average
value do not reflect the degree of input uncertainty or an
assessment of the reasonableness of the Firm’s estimates and
assumptions. Rather, they reflect the characteristics of the
various instruments held by the Firm and the relative
distribution of instruments within the range of
characteristics. For example, two option contracts may have
similar levels of market risk exposure and valuation
uncertainty, but may have significantly different implied
volatility levels because the option contracts have different
underlyings, tenors, or strike prices. The input range and
weighted average values will therefore vary from period-to-
period and parameter-to-parameter based on the
characteristics of the instruments held by the Firm at each
balance sheet date.
For the Firm’s derivatives and structured notes positions
classified within level 3 at December 31, 2018, interest rate
correlation inputs used in estimating fair value were
concentrated towards the upper end of the range; equity
correlation, equity-FX and equity-IR correlation inputs were
concentrated in the middle of the range; commodity
correlation inputs were concentrated in the middle of the
range; credit correlation inputs were concentrated towards
the lower end of the range; and the interest rate-foreign
exchange (“IR-FX”) correlation inputs were distributed across
the range. In addition, the interest rate spread volatility
inputs used in estimating fair value were distributed across
the range; equity volatilities and commodity volatilities were
concentrated in the middle of the range; and forward
commodity prices used in estimating the fair value of
commodity derivatives were concentrated towards the lower
end of the range. Recovery rate inputs used in estimating the
fair value of credit derivatives were distributed across the
range; credit spreads and conditional default rates were
concentrated towards the lower end of the range; loss
severity and price inputs were concentrated towards the
upper end of the range.
Level 3 valuations
The Firm has established well-structured processes for
determining fair value, including for instruments where fair
value is estimated using significant unobservable inputs
(level 3). For further information on the Firm’s valuation
process and a detailed discussion of the determination of fair
value for individual financial instruments, refer to pages 159–
163 of this Note.
Estimating fair value requires the application of judgment.
The type and level of judgment required is largely dependent
on the amount of observable market information available to
the Firm. For instruments valued using internally developed
valuation models and other valuation techniques that use
significant unobservable inputs and are therefore classified
within level 3 of the fair value hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation model or other valuation technique to
use. Second, due to the lack of observability of significant
inputs, management must assess all relevant empirical data
in deriving valuation inputs including transaction details,
yield curves, interest rates, prepayment speed, default rates,
volatilities, correlations, equity or debt prices, valuations of
comparable instruments, foreign exchange rates and credit
curves.
The following table presents the Firm’s primary level 3
financial instruments, the valuation techniques used to
measure the fair value of those financial instruments, the
significant unobservable inputs, the range of values for those
inputs and, for certain instruments, the weighted averages of
such inputs. While the determination to classify an
instrument within level 3 is based on the significance of the
unobservable inputs to the overall fair value measurement,
level 3 financial instruments typically include observable
components (that is, components that are actively quoted
and can be validated to external sources) in addition to the
unobservable components. The level 1 and/or level 2 inputs
are not included in the table. In addition, the Firm manages
the risk of the observable components of level 3 financial
instruments using securities and derivative positions that are
classified within levels 1 or 2 of the fair value hierarchy.
The range of values presented in the table is representative
of the highest and lowest level input used to value the
significant groups of instruments within a product/instrument
classification. Where provided, the weighted averages of the
input values presented in the table are calculated based on
the fair value of the instruments that the input is being used
to value.
JPMorgan Chase & Co./2018 Form 10-K
167
Notes to consolidated financial statements
Level 3 inputs(a)
December 31, 2018
Product/Instrument
Residential mortgage-backed securities and
loans(b)
Commercial mortgage-backed securities and
loans(c)
Obligations of U.S. states and municipalities
Corporate debt securities
Loans(d)
Asset-backed securities
Net interest rate derivatives
Fair value
(in millions)
Principal valuation
technique
Unobservable inputs(g)
Range of input values
Weighted
average
$
858
Discounted cash flows
Yield
Prepayment speed
Conditional default rate
Loss severity
419
Market comparables
689
334
234
942
127
Market comparables
Market comparables
Discounted cash flows
Market comparables
Market comparables
Price
Price
Price
Yield
Price
Price
0%
0%
0%
0%
$
$
$
$
$
0
62
0
2
1
(180) Option pricing
Interest rate spread volatility
16bps
–
–
–
–
–
–
–
8%
–
–
–
Interest rate correlation
(45)% –
6%
9%
1%
6%
$90
$96
$57
8%
$78
$67
19%
24%
9%
100%
$103
$100
$107
$101
$102
38bps
97%
60%
30%
55%
Net credit derivatives
142
Discounted cash flows
(163) Discounted cash flows
IR-FX correlation
Prepayment speed
Credit correlation
Credit spread
Recovery rate
Conditional default rate
Loss severity
56
Market comparables
Price
Net foreign exchange derivatives
(122) Option pricing
Net equity derivatives
(175) Discounted cash flows
(2,225) Option pricing
IR-FX correlation
Prepayment speed
Equity volatility
Equity correlation
Equity-FX correlation
Equity-IR correlation
MSRs
Other assets
6,130
Discounted cash flows
306
Discounted cash flows
922
Market comparables
Commodity volatility
Commodity correlation
Refer to Note 15
Credit spread
Yield
Price
EBITDA multiple
45%
4%
25%
–
–
–
10bps
– 1,487bps
20%
3%
–
–
70%
72%
100%
$
1
–
(45)% –
8% –
–
14%
20%
–
(75 )% –
20%
–
$115
60%
9%
57%
98%
61%
60%
5%
–
(51 )% –
68%
95%
Net commodity derivatives
(1,129) Option pricing
Forward commodity price
$
39
– $56 per barrel
Long-term debt, short-term borrowings, and
deposits(e)
25,110
Option pricing
Interest rate spread volatility
16bps
8%
$
20
2.9x
55bps
–
–
–
55bps
8%
$40
7.5x
10%
$108
8.3x
38bps
97%
60%
98%
61%
60%
Interest rate correlation
IR-FX correlation
Equity correlation
Equity-FX correlation
Equity-IR correlation
(45)% –
(45)% –
20%
–
(75)% –
20%
–
Other level 3 assets and liabilities, net(f)
326
(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated
balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued
using the technique as the characteristics of the instruments can differ.
(b) Includes U.S. government agency securities of $541 million, nonagency securities of $65 million and trading loans of $252 million.
(c) Includes U.S. government agency securities of $8 million, nonagency securities of $11 million, trading loans of $278 million and non-trading loans of $122
million.
(d) Comprises trading loans.
(e) Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are financial instruments that typically contain
embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The significant
unobservable inputs are broadly consistent with those presented for derivative receivables.
(f) Includes level 3 assets and liabilities that are insignificant both individually and in aggregate.
(g) Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on price-
based internal valuation techniques. The price input is expressed assuming a par value of $100.
168
JPMorgan Chase & Co./2018 Form 10-K
underlying borrower, and the remaining tenor of the
obligation as well as the level and type (e.g., fixed or floating)
of interest rate being paid by the borrower. Typically
collateral pools with higher borrower credit quality have a
higher prepayment rate than those with lower borrower
credit quality, all other factors being equal.
Conditional default rate – The conditional default rate is a
measure of the reduction in the outstanding collateral
balance underlying a collateralized obligation as a result of
defaults. While there is typically no direct relationship
between conditional default rates and prepayment speeds,
collateralized obligations for which the underlying collateral
has high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in the
conditional default rate, in isolation, would result in a
decrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying a
securitization and the structure of the securitization itself.
Based on the types of securities owned in the Firm’s market-
making portfolios, conditional default rates are most typically
at the lower end of the range presented.
Loss severity – The loss severity (the inverse concept is the
recovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particular
loan, expressed as the net amount of loss relative to the
outstanding loan balance. An increase in loss severity is
generally accompanied by an increase in conditional default
rates. An increase in the loss severity, in isolation, would
result in a decrease in a fair value measurement.
The loss severity applied in valuing a mortgage-backed
security investment depends on factors relating to the
underlying mortgages, including the LTV ratio, the nature of
the lender’s lien on the property and other instrument-
specific factors.
Changes in and ranges of unobservable inputs
The following discussion provides a description of the impact
on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationship
between unobservable inputs, where relevant and significant.
The impact of changes in inputs may not be independent, as a
change in one unobservable input may give rise to a change
in another unobservable input. Where relationships do exist
between two unobservable inputs, those relationships are
discussed below. Relationships may also exist between
observable and unobservable inputs (for example, as
observable interest rates rise, unobservable prepayment
rates decline); such relationships have not been included in
the discussion below. In addition, for each of the individual
relationships described below, the inverse relationship would
also generally apply.
The following discussion also provides a description of
attributes of the underlying instruments and external market
factors that affect the range of inputs used in the valuation of
the Firm’s positions.
Yield – The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would result
in a decrease in a fair value measurement.
Credit spread – The credit spread is the amount of additional
annualized return over the market interest rate that a market
participant would demand for taking exposure to the credit
risk of an instrument. The credit spread for an instrument
forms part of the discount rate used in a discounted cash flow
calculation. Generally, an increase in the credit spread would
result in a decrease in a fair value measurement.
The yield and the credit spread of a particular mortgage-
backed security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute level of
the coupon paid by the instrument (which may not
correspond directly to the level of inherent risk). Therefore,
the range of yield and credit spreads reflects the range of risk
inherent in various instruments owned by the Firm. The risk
inherent in mortgage-backed securities is driven by the
subordination of the security being valued and the
characteristics of the underlying mortgages within the
collateralized pool, including borrower FICO scores, LTV ratios
for residential mortgages and the nature of the property and/
or any tenants for commercial mortgages. For corporate debt
securities, obligations of U.S. states and municipalities and
other similar instruments, credit spreads reflect the credit
quality of the obligor and the tenor of the obligation.
Prepayment speed – The prepayment speed is a measure of
the voluntary unscheduled principal repayments of a
prepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result in a
decrease in a fair value measurement of assets valued at a
premium to par and an increase in a fair value measurement
of assets valued at a discount to par.
Prepayment speeds may vary from collateral pool to
collateral pool, and are driven by the type and location of the
JPMorgan Chase & Co./2018 Form 10-K
169
EBITDA multiple – EBITDA multiples refer to the input (often
derived from the value of a comparable company) that is
multiplied by the historic and/or expected earnings before
interest, taxes, depreciation and amortization (“EBITDA”) of a
company in order to estimate the company’s value. An
increase in the EBITDA multiple, in isolation, net of
adjustments, would result in an increase in a fair value
measurement.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated
balance sheets amounts (including changes in fair value) for
financial instruments classified by the Firm within level 3 of
the fair value hierarchy for the years ended December 31,
2018, 2017 and 2016. When a determination is made to
classify a financial instrument within level 3, the
determination is based on the significance of the
unobservable inputs to the overall fair value measurement.
However, level 3 financial instruments typically include, in
addition to the unobservable or level 3 components,
observable components (that is, components that are actively
quoted and can be validated to external sources);
accordingly, the gains and losses in the table below include
changes in fair value due in part to observable factors that
are part of the valuation methodology. Also, the Firm risk-
manages the observable components of level 3 financial
instruments using securities and derivative positions that are
classified within level 1 or 2 of the fair value hierarchy; as
these level 1 and level 2 risk management instruments are
not included below, the gains or losses in the following tables
do not reflect the effect of the Firm’s risk management
activities related to such level 3 instruments.
Notes to consolidated financial statements
Correlation – Correlation is a measure of the relationship
between the movements of two variables (e.g., how the
change in one variable influences the change in the other).
Correlation is a pricing input for a derivative product where
the payoff is driven by one or more underlying risks.
Correlation inputs are related to the type of derivative (e.g.,
interest rate, credit, equity, foreign exchange and
commodity) due to the nature of the underlying risks. When
parameters are positively correlated, an increase in one
parameter will result in an increase in the other parameter.
When parameters are negatively correlated, an increase in
one parameter will result in a decrease in the other
parameter. An increase in correlation can result in an
increase or a decrease in a fair value measurement. Given a
short correlation position, an increase in correlation, in
isolation, would generally result in a decrease in a fair value
measurement.
The level of correlation used in the valuation of derivatives
with multiple underlying risks depends on a number of
factors including the nature of those risks. For example, the
correlation between two credit risk exposures would be
different than that between two interest rate risk exposures.
Similarly, the tenor of the transaction may also impact the
correlation input, as the relationship between the underlying
risks may be different over different time periods.
Furthermore, correlation levels are very much dependent on
market conditions and could have a relatively wide range of
levels within or across asset classes over time, particularly in
volatile market conditions.
Volatility – Volatility is a measure of the variability in possible
returns for an instrument, parameter or market index given
how much the particular instrument, parameter or index
changes in value over time. Volatility is a pricing input for
options, including equity options, commodity options, and
interest rate options. Generally, the higher the volatility of
the underlying, the riskier the instrument. Given a long
position in an option, an increase in volatility, in isolation,
would generally result in an increase in a fair value
measurement.
The level of volatility used in the valuation of a particular
option-based derivative depends on a number of factors,
including the nature of the risk underlying the option (e.g.,
the volatility of a particular equity security may be
significantly different from that of a particular commodity
index), the tenor of the derivative as well as the strike price
of the option.
170
JPMorgan Chase & Co./2018 Form 10-K
Residential – nonagency
Commercial – nonagency
Total mortgage-backed
securities
U.S. Treasury and government
agencies
Obligations of U.S. states and
municipalities
Non-U.S. government debt
securities
Corporate debt securities
Loans
Asset-backed securities
Total debt instruments
Equity securities
Other
Total trading assets – debt and
equity instruments
Net derivative receivables:(b)
Interest rate
Credit
Foreign exchange
Equity
Commodity
Fair value measurements using significant unobservable inputs
Fair
value at
January
1, 2018
Total
realized/
unrealized
gains/
(losses)
Purchases(f)
Sales
Settlements(g)
Transfers
into
level 3(h)
Transfers
(out of)
level 3(h)
Fair
value at
Dec. 31,
2018
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2018
Year ended
December 31, 2018
(in millions)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies
$
307 $ (23)
$
478 $
(164)
$
(73) $
94 $
(70) $
549
$
(21)
60
11
(2)
2
78
18
(50)
(18)
(7)
(17)
59
36
(74)
(21)
64
11
1
(2)
378
(23)
574
(232)
(97)
189
(165)
624
(22)
1
—
744
(17)
78
312
2,719
153
4,385
295
690
(22)
(18)
26
28
(26)
(40)
(285)
—
112
459
364
—
(70)
(277)
(309)
1,364
(1,793)
98
(41)
2,971
(2,722)
118
55
(120)
(40)
—
(80)
(12)
(48)
(658)
(55)
(950)
(1)
(118)
—
—
23
262
813
45
(1)
—
(94)
(229)
(765)
(101)
—
689
155
334
1,706
127
1,332
(1,355)
3,635
107
3
(127)
(4)
232
301
—
(17)
(9)
(1)
(1)
22
(28)
9
(301)
5,370
(351) (c)
3,144
(2,882)
(1,069)
1,442
(1,486)
4,168
(320) (c)
264
150
(35)
(40)
(396)
(3,409)
103
198
(674)
(73)
107
5
52
(133)
(7)
(20)
1,676
(2,208)
1
(72)
Total net derivative receivables
(4,250)
338 (c)
1,841
(2,440)
Available-for-sale securities:
Mortgage-backed securities
Asset-backed securities
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets
1
276
277
276
—
1
1 (d)
(7) (c)
6,030
1,265
230 (e)
(328) (c)
—
—
—
123
1,246
61
—
—
—
—
(636)
(37)
(430)
(57)
30
1,805
(301)
1,047
—
(277)
(277)
(196)
(740)
(37)
(15)
4
(108)
(617)
7
19
23
42
(38)
(107)
(297)
330
(2,225)
(17)
(1,129)
187
(28)
(63)
561
146
(729)
397
(3,796)
803 (c)
—
—
—
—
—
4
—
—
—
1
—
1
—
—
—
(74)
122
—
(1)
6,130
927
(7) (c)
230 (e)
(340) (c)
Fair value measurements using significant unobservable inputs
Fair
value at
January
1, 2018
Total
realized/
unrealized
(gains)/
losses
Purchases
Sales
Issuances Settlements(g)
Transfers
into
level 3(h)
Transfers
(out of)
level 3(h)
Fair
value at
Dec. 31,
2018
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31,
2018
$ 4,142 $ (136) (c)(i)
$
— $
— $ 1,437 $
(736) $
2 $
(540) $ 4,169
$ (204) (c)(i)
Year ended
December 31, 2018
(in millions)
Liabilities:(a)
Deposits
Federal funds purchased and
securities loaned or sold under
repurchase agreements
—
—
Short-term borrowings
1,665
(329) (c)(i)
—
—
—
—
—
3,455
—
(3,388)
Trading liabilities – debt and equity
instruments
Accounts payable and other liabilities
Beneficial interests issued by
consolidated VIEs
39
13
39
—
—
19 (c)
(99)
114
—
—
—
(1)
—
(39)
(12)
—
—
5
1
—
—
272
14
4
—
—
—
—
(152)
1,523
(131) (c)(i)
(36)
—
—
50
10
1
16 (c)
—
—
Long-term debt
16,125 (1,169) (c)(i)
11,919
(7,769)
1,143
(831)
19,418
(1,385) (c)(i)
JPMorgan Chase & Co./2018 Form 10-K
171
Notes to consolidated financial statements
Fair value measurements using significant unobservable inputs
Total
realized/
unrealized
gains/
(losses)
Fair value
at January
1, 2017
Purchases(f)
Sales
Settlements(g)
Transfers
into
level 3(h)
Transfers
(out of)
level 3(h)
Fair
value at
Dec. 31,
2017
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2017
Year ended
December 31, 2017
(in millions)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies
$ 392
$ (11)
$
161 $ (171)
$
(70) $
49 $
(43) $
307
$
(20)
Residential – nonagency
Commercial – nonagency
Total mortgage-backed
securities
U.S. Treasury and government
agencies
Obligations of U.S. states and
municipalities
Non-U.S. government debt
securities
Corporate debt securities
Loans
Asset-backed securities
Total debt instruments
Equity securities
Other
Total trading assets – debt and
equity instruments
Net derivative receivables:(b)
Interest rate
Credit
Foreign exchange
Equity
Commodity
83
17
492
—
649
46
576
4,837
302
6,902
231
761
19
9
17
—
18
—
11
333
32
411
39
100
53
27
(30)
(44)
241
(245)
—
—
152
559
872
(70)
(518)
(612)
2,389
(2,832)
354
(356)
4,567
(4,633)
176
30
(148)
(46)
(64)
(13)
(147)
—
(5)
—
(497)
(1,323)
(56)
132
64
245
1
—
62
157
806
75
(133)
(49)
60
11
(225)
378
—
—
(71)
(195)
1
744
78
312
(1,491)
2,719
(198)
153
(2,028)
1,346
(2,180)
4,385
(4)
(162)
59
17
(58)
(10)
295
690
11
1
(8)
—
15
—
18
43
—
68
21
39
7,894
550 (c)
4,773
(4,827)
(2,194)
1,422
(2,248)
5,370
128 (c)
—
1,263
72
98
(164)
(1,384)
(2,252)
(85)
43
(417)
(149)
60
1
13
(82)
(6)
(10)
1,116
(551)
—
—
Total net derivative receivables
(2,360)
(615) (c)
1,190
(649)
Available-for-sale securities:
Mortgage-backed securities
Asset-backed securities
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets
1
663
664
570
6,096
2,223
—
15
15 (d)
35 (c)
(232) (e)
244 (c)
—
—
—
—
1,103
66
—
(50)
(50)
(26)
(140)
(177)
(1,040)
—
854
(245)
(433)
(864)
—
(352)
(352)
(303)
(797)
(870)
(8)
77
(61)
(1,482)
(6)
(1)
(41)
149
422
264
(35)
(396)
(3,409)
(1)
(674)
(473)
32
42
(161)
(718)
(1,480)
528
(4,250)
(1,278) (c)
—
1
276
277
276
6,030
—
—
—
—
—
(221)
1,265
—
—
—
—
—
—
—
14
14 (d)
3 (c)
(232) (e)
74 (c)
Fair value measurements using significant unobservable inputs
Fair
value at
January
1, 2017
Total
realized/
unrealized
(gains)/
losses
Purchases
Sales
Issuances
Settlements(g)
Transfers
into
level 3(h)
Transfers
(out of)
level 3(h)
Fair
value at
Dec. 31,
2017
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31,
2017
$ 2,117
$ 152 (c)(i) $
— $
— $ 3,027
$
(291) $
11 $
(874) $ 4,142
$ 198 (c)(i)
Year ended
December 31, 2017
(in millions)
Liabilities:(a)
Deposits
Federal funds purchased and
securities loaned or sold under
repurchase agreements
Short-term borrowings
Trading liabilities – debt and equity
instruments
Accounts payable and other liabilities
Beneficial interests issued by
consolidated VIEs
—
1,134
43
13
48
—
42 (c)(i)
(3) (c)
(2)
2 (c)
Long-term debt
12,850
1,067 (c)(i)
—
—
(46)
(1)
(122)
—
—
—
48
—
39
—
—
3,289
—
(2,748)
—
—
—
3
3
(6)
—
150
3
—
78
—
—
(202)
1,665
—
7 (c)(i)
(9)
—
—
39
13
39
—
(2)
—
12,458
(10,985)
1,660
(925) 16,125
552 (c)(i)
172
JPMorgan Chase & Co./2018 Form 10-K
Fair value measurements using significant unobservable inputs
Fair
value at
January
1, 2016
Total
realized/
unrealized
gains/
(losses)
Purchases(f)
Sales
Settlements(g)
Transfers
into
level 3(h)
Transfers
(out of)
level 3(h)
Fair value
at
Dec. 31,
2016
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2016
Year ended
December 31, 2016
(in millions)
Assets:(a)
Trading assets:
Debt instruments:
135
252
69
456
149
91
445
2,228
655
4,024
90
—
649
$ (295)
$
(115)
$
111 $
(139) $ 392
$
(36)
(319)
(29)
(643)
(132)
(97)
(359)
(2,598)
(712)
(4,541)
(108)
—
(287)
(20)
(3)
(138)
(38)
(7)
(189)
(1,311)
(968)
(2,651)
(40)
—
(360)
67
173
351
—
19
148
1,044
288
(95)
(297)
83
17
5
3
(531)
492
(28)
—
649
—
(30)
(207)
46
576
(787)
4,837
(832)
302
1,850
(2,387)
6,902
29
—
26
(5)
—
231
—
(90)
761
(7)
(22)
(169)
19
(207)
7
—
28
11,930
(235) (c)
4,763
(4,936)
(3,051)
1,905
(2,482)
7,894
(172) (c)
Mortgage-backed securities:
U.S. government agencies
$ 715 $ (20)
$
Residential – nonagency
Commercial – nonagency
Total mortgage-backed
securities
Obligations of U.S. states and
municipalities
Non-U.S. government debt
securities
Corporate debt securities
Loans
Asset-backed securities
194
115
4
(11)
1,024
(27)
651
19
74
736
(4)
2
6,604
(343)
1,832
39
Total debt instruments
10,921
(314)
265
—
744
—
—
79
Equity securities
Physical commodities
Other
Total trading assets – debt and
equity instruments
Net derivative receivables:(b)
Interest rate
Credit
Foreign exchange
Equity
Commodity
876
549
756
(742)
(725)
67
(1,514)
(145)
(935)
194
193
10
64
277
1
(57)
(2)
(124)
(852)
10
Total net derivative receivables
(1,749)
130 (c)
545
(1,025)
Available-for-sale securities:
Mortgage-backed securities
Asset-backed securities
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets
1
823
824
—
1
1 (d)
1,518
(49) (c)
6,608
(163) (e)
2,401
130 (c)
—
—
—
259
679
487
—
—
—
(7)
(109)
(496)
(713)
211
(649)
213
645
(293)
—
(119)
(119)
(838)
(919)
(299)
(14)
36
(48)
94
8
76
—
—
—
—
—
—
222
1,263
36
31
98
(1,384)
(325)
(2,252)
(8)
(85)
(144)
(622)
(350)
(86)
(36)
(44)
(2,360)
(1,238) (c)
—
1
(42)
663
(42)
(313)
—
—
664
570
6,096
2,223
—
1
1 (d)
—
(163) (e)
48 (c)
Fair value measurements using significant unobservable inputs
Fair
value at
January
1, 2016
Total
realized/
unrealized
(gains)/
losses
Purchases
Sales
Issuances
Settlements(g)
Transfers
into
level 3(h)
Transfers
(out of)
level 3(h)
Fair value
at Dec. 31,
2016
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31,
2016
$ 2,950 $ (56) (c) $
$
— $
1,375
$
(1,283)
$
— $
(869) $ 2,117
$
23 (c)
Year ended
December 31, 2016
(in millions)
Liabilities:(a)
Deposits
Federal funds purchased and
securities loaned or sold under
repurchase agreements
Short-term borrowings
Trading liabilities – debt and equity
instruments
Accounts payable and other liabilities
Beneficial interests issued by
consolidated VIEs
Long-term debt
—
—
639
(230) (c)
63
19
(12) (c)
—
549
(31) (c)
11,447
147 (c)
JPMorgan Chase & Co./2018 Form 10-K
—
—
—
(15)
—
—
—
—
—
23
—
—
—
—
1,876
—
—
143
8,140
(2)
(1,210)
(22)
(6)
(613)
(5,810)
(4)
—
—
(55)
1,134
(70) (c)
6
114
13
—
—
(7)
—
—
43
13
48
315
(1,389) 12,850
(18) (c)
—
6 (c)
639 (c)
173
Notes to consolidated financial statements
(a) Level 3 assets as a percentage of total Firm assets accounted for at fair value (including assets measured at fair value on a nonrecurring basis) were 3%, 3% and 4% at December 31,
2018, 2017 and 2016 respectively. Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis)
were 15%, 15% and 12% at December 31, 2018, 2017 and 2016, respectively.
(b) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments originated with the intent to sell, and
mortgage loan purchase commitments, which are reported in mortgage fees and related income.
(d) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment (“OTTI”) losses that are recorded in earnings, are reported in investment securities gains/(losses).
Unrealized gains/(losses) are reported in OCI. Realized gains/(losses) and foreign exchange hedge accounting adjustments recorded in income on AFS securities were $1 million, zero and
zero for the years ended December 31, 2018, 2017 and 2016, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were zero, $15 million and $1 million for the years
ended December 31, 2018, 2017 and 2016, respectively.
(e) Changes in fair value for MSRs are reported in mortgage fees and related income.
(f) Loan originations are included in purchases.
(g)
Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, deconsolidations associated with beneficial interests in VIEs and other
items.
(h) All transfers into and/or out of level 3 are based on changes in the observability and/or significance of the valuation inputs and are assumed to occur at the beginning of the quarterly
reporting period in which they occur.
(i) Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue, and they were not material for the years ended December 31,
2018 and 2017, respectively. Unrealized (gains)/losses are reported in OCI, and they were $(277) million and $(48) million for the years ended December 31, 2018 and 2017,
respectively.
Level 3 analysis
Consolidated balance sheets changes
Level 3 assets (including assets measured at fair value on a
nonrecurring basis) were 0.7% of total Firm assets at
December 31, 2018. The following describes significant
changes to level 3 assets since December 31, 2017, for those
items measured at fair value on a recurring basis. For further
information on changes impacting items measured at fair value
on a nonrecurring basis, refer to Assets and liabilities measured
at fair value on a nonrecurring basis on page 176.
For the year ended December 31, 2018
Level 3 assets were $17.2 billion at December 31, 2018,
reflecting a decrease of $2.1 billion from December 31, 2017,
largely due to:
• $1.2 billion decrease in trading assets — debt and equity
instruments predominantly driven by a decrease of $1.0
billion in trading loans primarily due to settlements and net
sales.
Transfers between levels for instruments carried at
fair value on a recurring basis
During the year ended December 31, 2018, transfers from level
3 into level 2 included the following:
• $1.5 billion of total debt and equity instruments, the
majority of which were trading loans, driven by an increase
in observability.
• $1.2 billion of gross equity derivative receivables and $1.5
billion of gross equity derivative payables as a result of an
increase in observability and a decrease in the significance
of unobservable inputs.
During the year ended December 31, 2018, transfers from level
2 into level 3 included the following:
• $1.4 billion of total debt and equity instruments, the
majority of which were trading loans, driven by a decrease in
observability.
• $1.0 billion of gross equity derivative receivables and $1.6
billion of gross equity derivative payables as a result of a
decrease in observability and an increase in the significance
of unobservable inputs.
• $1.1 billion of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for certain structured notes.
• $1.2 billion of gross equity derivative payables as a result of
an increase in observability and a decrease in the
significance of unobservable inputs.
During the year ended December 31, 2017, transfers from level
2 into level 3 included the following:
• $1.0 billion of gross equity derivative receivables and $2.5
billion of gross equity derivative payables as a result of a
decrease in observability and an increase in the significance
of unobservable inputs.
• $1.7 billion of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for certain structured notes.
During the year ended December 31, 2016, transfers from level
3 into level 2 included the following:
• $1.4 billion of long-term debt driven by an increase in
observability and a reduction in the significance of
unobservable inputs for certain structured notes.
During the year ended December 31, 2016, transfers from level
2 into level 3 included the following:
• $1.1 billion of gross equity derivative receivables and $1.0
billion of gross equity derivative payables as a result of an
decrease in observability and an increase in the significance
of unobservable inputs.
• $1.0 billion of trading loans driven by a decrease in
observability.
All transfers are based on changes in the observability and/or
significance of the valuation inputs and are assumed to occur at
the beginning of the quarterly reporting period in which they
occur.
Gains and losses
The following describes significant components of total realized/
unrealized gains/(losses) for instruments measured at fair value
on a recurring basis for the years ended December 31, 2018,
2017 and 2016. For further information on these instruments,
refer to Changes in level 3 recurring fair value measurements
rollforward tables on pages 170-174.
2018
• $1.6 billion of net gains on liabilities largely driven by
market movements in long-term debt.
During the year ended December 31, 2017, transfers from level
3 into level 2 included the following:
2017
• $1.3 billion of net losses on liabilities predominantly driven
• $1.5 billion of trading loans driven by an increase in
observability.
by market movements in long-term debt.
2016
• There were no individually significant movements for the
year ended December 31, 2016.
174
JPMorgan Chase & Co./2018 Form 10-K
Credit and funding adjustments – derivatives
Derivatives are generally valued using models that use as
their basis observable market parameters. These market
parameters generally do not consider factors such as
counterparty nonperformance risk, the Firm’s own credit
quality, and funding costs. Therefore, it is generally
necessary to make adjustments to the base estimate of fair
value to reflect these factors.
CVA represents the adjustment, relative to the relevant
benchmark interest rate, necessary to reflect counterparty
nonperformance risk. The Firm estimates CVA using a
scenario analysis to estimate the expected positive credit
exposure across all of the Firm’s existing positions with each
counterparty, and then estimates losses based on the
probability of default and estimated recovery rate as a
result of a counterparty credit event considering
contractual factors designed to mitigate the Firm’s credit
exposure, such as collateral and legal rights of offset. The
key inputs to this methodology are (i) the probability of a
default event occurring for each counterparty, as derived
from observed or estimated CDS spreads; and (ii) estimated
recovery rates implied by CDS spreads, adjusted to consider
the differences in recovery rates as a derivative creditor
relative to those reflected in CDS spreads, which generally
reflect senior unsecured creditor risk.
FVA represents the adjustment to reflect the impact of
funding and is recognized where there is evidence that a
market participant in the principal market would
incorporate it in a transfer of the instrument. The Firm’s
FVA framework, applied to uncollateralized (including
partially collateralized) over-the-counter (“OTC”)
derivatives incorporates key inputs such as: (i) the expected
funding requirements arising from the Firm’s positions with
each counterparty and collateral arrangements; and (ii) the
estimated market funding cost in the principal market
which, for derivative liabilities, considers the Firm’s credit
risk (DVA). For collateralized derivatives, the fair value is
estimated by discounting expected future cash flows at the
relevant overnight indexed swap rate given the underlying
collateral agreement with the counterparty, and therefore a
separate FVA is not necessary.
The following table provides the impact of credit and
funding adjustments on principal transactions revenue in
the respective periods, excluding the effect of any
associated hedging activities. The FVA presented below
includes the impact of the Firm’s own credit quality on the
inception value of liabilities as well as the impact of changes
in the Firm’s own credit quality over time.
Year ended December 31,
(in millions)
Credit and funding adjustments:
2018
2017
2016
Derivatives CVA
Derivatives FVA
$
193
$
802
$
(84)
(74)
(295)
7
Valuation adjustments on fair value option elected
liabilities
The valuation of the Firm’s liabilities for which the fair value
option has been elected requires consideration of the Firm’s
own credit risk. DVA on fair value option elected liabilities
reflects changes (subsequent to the issuance of the liability)
in the Firm’s probability of default and LGD, which are
estimated based on changes in the Firm’s credit spread
observed in the bond market. Realized (gains)/losses due to
DVA for fair value option elected liabilities are reported in
principal transactions revenue. Unrealized (gains)/losses
are reported in OCI. Refer to page 174 in this Note and Note
23 for further information.
JPMorgan Chase & Co./2018 Form 10-K
175
Notes to consolidated financial statements
Assets and liabilities measured at fair value on a nonrecurring basis
The following tables present the assets held as of December 31, 2018 and 2017, respectively, for which a nonrecurring fair
value adjustment was recorded during the years ended December 31, 2018 and 2017, respectively, by major product category
and fair value hierarchy.
December 31, 2018 (in millions)
Loans
Other assets(a)
Total assets measured at fair value on a nonrecurring basis
December 31, 2017 (in millions)
Loans
Other assets
Total assets measured at fair value on a nonrecurring basis
Fair value hierarchy
Level 1
Level 2
Level 3
Total fair
value
— $
—
— $
273
8
281
$
$
264 (b) $
815
537
823
1,079
$
1,360
Fair value hierarchy
Level 1
Level 2
Level 3
Total fair
value
— $
—
— $
238
283
521
$
$
596
183
779
$
$
834
466
1,300
$
$
$
$
(a) Primarily includes equity securities without readily determinable fair values that were adjusted based on observable price changes in orderly transactions
from an identical or similar investment of the same issuer (measurement alternative) as a result of the adoption of the recognition and measurement
guidance. Of the $815 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2018, $667 million related to such
equity securities. These equity securities are classified as level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.
(b) Of the $264 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2018, $225 million related to residential real
estate loans carried at the net realizable value of the underlying collateral (e.g., collateral-dependent loans and other loans charged off in accordance with
regulatory guidance). These amounts are classified as level 3 as they are valued using information from broker’s price opinions, appraisals and automated
valuation models and discounted based upon the Firm’s experience with actual liquidation values. These discounts ranged from 13% to 54% with a
weighted average of 25%.
There were no material liabilities measured at fair value on a nonrecurring basis at December 31, 2018 and 2017.
Nonrecurring fair value changes
The following table presents the total change in value of
assets and liabilities for which a fair value adjustment has
been recognized for the years ended December 31, 2018,
2017 and 2016, related to financial instruments held at
those dates.
December 31, (in millions)
2018
2017
2016
Loans
Other assets
Accounts payable and other
liabilities
Total nonrecurring fair value
gains/(losses)
$ (68)
$ (159)
$ (209)
132 (a)
(148)
—
(1)
37
—
$ 64
$ (308)
$ (172)
(a) Included $149 million for the year ended 2018 of net gains as a result
of the measurement alternative.
For further information about the measurement of impaired
collateral-dependent loans, and other loans where the
carrying value is based on the fair value of the underlying
collateral (e.g., residential mortgage loans charged off in
accordance with regulatory guidance), refer to Note 12.
176
JPMorgan Chase & Co./2018 Form 10-K
Equity securities without readily determinable fair values
As a result of the adoption of the recognition and measurement guidance and the election of the measurement alternative in
the first quarter of 2018, the Firm measures certain equity securities without readily determinable fair values at cost less
impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer, with
such changes recognized in other income.
In its determination of the new carrying values upon observable price changes, the Firm may adjust the prices if deemed
necessary to arrive at the Firm’s estimated fair values. Such adjustments may include adjustments to reflect the different rights
and obligations of similar securities, and other adjustments that are consistent with the Firm’s valuation techniques for private
equity direct investments.
The following table presents the carrying value of equity securities without readily determinable fair values held as of
December 31, 2018, that are measured under the measurement alternative and the related adjustments recorded during the
periods presented for those securities with observable price changes. These securities are included in the nonrecurring fair
value tables when applicable price changes are observable.
(in millions)
Other assets
Carrying value
Upward carrying value changes
Downward carrying value changes/impairment
As of or for the
Year ended
December 31, 2018
$
1,510
309
(160)
Included in other assets above is the Firm’s interest in approximately 40 million Visa Class B shares, recorded at a nominal
carrying value. These shares are subject to certain transfer restrictions currently and will be convertible into Visa Class A
shares upon final resolution of certain litigation matters involving Visa. The conversion rate of Visa Class B shares into Visa
Class A shares is 1.6298 at December 31, 2018, and may be adjusted by Visa depending on developments related to the
litigation matters.
Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidated
balance sheets at fair value
U.S. GAAP requires disclosure of the estimated fair value of
certain financial instruments. Financial instruments within
the scope of these disclosure requirements are included in
the following table. However, certain financial instruments
and all nonfinancial instruments are excluded from the
scope of these disclosure requirements. Accordingly, the fair
value disclosures provided in the following table include
only a partial estimate of the fair value of JPMorgan Chase’s
assets and liabilities. For example, the Firm has developed
long-term relationships with its customers through its
deposit base and credit card accounts, commonly referred
to as core deposit intangibles and credit card relationships.
In the opinion of management, these items, in the
aggregate, add significant value to JPMorgan Chase, but
their fair value is not disclosed in this Note.
Financial instruments for which carrying value approximates
fair value
Certain financial instruments that are not carried at fair
value on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their short-
term nature and generally negligible credit risk. These
instruments include cash and due from banks, deposits with
banks, federal funds sold, securities purchased under resale
agreements and securities borrowed, short-term
receivables and accrued interest receivable, short-term
borrowings, federal funds purchased, securities loaned and
sold under repurchase agreements, accounts payable, and
accrued liabilities. In addition, U.S. GAAP requires that the
fair value of deposit liabilities with no stated maturity (i.e.,
demand, savings and certain money market deposits) be
equal to their carrying value; recognition of the inherent
funding value of these instruments is not permitted.
JPMorgan Chase & Co./2018 Form 10-K
177
Notes to consolidated financial statements
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2018 and 2017, of financial assets and liabilities, excluding financial instruments that are carried at fair value
on a recurring basis, and their classification within the fair value hierarchy.
December 31, 2018
Estimated fair value hierarchy
December 31, 2017
Estimated fair value hierarchy
Carrying
value
Level 1
Level 2
Level 3
Total
estimated
fair value
Carrying
value
Level 1
Level 2
Level 3
Total
estimated
fair value
(in billions)
Financial assets
Cash and due from banks
$
22.3 $
22.3 $
Deposits with banks
256.5
256.5
— $
—
— $
22.3
$
25.9 $
25.9 $
— $
— $
25.9
256.5
405.4
401.8
Accrued interest and accounts
receivable
Federal funds sold and
securities purchased under
resale agreements
Securities borrowed
Investment securities, held-to-
maturity
Loans, net of allowance for
loan losses(a)
Other(b)
Financial liabilities
Deposits
Federal funds purchased and
securities loaned or sold
under repurchase agreements
Short-term borrowings
Accounts payable and other
liabilities
Beneficial interests issued by
consolidated VIEs
Long-term debt and junior
subordinated deferrable
interest debentures
72.0
308.4
106.9
31.4
968.0
60.5
—
—
—
—
—
—
71.9
308.4
106.9
31.5
241.5
59.6
—
0.1
—
—
—
72.0
67.0
308.4
106.9
183.7
102.1
31.5
47.7
728.5
1.0
970.0
60.6
914.6
53.9
3.6
67.0
183.7
102.1
48.7
213.2
52.1
—
—
—
—
—
707.1
9.2
405.4
67.0
183.7
102.1
48.7
920.3
61.3
—
—
—
—
—
—
$ 1,447.4 $
— $ 1,447.5 $
— $ 1,447.5
$ 1,422.7 $
— $ 1,422.7 $
— $ 1,422.7
181.4
62.1
160.6
20.2
227.1
—
—
181.4
62.1
—
—
181.4
62.1
158.2
42.6
0.2
157.0
3.0
160.2
152.0
—
—
20.2
—
20.2
26.0
224.6
3.3
227.9
236.6
—
—
—
—
—
158.2
42.4
148.9
26.0
—
0.2
2.9
—
158.2
42.6
151.8
26.0
240.3
3.2
243.5
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period
amounts were revised. For additional information, refer to Note 1.
(a) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual
interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination or
secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The difference between the estimated fair
value and carrying value of a financial asset or liability is the result of the different methodologies used to determine fair value as compared with carrying value. For
example, credit losses are estimated for a financial asset’s remaining life in a fair value calculation but are estimated for a loss emergence period in the allowance for
loan loss calculation; future loan income (interest and fees) is incorporated in a fair value calculation but is generally not considered in the allowance for loan losses.
(b) The prior period amounts have been revised to conform with the current period presentation.
The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidated
balance sheets. The carrying value of the wholesale allowance for lending-related commitments and the estimated fair value of
these wholesale lending-related commitments were as follows for the periods indicated.
December 31, 2018
Estimated fair value hierarchy
December 31, 2017
Estimated fair value hierarchy
(in billions)
Carrying
value(a)
Level 1
Level 2
Level 3
Total
estimated
fair value
Carrying
value(a)
Level 1
Level 2
Level 3
Total
estimated
fair value
Wholesale lending-
related commitments $
1.0 $
— $
— $
2.1 $
2.1
$
1.1 $
— $
— $
1.6 $
1.6
(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of the
guarantees.
The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce or
cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. For a further
discussion of the valuation of lending-related commitments, refer to page 161 of this Note.
178
JPMorgan Chase & Co./2018 Form 10-K
Note 3 – Fair value option
The fair value option provides an option to elect fair value
as an alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments, and
written loan commitments.
The Firm has elected to measure certain instruments at fair
value for several reasons including to mitigate income
statement volatility caused by the differences between the
measurement basis of elected instruments (e.g., certain
instruments elected were previously accounted for on an
accrual basis) and the associated risk management
arrangements that are accounted for on a fair value basis,
as well as to better reflect those instruments that are
managed on a fair value basis.
The Firm’s election of fair value includes the following
instruments:
• Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,
or managed on a fair value basis, including lending-
related commitments
• Certain securities financing agreements, such as those
with an embedded derivative and/or a maturity of
greater than one year
• Owned beneficial interests in securitized financial assets
that contain embedded credit derivatives, which would
otherwise be required to be separately accounted for as
a derivative instrument
• Structured notes, which are predominantly financial
instruments that contain embedded derivatives, that are
issued as part of CIB’s client-driven activities
• Certain long-term beneficial interests issued by CIB’s
consolidated securitization trusts where the underlying
assets are carried at fair value
JPMorgan Chase & Co./2018 Form 10-K
179
Notes to consolidated financial statements
Changes in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended
December 31, 2018, 2017 and 2016, for items for which the fair value option was elected. The profit and loss information
presented below only includes the financial instruments that were elected to be measured at fair value; related risk
management instruments, which are required to be measured at fair value, are not included in the table.
2018
2017
2016
Principal
transactions
All other
income
Total
changes in
fair value
recorded(e)
Principal
transactions
All other
income
Total
changes in
fair value
recorded(e)
Principal
transactions
All other
income
Total
changes in
fair value
recorded(e)
$
(35) $
22
—
—
$
(35) $
(97) $
22
50
—
—
$
(97) $
(76) $
50
1
—
—
$
(76)
1
(1,680)
1 (c)
(1,679)
1,943
2 (c)
1,945
120
(1) (c)
119
414
160
1 (c)
185 (c)
(1)
(1)
5
181
11
862
1
—
2,695
—
—
(45) (d)
—
—
—
—
—
—
415
345
(1)
(1)
(40)
181
11
862
1
—
330
217
14 (c)
747 (c)
461
79
43 (c)
684 (c)
344
964
(1)
(9)
(44)
(533)
11
(747)
(1)
—
504
763
13
(7)
82
(134)
19
(236)
6
23
(773)
13
(7)
20
(134)
19
(236)
6
23
—
—
62 (d)
—
—
—
—
—
—
(1)
(12)
11
(533)
11
(747)
(1)
—
—
3 (c)
(55) (d)
—
—
—
—
—
—
December 31, (in millions)
Federal funds sold and securities
purchased under resale
agreements
Securities borrowed
Trading assets:
Debt and equity instruments,
excluding loans
Loans reported as trading
assets:
Changes in instrument-
specific credit risk
Other changes in fair value
Loans:
Changes in instrument-specific
credit risk
Other changes in fair value
Other assets
Deposits(a)
Federal funds purchased and
securities loaned or sold under
repurchase agreements
Short-term borrowings(a)
Trading liabilities
Beneficial interests issued by
consolidated VIEs
Long-term debt(a)(b)
2,695
(2,022)
(2,022)
(773)
(a) Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected is recorded in OCI,
while realized gains/(losses) are recorded in principal transactions revenue. Realized gains/(losses) due to instrument-specific credit risk recorded in
principal transactions revenue were not material for the years ended December 31, 2018, 2017 and 2016.
(b) Long-term debt measured at fair value predominantly relates to structured notes. Although the risk associated with the structured notes is actively
managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such
risk.
(c) Reported in mortgage fees and related income.
(d) Reported in other income.
(e) Changes in fair value exclude contractual interest, which is included in interest income and interest expense for all instruments other than hybrid financial
instruments. For further information regarding interest income and interest expense, refer to Note 7.
Determination of instrument-specific credit risk for items
for which a fair value election was made
The following describes how the gains and losses that are
attributable to changes in instrument-specific credit risk,
were determined.
• Loans and lending-related commitments: For floating-
rate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for the
period is made between those changes in value that are
interest rate-related and changes in value that are
credit-related. Allocations are generally based on an
analysis of borrower-specific credit spread and recovery
information, where available, or benchmarking to similar
entities or industries.
• Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principally
from observable changes in the Firm’s credit spread as
observed in the bond market.
• Securities financing agreements: Generally, for these
types of agreements, there is a requirement that
collateral be maintained with a market value equal to or
in excess of the principal amount loaned; as a result,
there would be no adjustment or an immaterial
adjustment for instrument-specific credit risk related to
these agreements.
180
JPMorgan Chase & Co./2018 Form 10-K
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal
balance outstanding as of December 31, 2018 and 2017, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
2018
2017
Contractual
principal
outstanding
Fair value
Fair value
over/
(under)
contractual
principal
outstanding
Contractual
principal
outstanding
Fair value
Fair value
over/
(under)
contractual
principal
outstanding
December 31, (in millions)
Loans(a)
Nonaccrual loans
Loans reported as trading assets
$
4,240
$
1,350 $
(2,890) $
4,219
$
1,371 $
(2,848)
Loans
Subtotal
All other performing loans
Loans reported as trading assets
Loans
Total loans
Long-term debt
Principal-protected debt
Nonprincipal-protected debt(b)
Total long-term debt
Long-term beneficial interests
Nonprincipal-protected debt(b)
Total long-term beneficial interests
$
$
39
4,279
42,215
3,186
—
(39)
1,350
(2,929)
39
4,258
—
(39)
1,371
(2,887)
40,403
3,151
(1,812)
(35)
38,157
2,539
36,590
2,508
(1,567)
(31)
49,680
$
44,904 $
(4,776) $
44,954
$
40,469 $
(4,485)
32,674 (c) $
28,718 $
(3,956) $
26,297 (c) $
23,848 $
(2,449)
NA
NA
NA
NA
26,168
$
54,886
$
$
28
28
NA
NA
NA
NA
NA
NA
NA
NA
23,671
$
47,519
$
$
45
45
NA
NA
NA
NA
(a) There were no performing loans that were ninety days or more past due as of December 31, 2018 and 2017.
(b) Remaining contractual principal is not applicable to nonprincipal-protected structured notes and long-term beneficial interests. Unlike principal-protected
structured notes and long-term beneficial interests, for which the Firm is obligated to return a stated amount of principal at maturity, nonprincipal-
protected structured notes and long-term beneficial interests do not obligate the Firm to return a stated amount of principal at maturity, but for structured
notes to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors are
exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal-protected notes.
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm’s next call date.
At December 31, 2018 and 2017, the contractual amount of lending-related commitments for which the fair value option was
elected was $6.9 billion and $7.4 billion, respectively, with a corresponding fair value of $(82) million and $(76) million,
respectively. For further information regarding off-balance sheet lending-related financial instruments, refer to Note 27.
Structured note products by balance sheet classification and risk component
The following table presents the fair value of structured notes, by balance sheet classification and the primary risk type.
(in millions)
Risk exposure
Interest rate
Credit
Foreign exchange
Equity
Commodity
December 31, 2018
December 31, 2017
Long-term
debt
Short-term
borrowings Deposits
Total
Long-
term debt
Short-term
borrowings Deposits
Total
$ 24,137 $
62 $ 12,372 $ 36,571
$ 22,056 $
69 $ 8,058 $ 30,183
4,009
3,169
995
157
21,382
5,422
372
34
—
38
7,368
1,207
5,004
3,364
4,329
2,841
34,172
17,581
1,613
230
1,312
147
7,106
15
—
38
6,548
4,468
5,641
3,026
31,235
4,713
Total structured notes
$ 53,069 $
6,670 $ 20,985 $ 80,724
$ 47,037 $
8,649 $ 19,112 $ 74,798
JPMorgan Chase & Co./2018 Form 10-K
181
Notes to consolidated financial statements
Note 4 – Credit risk concentrations
Concentrations of credit risk arise when a number of clients,
counterparties or customers are engaged in similar
business activities or activities in the same geographic
region, or when they have similar economic features that
would cause their ability to meet contractual obligations to
be similarly affected by changes in economic conditions.
JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential credit risk
concentrations and to obtain additional collateral when
deemed necessary and permitted under the Firm’s
agreements. Senior management is significantly involved in
the credit approval and review process, and risk levels are
adjusted as needed to reflect the Firm’s risk appetite.
In the Firm’s consumer portfolio, concentrations are
managed primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at the
portfolio level, where potential credit risk concentrations
can be remedied through changes in underwriting policies
and portfolio guidelines. For additional information on the
geographic composition of the Firm’s consumer loan
portfolios, refer to Note 12. In the wholesale portfolio,
credit risk concentrations are evaluated primarily by
industry and monitored regularly on both an aggregate
portfolio level and on an individual client or counterparty
basis.
The Firm’s wholesale exposure is managed through loan
syndications and participations, loan sales, securitizations,
credit derivatives, master netting agreements, collateral
and other risk-reduction techniques. For additional
information on loans, refer to Note 12.
The Firm does not believe that its exposure to any
particular loan product or industry segment (e.g., real
estate), or its exposure to residential real estate loans with
high LTV ratios, results in a significant concentration of
credit risk.
Terms of loan products and collateral coverage are included
in the Firm’s assessment when extending credit and
establishing its allowance for loan losses.
182
JPMorgan Chase & Co./2018 Form 10-K
The table below presents both on–balance sheet and off–balance sheet consumer and wholesale-related credit exposure by the
Firm’s three credit portfolio segments as of December 31, 2018 and 2017.
As a result of continued growth and the relative size of the portfolio, exposure to “Individuals,” which was previously disclosed
in “All Other,” is now separately disclosed in the table below as “Individuals and Individual Entities.” This category
predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment companies
and personal and testamentary trusts. Predominantly all of this exposure is secured, largely by cash and marketable securities.
In the table below, prior period amounts have been revised to conform with the current period presentation.
December 31, (in millions)
Credit
exposure(g)
On-balance sheet
Loans
Derivatives
Off-balance
sheet(h)
Credit
exposure(g)
On-balance sheet
Loans
Derivatives
Off-balance
sheet(h)
Consumer, excluding credit card
$ 419,798 $ 373,732 $
— $
46,066
$ 421,234 $ 372,681 $
— $
48,553
2018
2017
Receivables from customers(a)
154
—
Total Consumer, excluding credit card
419,952
373,732
Credit card
Total consumer-related
Wholesale-related(b)
Real Estate
Individuals and Individual Entities(c)
Consumer & Retail
Technology, Media & Telecommunications
Industrials
Banks & Finance Cos
Healthcare
Asset Managers
Oil & Gas
Utilities
State & Municipal Govt(d)
Central Govt
Automotive
Chemicals & Plastics
Transportation
Metals & Mining
Insurance
Financial Markets Infrastructure
Securities Firms
All other(e)
Subtotal
762,011
156,632
1,181,963
530,364
143,316
115,737
97,077
94,815
72,646
58,528
49,920
48,142
42,807
42,600
28,172
27,351
18,456
17,339
16,035
15,660
15,359
12,639
7,484
4,558
86,586
36,921
16,980
19,126
28,825
16,347
16,806
13,008
5,591
10,319
3,867
5,170
4,902
6,391
5,370
1,356
18
645
68,284
45,197
—
—
—
—
—
133
—
46,066
421,367
372,681
605,379
722,342
149,511
651,445
1,143,709
522,192
—
—
—
—
—
48,553
572,831
621,384
164
1,017
1,093
2,667
958
5,903
1,874
9,033
559
1,740
2,000
12,869
399
181
1,102
488
2,569
5,941
2,029
1,627
27,415
139,409
113,648
9,474
56,801
52,999
38,444
15,192
29,921
16,968
29,033
20,841
15,032
1,720
11,770
10,952
8,167
9,501
8,714
1,525
1,884
87,371
87,679
59,274
55,272
49,037
55,997
32,531
41,317
29,317
28,633
19,182
14,820
15,945
15,797
14,171
14,089
5,036
4,113
77,768
31,044
13,665
18,161
25,879
16,273
11,480
12,621
6,187
12,134
3,375
4,903
5,654
6,733
4,728
1,411
351
952
21,460
60,529
35,931
153
1,252
1,114
2,265
1,163
6,816
2,191
7,998
1,727
2,084
2,888
13,937
342
208
977
702
2,804
3,499
1,692
2,711
25,608
8,351
55,521
43,344
35,948
16,342
37,533
13,053
26,969
21,046
13,611
1,870
9,575
10,083
8,087
8,741
9,874
1,186
1,469
21,887
881,188
439,162
54,213
387,813
829,519
402,898
56,523
370,098
Loans held-for-sale and loans at fair value
Receivables from customers and other(a)
15,028
30,063
15,028
—
—
—
—
—
5,607
26,139
5,607
—
—
—
—
—
Total wholesale-related
Total exposure(f)(g)
926,279
454,190
54,213
387,813
861,265
408,505
56,523
370,098
$2,108,242 $ 984,554 $
54,213 $1,039,258
$2,004,974 $ 930,697 $
56,523 $ 991,482
(a) Receivables from customers primarily represent held-for-investment margin loans to brokerage customers (Prime Services in CIB, AWM and CCB) that are
collateralized through assets maintained in the clients’ brokerage accounts, as such no allowance is held against these receivables. These receivables are reported
within accrued interest and accounts receivable on the Firm’s Consolidated balance sheets.
(b) The industry rankings presented in the table as of December 31, 2017, are based on the industry rankings of the corresponding exposures at December 31,
2018, not actual rankings of such exposures at December 31, 2017.
(c) Individuals and Individual Entities predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment companies
and personal and testamentary trusts.
(d) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2018 and 2017, noted above, the Firm
held: $7.8 billion and $9.8 billion, respectively, of trading securities; $37.7 billion and $32.3 billion, respectively, of AFS securities; and $4.8 billion and $14.4
billion, respectively, of held-to-maturity (“HTM”) securities, issued by U.S. state and municipal governments. For further information, refer to Note 2 and Note
10.
(e) All other includes: SPEs and Private education and civic organizations, representing approximately 92% and 8%, respectively, at December 31, 2018 and 90%
and 10%, respectively, at December 31, 2017. For more information on exposures to SPEs, refer to Note 14.
(f) Excludes cash placed with banks of $268.1 billion and $421.0 billion, at December 31, 2018 and 2017, respectively, which is predominantly placed with various
central banks, primarily Federal Reserve Banks.
(g) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative
receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(h) Represents lending-related financial instruments.
JPMorgan Chase & Co./2018 Form 10-K
183
Notes to consolidated financial statements
Note 5 – Derivative instruments
Derivative contracts derive their value from underlying
asset prices, indices, reference rates, other inputs or a
combination of these factors and may expose
counterparties to risks and rewards of an underlying asset
or liability without having to initially invest in, own or
exchange the asset or liability. JPMorgan Chase makes
markets in derivatives for clients 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. Clients 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 contracts or by purchasing or selling other
financial instruments that partially or fully offset the
exposure from client derivatives.
Risk management derivatives
The Firm manages certain market and credit risk exposures
using derivative instruments, including derivatives in hedge
accounting relationships and other derivatives that are used
to manage risks associated with specified assets and
liabilities.
The Firm generally uses interest rate contracts to manage
the risk associated with 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 and losses on the derivative
instruments related to these assets and liabilities are
expected to substantially offset this variability.
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 the forecasted revenues or expenses
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.
Credit derivatives are used 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
CDS. For a further discussion of credit derivatives, refer to
the discussion in the Credit derivatives section on pages
195-197 of this Note.
For more information about risk management derivatives,
refer to the risk management derivatives gains and losses
table on page 195 of this Note, and the hedge accounting
gains and losses tables on pages 192-195 of this Note.
Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiated
and settled bilaterally with the derivative counterparty. The
Firm also enters into, as principal, certain ETD such as
futures and options, and OTC-cleared derivative contracts
with CCPs. ETD contracts are generally standardized
contracts traded on an exchange and cleared by the CCP,
which is the Firm’s counterparty from the inception of the
transactions. OTC-cleared derivatives are traded on a
bilateral basis and then novated to the CCP for clearing.
Derivative clearing services
The Firm provides clearing services for clients in which the
Firm acts as a clearing member at certain derivative
exchanges and clearing houses. The Firm does not reflect
the clients’ derivative contracts in its Consolidated Financial
Statements. For further information on the Firm’s clearing
services, refer to Note 27.
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.
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, refer to Note 1. 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
188-195 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, refer to Notes 2 and 3.
184
JPMorgan Chase & Co./2018 Form 10-K
Derivatives designated as hedges
The Firm adopted new hedge accounting guidance in the
first quarter of 2018, which required prospective
amendments to the disclosures, as reflected in this Note.
For additional information on the impact upon adoption of
the new guidance, refer to Notes 1 and 23.
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 CDS 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, foreign exchange,
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, nonstatistical methods such as 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, and qualitative comparisons of critical terms and the
evaluation of any changes in those terms. The extent to
which a derivative has been, and is expected to continue to
be, highly effective at offsetting changes in the fair value or
cash flows of the hedged item must be assessed and
documented at least quarterly. 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. Certain amounts excluded from the
assessment of effectiveness are recorded in OCI and
recognized in earnings over the life of the derivative. 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 benchmark interest rate
hedges, 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, changes in the fair value of the derivative are
recorded in OCI and recognized in earnings as the hedged
item affects 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. If
the hedge relationship is terminated, then the change in
value of the derivative recorded in 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 not expected to occur
according to the original hedge forecast, any related
derivative values recorded in AOCI are immediately
recognized in earnings.
JPMorgan Chase uses net investment 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 qualifying net investment hedges,
changes in the fair value of the derivatives due to changes
in spot foreign exchange rates are recorded in OCI as
translation adjustments. Amounts excluded from the
assessment of effectiveness are recorded directly in
earnings.
JPMorgan Chase & Co./2018 Form 10-K
185
Notes to consolidated financial statements
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
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
Affected
segment or unit
Page
reference
• Interest rate
• Interest rate
Hedge fixed rate assets and liabilities
Hedge floating-rate assets and liabilities
• Foreign exchange
Hedge foreign currency-denominated assets and liabilities
• Foreign exchange
Hedge foreign currency-denominated forecasted revenue and
expense
• Foreign exchange
• Commodity
Hedge the value of the Firm’s investments in non-U.S. dollar
functional currency entities
Hedge commodity inventory
Manage specifically identified risk exposures not designated in qualifying hedge accounting
Fair value hedge
Cash flow hedge
Fair value hedge
Cash flow hedge
Corporate
Corporate
Corporate
Corporate
Net investment hedge
Corporate
Fair value hedge
CIB
relationships:
• Interest rate
• Credit
• Interest rate and
foreign exchange
Manage the risk of the mortgage pipeline, warehouse loans and MSRs Specified risk management
CCB
Manage the credit risk of wholesale lending exposures
Specified risk management
CIB
Manage the risk of certain other specified assets and liabilities
Specified risk management
Corporate
Market-making derivatives and other activities:
• Various
• Various
Market-making and related risk management
Market-making and other
CIB
Other derivatives
Market-making and other
CIB, Corporate
192
194
192
194
195
192
195
195
195
195
195
186
JPMorgan Chase & Co./2018 Form 10-K
Notional amount of derivative contracts
The following table summarizes the notional amount of
derivative contracts outstanding as of December 31, 2018
and 2017.
December 31, (in billions)
Interest rate contracts
Swaps
Futures and forwards
Written options
Purchased options
Total interest rate contracts
Credit derivatives(a)
Foreign exchange contracts
Cross-currency swaps
Spot, futures and forwards
Written options
Purchased options
Notional amounts(b)
2018
2017
$
21,763
$
21,043
3,562
3,997
4,322
33,644
1,501
3,548
5,871
835
830
4,904
3,576
3,987
33,510
1,522
3,953
5,923
786
776
Total foreign exchange contracts
11,084
11,438
Equity contracts
Swaps
Futures and forwards
Written options
Purchased options
Total equity contracts
Commodity contracts
Swaps
Spot, futures and forwards
Written options
Purchased options
Total commodity contracts
346
101
528
490
367
90
531
453
1,465
1,441
134
156
135
120
545
133 (c)
168
98
93
492 (c)
Total derivative notional amounts
$
48,239
$
48,403 (c)
(a) For more information on volumes and types of credit derivative
contracts, refer to the Credit derivatives discussion on pages 195-197.
(b) Represents the sum of gross long and gross short third-party notional
derivative contracts.
(c) The prior period amounts have been revised to conform with the
current period presentation.
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 contracts, the notional
amount is not exchanged; it is used simply as a reference to
calculate payments.
JPMorgan Chase & Co./2018 Form 10-K
187
Notes to consolidated financial statements
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, 2018 and 2017, 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)
December 31, 2018
(in millions)
Trading assets and
liabilities
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total fair value of trading
assets and liabilities
December 31, 2017
(in millions)
Trading assets and
liabilities
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total fair value of trading
assets and liabilities
Gross derivative receivables
Gross derivative payables
Not
designated
as hedges
Designated as
hedges
Total
derivative
receivables
Net
derivative
receivables(b)
Not
designated
as hedges
Designated
as hedges
Total
derivative
payables
Net
derivative
payables(b)
$ 267,871
$
20,095
167,057
49,285
20,223
833
—
628
—
247
$ 268,704
$
23,214
$ 242,782
$
20,095
167,685
49,285
20,470
612
20,276
13,450
164,392
9,946
6,991
51,195
22,297
—
—
825
—
121
$ 242,782
$
20,276
165,217
51,195
22,418
7,784
1,667
12,785
10,161
9,372
$ 524,531
$
1,708
$ 526,239
$
54,213
$ 500,942
$
946
$ 501,888
$ 41,769
Gross derivative receivables
Gross derivative payables
Not
designated
as hedges
Designated as
hedges
Total
derivative
receivables
Net
derivative
receivables(b)
Not
designated
as hedges
Designated
as hedges
Total
derivative
payables
Net
derivative
payables(b)
$ 314,962 (c) $
1,030 (c) $ 315,992
$
24,673
$ 284,433 (c) $
3 (c) $ 284,436
$
23,205
159,740
40,040
20,066
—
491
—
19
23,205
160,231
40,040
20,085
869
23,252
16,151
154,601
7,882
6,948
45,395
21,498
—
1,221
—
403
23,252
155,822
45,395
21,901
7,129
1,299
12,473
9,192
7,684
$ 558,013 (c) $
1,540 (c) $ 559,553
$
56,523
$ 529,179 (c) $
1,627 (c) $ 530,806
$ 37,777
(a) Balances exclude structured notes for which the fair value option has been elected. Refer to Note 3 for further information.
(b) 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.
(c) The prior period amounts have been revised to conform with the current period presentation.
188
JPMorgan Chase & Co./2018 Form 10-K
Derivatives netting
The following tables present, as of December 31, 2018 and 2017, gross and net derivative receivables and payables by
contract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same
counterparty, have been netted on the Consolidated balance sheets where 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, amounts are
not eligible for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown separately
in the tables below.
In addition to the cash collateral received and transferred that is presented on a net basis with 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:
• collateral that consists of non-cash financial instruments (generally U.S. government and agency securities and other G7
government securities) and cash collateral held at third party custodians, which are shown separately as “Collateral not
nettable on the Consolidated balance sheets” in the tables below, up to the fair value exposure amount.
• the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of
the date presented, which is excluded from the tables below; and
• collateral held or transferred that relates to derivative receivables or payables where an appropriate legal opinion has not
been either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.
December 31, (in millions)
U.S. GAAP nettable derivative receivables
Interest rate contracts:
OTC
OTC–cleared
Exchange-traded(a)
2018
Amounts
netted on the
Consolidated
balance sheets
Gross
derivative
receivables
Net
derivative
receivables
Gross
derivative
receivables
2017
Amounts
netted on the
Consolidated
balance sheets
Net
derivative
receivables
$
258,227 $ (239,498)
$
18,729
$ 305,569
$ (284,917)
$ 20,652
6,404
322
(5,856)
(136)
548
186
6,531
185
(6,318)
(84)
213
101
Total interest rate contracts
264,953
(245,490)
19,463
312,285
(291,319)
20,966
Credit contracts:
OTC
OTC–cleared
Total credit contracts
Foreign exchange contracts:
OTC
OTC–cleared
Exchange-traded(a)
12,648
(12,261)
7,267
(7,222)
19,915
(19,483)
387
45
432
15,390
7,225
22,615
(15,165)
(7,170)
(22,335)
225
55
280
163,862
(153,988)
9,874
155,289
(142,420)
12,869
235
32
(226)
(21)
9
11
1,696
141
(1,654)
(7)
42
134
Total foreign exchange contracts
164,129
(154,235)
9,894
157,126
(144,081)
13,045
Equity contracts:
OTC
Exchange-traded(a)
Total equity contracts
Commodity contracts:
OTC
Exchange-traded(a)
Total commodity contracts
26,178
18,876
45,054
(23,879)
(15,460)
(39,339)
7,448
8,815
(5,261)
(8,218)
16,263
(13,479)
2,299
3,416
5,715
2,187
597
2,784
22,024
14,188
36,212
(19,917)
(12,241)
(32,158)
2,107
1,947
4,054
7,204 (e)
8,854
(4,436)
(8,701)
2,768 (e)
153
16,058 (e)
(13,137)
2,921 (e)
Derivative receivables with appropriate legal opinion
510,314
(472,026)
38,288 (d)
544,296 (e)
(503,030)
41,266 (d)(e)
Derivative receivables where an appropriate legal
opinion has not been either sought or obtained
Total derivative receivables recognized on the
Consolidated balance sheets
Collateral not nettable on the Consolidated balance
sheets(b)(c)
Net amounts
15,925
15,925
15,257 (e)
15,257 (e)
$
526,239
$
54,213
$ 559,553
(13,046)
$
41,167
$ 56,523
(13,363)
$ 43,160
JPMorgan Chase & Co./2018 Form 10-K
189
Notes to consolidated financial statements
December 31, (in millions)
U.S. GAAP nettable derivative payables
Interest rate contracts:
OTC
OTC–cleared
Exchange-traded(a)
2018
Amounts
netted on the
Consolidated
balance sheets
Gross
derivative
payables
Net
derivative
payables
Gross
derivative
payables
2017
Amounts
netted on the
Consolidated
balance sheets
Net
derivative
payables
$
233,404 $ (228,369)
$
5,035
$ 276,960
$ (271,294)
$ 5,666
7,163
210
(6,494)
(135)
669
75
6,004
127
(5,928)
(84)
76
43
Total interest rate contracts
240,777
(234,998)
5,779
283,091
(277,306)
5,785
Credit contracts:
OTC
OTC–cleared
Total credit contracts
Foreign exchange contracts:
OTC
OTC–cleared
Exchange-traded(a)
13,412
(11,895)
6,716
(6,714)
20,128
(18,609)
1,517
2
1,519
16,194
6,801
22,995
(15,170)
1,024
(6,784)
17
(21,954)
1,041
160,930
(152,161)
8,769
150,966
(141,789)
9,177
274
16
(268)
(3)
6
13
1,555
98
(1,553)
(7)
2
91
Total foreign exchange contracts
161,220
(152,432)
8,788
152,619
(143,349)
9,270
Equity contracts:
OTC
Exchange-traded(a)
Total equity contracts
Commodity contracts:
OTC
Exchange-traded(a)
Total commodity contracts
29,437
16,285
45,722
(25,544)
(15,490)
(41,034)
8,930
8,259
(4,838)
(8,208)
17,189
(13,046)
3,893
795
4,688
4,092
51
4,143
28,193
12,720
40,913
(23,969)
(12,234)
(36,203)
4,224
486
4,710
7,697 (e)
8,870
(5,508)
(8,709)
2,189 (e)
161
16,567 (e)
(14,217)
2,350 (e)
Derivative payables with appropriate legal opinion
485,036
(460,119)
24,917 (d)
516,185 (e)
(493,029)
23,156 (d)(e)
Derivative payables where an appropriate legal
opinion has not been either sought or obtained
Total derivative payables recognized on the
Consolidated balance sheets
Collateral not nettable on the Consolidated balance
sheets(b)(c)
Net amounts
16,852
16,852
14,621 (e)
14,621 (e)
$
501,888
$
41,769
$ 530,806
(4,449)
$
37,320
$ 37,777
(4,180)
$ 33,597
(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Represents liquid security collateral as well as cash collateral held at third-party custodians related to derivative instruments where an appropriate legal
opinion has been obtained. 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.
(c) Derivative collateral relates only to OTC and OTC-cleared derivative instruments.
(d) Net derivatives receivable included cash collateral netted of $55.2 billion and $55.5 billion at December 31, 2018 and 2017, respectively. Net derivatives
payable included cash collateral netted of $43.3 billion and $45.5 billion at December 31, 2018 and 2017, respectively. Derivative cash collateral relates
to OTC and OTC-cleared derivative instruments.
(e) The prior period amounts have been revised to conform with the current period presentation.
190
JPMorgan Chase & Co./2018 Form 10-K
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, 2018 and 2017.
OTC and OTC-cleared derivative payables containing
downgrade triggers
December 31, (in millions)
2018
2017
Aggregate fair value of net derivative payables
$
9,396 $ 11,916
Collateral posted
8,907
9,973
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, 2018 and 2017, 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), nor in termination payments 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
December 31, (in millions)
Amount of additional collateral to be posted upon downgrade(a)
Amount required to settle contracts with termination triggers upon downgrade(b)
2018
2017
Single-notch
downgrade
Two-notch
downgrade
Single-notch
downgrade
Two-notch
downgrade
$
76 $
172
$
947
764
79 $
320
1,989
650
(a) Includes the additional collateral to be posted for initial margin.
(b) Amounts represent fair values of derivative payables, and do not reflect collateral posted.
Derivatives executed in contemplation of a sale of the underlying financial asset
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure
to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The
Firm generally accounts for such transfers as collateralized financing transactions as described in Note 11, but in limited
circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers
accounted for as a sale where the associated derivative was outstanding at December 31, 2018 was not material, and there
were no such transfers at December 31, 2017.
JPMorgan Chase & Co./2018 Form 10-K
191
Notes to consolidated financial statements
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 pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2018,
2017 and 2016, respectively. The Firm includes gains/(losses) on the hedging derivative in the same line item in the
Consolidated statements of income as the related hedged item.
Year ended December 31, 2018
(in millions)
Derivatives
Hedged items
Income
statement
impact
Amortization
approach
Changes in fair
value
Gains/(losses) recorded in income
Income statement impact of
excluded components(f)
OCI impact
Derivatives -
Gains/(losses)
recorded in OCI(g)
Contract type
Interest rate(a)(b)
Foreign exchange(c)
Commodity(d)
Total
Year ended December 31, 2017
(in millions)
Contract type
Interest rate(a)(b)
Foreign exchange(c)
Commodity(d)
Total
Year ended December 31, 2016
(in millions)
Contract type
Interest rate(a)(b)
Foreign exchange(c)
Commodity(d)
Total
$
$
$
$
$
$
(1,145) $
1,782 $
1,092
789
(616)
(754)
637
476
35
$
— $
(566)
—
$
623
476
26
736 $
412 $
1,148
$
(566) $
1,125
$
—
(140)
—
(140)
Gains/(losses) recorded in income
Income statement impact due to:
Derivatives
Hedged items
Income
statement
impact
Hedge
ineffectiveness(e)
Excluded
components(f)
(481) $
1,359 $
878
$
(18) $
(3,509)
(1,275)
3,507
1,348
(2)
73
(5,265) $
6,214 $
949
$
—
29
11 $
896
(2)
44
938
Gains/(losses) recorded in income
Income statement impact due to:
Derivatives
Hedged items
Income
statement
impact
Hedge
ineffectiveness(e)
Excluded
components(f)
(482) $
1,338 $
2,435
(536)
(2,261)
586
$
856
174
50
1,417 $
(337) $
1,080
$
6 $
—
(9)
(3) $
850
174
59
1,083
(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.
(b) Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net
interest income and substantially offsets the income statement impact of the excluded components. Also excludes the accrual of interest on interest rate
swaps and the related hedged items.
(c) 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 and the income statement impact of excluded components were
recorded primarily in principal transactions revenue and net interest income.
(d) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or net realizable value (net
realizable value approximates fair value). Gains and losses were recorded in principal transactions revenue.
(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, time values and cross-currency basis spreads. Under the new hedge accounting guidance, the initial amount
of the excluded components may be amortized into income over the life of the derivative, or changes in fair value may be recognized in current period
earnings.
(g) Represents the change in value of amounts excluded from the assessment of effectiveness under the amortization approach, predominantly cross-currency
basis spreads. The amount excluded at inception of the hedge is recognized in earnings over the life of the derivative.
192
JPMorgan Chase & Co./2018 Form 10-K
As of December 31, 2018, the following amounts were recorded on the Consolidated balance sheets related to certain
cumulative fair value hedge basis adjustments that are expected to reverse through the income statement in future periods as
an adjustment to yield.
December 31, 2018
(in millions)
Assets
Investment securities - AFS
Liabilities
Long-term debt
Beneficial interests issued by consolidated VIEs
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
Carrying amount
of the hedged
items(a)(b)
Active hedging
relationships
Discontinued
hedging
relationships(d)
Total
$
$
55,313 (c) $
(1,105) $
381 $
(724)
139,915
$
6,987
141 $
—
8 $
(33)
149
(33)
(a) Excludes physical commodities with a carrying value of $6.8 billion to which the Firm applies fair value hedge accounting. As a result of the application of
hedge accounting, these inventories are carried at fair value, thus recognizing unrealized gains and losses in current periods. Given the Firm exits these
positions at fair value, there is no incremental impact to net income in future periods.
(b) Excludes hedged items where only foreign currency risk is the designated hedged risk, as basis adjustments related to foreign currency hedges will not
reverse through the income statement in future periods. The carrying amount excluded for available-for-sale securities is $14.6 billion and for long-term
debt is $7.3 billion.
(c) Carrying amount represents the amortized cost.
(d) Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance
sheet date.
JPMorgan Chase & Co./2018 Form 10-K
193
Notes to consolidated financial statements
Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and
the pre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 2018, 2017 and 2016,
respectively. The Firm includes the gain/(loss) on the hedging derivative in the same line item in the Consolidated statements
of income as the change in cash flows on the related hedged item.
Year ended December 31, 2018
(in millions)
Contract type
Interest rate(a)
Foreign exchange(b)
Total
Year ended December 31, 2017
(in millions)
Contract type
Interest rate(a)
Foreign exchange(b)
Total
Year ended December 31, 2016
(in millions)
Contract type
Interest rate(a)
Foreign exchange(b)
Total
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Amounts
reclassified from
AOCI to income
Amounts recorded
in OCI
Total change
in OCI
for period
44 $
(26)
18 $
(44) $
(201)
(245) $
(88)
(175)
(263)
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Amounts
reclassified from
AOCI to income
Amounts recorded
in OCI(c)
Total change
in OCI
for period
(17) $
(117)
(134) $
12 $
135
147 $
29
252
281
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Amounts
reclassified from
AOCI to income
Amounts recorded
in OCI(c)
Total change
in OCI
for period
(74) $
(286)
(360) $
(55) $
(395)
(450) $
19
(109)
(90)
$
$
$
$
$
$
(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) Represents the effective portion of changes in value of the related hedging derivative. 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. The Firm did not recognize any ineffectiveness on cash flow hedges during 2017 and 2016.
The Firm did not experience any forecasted transactions that failed to occur for the years ended 2018, 2017 and 2016.
Over the next 12 months, the Firm expects that approximately $(74) million (after-tax) of net losses recorded in AOCI at
December 31, 2018, related to cash flow hedges will be recognized in income. For cash flow hedges that have been
terminated, the maximum length of time over which the derivative results recorded in AOCI will be recognized in earnings is
approximately six years, corresponding to the timing of the originally hedged forecasted cash flows. For open cash flow
hedges, the maximum length of time over which forecasted transactions are hedged is approximately six years. The Firm’s
longer-dated forecasted transactions relate to core lending and borrowing activities.
194
JPMorgan Chase & Co./2018 Form 10-K
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 pre-tax gains/(losses) recorded on such instruments for the years ended December 31, 2018, 2017 and
2016.
Year ended December 31,
(in millions)
Foreign exchange derivatives
2018
2017
2016
Amounts
recorded in
income(a)(b)
$11
Amounts
recorded in
OCI
$1,219
Amounts
recorded in
income(a)(b)(c)
$(152)
Amounts
recorded in
OCI(d)
$(1,244)
Amounts
recorded in
income(a)(b)(c)
$(280)
Amounts
recorded in
OCI(d)
$262
(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. The Firm elects to record changes in fair value of these amounts directly in other income.
(b) Excludes amounts reclassified from AOCI to income on the sale or liquidation of hedged entities. For additional information, refer to Note 23.
(c) The prior period amounts have been revised to conform with the current period presentation.
(d) Represents the effective portion of changes in value of the related hedging derivative. The Firm did not recognize any ineffectiveness on net investment
hedges directly in income during 2017 and 2016.
Gains and losses on derivatives used for specified risk
management purposes
The following table presents pre-tax 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, and
foreign currency denominated assets and liabilities.
Year ended December 31,
(in millions)
2018
2017
2016
Derivatives gains/(losses)
recorded in income
Contract type
Interest rate(a)
Credit(b)
Foreign exchange(c)
Total
$
$
79
(21)
117
175
$
331
$ 1,174
(74)
(107) (d)
150 (d) $
(282)
(20) (d)
872 (d)
$
(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 derivatives used to mitigate foreign exchange risk
of specified foreign currency-denominated assets and liabilities. Gains
and losses were recorded in principal transactions revenue.
(d) The prior period amounts have been revised to conform with the
current period presentation.
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 its
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. Refer to Note 6 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 financial instruments in the Firm’s market-making
businesses. Following is a summary of various types of
credit derivatives.
JPMorgan Chase & Co./2018 Form 10-K
195
Notes to consolidated financial statements
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 either OTC or 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 consists
of 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 (or one of the entities
that makes up a reference index) experiences a specified
credit event. 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.
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, 2018 and
2017. 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.
196
JPMorgan Chase & Co./2018 Form 10-K
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
December 31, 2018 (in millions)
Credit derivatives
Credit default swaps
Other credit derivatives(a)
Total credit derivatives
Credit-related notes
Total
December 31, 2017 (in millions)
Credit derivatives
Credit default swaps
Other credit derivatives(a)
Total credit derivatives
Credit-related notes
Total
Maximum payout/Notional amount
Protection
sold
Protection purchased
with identical
underlyings(b)
Net protection
(sold)/
purchased(c)
Other
protection
purchased(d)
$
(697,220)
$
707,282
$
10,062 $
(41,244)
(738,464)
—
42,484
749,766
—
1,240
11,302
—
4,053
8,488
12,541
8,425
$
(738,464)
$
749,766
$
11,302 $
20,966
Maximum payout/Notional amount
Protection
sold
Protection purchased
with identical
underlyings(b)
Net protection
(sold)/
purchased(c)
Other
protection
purchased(d)
$
(690,224)
$
702,098
$
11,874 $
5,045
(54,157)
(744,381)
(18)
59,158
761,256
—
5,001
16,875
(18)
11,747
16,792
7,915
$
(744,399)
$
761,256
$
16,857 $
24,707
(a) Other credit derivatives largely consists of credit swap options.
(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 amounts by the ratings, maturity profile, and total fair value, of credit derivatives
and credit-related notes as of December 31, 2018 and 2017, 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, 2018
(in millions)
Total notional
amount
1–5 years
>5 years
<1 year
Fair value of
receivables(b)
Fair value of
payables(b)
Net fair
value
Risk rating of reference entity
Investment-grade
$ (115,443)
$ (402,325)
$ (43,611)
Noninvestment-grade
(45,897)
(119,348)
(11,840)
Total
$ (161,340)
$ (521,673)
$ (55,451)
$
$
(561,379)
(177,085)
(738,464)
$
$
5,720
4,719
10,439
$
$
(2,791)
$ 2,929
(5,660)
(941)
(8,451)
$ 1,988
December 31, 2017
(in millions)
Risk rating of reference entity
<1 year
1–5 years
>5 years
Total notional
amount
Fair value of
receivables(b)
Fair value of
payables(b)
Net fair
value
Investment-grade
$ (159,286)
$ (319,726)
$ (39,429)
Noninvestment-grade
(73,394)
(134,125)
(18,439)
Total
$ (232,680)
$ (453,851)
$ (57,868)
$
$
(518,441)
(225,958)
(744,399)
$
$
8,516
7,407
15,923
$
$
(1,134)
$ 7,382
(5,313)
2,094
(6,447)
$ 9,476
(a) The ratings scale is primarily based on external credit ratings 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.
JPMorgan Chase & Co./2018 Form 10-K
197
Notes to consolidated financial statements
Note 6 – Noninterest revenue and noninterest expense
The Firm records noninterest revenue from certain
contracts with customers under ASC 606, Revenue from
Contracts with Customers, in investment banking fees,
deposit-related fees, asset management, administration,
and commissions, and components of card income.
Contracts in the scope of ASC 606 are often terminable on
demand and the Firm has no remaining obligation to deliver
future services. For arrangements with a fixed term, the
Firm may commit to deliver services in the future. Revenue
associated with these remaining performance obligations
typically depends on the occurrence of future events or
underlying asset values, and is not recognized until the
outcome of those events or values are known.
The adoption of the revenue recognition guidance in the
first quarter of 2018, required gross presentation of certain
costs previously offset against revenue, predominantly
associated with certain distribution costs (previously offset
against asset management, administration and
commissions), with the remainder associated with certain
underwriting costs (previously offset against investment
banking fees). Adoption of the guidance did not result in
any material changes in the timing of revenue recognition.
This guidance was adopted retrospectively and, accordingly,
prior period amounts were revised, which resulted in an
increase in both noninterest revenue and noninterest
expense. The Firm did not apply any practical expedients.
For additional information, refer to Note 1.
Investment banking fees
This revenue category includes debt and equity
underwriting and advisory fees. As an underwriter, the Firm
helps clients raise capital via public offering and private
placement of various types of debt and equity instruments.
Underwriting fees are primarily based on the issuance price
and quantity of the underlying instruments, and are
recognized as revenue typically upon execution of the
client’s transaction. The Firm also manages and syndicates
loan arrangements. Credit arrangement and syndication
fees, included within debt underwriting fees, are recorded
as revenue after satisfying certain retention, timing and
yield criteria.
The Firm also provides advisory services, by assisting its
clients with mergers and acquisitions, divestitures,
restructuring and other complex transactions. Advisory fees
are recognized as revenue typically upon execution of the
client’s transaction.
Year ended December 31,
(in millions)
2018
2017
2016
Underwriting
Equity
Debt
Total underwriting
Advisory
$ 1,684
$ 1,466
$ 1,200
3,347
5,031
2,519
3,802
5,268
2,144
3,277
4,477
2,095
Total investment banking fees
$ 7,550
$ 7,412
$ 6,572
Investment banking fees are earned primarily by CIB. Refer
to Note 31 for segment results.
Principal transactions
Principal transactions revenue is driven by many factors,
including the bid-offer spread, which is the difference
between the price at which the Firm is willing to buy a
financial or other instrument and the price at which the
Firm is willing to sell that instrument. It also consists of the
realized (as a result of the sale of instruments, closing out
or termination of transactions, or interim cash payments)
and unrealized (as a result of changes in valuation) gains
and losses on financial and other instruments (including
those accounted for under the fair value option) primarily
used in client-driven market-making activities and on
private equity investments. In connection with its client-
driven market-making activities, the Firm transacts in debt
and equity instruments, derivatives and commodities
(including physical commodities inventories and financial
instruments that reference commodities).
Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk-management activities, including: (a)
certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges of
commodity and foreign exchange risk), (b) certain
derivatives used for specific risk management purposes,
primarily to mitigate credit risk and foreign exchange risk,
and (c) other derivatives. For further information on the
income statement classification of gains and losses from
derivatives activities, refer to Note 5.
In the financial commodity markets, the Firm transacts in
OTC derivatives (e.g., swaps, forwards, options) and ETD
that reference a wide range of underlying commodities. In
the physical commodity markets, the Firm primarily
purchases and sells precious and base metals and may hold
other commodities inventories under financing and other
arrangements with clients.
The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part of
the overall performance of the Firm’s client-driven market-
making activities. Refer to Note 7 for further information on
interest income and interest expense. Trading revenue is
presented primarily by instrument type. The Firm’s client-
driven market-making businesses generally utilize a variety
of instrument types in connection with their market-making
and related risk-management activities; accordingly, the
trading revenue presented in the table below is not
representative of the total revenue of any individual line of
business.
198
JPMorgan Chase & Co./2018 Form 10-K
Year ended December 31,
(in millions)
Trading revenue by instrument
2018
2017
2016
Year ended December 31,
(in millions)
Asset management fees
2018
2017
2016
type
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total trading revenue
Private equity gains
Investment management fees(a)
$ 10,768
$ 10,434
$ 9,636
$
1,961
$
2,479
$
2,325
1,395
3,222
4,924
906
1,329
2,746
3,873
661
2,096
2,827
2,994
1,067
All other asset management fees(b)
270
296
Total asset management fees
11,038
10,730
Total administration fees(c)
2,179
2,029
Commissions and other fees
12,408
11,088
11,309
Brokerage commissions(d)
(349)
259
257
All other commissions and fees
2,505
1,396
3,901
2,239
1,289
3,528
338
9,974
1,915
2,151
1,324
3,475
Principal transactions
$ 12,059
$ 11,347
$ 11,566
Principal transactions revenue is earned primarily by CIB.
Refer to Note 31 for segment results.
Lending- and deposit-related fees
Lending-related fees include fees earned from loan
commitments, standby letters of credit, financial
guarantees, and other loan-servicing activities. Deposit-
related fees include fees earned in lieu of compensating
balances, and fees earned from performing cash
management activities and other deposit account services.
Lending- and deposit-related fees in this revenue category
are recognized over the period in which the related service
is provided.
Year ended December 31, (in millions)
2018
2017
2016
Lending-related fees
Deposit-related fees
$ 1,117
$ 1,110
$ 1,114
4,935
4,823
4,660
Total lending- and deposit-related fees
$ 6,052
$ 5,933
$ 5,774
Lending- and deposit-related fees are earned by CCB, CIB,
CB, and AWM. Refer to Note 31 for segment results.
Asset management, administration and commissions
This revenue category includes fees from investment
management and related services, custody, brokerage
services and other products. The Firm manages assets on
behalf of its clients, including investors in Firm-sponsored
funds and owners of separately managed investment
accounts. Management fees are typically based on the value
of assets under management and are collected and
recognized at the end of each period over which the
management services are provided and the value of the
managed assets is known. The Firm also receives
performance-based management fees, which are earned
based on exceeding certain benchmarks or other
performance targets and are accrued and recognized when
the probability of reversal is remote, typically at the end of
the related billing period. The Firm has contractual
arrangements with third parties to provide distribution and
other services in connection with its asset management
activities. Amounts paid to third-party service providers are
recorded in professional and outside services expense.
Total commissions and fees
Total asset management,
administration and
commissions
$ 17,118
$ 16,287
$ 15,364
(a) Represents fees earned from managing assets on behalf of the Firm’s
clients, including investors in Firm-sponsored funds and owners of
separately managed investment accounts.
(b) The Firm receives other asset management fees for services that are
ancillary to investment management services, including commissions
earned on sales or distribution of mutual funds to clients. These fees are
recorded as revenue at the time the service is rendered or, in the case of
certain distribution fees based on the underlying fund’s asset value and/
or investor redemption, recorded over time as the investor remains in
the fund or upon investor redemption.
(c) The Firm receives administrative fees predominantly from custody,
securities lending, fund services and securities clearance services it
provides. These fees are recorded as revenue over the period in which
the related service is provided.
(d) The Firm acts as a broker, by facilitating its clients’ purchases and sales
of securities and other financial instruments. Brokerage commissions are
collected and recognized as revenue upon occurrence of the client
transaction. The Firm reports certain costs paid to third-party clearing
houses and exchanges net against commission revenue.
Asset management, administration and commissions are
earned primarily by AWM, CIB, CCB, and CB. Refer to Note
31 for segment results.
Mortgage fees and related income
This revenue category primarily reflects CCB’s Home
Lending net production and net mortgage servicing
revenue.
Net production revenue includes fees and income
recognized as earned on mortgage loans originated with the
intent to sell; the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans; and changes in the fair value of any residual interests
held from mortgage securitizations. Net production revenue
also includes gains and losses on sales of mortgage loans,
lower of cost or fair value adjustments on mortgage loans
held-for-sale, changes in fair value on mortgage loans
originated with the intent to sell and measured at fair value
under the fair value option, as well as losses recognized as
incurred related to the repurchase of previously sold loans.
Net mortgage servicing revenue includes operating revenue
earned from servicing third-party mortgage loans which is
recognized over the period in which the service is provided,
changes in the fair value of MSRs and the impact of risk
management activities associated with MSRs.
For further discussion of risk management activities and
MSRs, refer to Note 15.
Net interest income from mortgage loans is recorded in
interest income.
JPMorgan Chase & Co./2018 Form 10-K
199
The following table presents the components of card income:
Year ended December 31,
(in millions)
Interchange and merchant
processing income
Reward costs and partner
payments
Other card income(a)
Total card income
2018
2017
2016
$ 18,808
$ 17,080
$ 15,367
(13,074) (b)
(10,820)
(745)
(1,827)
(9,480)
(1,108)
$ 4,989
$ 4,433
$ 4,779
(a) Predominantly represents annual fees and new account origination
costs, which are deferred and recognized on a straight-line basis over
a 12-month period and are outside the scope of the revenue
recognition guidance, ASC 606, Revenue from Contracts with
Customers.
Includes an adjustment to the credit card rewards liability of
approximately $330 million, recorded in the second quarter of 2018.
(b)
Card income is earned primarily by CCB and CB. Refer to
Note 31 for segment results.
Other income
Other income on the Firm’s Consolidated statements of
income included the following:
Year ended December 31, (in millions)
2018
2017
2016
Operating lease income
$ 4,540
$ 3,613
$ 2,724
Operating lease income is recognized on a straight–line
basis over the lease term.
Noninterest expense
Other expense
Other expense on the Firm’s Consolidated statements of
income included the following:
Year ended December 31,
(in millions)
2018
2017
2016
Legal expense/(benefit)
$
72
$
(35) $
(317)
FDIC-related expense
1,239
1,492
1,296
Notes to consolidated financial statements
Card income
This revenue category includes interchange income from
credit and debit cards and fees earned from processing card
transactions for merchants, both of which are recognized
when purchases are made by a cardholder. Card income
also includes account origination costs and annual fees,
which are deferred and recognized on a straight-line basis
over a 12-month period.
Certain Chase credit card products offer the cardholder the
ability to earn points based on account activity, which the
cardholder can choose to redeem for cash and non-cash
rewards. The cost to the Firm related to these proprietary
rewards programs varies based on multiple factors
including the terms and conditions of the rewards
programs, cardholder activity, cardholder reward
redemption rates and cardholder reward selections. The
Firm maintains a liability for its obligations under its
rewards programs and reports the current-period cost as a
reduction of card income.
Credit card revenue sharing agreements
The Firm has contractual agreements with numerous co-
brand partners that grant the Firm exclusive rights to issue
co-branded credit card products and market them to the
customers of such partners. These partners endorse the co-
brand credit card programs and provide their customer or
member lists to the Firm. The partners may also conduct
marketing activities and provide rewards redeemable under
their own loyalty programs that the Firm will grant to co-
brand credit cardholders based on account activity. The
terms of these agreements generally range from five to ten
years.
The Firm typically makes payments to the co-brand credit
card partners based on the cost of partners’ marketing
activities and loyalty program rewards provided to credit
cardholders, new account originations and sales volumes.
Payments to partners based on marketing efforts
undertaken by the partners are expensed by the Firm as
incurred and reported as marketing expense. Payments for
partner loyalty program rewards are reported as a
reduction of card income when incurred. Payments to
partners based on new credit card account originations are
accounted for as direct loan origination costs and are
deferred and recognized as a reduction of card income on a
straight-line basis over a 12-month period. Payments to
partners based on sales volumes are reported as a
reduction of card income when the related interchange
income is earned.
200
JPMorgan Chase & Co./2018 Form 10-K
Interest income and interest expense includes the current-
period interest accruals for financial instruments measured
at fair value, except for derivatives and financial
instruments containing embedded derivatives that would be
separately accounted for in accordance with U.S. GAAP,
absent the fair value option election; for those instruments,
all changes in fair value including any interest elements, are
reported in principal transactions revenue. For financial
instruments that are not measured at fair value, the related
interest is included within interest income or interest
expense, as applicable. For further information on
accounting for interest income and interest expense related
to loans, investment securities, securities financing (i.e.
securities purchased or sold under resale or repurchase
agreements; securities borrowed; and securities loaned)
and long-term debt, refer to Notes 12, 10, 11 and 19,
respectively.
Note 7 – Interest income and Interest expense
Interest income and interest expense are recorded in the
Consolidated statements of income and classified based on
the nature of the underlying asset or liability.
The following table presents the components of interest
income and interest expense:
Year ended December 31,
(in millions)
Interest income
Loans(a)
Taxable securities
Non-taxable securities(b)
Total investment securities
Trading assets
Federal funds sold and securities
purchased under resale
agreements
Securities borrowed(c)
Deposits with banks
All other interest-earning assets(d)
2018
2017
2016
$ 47,620 $ 41,008 $ 36,634
5,653
1,595
7,248
8,703
3,819
728
5,907
3,417
5,535
1,847
7,382
7,610
2,327
(37)
4,238
1,844
5,538
1,766
7,304
7,292
2,265
(332)
1,879
859
Total interest income
$ 77,442 $ 64,372 $ 55,901
Interest expense
Interest bearing deposits
$
5,973 $
2,857 $
1,356
Federal funds purchased and
securities loaned or sold under
repurchase agreements
Short-term borrowings(e)
Trading liabilities - debt and all
other interest-bearing liabilities(f)
Long-term debt
Beneficial interest issued by
consolidated VIEs
3,066
1,144
3,729
7,978
1,611
481
2,070
6,753
1,089
203
1,102
5,564
493
503
504
Total interest expense
$ 22,383 $ 14,275 $
9,818
Net interest income
$ 55,059 $ 50,097 $ 46,083
Provision for credit losses
4,871
5,290
5,361
Net interest income after
provision for credit losses
$ 50,188 $ 44,807 $ 40,722
(a) Includes the amortization/accretion of unearned income (e.g.,
purchase premiums/discounts, net deferred fees/costs, etc.).
(b) Represents securities that are tax-exempt for U.S. federal income tax
purposes.
(c) Negative interest income is related to client-driven demand for certain
securities combined with the impact of low interest rates. This is
matched book activity and the negative interest expense on the
corresponding securities loaned is recognized in interest expense.
(d) Includes held-for-investment margin loans, which are classified in
accrued interest and accounts receivable, and all other interest-
earning assets, which are classified in other assets on the Consolidated
balance sheets.
(e) Includes commercial paper.
(f) Other interest-bearing liabilities include brokerage customer payables.
JPMorgan Chase & Co./2018 Form 10-K
201
Notes to consolidated financial statements
Note 8 – Pension and other postretirement
employee benefit plans
The Firm has various defined benefit pension plans and
OPEB plans that provide benefits to its employees in the
U.S. and certain non-U.S. locations. The Firm also provides a
qualified defined contribution plan in the U.S. and maintains
other similar arrangements in certain non-U.S. locations.
The principal defined benefit pension plan in the U.S. is a
qualified noncontributory plan that provides benefits to
substantially all U.S. employees. In connection with changes
to the U.S. Retirement Savings Program during the fourth
quarter of 2018, the Firm announced that it will freeze the
U.S. defined benefit pension plan. Commencing on January
1, 2020 (and January 1, 2019 for new hires), pay credits
will be directed to the U.S. defined contribution plan.
Interest credits will continue to accrue. As a result, a
curtailment was triggered and a remeasurement of the U.S.
defined benefit pension obligation and plan assets occurred
as of November 30, 2018. The plan design change resulted
in an increase to pension expense of $21 million
representing the immediate recognition of the prior service
cost, but did not have a material impact on the U.S. defined
benefit pension plan or the Firm’s Consolidated Financial
Statements.
The Firm also has defined benefit pension plans that are
offered in certain non-U.S. locations based on factors such
as eligible compensation, age and/or years of service. It is
the Firm’s policy to fund the pension plans in amounts
sufficient to meet the requirements under applicable laws.
The Firm does not anticipate at this time any contribution to
the U.S. defined benefit pension plan in 2019. The 2019
contributions to the non-U.S. defined benefit pension plans
are expected to be $45 million of which $30 million are
contractually required.
The Firm also has a number of nonqualified
noncontributory defined benefit pension plans that are
unfunded. These plans provide supplemental defined
pension benefits to certain employees.
The Firm offers postretirement medical and life insurance
benefits to certain U.S. retirees and postretirement medical
benefits to qualifying U.S. and U.K. employees.
The Firm defrays the cost of its U.S. OPEB obligation
through corporate-owned life insurance (“COLI”) purchased
on the lives of eligible employees and retirees. While the
Firm owns the COLI policies, COLI proceeds (death benefits,
withdrawals and other distributions) may be used only to
reimburse the Firm for its net postretirement benefit claim
payments and related administrative expense. The Firm has
generally funded its postretirement benefit obligations
through contributions to the relevant trust on a pay-as-you
go basis. On December 21, 2017, the Firm contributed
$600 million of cash to the trust as a prefunding of a
portion of its postretirement benefit obligations. The U.K.
OPEB plan is unfunded.
Pension and OPEB accounting generally requires that the
difference between plan assets at fair value and the benefit
obligation be measured and recorded on the balance sheet.
Plans that are overfunded (excess of plan assets over
benefit obligation) are recorded in other assets and plans
that are underfunded (excess benefit obligation over plan
assets) are recorded within other liabilities. Gains or losses
resulting from changes in the benefit obligation and the
value of plan assets are recorded in other comprehensive
income (“OCI”) and recognized as part of the net periodic
benefit cost over subsequent periods as discussed in the
Gains and losses section of this Note. Additionally, income
statement items related to pension and OPEB plans (other
than benefits earned during the period) are aggregated and
reported net within other expense.
202
JPMorgan Chase & Co./2018 Form 10-K
The following table presents the changes in benefit obligations, plan assets, the net funded status, and the pretax pension and
OPEB amounts recorded in AOCI on the Consolidated balance sheets for the Firm’s defined benefit pension and OPEB plans, and
the weighted-average actuarial annualized assumptions for the projected and accumulated postretirement benefit obligations.
Fair value of plan assets, beginning of year
$
19,603
$
17,703
As of or for the year ended December 31,
(in millions)
Change in benefit obligation
Benefit obligation, beginning of year
Benefits earned during the year
Interest cost on benefit obligations
Plan amendments
Plan curtailment
Employee contributions
Net gain/(loss)
Benefits paid
Plan settlements
Expected Medicare Part D subsidy receipts
Foreign exchange impact and other
Benefit obligation, end of year(a)
Change in plan assets
Actual return on plan assets
Firm contributions
Employee contributions
Benefits paid
Plan settlements
Foreign exchange impact and other
Fair value of plan assets, end of year (a)(b)(c)
Net funded status (d)(e)
Accumulated benefit obligation, end of year
Pretax pension and OPEB amounts recorded in AOCI
Net gain/(loss)
Prior service credit/(cost)
Accumulated other comprehensive income/(loss), pretax, end of year
Weighted-average actuarial assumptions used to determine benefit obligations
Discount Rate (f)
Rate of compensation increase (f)
Interest crediting rate(f)
Health care cost trend rate:
Assumed for next year
Ultimate
Year when rate will reach ultimate
Defined benefit
pension plans
OPEB plans(h)
2018
2017
2018
2017
$
(16,700)
$
(15,594)
$
(684)
$
(708)
(354)
(556)
(29)
123
(7)
938
873
15
NA
185
(330)
(598)
—
—
(7)
(g)
(721)
(g)
841
30
NA
(321)
$
(15,512)
$
(16,700)
(548)
75
7
(873)
(15)
(197)
$
$
$
$
$
18,052
2,540
(15,494)
(3,134)
(23)
(3,157)
2,356
78
7
(841)
(30)
330
19,603
2,903
(16,530)
(2,800)
6
(2,794)
$
$
$
$
$
—
(24)
—
—
(15)
40
69
—
—
2
—
(28)
—
—
(16)
(4)
76
—
(1)
(3)
$
$
$
$
$
$
(612)
$
(684)
2,757
$
1,956
(28)
2
15
(113)
—
—
2,633
2,021
NA
184
—
184
233
602
—
(34)
—
—
$
2,757
$
2,073
NA
271
—
271
$
$
0.60 - 4.30 %
0.60 - 3.70 %
4.20%
3.70%
2.25 – 3.00
2.25 – 3.00
1.81 - 4.90%
1.81 - 4.90%
NA
NA
NA
NA
NA
NA
NA
NA
5.00
5.00
2019
NA
NA
5.00
5.00
2018
(a) At December 31, 2018 and 2017, included non-U.S. benefit obligations of $(3.3) billion and $(3.8) billion, and plan assets of $3.5 billion and $3.9 billion,
respectively, predominantly in the U.K.
(b) At both December 31, 2018 and 2017, approximately $302 million of U.S. defined benefit pension plan assets included participation rights under participating
annuity contracts.
(c) At December 31, 2018 and 2017, defined benefit pension plan amounts that were not measured at fair value included $340 million and $377 million, respectively,
of accrued receivables, and $503 million and $587 million, respectively, of accrued liabilities, for U.S. plans.
(d) Represents plans with an aggregate overfunded balance of $5.1 billion and $5.6 billion at December 31, 2018 and 2017, respectively, and plans with an aggregate
underfunded balance of $547 million and $612 million at December 31, 2018 and 2017, respectively.
(e) For pension plans with a projected benefit obligation exceeding plan assets, the projected benefit obligation and fair value of plan assets was $1.3 billion and $762
million at December 31, 2018, respectively and $1.4 billion and $811 million at December 31, 2017, respectively. For pension plans with an accumulated benefit
obligation exceeding plan assets, the accumulated benefit obligation and fair value of plan assets was $1.3 billion and $762 million at December 31, 2018,
respectively, and $1.4 billion and $811 million at December 31, 2017, respectively. For OPEB plans with a projected benefit obligation exceeding plan assets, the
projected benefit obligation was $26 million and $32 million at December 31, 2018 and December 31, 2017, respectively, they had no plan assets.
(f) For the U.S. defined benefit pension plans, the discount rate assumption is 4.30% and 3.70% for 2018 and 2017, respectively, and the rate of compensation
increase and the interest crediting rate are 2.30% and 4.90%, respectively, for both 2018 and 2017.
(g) At December 31, 2018 and 2017, the gain/(loss) was primarily attributable to the change in the discount rate.
(h) Includes an unfunded postretirement benefit obligation of $26 million and $32 million at December 31, 2018 and 2017, respectively, for the U.K. plan.
JPMorgan Chase & Co./2018 Form 10-K
203
Notes to consolidated financial statements
Gains and losses
For the Firm’s defined benefit pension plans, fair value is
used to determine the expected return on plan assets.
Amortization of net gains and losses is included in annual
net periodic benefit cost if, as of the beginning of the year,
the net gain or loss exceeds 10% of the greater of the PBO
or the fair value of the plan assets. Any excess is amortized
over the average future service period of defined benefit
pension plan participants, which for the U.S. defined benefit
pension plan is currently eight years and for the non-U.S.
defined benefit pension plans is the period appropriate for
the affected plan. In addition, prior service costs are
amortized over the average remaining service period of
active employees expected to receive benefits under the
plan when the prior service cost is first recognized. Due to
the curtailment of the principal U.S. defined benefit pension
plan in 2018, all related prior service cost was recognized
in the annual net periodic benefit cost.
For the Firm’s OPEB plans, a calculated value that
recognizes changes in fair value over a five-year period is
used to determine the expected return on plan assets. This
value is referred to as the market-related value of assets.
Amortization of net gains and losses, adjusted for gains and
losses not yet recognized, is included in annual net periodic
benefit cost if, as of the beginning of the year, the net gain
or loss exceeds 10% of the greater of the accumulated
postretirement benefit obligation or the market-related
value of assets. Any excess net gain or loss is amortized
over the average expected lifetime of retired participants,
which is currently eleven years; however, prior service costs
resulting from plan changes are amortized over the average
years of service remaining to full eligibility age, which is
currently one year.
204
JPMorgan Chase & Co./2018 Form 10-K
The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income
for the Firm’s U.S. and non-U.S. defined benefit pension, defined contribution and OPEB plans, and in other comprehensive
income for the defined benefit pension and OPEB plans, and the weighted-average annualized actuarial assumptions for the
net periodic benefit cost.
Pension plans
OPEB plans
2018
2017
2016
2018
2017
2016
332
629
(1,030)
$
— $
24
(103)
$
—
28
(97)
—
31
(105)
Year ended December 31, (in millions)
Components of net periodic benefit cost
Benefits earned during the year
Interest cost on benefit obligations
Expected return on plan assets
Amortization:
Net (gain)/loss
Prior service cost/(credit)
Curtailment (gain)/loss
Settlement (gain)/loss
Net periodic defined benefit cost(a)
Other defined benefit pension plans(b)
Total defined benefit plans
Total defined contribution plans
Total pension and OPEB cost included in noninterest expense
$
$
$
$
354
556
(981)
103
(23)
21
2
32
20
52
872
924
$
$
$
$
Changes in plan assets and benefit obligations recognized in other comprehensive income
Prior service (credit)/cost arising during the year
Net (gain)/loss arising during the year
Amortization of net loss
Amortization of prior service (cost)/credit
Curtailment gain/(loss)
Settlement gain/(loss)
Foreign exchange impact and other
Total recognized in other comprehensive income
Total recognized in net periodic benefit cost and other
comprehensive income
$
$
Weighted-average assumptions used to determine net periodic benefit costs
29
467
(103)
23
(21)
(2)
(30)
363
395
$
$
(831)
(655)
$
$
Discount rate(c)
0.60 - 4.50 % 0.60 - 4.30 % 0.90 – 4.50%
Expected long-term rate of return on plan assets (c)
0.70 - 5.50
0.70 - 6.00
0.80 – 6.50
Rate of compensation increase (c)
Interest crediting rate(c)
Health care cost trend rate
Assumed for next year
Ultimate
Year when rate will reach ultimate
2.25 - 3.00
2.25 - 3.00
2.25 – 4.30
1.81- 4.90% 1.81- 4.90% 1.56- 4.90%
NA
NA
NA
NA
NA
NA
NA
NA
NA
$
$
$
$
330
598
(968)
250
(36)
—
2
176
24
200
814
1,014
—
(669)
(250)
36
—
(2)
54
257
(36)
—
4
156
25
181
789
970
—
395
(257)
36
—
(4)
(77)
93
249
$
$
$
$
$
—
—
—
—
—
—
—
—
(79) $
(69) $
NA
NA
(79) $
(69) $
NA
NA
(79) $
(69) $
—
(133)
—
—
—
—
—
—
—
—
—
(74)
NA
(74)
NA
(74)
—
(29)
—
—
—
—
—
$
$
(133) $
(29)
(202) $
(103)
4.20%
5.00
NA
NA
5.00
5.00
2017
4.40%
5.75
NA
NA
5.50
5.00
2017
—
91
—
—
—
—
(4)
87
8
3.70%
4.00
NA
NA
5.00
5.00
2018
(a) Effective January 1, 2018, benefits earned during the year are reported in compensation expense; all other components of net periodic defined benefit
costs are reported within other expense in the Consolidated statements of income.
(b) Includes various defined benefit pension plans which are individually immaterial.
(c) The rate assumptions for the U.S. defined benefit pension plans are at the upper end of the range, except for the rate of compensation increase, which is
2.30% for both 2018 and 2017, and 3.50% for 2016.
Plan assumptions
The Firm’s expected long-term rate of return for defined
benefit pension and OPEB plan assets is a blended weighted
average, by asset allocation of the projected long-term
returns for the various asset classes, taking into
consideration local market conditions and the specific
allocation of plan assets. Returns on asset classes are
developed using a forward-looking approach and are not
strictly based on historical returns. Consideration is also
given to current market conditions and the short-term
portfolio mix of each plan.
The discount rate used in determining the benefit obligation
under the U.S. defined benefit pension and OPEB plans was
provided by the Firm’s actuaries. This rate was selected by
reference to the yields on portfolios of bonds with maturity
dates and coupons that closely match each of the plan’s
projected cash flows. The discount rate for the U.K. defined
benefit pension plan represents a rate of appropriate
duration from the analysis of yield curves provided by the
Firm’s actuaries.
At December 31, 2018, the Firm increased the discount
rates used to determine its benefit obligations for the U.S.
defined benefit pension and OPEB plans in light of current
JPMorgan Chase & Co./2018 Form 10-K
205
Notes to consolidated financial statements
market interest rates, which will decrease expense by
approximately $20 million in 2019. The 2019 expected
long-term rate of return on U.S. defined benefit pension
plan assets and U.S. OPEB plan assets are 5.50% and
4.30%, respectively. As of December 31, 2018, the interest
crediting rate assumption was 4.90%.
The following table represents the effect of a 25-basis point
decline in the two listed rates below on estimated 2019
defined benefit pension and OPEB plan expense, as well as
the effect on the postretirement benefit obligations.
(in millions)
Expected long-term rate of return
Discount rate
Defined benefit
pension and OPEB
plan expense
Benefit
obligation
$
$
51
50
$
NA
490
Investment strategy and asset allocation
The assets of the Firm’s defined benefit pension plans are
held in various trusts and are invested in well-diversified
portfolios of equity and fixed income securities, cash and
cash equivalents, and alternative investments. The trust-
owned assets of the Firm’s U.S. OPEB plan are invested
primarily in fixed income securities. COLI policies used to
defray the cost of the Firm’s U.S. OPEB plan are invested in
separate accounts of an insurance company and are
allocated to investments intended to replicate equity and
fixed income indices.
The investment policies for the assets of the Firm’s defined
benefit pension plans are to optimize the risk-return
relationship as appropriate to the needs and goals of each
plan using a global portfolio of various asset classes
diversified by market segment, economic sector, and issuer.
Assets are managed by a combination of internal and
external investment managers. The Firm regularly reviews
the asset allocations and asset managers, as well as other
factors that impact the portfolios, which are rebalanced
when deemed necessary.
Investments held by the plans include financial instruments
which are exposed to various risks such as interest rate,
market and credit risks. Exposure to a concentration of
credit risk is mitigated by the broad diversification of both
U.S. and non-U.S. investment instruments. Additionally, the
investments in each of the collective investment funds and/
or registered investment companies are further diversified
into various financial instruments. As of December 31,
2018, assets held by the Firm’s defined benefit pension and
OPEB plans do not include JPMorgan Chase common stock,
except through indirect exposures through investments in
third-party stock-index funds. The plans hold investments in
funds that are sponsored or managed by affiliates of
JPMorgan Chase in the amount of $3.7 billion and $6.0
billion, as of December 31, 2018 and 2017, respectively.
206
JPMorgan Chase & Co./2018 Form 10-K
The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 for
the years indicated, as well as the respective approved asset allocation ranges by asset class.
December 31,
Asset class
Debt securities(b)
Equity securities
Real estate
Alternatives (c)
Total
Defined benefit pension plans(a)
OPEB plan(d)
Asset
% of plan assets
Asset
% of plan assets
Allocation
2018
2017
Allocation
2018
2017
27-100%
48%
42%
30-70%
61%
61%
10-45
0-10
0-35
37
2
13
42
3
13
30-70
—
—
39
—
—
39
—
—
100%
100%
100%
100%
100%
100%
(a) Represents the U.S. defined benefit pension plan only, as that is the most significant plan.
(b) Debt securities primarily includes cash and cash equivalents, corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed
securities.
(c) Alternatives primarily include limited partnerships.
(d) Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.
Fair value measurement of the plans’ assets and liabilities
For information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value hierarchy and the
valuation methods employed by the Firm, refer to Note 2.
Pension and OPEB plan assets and liabilities measured at fair value
Defined benefit pension plans
2018
2017
December 31,
(in millions)
Level 1
Level 2
Level 3
Total fair
value
Level 1
Level 2
Level 3
Total fair
value
Cash and cash equivalents
$
343
$
1
$
— $
344
$
173
$
1
$
— $
174
Equity securities
Mutual funds
Collective investment funds(a)
Limited partnerships(b)
Corporate debt securities(c)
U.S. federal, state, local and non-U.S.
government debt securities
Mortgage-backed securities
Derivative receivables
Other(d)
5,342
162
—
161
40
—
1,191
82
—
885
—
—
—
3,540
743
272
143
80
5,506
6,407
194
2
—
—
—
3
—
3
—
—
161
40
3,543
325
778
60
—
1,934
1,096
357
143
92
—
302
1,267
2,353
—
—
—
2,644
784
100
203
60
2
—
—
—
4
—
2
—
6,603
325
778
60
2,648
1,880
194
203
302
2,715
Total assets measured at fair value(e)
Derivative payables
$
$
Total liabilities measured at fair value(e) $
8,044
$
4,941
$
310
$ 13,295
$ 11,284
$
3,986
$
310
$ 15,580
— $
— $
(96) $
(96) $
— $
— $
(96) $
(96) $
— $
(141) $
— $
(141)
— $
(141) $
— $
(141)
(a) At December 31, 2018 and 2017, collective investment funds primarily included a mix of short-term investment funds, U.S. and non-U.S. equity
investments (including index) and real estate funds.
(b) Unfunded commitments to purchase limited partnership investments for the plans were $521 million and $605 million for 2018 and 2017,
respectively.
(c) Corporate debt securities include debt securities of U.S. and non-U.S. corporations.
(d) Other consists primarily of mutual funds, money market funds and participating and non-participating annuity contracts. Mutual funds and money
market funds are primarily classified within level 1 of the fair value hierarchy given they are valued using market observable prices. Participating
and non-participating annuity contracts are classified within level 3 of the fair value hierarchy due to a lack of market mechanisms for transferring
each policy and surrender restrictions.
(e) At December 31, 2018 and 2017, excludes $5.0 billion and $4.4 billion of certain investments that are measured at fair value using the net asset
value per share (or its equivalent) as a practical expedient, which are not required to be classified in the fair value hierarchy, $340 million and
$377 million of defined benefit pension plan receivables for investments sold and dividends and interest receivables, $479 million and $561
million of defined benefit pension plan payables for investments purchased, and $24 million and $26 million of other liabilities, respectively.
The assets of the U.S. OPEB plan consisted of $561 million and $600 million in corporate debt securities, U.S. federal,
state, local and non-U.S. government debt securities and other classified in level 1 and level 2 of the valuation hierarchy
and in cash and cash equivalents classified in level 1 of the valuation hierarchy and $2.1 billion and $2.2 billion of COLI
policies classified in level 3 of the valuation hierarchy at December 31, 2018 and 2017, respectively.
JPMorgan Chase & Co./2018 Form 10-K
207
Notes to consolidated financial statements
Changes in level 3 fair value measurements using significant unobservable inputs
(in millions)
Year ended December 31, 2018
U.S. defined benefit pension plan
Annuity contracts and other (a)
U.S. OPEB plan
COLI policies
Year ended December 31, 2017
U.S. defined benefit pension plan
Annuity contracts and other (a)
U.S. OPEB plan
COLI policies
Fair value,
Beginning
balance
Actual return on plan assets
Realized
gains/(losses)
Unrealized
gains/(losses)
Purchases, sales
and settlements,
net
Transfers in
and/or out
of level 3
Fair value,
Ending
balance
$
$
$
$
310
2,157
396
1,957
$
$
$
$
— $
— $
— $
— $
— $
(1) $
1
$
310
(85) $
— $
— $
2,072
1
200
$
$
(87) $
— $
310
— $
— $
2,157
(a) Substantially all are participating and non-participating annuity contracts.
Estimated future benefit payments
The following table presents benefit payments expected to
be paid, which include the effect of expected future service,
for the years indicated. The OPEB medical and life insurance
payments are net of expected retiree contributions.
Year ended December 31,
(in millions)
Defined
benefit
pension
plans
OPEB
before
Medicare
Part D
subsidy
Medicare
Part D
subsidy
2019
2020
2021
2022
2023
$
$
939
932
921
920
919
$
62
60
57
55
52
Years 2024–2028
4,529
223
1
1
1
1
—
2
208
JPMorgan Chase & Co./2018 Form 10-K
Note 9 – Employee share-based incentives
Employee share-based awards
In 2018, 2017 and 2016, JPMorgan Chase granted long-
term share-based awards to certain employees under its
LTIP, as amended and restated effective May 19, 2015, and
further amended and restated effective May 15, 2018.
Under the terms of the LTIP, as of December 31, 2018, 86
million shares of common stock were available for issuance
through May 2022. The LTIP is the only active plan under
which the Firm is currently granting share-based incentive
awards. In the following discussion, the LTIP, plus prior Firm
plans and plans assumed as the result of acquisitions, are
referred to collectively as the “LTI Plans,” and such plans
constitute the Firm’s share-based incentive plans.
RSUs are awarded at no cost to the recipient upon their
grant. Generally, RSUs are granted annually and vest at a
rate of 50% after two years and 50% after three years and
are converted into shares of common stock as of the vesting
date. In addition, RSUs typically include full-career eligibility
provisions, which allow employees to continue to vest upon
voluntary termination based on age or service-related
requirements, subject to post-employment and other
restrictions. All RSU awards are subject to forfeiture until
vested and contain clawback provisions that may result in
cancellation under certain specified circumstances.
Generally, RSUs entitle the recipient to receive cash
payments equivalent to any dividends paid on the
underlying common stock during the period the RSUs are
outstanding and, as such, are considered participating
securities as discussed in Note 22.
In January 2018, 2017 and 2016, the Firm’s Board of
Directors approved the grant of performance share units
(“PSUs”) to members of the Firm’s Operating Committee
under the variable compensation program for performance
years 2017, 2016 and 2015, respectively. PSUs are subject
to the Firm’s achievement of specified performance criteria
over a three-year period. The number of awards that vest
can range from zero to 150% of the grant amount. The
awards vest and are converted into shares of common stock
in the quarter after the end of the performance period,
which is generally three years. In addition, dividends are
notionally reinvested in the Firm’s common stock and will
be delivered only in respect of any earned shares.
Once the PSUs have vested, the shares of common stock
that are delivered, after applicable tax withholding, must be
held for an additional two-year period, typically for a total
combined vesting and holding period of five years from the
grant date.
Under the LTI Plans, stock options and stock appreciation
rights (“SARs”) have generally been granted with an
exercise price equal to the fair value of JPMorgan Chase’s
common stock on the grant date. The Firm periodically
grants employee stock options to individual employees.
There were no material grants of stock options or SARs
in 2018, 2017 and 2016. SARs generally expire ten years
after the grant date.
The Firm separately recognizes compensation expense for
each tranche of each award, net of estimated forfeitures, as
if it were a separate award with its own vesting date.
Generally, for each tranche granted, compensation expense
is recognized on a straight-line basis from the grant date
until the vesting date of the respective tranche, provided
that the employees will not become full-career eligible
during the vesting period. For awards with full-career
eligibility provisions and awards granted with no future
substantive service requirement, the Firm accrues the
estimated value of awards expected to be awarded to
employees as of the grant date without giving consideration
to the impact of post-employment restrictions. For each
tranche granted to employees who will become full-career
eligible during the vesting period, compensation expense is
recognized on a straight-line basis from the grant date until
the earlier of the employee’s full-career eligibility date or
the vesting date of the respective tranche.
The Firm’s policy for issuing shares upon settlement of
employee share-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2018, 2017 and 2016, the Firm settled all of its employee
share-based awards by issuing treasury shares.
JPMorgan Chase & Co./2018 Form 10-K
209
Notes to consolidated financial statements
RSUs, PSUs, employee stock options and SARs activity
Generally, compensation expense for RSUs and PSUs is measured based on the number of units granted multiplied by the stock
price at the grant date, and for employee stock options and SARs, is measured at the grant date using the Black-Scholes
valuation model. Compensation expense for these awards is recognized in net income as described previously. The following
table summarizes JPMorgan Chase’s RSUs, PSUs, employee stock options and SARs activity for 2018.
Year ended December 31, 2018
(in thousands, except weighted-average data, and
where otherwise stated)
Outstanding, January 1
Granted
Exercised or vested
Forfeited
Canceled
Outstanding, December 31
Exercisable, December 31
RSUs/PSUs
Options/SARs
Number of
units
Weighted-
average grant
date fair value
Number of
awards
Weighted-
average
exercise
price
Weighted-average
remaining
contractual life
(in years)
Aggregate
intrinsic
value
72,733 $
20,489
(32,277)
(2,136)
NA
58,809 $
NA
66.36
110.46
58.97
84.60
NA
85.04
NA
17,493
$
40.76
46
(5,054)
(1)
(21)
12,463
$
12,449
113.63
39.65
112.25
45.75
41.46
41.37
2.4 $ 702,815
2.4
702,815
The total fair value of RSUs that vested during the years ended December 31, 2018, 2017 and 2016, was $3.6 billion, $2.9
billion and $2.2 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2018,
2017 and 2016, was $370 million, $651 million and $338 million, respectively.
Compensation expense
The Firm recognized the following noncash compensation
expense related to its various employee share-based
incentive plans in its Consolidated statements of income.
Year ended December 31, (in millions)
2018
2017
2016
Cost of prior grants of RSUs, PSUs and
SARs that are amortized over their
applicable vesting periods
Accrual of estimated costs of share-
based awards to be granted in future
periods including those to full-career
eligible employees
Total noncash compensation expense
related to employee share-based
incentive plans
$ 1,241
$ 1,125
$ 1,046
1,081
945
894
$ 2,322
$ 2,070
$ 1,940
At December 31, 2018, approximately $704 million
(pretax) of compensation expense related to unvested
awards had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over a
weighted-average period of 1.6 years. The Firm does not
capitalize any compensation expense related to share-based
compensation awards to employees.
Cash flows and tax benefits
Effective January 1, 2016, the Firm adopted new
accounting guidance related to employee share-based
payments. As a result of the adoption of this new guidance,
all excess tax benefits (including tax benefits from dividends
or dividend equivalents) on share-based payment awards
are recognized within income tax expense in the
Consolidated statements of income. Income tax benefits
related to share-based incentive arrangements recognized
in the Firm’s Consolidated statements of income for the
years ended December 31, 2018, 2017 and 2016, were
$1.1 billion, $1.0 billion and $916 million, respectively.
The following table sets forth the cash received from the
exercise of stock options under all share-based incentive
arrangements, and the actual income tax benefit related to
tax deductions from the exercise of the stock options.
Year ended December 31, (in millions)
2018
2017
2016
Cash received for options exercised
$
Tax benefit
14
75
$
18
$
190
26
70
210
JPMorgan Chase & Co./2018 Form 10-K
Note 10 – Investment securities
Investment securities consist of debt securities that are
classified as AFS or HTM. Debt securities classified as
trading assets are discussed in Note 2. Predominantly all of
the Firm’s AFS and HTM securities are held by Treasury and
CIO in connection with its asset-liability management
activities. At December 31, 2018, the investment securities
portfolio consisted of debt securities with an average credit
rating of AA+ (based upon external ratings where available,
and where not available, based primarily upon internal
ratings which correspond to ratings as defined by S&P and
Moody’s). AFS securities are carried at fair value on the
Consolidated balance sheets. Unrealized gains and losses,
after any applicable hedge accounting adjustments, are
reported as net increases or decreases to AOCI. The specific
identification method is used to determine realized gains
and losses on AFS securities, which are included in securities
gains/(losses) on the Consolidated statements of income.
HTM debt securities, which the Firm has the intent and
ability to hold until maturity, are carried at amortized cost
on the Consolidated balance sheets.
For both AFS and HTM debt securities, purchase discounts or
premiums are generally amortized into interest income on a
level-yield basis over the contractual life of the security.
However, as a result of the adoption of the premium
amortization accounting guidance in the first quarter of
2018, premiums on purchased callable debt securities must
be amortized to the earliest call date for debt securities with
call features that are explicit, noncontingent and callable at
fixed prices and on preset dates. The guidance primarily
impacts obligations of U.S. states and municipalities held in
the Firm’s investment securities portfolio. For additional
information, refer to Note 23.
As permitted by the new hedge accounting guidance, the
Firm also elected to transfer U.S. government agency MBS,
commercial MBS, and obligations of U.S. states and
municipalities with a carrying value of $22.4 billion from
HTM to AFS in the first quarter of 2018. The transfer of
these investment securities resulted in the recognition of a
net pretax unrealized gain of $221 million within AOCI. This
transfer was a noncash transaction. For additional
information, refer to Notes 1, 5 and 23.
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
2018
2017
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
December 31, (in millions)
Available-for-sale securities
Mortgage-backed securities:
U.S. government agencies(a)
$ 69,026 $
594 $
974
$ 68,646
$ 69,879 $
736 $
335
$ 70,280
Residential:
U.S
Non-U.S.
Commercial
Total mortgage-backed securities
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
5,877
2,529
6,758
84,190
55,771
36,221
75
23,771
1,904
19,612
7,225
79
72
43
788
366
1,582
—
351
23
31
6
147
1,158
78
80
—
20
9
1
57
176
22
5,925
2,595
6,654
83,820
56,059
37,723
75
24,102
1,918
19,437
7,260
8,193
2,882
4,932
85,886
22,510
30,490
59
26,900
2,657
20,928
8,764
185
122
98
1,141
266
1,881
—
426
101
69
77
Total available-for-sale debt securities
228,769
3,168
1,543
230,394
198,194
3,961
Available-for-sale equity securities(b)
—
—
—
—
547
—
Total available-for-sale securities
228,769
3,168
1,543
230,394
198,741
3,961
Held-to-maturity securities
Mortgage-backed securities
U.S. government agencies(c)
Commercial
Total mortgage-backed securities
Obligations of U.S. states and municipalities
Total held-to-maturity securities
26,610
—
26,610
4,824
31,434
134
—
134
105
239
200
—
200
15
215
26,544
—
26,544
4,914
31,458
27,577
5,783
33,360
14,373
47,733
558
1
559
554
1,113
Total investment securities
$ 260,203 $
3,407 $ 1,758
$ 261,852
$ 246,474 $
5,074 $
JPMorgan Chase & Co./2018 Form 10-K
14
1
5
355
31
33
—
32
1
1
24
477
—
477
40
74
114
80
194
671
8,364
3,003
5,025
86,672
22,745
32,338
59
27,294
2,757
20,996
8,817
201,678
547
202,225
28,095
5,710
33,805
14,847
48,652
$ 250,877
211
Notes to consolidated financial statements
(a) Includes total U.S. government-sponsored enterprise obligations with fair values of $50.7 billion and $45.8 billion for the years ended December 31, 2018 and
2017 respectively.
(b) Effective January 1, 2018, the Firm adopted the recognition and measurement guidance. Equity securities that were previously reported as AFS securities were
reclassified to other assets upon adoption.
(c) Included total U.S. government-sponsored enterprise obligations with amortized cost of $20.9 billion and $22.0 billion at December 31, 2018 and 2017,
respectively.
Investment securities impairment
The following tables present the fair value and gross unrealized losses for investment securities by aging category at
December 31, 2018 and 2017.
December 31, 2018 (in millions)
Fair value
Gross unrealized
losses
Fair value
Gross unrealized
losses
Total fair
value
Total gross
unrealized losses
Investment securities with gross unrealized losses
Less than 12 months
12 months or more
Available-for-sale securities
Mortgage-backed securities:
U.S. government agencies
$
17,656 $
318
$
22,728 $
656 $
40,384 $
974
Residential:
U.S
Non-U.S.
Commercial
Total mortgage-backed securities
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
Total available-for-sale securities
Held-to-maturity securities
Mortgage-backed securities
U.S. government agencies
Commercial
Total mortgage-backed securities
Obligations of U.S. states and municipalities
Total held-to-maturity securities
Total investment securities with gross
unrealized losses
623
907
974
20,160
4,792
1,808
75
3,123
478
18,681
1,208
50,325
4,385
—
4,385
12
4,397
4
5
6
333
7
15
—
5
8
176
6
550
23
—
23
—
23
1,445
165
3,172
27,510
2,391
2,477
—
1,937
37
—
2,354
36,706
7,082
—
7,082
1,114
8,196
27
1
141
825
71
65
—
15
1
—
16
993
177
—
177
15
192
2,068
1,072
4,146
47,670
7,183
4,285
75
5,060
515
18,681
3,562
87,031
11,467
—
11,467
1,126
12,593
31
6
147
1,158
78
80
—
20
9
176
22
1,543
200
—
200
15
215
$
54,722 $
573
$
44,902 $
1,185 $
99,624 $
1,758
212
JPMorgan Chase & Co./2018 Form 10-K
December 31, 2017 (in millions)
Fair value
Gross unrealized
losses
Fair value
Gross unrealized
losses
Total fair
value
Total gross
unrealized losses
Investment securities with gross unrealized losses
Less than 12 months
12 months or more
Available-for-sale securities
Mortgage-backed securities:
U.S. government agencies
$
36,037 $
139
$
7,711 $
196 $
43,748 $
Residential:
U.S.
Non-U.S.
Commercial
Total mortgage-backed securities
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
Total available-for-sale securities
Held-to-maturity securities
Mortgage-backed securities
U.S. government agencies
Commercial
Total mortgage-backed securities
Obligations of U.S. states and municipalities
Total held-to-maturity securities
Total investment securities with gross
unrealized losses
1,112
—
528
37,677
1,834
949
—
6,500
—
—
3,521
50,481
4,070
3,706
7,776
584
8,360
5
—
4
148
11
7
—
15
—
—
20
201
38
41
79
9
88
596
266
335
8,908
373
1,652
—
811
52
276
720
9
1
1
1,708
266
863
207
46,585
20
26
—
17
1
1
4
2,207
2,601
—
7,311
52
276
4,241
12,792
276
63,273
205
1,882
2,087
2,131
4,218
2
33
35
71
4,275
5,588
9,863
2,715
106
12,578
$
58,841 $
289
$
17,010 $
382 $
75,851 $
335
14
1
5
355
31
33
—
32
1
1
24
477
40
74
114
80
194
671
Other-than-temporary impairment
AFS and HTM debt securities in unrealized loss positions are
analyzed as part of the Firm’s ongoing assessment of OTTI.
The Firm considers a decline in fair value to be other-than-
temporary when the Firm does not expect to recover the
entire amortized cost basis of the security.
For AFS debt securities, the Firm recognizes OTTI losses in
earnings if the Firm has the intent to sell the debt security,
or if it is more likely than not that the Firm will be required
to sell the debt security before recovery of its amortized
cost basis. In these circumstances the impairment loss is
equal to the full difference between the amortized cost
basis and the fair value of the securities.
For debt securities in an unrealized loss position that the
Firm has the intent and ability to hold, the securities are
evaluated to determine if a credit loss exists. In the event of
a credit loss, only the amount of impairment associated
with the credit loss is recognized in income. Amounts
relating to factors other than credit losses are recorded in
OCI.
Factors considered in evaluating potential OTTI include
adverse conditions specifically related to the industry,
geographic area or financial condition of the issuer or
underlying collateral of a security; payment structure of the
security; changes to the rating of the security by a rating
agency; the volatility of the fair value changes; and the
Firm’s intent and ability to hold the security until recovery.
The Firm’s cash flow evaluations take into account the
factors noted above and expectations of relevant market
and economic data as of the end of the reporting period.
When assessing securities issued in a securitization for OTTI,
the Firm estimates cash flows considering underlying loan-
level data and structural features of the securitization, such
as subordination, excess spread, overcollateralization or
other forms of credit enhancement, and compares the
losses projected for the underlying collateral (“pool losses”)
against the level of credit enhancement in the securitization
structure to determine whether these features are sufficient
to absorb the pool losses, or whether a credit loss exists.
The Firm also performs other analyses to support its cash
flow projections, such as first-loss analyses or stress
scenarios.
For beneficial interests in securitizations that are rated
below “AA” at their acquisition, or that can be contractually
prepaid or otherwise settled in such a way that the Firm
would not recover substantially all of its recorded
investment, the Firm considers an impairment to be other-
than-temporary when there is an adverse change in
expected cash flows.
JPMorgan Chase & Co./2018 Form 10-K
213
Notes to consolidated financial statements
As a result of the adoption of the recognition and
measurement guidance in the first quarter of 2018, equity
securities are no longer permitted to be classified as AFS.
For additional information, refer to Note 1. Additionally, the
Firm did not recognize any OTTI for AFS equity securities for
the years ended December 31, 2017 and 2016.
For the year ended December 31, 2018, the Firm
recognized $22 million of unrealized losses as OTTI on
securities it intended to sell and subsequently sold during
the year. The Firm does not intend to sell any of the
remaining investment securities with an unrealized loss in
AOCI as of December 31, 2018, and it is not likely that the
Firm will be required to sell these securities before recovery
of their amortized cost basis. Further, the Firm did not
recognize any credit-related OTTI losses during the year
ended December 31, 2018. Accordingly, the Firm believes
that the investment securities with an unrealized loss in
AOCI as of December 31, 2018, are not other-than-
temporarily impaired.
Investment securities gains and losses
The following table presents realized gains and losses and
OTTI from AFS securities that were recognized in income.
Year ended December 31,
(in millions)
Realized gains
Realized losses
OTTI losses
Net investment securities gains/
(losses)
OTTI losses
2018
2017
2016
$
211
$ 1,013
$
401
(606)
(1,072)
—
(7)
(232)
(28)
(395)
(66)
141
Credit-related losses recognized in
income
Investment securities the Firm
intends to sell(a)
Total OTTI losses recognized in
income
$
—
—
—
—
(7)
(1)
(27)
$
(7)
$
(28)
(a) Excludes realized losses on securities sold of $22 million, $6 million
and $24 million for the years ended December 31, 2018, 2017 and
2016, respectively, that had been previously reported as an OTTI loss
due to the intention to sell the securities.
Changes in the credit loss component of credit-impaired
debt securities
The cumulative credit loss component, including any
changes therein, of OTTI losses that have been recognized in
income related to AFS securities was not material as of and
during the years ended December 31, 2018, 2017 and
2016.
214
JPMorgan Chase & Co./2018 Form 10-K
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2018, of JPMorgan Chase’s
investment securities portfolio by contractual maturity.
By remaining maturity
December 31, 2018 (in millions)
Available-for-sale securities
Mortgage-backed securities(a)
Amortized cost
Fair value
Average yield(b)
U.S. Treasury and government agencies
Amortized cost
Fair value
Average yield(b)
Obligations of U.S. states and municipalities
Amortized cost
Fair value
Average yield(b)
Certificates of deposit
Amortized cost
Fair value
Average yield(b)
Non-U.S. government debt securities
Amortized cost
Fair value
Average yield(b)
Corporate debt securities
Amortized cost
Fair value
Average yield(b)
Asset-backed securities
Amortized cost
Fair value
Average yield(b)
Total available-for-sale securities
Amortized cost
Fair value
Average yield(b)
Held-to-maturity securities
Mortgage-backed securities(a)
Amortized Cost
Fair value
Average yield(b)
Obligations of U.S. states and municipalities
Amortized cost
Fair value
Average yield(b)
Total held-to-maturity securities
Amortized cost
Fair value
Average yield(b)
Due in one
year or less
Due after one year
through five years
Due after five years
through 10 years
Due after
10 years(c)
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
519
520
2.02%
22,439
22,444
2.42%
177
176
1.94%
75
75
0.49%
5,604
5,606
3.25%
22
22
4.05%
—
—
—%
28,836
28,843
2.57%
—
—
—%
—
—
—%
—
—
—%
$
$
$
$
$
$
$
$
$
$
$
77
77
3.50%
17,945
18,090
2.90%
617
629
4.30%
—
—
—%
13,117
13,314
1.95%
950
964
4.64%
3,222
3,208
2.85%
35,928
36,282
2.62%
—
—
—%
—
—
—%
—
—
—%
$
$
$
$
$
$
$
$
$
$
$
7,574
7,616
3.48%
9,618
9,588
2.60%
2,698
2,790
5.26%
—
—
—%
5,050
5,182
1.33%
792
792
4.56%
4,615
4,592
3.12%
30,347
30,560
2.98%
3,125
3,141
3.53%
20
20
3.93%
3,145
3,161
3.53%
$
$
$
$
$
$
$
$
$
$
$
76,020
75,607
3.52%
5,769
5,937
3.05%
32,729
34,128
5.02%
—
—
—%
—
—
—%
140
140
4.74%
19,000
18,897
3.19%
133,658
134,709
3.82%
23,485
23,403
3.34%
4,804
4,894
4.12%
28,289
28,297
3.47%
84,190
83,820
3.51%
55,771
56,059
2.67%
36,221
37,723
5.01%
75
75
0.49%
23,771
24,102
2.13%
1,904
1,918
4.60%
26,837
26,697
3.14%
228,769
230,394
3.36%
26,610
26,544
3.36%
4,824
4,914
4.12%
31,434
31,458
3.48%
(a) As of December 31, 2018, mortgage-backed securities issued by Fannie Mae exceeded 10% of JPMorgan Chase’s total stockholders’ equity; both the amortized cost
and fair value of such securities was $52.3 billion.
(b) Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yield
considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used
where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly, actual maturities of securities may differ from their contractual or expected
maturities as certain securities may be prepaid.
(c) Substantially all of the Firm’s U.S. residential MBS and collateralized mortgage obligations are due in 10 years or more, based on contractual maturity. The estimated weighted-
average life, which reflects anticipated future prepayments, is approximately 7 years for agency residential MBS, 3 years for agency residential collateralized mortgage
obligations and 2 years for nonagency residential collateralized mortgage obligations.
JPMorgan Chase & Co./2018 Form 10-K
215
Notes to consolidated financial statements
Note 11 – Securities financing activities
JPMorgan Chase enters into resale, repurchase, securities
borrowed and securities loaned agreements (collectively,
“securities financing agreements”) primarily to finance the
Firm’s inventory positions, acquire securities to cover short
sales, accommodate customers’ financing needs, settle
other securities obligations and to deploy the Firm’s excess
cash.
Securities financing agreements are treated as
collateralized financings on the Firm’s Consolidated balance
sheets. Resale and repurchase agreements are generally
carried at the amounts at which the securities will be
subsequently sold or repurchased. Securities borrowed and
securities loaned agreements are generally carried at the
amount of cash collateral advanced or received. Where
appropriate under applicable accounting guidance,
securities financing agreements with the same counterparty
are reported on a net basis. For further discussion of the
offsetting of assets and liabilities, refer to Note 1. Fees
received and paid in connection with securities financing
agreements are recorded over the life of the agreement in
interest income and interest expense on the Consolidated
statements of income.
The Firm has elected the fair value option for certain
securities financing agreements. For further information
regarding the fair value option, refer to Note 3. The
securities financing agreements for which the fair value
option has been elected are reported within securities
purchased under resale agreements, securities loaned or
sold under repurchase agreements, and securities borrowed
on the Consolidated balance sheets. Generally, for
agreements carried at fair value, current-period interest
accruals are recorded within interest income and interest
expense, with changes in fair value reported in principal
transactions revenue. However, for financial instruments
containing embedded derivatives that would be separately
accounted for in accordance with accounting guidance for
hybrid instruments, all changes in fair value, including any
interest elements, are reported in principal transactions
revenue.
Securities financing agreements expose the Firm primarily
to credit and liquidity risk. To manage these risks, the Firm
monitors the value of the underlying securities
(predominantly high-quality securities collateral, including
government-issued debt and agency MBS) that it has
received from or provided to its counterparties compared to
the value of cash proceeds and exchanged collateral, and
either requests additional collateral or returns securities or
collateral when appropriate. Margin levels are initially
established based upon the counterparty, the type of
underlying securities, and the permissible collateral, and
are monitored on an ongoing basis.
In resale and securities borrowed agreements, the Firm is
exposed to credit risk to the extent that the value of the
securities received is less than initial cash principal
advanced and any collateral amounts exchanged. In
repurchase and securities loaned agreements, credit risk
exposure arises to the extent that the value of underlying
securities advanced exceeds the value of the initial cash
principal received, and any collateral amounts exchanged.
Additionally, the Firm typically enters into master netting
agreements and other similar arrangements with its
counterparties, which provide for the right to liquidate the
underlying securities and any collateral amounts exchanged
in the event of a counterparty default. It is also the Firm’s
policy to take possession, where possible, of the securities
underlying resale and securities borrowed agreements. For
further information regarding assets pledged and collateral
received in securities financing agreements, refer to Note
28.
As a result of the Firm’s credit risk mitigation practices with
respect to resale and securities borrowed agreements as
described above, the Firm did not hold any reserves for
credit impairment with respect to these agreements as of
December 31, 2018 and 2017.
216
JPMorgan Chase & Co./2018 Form 10-K
The table below summarizes the gross and net amounts of the Firm’s securities financing agreements, as of December 31,
2018 and 2017. When the Firm has obtained an appropriate legal opinion with respect to the master netting agreement with a
counterparty and where other relevant netting criteria under U.S. GAAP are met, the Firm nets, on the Consolidated balance
sheets, the balances outstanding under its securities financing agreements with the same counterparty. In addition, the Firm
exchanges securities and/or cash collateral with its counterparties; this collateral also reduces the economic exposure with the
counterparty. Such collateral, along with securities financing balances that do not meet all these relevant netting criteria under
U.S. GAAP, is presented as “Amounts not nettable on the Consolidated balance sheets,” and reduces the “Net amounts”
presented below, if the Firm has an appropriate legal opinion with respect to the master netting agreement with the
counterparty. Where a legal opinion has not been either sought or obtained, the securities financing balances are presented
gross in the “Net amounts” below, and related collateral does not reduce the amounts presented.
December 31, (in millions)
Gross amounts
2018
Amounts netted
on the
Consolidated
balance sheets
Amounts
presented on the
Consolidated
balance sheets(b)
Amounts not
nettable on the
Consolidated
balance sheets(c)
Net amounts(d)
Assets
Securities purchased under resale agreements
Securities borrowed
Liabilities
Securities sold under repurchase agreements
Securities loaned and other(a)
$
$
691,116 $
(369,612) $
321,504 $
(308,854) $
132,955
(20,960)
111,995
(79,747)
12,650
32,248
541,587 $
(369,612) $
171,975 $
(149,125) $
22,850
33,700
(20,960)
12,740
(12,358)
382
December 31, (in millions)
Gross amounts
2017
Amounts netted
on the
Consolidated
balance sheets
Amounts
presented on the
Consolidated
balance sheets(b)
Amounts not
nettable on the
Consolidated
balance sheets(c)
Net amounts(d)
Assets
Securities purchased under resale agreements
Securities borrowed
Liabilities
Securities sold under repurchase agreements
Securities loaned and other(a)
$
$
448,608 $
(250,505) $
198,103 $
(188,502) $
113,926
(8,814)
105,112
(76,805)
9,601
28,307
398,218 $
(250,505) $
147,713 $
(129,178) $
18,535
27,228
(8,814)
18,414
(18,151)
263
(a) Includes securities-for-securities lending agreements of $3.3 billion and $9.2 billion at December 31, 2018 and 2017, respectively, accounted for at fair
value, where the Firm is acting as lender. These amounts are presented within accounts payable and other liabilities in the Consolidated balance sheets.
(b) Includes securities financing agreements accounted for at fair value. At December 31, 2018 and 2017, included securities purchased under resale
agreements of $13.2 billion and $14.7 billion, respectively; securities sold under repurchase agreements of $935 million and $697 million, respectively;
and securities borrowed of $5.1 billion and $3.0 billion, respectively. There were no securities loaned accounted for at fair value in either period.
(c) In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts
reported in this column are limited to the related net asset or liability with that counterparty.
(d) Includes securities financing agreements that provide collateral rights, but where an appropriate legal opinion with respect to the master netting
agreement has not been either sought or obtained. At December 31, 2018 and 2017, included $7.9 billion and $7.5 billion, respectively, of securities
purchased under resale agreements; $30.3 billion and $25.5 billion, respectively, of securities borrowed; $21.5 billion and $16.5 billion, respectively, of
securities sold under repurchase agreements; and $25 million and $29 million, respectively, of securities loaned and other.
JPMorgan Chase & Co./2018 Form 10-K
217
Notes to consolidated financial statements
The tables below present as of December 31, 2018 and 2017 the types of financial assets pledged in securities financing
agreements and the remaining contractual maturity of the securities financing agreements.
December 31, (in millions)
Mortgage-backed securities:
U.S. government agencies
Residential - nonagency
Commercial - nonagency
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
Non-U.S. government debt
Corporate debt securities
Asset-backed securities
Equity securities
Total
Gross liability balance
2018
2017
Securities sold
under repurchase
agreements
Securities loaned
and other
Securities sold
under repurchase
agreements
Securities loaned
and other
$
28,811 $
2,165
1,390
323,078
1,150
154,900
13,898
3,867
12,328
—
—
—
69
—
4,313
428
—
28,890
$
13,100 $
2,972
1,594
177,581
1,557
170,196
14,231
3,508
13,479
$
541,587 $
33,700
$
398,218 $
—
—
—
14
—
2,485
287
—
24,442
27,228
Remaining contractual maturity of the agreements
2018 (in millions)
Overnight and
continuous
Up to 30 days
30 – 90 days
Greater than
90 days
Total
Total securities sold under repurchase agreements
$
247,579
$
174,971
$
71,637 $
47,400 $
541,587
Total securities loaned and other
28,402
997
2,132
2,169
33,700
Remaining contractual maturity of the agreements
2017 (in millions)
Overnight and
continuous
Up to 30 days
30 – 90 days
Greater than
90 days
Total
Total securities sold under repurchase agreements
$
142,185 (a) $
180,674 (a) $
41,611 $
33,748 $
398,218
Total securities loaned and other
22,876
375
2,328
1,649
27,228
(a) The prior period amounts have been revised to conform with the current period presentation.
Transfers not qualifying for sale accounting
At December 31, 2018 and 2017, the Firm held $701 million and $1.5 billion, respectively, of financial assets for which the
rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP.
These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading
assets and loans, and the corresponding liabilities are recorded predominantly in short-term borrowings on the Consolidated
balance sheets.
218
JPMorgan Chase & Co./2018 Form 10-K
Note 12 – Loans
Loan accounting framework
The accounting for a loan depends on management’s
strategy for the loan, and on whether the loan was credit-
impaired at the date of acquisition. The Firm accounts for
loans based on the following categories:
• Originated or purchased loans held-for-investment (i.e.,
“retained”), other than PCI loans
• Loans held-for-sale
• Loans at fair value
• PCI loans held-for-investment
The following provides a detailed accounting discussion of
these loan categories:
Loans held-for-investment (other than PCI loans)
Originated or purchased loans held-for-investment, other
than PCI loans, are recorded at the principal amount
outstanding, net of the following: charge-offs; interest
applied to principal (for loans accounted for on the cost
recovery method); unamortized discounts and premiums;
and net deferred loan fees or costs. Credit card loans also
include billed finance charges and fees net of an allowance
for uncollectible amounts.
Interest income
Interest income on performing loans held-for-investment,
other than PCI loans, is accrued and recognized as interest
income at the contractual rate of interest. Purchase price
discounts or premiums, as well as net deferred loan fees or
costs, are amortized into interest income over the
contractual life of the loan as an adjustment of yield.
Nonaccrual loans
Nonaccrual loans are those on which the accrual of interest
has been suspended. Loans (other than credit card loans
and certain consumer loans insured by U.S. government
agencies) are placed on nonaccrual status and considered
nonperforming when full payment of principal and interest
is not expected, regardless of delinquency status, or when
principal and interest has been in default for a period of 90
days or more, unless the loan is both well-secured and in
the process of collection. A loan is determined to be past
due when the minimum payment is not received from the
borrower by the contractually specified due date or for
certain loans (e.g., residential real estate loans), when a
monthly payment is due and unpaid for 30 days or more.
Finally, collateral-dependent loans are typically maintained
on nonaccrual status.
On the date a loan is placed on nonaccrual status, all
interest accrued but not collected is reversed against
interest income. In addition, the amortization of deferred
amounts is suspended. Interest income on nonaccrual loans
may be recognized as cash interest payments are received
(i.e., on a cash basis) if the recorded loan balance is
deemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loan
balance, all interest cash receipts are applied to reduce the
carrying value of the loan (the cost recovery method). For
consumer loans, application of this policy typically results in
the Firm recognizing interest income on nonaccrual
consumer loans on a cash basis.
A loan may be returned to accrual status when repayment is
reasonably assured and there has been demonstrated
performance under the terms of the loan or, if applicable,
the terms of the restructured loan.
As permitted by regulatory guidance, credit card loans are
generally exempt from being placed on nonaccrual status;
accordingly, interest and fees related to credit card loans
continue to accrue until the loan is charged off or paid in
full. The Firm separately establishes an allowance, which
reduces loans and is charged to interest income, for the
estimated uncollectible portion of accrued and billed
interest and fee income on credit card loans.
Allowance for loan losses
The allowance for loan losses represents the estimated
probable credit losses inherent in the held-for-investment
loan portfolio at the balance sheet date and is recognized
on the balance sheet as a contra asset, which brings the
recorded investment to the net carrying value. Changes in
the allowance for loan losses are recorded in the provision
for credit losses on the Firm’s Consolidated statements of
income. Refer to Note 13 for further information on the
Firm’s accounting policies for the allowance for loan losses.
Charge-offs
Consumer loans, other than risk-rated business banking and
auto loans, and PCI loans, are generally charged off or
charged down to the net realizable value of the underlying
collateral (i.e., fair value less costs to sell), with an offset to
the allowance for loan losses, upon reaching specified
stages of delinquency in accordance with standards
established by the FFIEC. Residential real estate loans and
non-modified credit card loans are generally charged off no
later than 180 days past due. Scored auto and modified
credit card loans are charged off no later than 120 days
past due.
Certain consumer loans will be charged off or charged down
to their net realizable value earlier than the FFIEC charge-
off standards in certain circumstances as follows:
• Loans modified in a TDR that are determined to be
collateral-dependent.
• Loans to borrowers who have experienced an event that
suggests a loss is either known or highly certain are
subject to accelerated charge-off standards (e.g.,
residential real estate and auto loans are charged off
within 60 days of receiving notification of a bankruptcy
filing).
• Auto loans upon repossession of the automobile.
Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on government-
guaranteed loans.
JPMorgan Chase & Co./2018 Form 10-K
219
Notes to consolidated financial statements
Wholesale loans, risk-rated business banking loans and risk-
rated auto loans are charged off when it is highly certain
that a loss has been realized, including situations where a
loan is determined to be both impaired and collateral-
dependent. The determination of whether to recognize a
charge-off includes many factors, including the
prioritization of the Firm’s claim in bankruptcy, expectations
of the workout/restructuring of the loan and valuation of
the borrower’s equity or the loan collateral.
When a loan is charged down to the estimated net realizable
value, the determination of the fair value of the collateral
depends on the type of collateral (e.g., securities, real
estate). In cases where the collateral is in the form of liquid
securities, the fair value is based on quoted market prices
or broker quotes. For illiquid securities or other financial
assets, the fair value of the collateral is estimated using a
discounted cash flow model.
For residential real estate loans, collateral values are based
upon external valuation sources. When it becomes likely
that a borrower is either unable or unwilling to pay, the
Firm utilizes a broker’s price opinion, appraisal and/or an
automated valuation model of the home based on an
exterior-only valuation (“exterior opinions”), which is then
updated at least every twelve months, or more frequently
depending on various market factors. As soon as practicable
after the Firm receives the property in satisfaction of a debt
(e.g., by taking legal title or physical possession), the Firm
generally obtains an appraisal based on an inspection that
includes the interior of the home (“interior appraisals”).
Exterior opinions and interior appraisals are discounted
based upon the Firm’s experience with actual liquidation
values as compared with the estimated values provided by
exterior opinions and interior appraisals, considering state-
specific factors.
For commercial real estate loans, collateral values are
generally based on appraisals from internal and external
valuation sources. Collateral values are typically updated
every six to twelve months, either by obtaining a new
appraisal or by performing an internal analysis, in
accordance with the Firm’s policies. The Firm also considers
both borrower- and market-specific factors, which may
result in obtaining appraisal updates or broker price
opinions at more frequent intervals.
Loans held-for-sale
Held-for-sale loans are measured at the lower of cost or fair
value, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed on
a portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.
Interest income on loans held-for-sale is accrued and
recognized based on the contractual rate of interest.
Loan origination fees or costs and purchase price discounts
or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees or costs and
discounts or premiums are an adjustment to the basis of the
loan and therefore are included in the periodic
determination of the lower of cost or fair value adjustments
and/or the gain or loss recognized at the time of sale.
Held-for-sale loans are subject to the nonaccrual policies
described above.
Because held-for-sale loans are recognized at the lower of
cost or fair value, the Firm’s allowance for loan losses and
charge-off policies do not apply to these loans.
Loans at fair value
Loans used in a market-making strategy or risk managed on
a fair value basis are measured at fair value, with changes
in fair value recorded in noninterest revenue.
Interest income on these loans is accrued and recognized
based on the contractual rate of interest. Changes in fair
value are recognized in noninterest revenue. Loan
origination fees are recognized upfront in noninterest
revenue. Loan origination costs are recognized in the
associated expense category as incurred.
Because these loans are recognized at fair value, the Firm’s
allowance for loan losses and charge-off policies do not
apply to these loans. However, loans at fair value are
subject to the nonaccrual policies described above.
Refer to Note 3 for further information on the Firm’s
elections of fair value accounting under the fair value
option. Refer to Note 2 and Note 3 for further information
on loans carried at fair value and classified as trading
assets.
PCI loans
PCI loans held-for-investment are initially measured at fair
value. PCI loans have evidence of credit deterioration since
the loan’s origination date and therefore it is probable, at
acquisition, that all contractually required payments will not
be collected. Because PCI loans are initially measured at fair
value, which includes an estimate of future credit losses, no
allowance for loan losses related to PCI loans is recorded at
the acquisition date. Refer to page 231 of this Note for
information on accounting for PCI loans subsequent to their
acquisition.
220
JPMorgan Chase & Co./2018 Form 10-K
Loan classification changes
Loans in the held-for-investment portfolio that management
decides to sell are transferred to the held-for-sale portfolio
at the lower of cost or fair value on the date of transfer.
Credit-related losses are charged against the allowance for
loan losses; non-credit related losses such as those due to
changes in interest rates or foreign currency exchange rates
are recognized in noninterest revenue.
In the event that management decides to retain a loan in
the held-for-sale portfolio, the loan is transferred to the
held-for-investment portfolio at the lower of cost or fair
value on the date of transfer. These loans are subsequently
assessed for impairment based on the Firm’s allowance
methodology. For a further discussion of the methodologies
used in establishing the Firm’s allowance for loan losses,
refer to Note 13.
Loan modifications
The Firm seeks to modify certain loans in conjunction with
its loss-mitigation activities. Through the modification,
JPMorgan Chase grants one or more concessions to a
borrower who is experiencing financial difficulty in order to
minimize the Firm’s economic loss and avoid foreclosure or
repossession of the collateral, and to ultimately maximize
payments received by the Firm from the borrower. The
concessions granted vary by program and by borrower-
specific characteristics, and may include interest rate
reductions, term extensions, payment deferrals, principal
forgiveness, or the acceptance of equity or other assets in
lieu of payments.
Such modifications are accounted for and reported as TDRs.
A loan that has been modified in a TDR is generally
considered to be impaired until it matures, is repaid, or is
otherwise liquidated, regardless of whether the borrower
performs under the modified terms. In certain limited
cases, the effective interest rate applicable to the modified
loan is at or above the current market rate at the time of
the restructuring. In such circumstances, and assuming that
the loan subsequently performs under its modified terms
and the Firm expects to collect all contractual principal and
interest cash flows, the loan is disclosed as impaired and as
a TDR only during the year of the modification; in
subsequent years, the loan is not disclosed as an impaired
loan or as a TDR so long as repayment of the restructured
loan under its modified terms is reasonably assured.
Loans, except for credit card loans, modified in a TDR are
generally placed on nonaccrual status, although in many
cases such loans were already on nonaccrual status prior to
modification. These loans may be returned to performing
status (the accrual of interest is resumed) if the following
criteria are met: (i) the borrower has performed under the
modified terms for a minimum of six months and/or six
payments, and (ii) the Firm has an expectation that
repayment of the modified loan is reasonably assured based
on, for example, the borrower’s debt capacity and level of
future earnings, collateral values, LTV ratios, and other
current market considerations. In certain limited and well-
defined circumstances in which the loan is current at the
modification date, such loans are not placed on nonaccrual
status at the time of modification.
Because loans modified in TDRs are considered to be
impaired, these loans are measured for impairment using
the Firm’s established asset-specific allowance
methodology, which considers the expected re-default rates
for the modified loans. A loan modified in a TDR generally
remains subject to the asset-specific allowance
methodology throughout its remaining life, regardless of
whether the loan is performing and has been returned to
accrual status and/or the loan has been removed from the
impaired loans disclosures (i.e., loans restructured at
market rates). For further discussion of the methodology
used to estimate the Firm’s asset-specific allowance, refer to
Note 13.
Foreclosed property
The Firm acquires property from borrowers through loan
restructurings, workouts, and foreclosures. Property
acquired may include real property (e.g., residential real
estate, land, and buildings) and commercial and personal
property (e.g., automobiles, aircraft, railcars, and ships).
The Firm recognizes foreclosed property upon receiving
assets in satisfaction of a loan (e.g., by taking legal title or
physical possession). For loans collateralized by real
property, the Firm generally recognizes the asset received
at foreclosure sale or upon the execution of a deed in lieu of
foreclosure transaction with the borrower. Foreclosed
assets are reported in other assets on the Consolidated
balance sheets and initially recognized at fair value less
costs to sell. Each quarter the fair value of the acquired
property is reviewed and adjusted, if necessary, to the lower
of cost or fair value. Subsequent adjustments to fair value
are charged/credited to noninterest revenue. Operating
expense, such as real estate taxes and maintenance, are
charged to other expense.
JPMorgan Chase & Co./2018 Form 10-K
221
Notes to consolidated financial statements
Loan portfolio
The Firm’s loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class.
Consumer, excluding
credit card(a)
Residential real estate – excluding PCI
• Residential mortgage(b)
• Home equity(c)
Other consumer loans(d)
• Auto
• Consumer & Business Banking(e)
Residential real estate – PCI
• Home equity
• Prime mortgage
• Subprime mortgage
• Option ARMs
Credit card
Wholesale(f)
• Credit card loans
• Commercial and industrial
• Real estate
• Financial institutions
• Governments & Agencies
• Other(g)
(a) Includes loans held in CCB, prime mortgage and home equity loans held in AWM and prime mortgage loans held in Corporate.
(b) Predominantly includes prime (including option ARMs) and subprime loans.
(c) Includes senior and junior lien home equity loans.
(d) Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses;
these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes.
(e) Predominantly includes Business Banking loans.
(f) Includes loans held in CIB, CB, AWM and Corporate. Excludes prime mortgage and home equity loans held in AWM and prime mortgage loans held in
Corporate. Classes are internally defined and may not align with regulatory definitions.
(g) Includes loans to: individuals and individual entities (predominantly consists of Wealth Management clients within AWM and includes exposure to personal
investment companies and personal and testamentary trusts), SPEs and Private education and civic organizations. For more information on SPEs, refer to
Note 14.
The following tables summarize the Firm’s loan balances by portfolio segment.
December 31, 2018
(in millions)
Retained
Held-for-sale
At fair value
Total
December 31, 2017
(in millions)
Retained
Held-for-sale
At fair value
Total
Consumer, excluding
credit card
$ 373,637
Credit card(a)
$
156,616
Wholesale
Total
$ 439,162
$
969,415 (b)
95
—
16
—
11,877
3,151
11,988
3,151
$ 373,732
$
156,632
$ 454,190
$
984,554
Consumer, excluding
credit card
$ 372,553
Credit card(a)
$
149,387
Wholesale
Total
$ 402,898
$
924,838 (b)
128
—
124
—
3,099
2,508
3,351
2,508
$ 372,681
$
149,511
$ 408,505
$
930,697
(a) Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.
(b) Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unamortized discounts and premiums and net
deferred loan fees or costs. These amounts were not material as of December 31, 2018 and 2017.
222
JPMorgan Chase & Co./2018 Form 10-K
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-
for-sale during the periods indicated. Reclassifications of loans to held-for sale are non-cash transactions. The Firm manages its
exposure to credit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures. Loans that were
reclassified to held-for-sale and sold in a subsequent period are excluded from the sales line of this table.
Year ended December 31,
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale
Consumer, excluding
credit card
$
2,543 (a)(b)
$
9,984
36
Credit card
Wholesale
—
—
—
$
2,354
16,741
2,276
Total
$
4,897
26,725
2,312
2018
Year ended December 31,
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale
Consumer, excluding
credit card
$
3,461 (a)(b)
$
3,405
6,340
(c)
Year ended December 31,
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale
Consumer, excluding
credit card
Credit card
$
4,116 (a)(b)
$
6,368
321
2017
Credit card
Wholesale
Total
2016
—
—
—
—
—
—
$
$
1,799
11,063
1,229
Wholesale
1,448
8,739
2,381
$
$
5,260
14,468
7,569
Total
5,564
15,107
2,702
(a) Purchases predominantly represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools as permitted by Government National
Mortgage Association (“Ginnie Mae”) guidelines. The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or
manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, FHA, RHS, and/or VA.
(b) Excludes purchases of retained loans sourced through the correspondent origination channel and underwritten in accordance with the Firm’s standards.
Such purchases were $18.6 billion, $23.5 billion and $30.4 billion for the years ended December 31, 2018, 2017 and 2016, respectively.
(c) Includes the Firm’s student loan portfolio which was sold in 2017.
Gains and losses on sales of loans
Gains and losses on sales of loans (including adjustments to record loans held-for-sale at the lower of cost or fair value)
recognized in other income were not material to the Firm for the years ended December 31, 2018, 2017 and 2016. In
addition, the sale of loans may also result in write downs, recoveries or changes in the allowance recognized in the provision
for credit losses.
JPMorgan Chase & Co./2018 Form 10-K
223
Notes to consolidated financial statements
Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of residential mortgages, home equity loans and
lines of credit, auto loans and consumer and business
banking loans, with a focus on serving the prime consumer
credit market. The portfolio also includes home equity loans
secured by junior liens, prime mortgage loans with an
interest-only payment period, and certain payment-option
loans that may result in negative amortization.
The following table provides information about retained
consumer loans, excluding credit card, by class. In 2017,
the Firm sold its student loan portfolio.
December 31, (in millions)
2018
2017
Residential real estate – excluding PCI
Residential mortgage
Home equity
Other consumer loans
Auto
Consumer & Business Banking
Residential real estate – PCI
Home equity
Prime mortgage
Subprime mortgage
Option ARMs
Total retained loans
$ 231,078 $ 216,496
28,340
33,450
63,573
26,612
66,242
25,789
8,963
4,690
1,945
8,436
10,799
6,479
2,609
10,689
$ 373,637 $ 372,553
Delinquency rates are a primary credit quality indicator for
consumer loans. Loans that are more than 30 days past due
provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may be
unable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear whether the borrower is
likely either unable or unwilling to pay. In the case of
residential real estate loans, late-stage delinquencies
(greater than 150 days past due) are a strong indicator of
loans that will ultimately result in a foreclosure or similar
liquidation transaction. In addition to delinquency rates,
other credit quality indicators for consumer loans vary
based on the class of loan, as follows:
• For residential real estate loans, including both non-PCI
and PCI portfolios, the current estimated LTV ratio, or
the combined LTV ratio in the case of junior lien loans, is
an indicator of the potential loss severity in the event of
default. Additionally, LTV or combined LTV ratios can
provide insight into a borrower’s continued willingness
to pay, as the delinquency rate of high-LTV loans tends
to be greater than that for loans where the borrower has
equity in the collateral. The geographic distribution of
the loan collateral also provides insight as to the credit
quality of the portfolio, as factors such as the regional
economy, home price changes and specific events such
as natural disasters, will affect credit quality. The
borrower’s current or “refreshed” FICO score is a
secondary credit-quality indicator for certain loans, as
FICO scores are an indication of the borrower’s credit
payment history. Thus, a loan to a borrower with a low
FICO score (less than 660 ) is considered to be of higher
risk than a loan to a borrower with a higher FICO score.
Further, a loan to a borrower with a high LTV ratio and a
low FICO score is at greater risk of default than a loan to
a borrower that has both a high LTV ratio and a high
FICO score.
• For scored auto and scored business banking loans,
geographic distribution is an indicator of the credit
performance of the portfolio. Similar to residential real
estate loans, geographic distribution provides insights
into the portfolio performance based on regional
economic activity and events.
• Risk-rated business banking and auto loans are similar
to wholesale loans in that the primary credit quality
indicators are the risk rating that is assigned to the loan
and whether the loans are considered to be criticized
and/or nonaccrual. Risk ratings are reviewed on a
regular and ongoing basis by Credit Risk Management
and are adjusted as necessary for updated information
about borrowers’ ability to fulfill their obligations. For
further information about risk-rated wholesale loan
credit quality indicators, refer to page 236 of this Note.
224
JPMorgan Chase & Co./2018 Form 10-K
Residential real estate — excluding PCI loans
The following table provides information by class for retained residential real estate — excluding PCI loans.
Residential real estate – excluding PCI loans
December 31,
(in millions, except ratios)
Loan delinquency(a)
Current
30–149 days past due
150 or more days past due
Total retained loans
% of 30+ days past due to total retained loans(b)
90 or more days past due and government guaranteed(c)
Nonaccrual loans
Current estimated LTV ratios(d)(e)
Greater than 125% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
101% to 125% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
80% to 100% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
Less than 80% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
No FICO/LTV available
U.S. government-guaranteed
Total retained loans
Geographic region(f)
California
New York
Illinois
Texas
Florida
Washington
New Jersey
Colorado
Massachusetts
Arizona
All other(g)
Residential mortgage
Home equity
Total residential real
estate – excluding PCI
2018
2017
2018
2017
2018
2017
$ 225,899
$ 208,713
$ 27,611
$ 32,391
$ 253,510
$ 241,104
2,763
2,416
4,234
3,549
453
276
671
388
3,216
2,692
4,905
3,937
$ 231,078
$ 216,496
$ 28,340
$ 33,450
$ 259,418
$ 249,946
0.48%
0.77%
2.57%
3.17%
0.71%
1.09%
$
2,541
$
4,172
1,765
2,175
—
1,323
—
1,610
$
2,541
$
4,172
3,088
3,785
$
$
25
13
37
53
37
19
36
88
3,977
281
4,369
483
212,505
194,758
6,457
813
6,917
6,952
1,259
8,495
$
$
6
1
111
38
986
326
22,632
3,355
885
—
10
3
296
95
1,676
569
$
$
31
14
148
91
4,963
607
47
22
332
183
6,045
1,052
25,262
235,137
220,020
3,850
1,689
—
9,812
1,698
6,917
10,802
2,948
8,495
$ 231,078
$ 216,496
$ 28,340
$ 33,450
$ 259,418
$ 249,946
$ 74,759
$ 68,855
$
5,695
$
6,582
$ 80,454
$ 75,437
28,847
15,249
13,769
10,704
8,304
7,302
8,140
6,574
4,434
27,473
14,501
12,508
9,598
6,962
7,142
7,335
6,323
4,109
52,996
51,690
5,769
2,131
1,819
1,575
869
1,642
521
236
1,158
6,925
6,866
2,521
2,021
1,847
1,026
1,957
632
295
1,439
8,264
34,616
17,380
15,588
12,279
9,173
8,944
8,661
6,810
5,592
34,339
17,022
14,529
11,445
7,988
9,099
7,967
6,618
5,548
59,921
59,954
Total retained loans
$ 231,078
$ 216,496
$ 28,340
$ 33,450
$ 259,418
$ 249,946
(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $2.8 billion and $2.4 billion; 30–149
days past due included $2.1 billion and $3.2 billion; and 150 or more days past due included $2.0 billion and $2.9 billion at December 31, 2018 and 2017,
respectively.
(b) At December 31, 2018 and 2017, residential mortgage loans excluded mortgage loans insured by U.S. government agencies of $4.1 billion and $6.1 billion,
respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.
(c) These balances, which are 90 days or more past due, were excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically the
principal balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At
December 31, 2018 and 2017, these balances included $999 million and $1.5 billion, respectively, of loans that are no longer accruing interest based on the
agreed-upon servicing guidelines. For the remaining balance, interest is being accrued at the guaranteed reimbursement rate. There were no loans that were not
guaranteed by U.S. government agencies that are 90 or more days past due and still accruing interest at December 31, 2018 and 2017.
(d) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum,
quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and
forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios
are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions,
as well as unused lines, related to the property.
(e) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(f) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2018.
(g) At December 31, 2018 and 2017, included mortgage loans insured by U.S. government agencies of $6.9 billion and $8.5 billion, respectively. These amounts have
been excluded from the geographic regions presented based upon the government guarantee.
JPMorgan Chase & Co./2018 Form 10-K
225
Notes to consolidated financial statements
Approximately 37% of the home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or
HELOCs. The following table provides the Firm’s delinquency statistics for junior lien home equity loans and lines as of
December 31, 2018 and 2017.
December 31, (in millions except ratios)
HELOCs:(a)
Within the revolving period(b)
Beyond the revolving period
HELOANs
Total
Total loans
Total 30+ day delinquency rate
2018
2017
2018
2017
$
$
5,608 $
11,286
1,030
17,924 $
6,363
13,532
1,371
21,266
0.25%
2.80
2.82
2.00%
0.50%
3.56
3.50
2.64%
(a) These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period,
but also include HELOCs that allow interest-only payments beyond the revolving period.
(b) The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers
are experiencing financial difficulty.
HELOCs beyond the revolving period and HELOANs have higher delinquency rates than HELOCs within the revolving period.
That is primarily because the fully-amortizing payment that is generally required for those products is higher than the
minimum payment options available for HELOCs within the revolving period. The higher delinquency rates associated with
amortizing HELOCs and HELOANs are factored into the Firm’s allowance for loan losses.
Impaired loans
The table below provides information about the Firm’s residential real estate impaired loans, excluding PCI loans. These loans
are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specific
allowance as described in Note 13.
December 31,
(in millions)
Impaired loans
With an allowance
Without an allowance(a)
Total impaired loans(b)(c)
Allowance for loan losses related to impaired loans
Unpaid principal balance of impaired loans(d)
Impaired loans on nonaccrual status(e)
Residential mortgage
Home equity
Total residential real estate
– excluding PCI
2018
2017
2018
2017
2018
2017
$
$
$
3,381 $
1,184
4,565 $
88 $
6,207
1,459
$
$
$
4,407
1,213
5,620
62
7,741
1,743
1,142 $
870
2,012 $
45 $
3,466
955
$
$
$
1,236
882
2,118
111
3,701
1,032
4,523 $
2,054
6,577 $
133 $
9,673
2,414
5,643
2,095
7,738
173
11,442
2,775
(a) Represents collateral-dependent residential real estate loans that are charged off to the fair value of the underlying collateral less costs to sell. The Firm
reports, in accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed
by the borrower (“Chapter 7 loans”) as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2018, Chapter 7
residential real estate loans included approximately 13% of residential mortgages and approximately 9% of home equity that were 30 days or more past
due.
(b) At December 31, 2018 and 2017, $4.1 billion and $3.8 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance
with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to
modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform
become subject to foreclosure.
(c) Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S.
(d) Represents the contractual amount of principal owed at December 31, 2018 and 2017. The unpaid principal balance differs from the impaired loan
balances due to various factors including charge-offs, net deferred loan fees or costs, and unamortized discounts or premiums on purchased loans.
(e) As of December 31, 2018 and 2017, nonaccrual loans included $2.0 billion and $2.2 billion, respectively, of TDRs for which the borrowers were less than
90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status, refer to the Loan accounting framework on
pages 219-221 of this Note.
226
JPMorgan Chase & Co./2018 Form 10-K
The following table presents average impaired loans and the related interest income reported by the Firm.
Year ended December 31,
(in millions)
Residential mortgage
Home equity
Total residential real estate – excluding PCI
Average impaired loans
Interest income on
impaired loans(a)
Interest income on impaired
loans on a cash basis(a)
2018
2017
2016
2018
2017
2016
2018
2017
2016
$
$
5,082 $
5,797 $
2,078
2,189
7,160 $
7,986 $
6,376
2,311
8,687
$
$
257 $
287 $
131
127
388 $
414 $
305
125
430
$
$
75 $
75 $
84
80
77
80
159 $
155 $
157
(a) Generally, interest income on loans modified in TDRs is recognized on a cash basis until the borrower has made a minimum of six payments under the new
terms, unless the loan is deemed to be collateral-dependent.
Loan modifications
Modifications of residential real estate loans, excluding PCI
loans, are generally accounted for and reported as TDRs.
There were no additional commitments to lend to
borrowers whose residential real estate loans, excluding PCI
loans, have been modified in TDRs.
The following table presents new TDRs reported by the
Firm.
Year ended December 31,
(in millions)
Residential mortgage
Home equity
Total residential real estate – excluding PCI $
687 $
694 $
2018
2017
2016
$
401 $
373 $
286
321
254
385
639
Nature and extent of modifications
The U.S. Treasury’s Making Home Affordable programs, as well as the Firm’s proprietary modification programs, generally
provide various concessions to financially troubled borrowers including, but not limited to, interest rate reductions, term or
payment extensions and deferral of principal and/or interest payments that would otherwise have been required under the
terms of the original agreement.
The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the
Firm’s loss mitigation programs described above during the periods presented. This table excludes Chapter 7 loans where the
sole concession granted is the discharge of debt.
Year ended December 31,
2018
2017
2016
2018
2017
2016
2018
2017
2016
Residential mortgage
Home equity
Total residential real estate
– excluding PCI
Number of loans approved for a trial
modification
Number of loans permanently modified
Concession granted:(a)
Interest rate reduction
Term or payment extension
Principal and/or interest deferred
Principal forgiveness
Other(b)
2,570
2,907
1,283
2,628
1,945
3,338
2,316
4,946
2,321
5,624
3,760
4,824
4,886
7,853
3,604
8,252
5,705
8,162
40%
63%
76%
62%
59%
75%
54%
60%
76%
55
44
8
38
72
15
16
33
90
16
26
25
66
20
7
58
69
10
13
31
83
19
9
6
62
29
7
51
70
12
14
32
86
18
16
14
(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages
exceeds 100% because predominantly all of the modifications include more than one type of concession. Concessions offered on trial modifications are
generally consistent with those granted on permanent modifications.
(b) Includes variable interest rate to fixed interest rate modifications for the years ended December 31, 2018, 2017 and 2016. Also includes forbearances
that meet the definition of a TDR for the year ended December 31, 2018. Forbearances suspend or reduce monthly payments for a specific period of time
to address a temporary hardship.
JPMorgan Chase & Co./2018 Form 10-K
227
Year ended
December 31,
(in millions, except weighted-average data)
Weighted-average interest rate of loans with
interest rate reductions – before TDR
Weighted-average interest rate of loans with
interest rate reductions – after TDR
Weighted-average remaining contractual term
(in years) of loans with term or payment
extensions – before TDR
Weighted-average remaining contractual term
(in years) of loans with term or payment
extensions – after TDR
Charge-offs recognized upon permanent
modification
Principal deferred
Principal forgiven
Notes to consolidated financial statements
Financial effects of modifications and redefaults
The following table provides information about the financial effects of the various concessions granted in modifications of
residential real estate loans, excluding PCI, under the loss mitigation programs described above and about redefaults of
certain loans modified in TDRs for the periods presented. The following table presents only the financial effects of permanent
modifications and does not include temporary concessions offered through trial modifications. This table also excludes Chapter
7 loans where the sole concession granted is the discharge of debt.
Residential mortgage
Home equity
Total residential real estate –
excluding PCI
2018
2017
2016
2018
2017
2016
2018
2017
2016
5.65%
5.15%
5.59%
5.39%
4.94%
4.99%
5.50%
5.06%
5.36%
3.80
2.99
2.93
3.46
2.64
2.34
3.60
2.83
2.70
24
38
1
21
10
$
24
38
2
12
20
$
$
24
38
4
30
44
98
19
39
1
9
7
$
21
39
1
10
13
$
$
$
64
$
56
$
18
38
1
23
7
40
21
38
2
30
17
$
23
38
$
3
$
22
33
22
38
5
53
51
$
161
$
180
$
138
Balance of loans that redefaulted within one
year of permanent modification(a)
$
97
$
124
$
(a) Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred
within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such
loans defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments
past due. In the event that a modified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar type
of liquidation transaction. Redefaults of loans modified within the last 12 months may not be representative of ultimate redefault levels.
At December 31, 2018, the weighted-average estimated
remaining lives of residential real estate loans, excluding
PCI loans, permanently modified in TDRs were 9 years for
residential mortgage and 8 years for home equity. The
estimated remaining lives of these loans reflect estimated
prepayments, both voluntary and involuntary (i.e.,
foreclosures and other forced liquidations).
Active and suspended foreclosure
At December 31, 2018 and 2017, the Firm had non-PCI
residential real estate loans, excluding those insured by U.S.
government agencies, with a carrying value of $653 million
and $787 million, respectively, that were not included in
REO, but were in the process of active or suspended
foreclosure.
228
JPMorgan Chase & Co./2018 Form 10-K
Other consumer loans
The table below provides information for other consumer retained loan classes, including auto and business banking loans.
December 31,
(in millions, except ratios)
Loan delinquency
Current
30–119 days past due
120 or more days past due
Total retained loans
% of 30+ days past due to total retained loans
Nonaccrual loans(a)
Geographic region(b)
California
Texas
New York
Illinois
Florida
Arizona
Ohio
New Jersey
Michigan
Louisiana
All other
Total retained loans
Loans by risk ratings(c)
Noncriticized
Criticized performing
Criticized nonaccrual
Auto
Consumer &
Business Banking
Total other consumer
2018
2017
2018
2017
2018
2017
$ 62,984
$ 65,651
$ 26,249
$ 25,454
$ 89,233
$ 91,105
589
—
584
7
252
111
213
122
841
111
797
129
$ 63,573
$ 66,242
$ 26,612
$ 25,789
$ 90,185
$ 92,031
0.93%
128
0.89%
141
1.36%
245
1.30%
283
1.06%
373
1.01%
424
$
8,330
$
6,531
3,863
3,716
3,256
2,084
1,973
1,981
1,357
1,587
8,445
7,013
4,023
3,916
3,350
2,221
2,105
2,044
1,418
1,656
28,895
30,051
$
5,520
$
2,993
4,381
2,046
1,502
1,491
1,305
723
1,329
860
4,462
5,032
2,916
4,195
2,017
1,424
1,383
1,380
721
1,357
849
4,515
$ 13,850
$ 13,477
9,524
8,244
5,762
4,758
3,575
3,278
2,704
2,686
2,447
9,929
8,218
5,933
4,774
3,604
3,485
2,765
2,775
2,505
33,357
34,566
$ 63,573
$ 66,242
$ 26,612
$ 25,789
$ 90,185
$ 92,031
$ 15,749
$ 15,604
$ 18,743
$ 17,938
$ 34,492
$ 33,542
273
—
93
9
751
191
791
213
1,024
191
884
222
(a) There were no loans that were 90 or more days past due and still accruing interest at December 31, 2018 and December 31, 2017.
(b) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2018.
(c) For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are
considered to be criticized and/or nonaccrual.
JPMorgan Chase & Co./2018 Form 10-K
229
Notes to consolidated financial statements
Other consumer impaired loans and loan modifications
The following table provides information about the Firm’s other consumer impaired loans, including risk-rated business
banking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.
Loan modifications
Certain other consumer loan modifications are considered
to be TDRs as they provide various concessions to
borrowers who are experiencing financial difficulty. All of
these TDRs are reported as impaired loans. At
December 31, 2018 and 2017, other consumer loans
modified in TDRs were $79 million and $102 million,
respectively. The impact of these modifications, as well as
new TDRs, were not material to the Firm for the years
ended December 31, 2018, 2017 and 2016. Additional
commitments to lend to borrowers whose loans have been
modified in TDRs as of December 31, 2018 and 2017 were
not material. TDRs on nonaccrual status were $57 million
and $72 million at December 31, 2018 and 2017,
respectively.
December 31, (in millions)
2018
2017
Impaired loans
With an allowance
$
222 $
272
Without an allowance(a)
Total impaired loans(b)(c)
Allowance for loan losses related to impaired loans $
$
Unpaid principal balance of impaired loans(d)
Impaired loans on nonaccrual status
29
26
251 $
298
63 $
355
229
73
402
268
(a) When discounted cash flows, collateral value or market price equals or
exceeds the recorded investment in the loan, the loan does not require
an allowance. This typically occurs when the impaired loans have been
partially charged off and/or there have been interest payments
received and applied to the loan balance.
(b) Predominantly all other consumer impaired loans are in the U.S.
(c) Other consumer average impaired loans were $275 million, $427
million and $635 million for the years ended December 31, 2018,
2017 and 2016, respectively. The related interest income on impaired
loans, including those on a cash basis, was not material for the years
ended December 31, 2018, 2017 and 2016.
(d) Represents the contractual amount of principal owed at December 31,
2018 and 2017. The unpaid principal balance differs from the
impaired loan balances due to various factors, including charge-offs,
interest payments received and applied to the principal balance, net
deferred loan fees or costs and unamortized discounts or premiums on
purchased loans.
230
JPMorgan Chase & Co./2018 Form 10-K
Since the timing and amounts of expected cash flows for the
Firm’s PCI consumer loan pools are reasonably estimable,
interest is being accreted and the loan pools are being
reported as performing loans. No interest would be
accreted and the PCI loan pools would be reported as
nonaccrual loans if the timing and/or amounts of expected
cash flows on the loan pools were determined not to be
reasonably estimable.
The liquidation of PCI loans, which may include sales of
loans, receipt of payment in full from the borrower, or
foreclosure, results in removal of the loans from the
underlying PCI pool. When the amount of the liquidation
proceeds (e.g., cash, real estate), if any, is less than the
unpaid principal balance of the loan, the difference is first
applied against the PCI pool’s nonaccretable difference for
principal losses (i.e., the lifetime credit loss estimate
established as a purchase accounting adjustment at the
acquisition date). When the nonaccretable difference for a
particular loan pool has been fully depleted, any excess of
the unpaid principal balance of the loan over the liquidation
proceeds is written off against the PCI pool’s allowance for
loan losses. Write-offs of PCI loans also include other
adjustments, primarily related to principal forgiveness
modifications. Because the Firm’s PCI loans are accounted
for at a pool level, the Firm does not recognize charge-offs
of PCI loans when they reach specified stages of
delinquency (i.e., unlike non-PCI consumer loans, these
loans are not charged off based on FFIEC standards).
The PCI portfolio affects the Firm’s results of operations
primarily through: (i) contribution to net interest margin;
(ii) expense related to defaults and servicing resulting from
the liquidation of the loans; and (iii) any provision for loan
losses. The Firm’s residential real estate PCI loans were
funded based on the interest rate characteristics of the
loans. For example, variable-rate loans were funded with
variable-rate liabilities and fixed-rate loans were funded
with fixed-rate liabilities with a similar maturity profile. A
net spread will be earned on the declining balance of the
portfolio, which is estimated as of December 31, 2018, to
have a remaining weighted-average life of 7 years.
Purchased credit-impaired loans
PCI loans are initially recorded at fair value at acquisition.
PCI loans acquired in the same fiscal quarter may be
aggregated into one or more pools, provided that the loans
have common risk characteristics. A pool is then accounted
for as a single asset with a single composite interest rate
and an aggregate expectation of cash flows. All of the Firm’s
residential real estate PCI loans were acquired in the same
fiscal quarter and aggregated into pools of loans with
common risk characteristics.
On a quarterly basis, the Firm estimates the total cash flows
(both principal and interest) expected to be collected over
the remaining life of each pool. These estimates incorporate
assumptions regarding default rates, loss severities, the
amounts and timing of prepayments and other factors that
reflect then-current market conditions. Probable decreases
in expected cash flows (i.e., increased credit losses) trigger
the recognition of impairment, which is then measured as
the present value of the expected principal loss plus any
related forgone interest cash flows, discounted at the pool’s
effective interest rate. Impairments are recognized through
the provision for credit losses and an increase in the
allowance for loan losses. Probable and significant
increases in expected cash flows (e.g., decreased credit
losses, the net benefit of modifications) would first reverse
any previously recorded allowance for loan losses with any
remaining increases recognized prospectively as a yield
adjustment over the remaining estimated lives of the
underlying loans. The impacts of (i) prepayments, (ii)
changes in variable interest rates, and (iii) any other
changes in the timing of expected cash flows are generally
recognized prospectively as adjustments to interest income.
The Firm continues to modify certain PCI loans. The impact
of these modifications is incorporated into the Firm’s
quarterly assessment of whether a probable and significant
change in expected cash flows has occurred, and the loans
continue to be accounted for and reported as PCI loans. In
evaluating the effect of modifications on expected cash
flows, the Firm incorporates the effect of any forgone
interest and also considers the potential for redefault. The
Firm develops product-specific probability of default
estimates, which are used to compute expected credit
losses. In developing these probabilities of default, the Firm
considers the relationship between the credit quality
characteristics of the underlying loans and certain
assumptions about home prices and unemployment based
upon industry-wide data. The Firm also considers its own
historical loss experience to-date based on actual
redefaulted modified PCI loans.
The excess of cash flows expected to be collected over the
carrying value of the underlying loans is referred to as the
accretable yield. This amount is not reported on the Firm’s
Consolidated balance sheets but is accreted into interest
income at a level rate of return over the remaining
estimated lives of the underlying pools of loans.
JPMorgan Chase & Co./2018 Form 10-K
231
Notes to consolidated financial statements
Residential real estate – PCI loans
The table below provides information about the Firm’s consumer, excluding credit card, PCI loans.
December 31,
(in millions, except ratios)
Carrying value(a)
Home equity
Prime mortgage
Subprime mortgage
Option ARMs
Total PCI
2018
$ 8,963
2017
$ 10,799
2018
$ 4,690
2017
$ 6,479
2018
$ 1,945
2017
$ 2,609
2018
$ 8,436
2017
$ 10,689
2018
$ 24,034
2017
$ 30,576
Loan delinquency (based on unpaid principal balance)
Current
30–149 days past due
150 or more days past due
Total loans
$ 8,624
$ 10,272
$ 4,226
$ 5,839
$ 2,033
$ 2,640
$ 7,592
$ 9,662
$ 22,475
$ 28,413
278
242
356
392
259
223
336
327
286
123
381
176
398
457
547
689
1,221
1,045
1,620
1,584
$ 9,144
$ 11,020
$ 4,708
$ 6,502
$ 2,442
$ 3,197
$ 8,447
$ 10,898
$ 24,741
$ 31,617
% of 30+ days past due to total loans
5.69%
6.79%
10.24% 10.20%
16.75% 17.42%
10.12% 11.34%
9.16% 10.13%
Current estimated LTV ratios (based on unpaid principal balance)(b)(c)
Greater than 125% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
$
$
17
13
101% to 125% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
80% to 100% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
Lower than 80% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
No FICO/LTV available
135
65
805
388
5,548
1,908
265
33
21
274
132
1,195
559
6,134
2,095
577
$
$
$
1
7
6
22
4
16
16
42
$
$
—
9
4
35
2
20
20
75
$
3
7
17
33
6
9
43
71
$
$
21
36
162
155
45
66
353
320
75
112
2,689
1,568
228
221
230
3,551
2,103
319
54
161
739
1,327
113
119
309
895
1,608
149
119
190
5,111
2,622
345
316
371
6,113
3,499
470
1,053
851
1,851
1,469
14,087
16,693
7,425
951
9,305
1,515
Total unpaid principal balance
$ 9,144
$ 11,020
$ 4,708
$ 6,502
$ 2,442
$ 3,197
$ 8,447
$ 10,898
$ 24,741
$ 31,617
Geographic region (based on unpaid principal balance)(d)
California
Florida
New York
Washington
Illinois
New Jersey
Massachusetts
Maryland
Virginia
Arizona
All other
$ 5,420
$ 6,555
$ 2,578
$ 3,716
$
976
525
419
233
210
65
48
54
1,137
607
532
273
242
79
57
66
165
1,029
203
1,269
332
365
98
154
134
113
95
91
69
679
428
457
135
200
178
149
129
123
106
881
$
593
234
268
44
123
88
73
96
37
43
797
296
330
61
161
110
98
132
51
60
$ 4,798
$ 6,225
$ 13,389
$ 17,293
713
502
177
199
258
240
178
211
112
878
628
238
249
336
307
232
280
156
2,255
1,660
2,739
2,022
738
709
690
491
417
393
389
966
883
866
633
550
520
525
843
1,101
1,059
1,369
3,610
4,620
Total unpaid principal balance
$ 9,144
$ 11,020
$ 4,708
$ 6,502
$ 2,442
$ 3,197
$ 8,447
$ 10,898
$ 24,741
$ 31,617
(a) Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a
minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the
extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral
values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home
equity loans considers all available lien positions, as well as unused lines, related to the property.
(c) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(d) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2018.
232
JPMorgan Chase & Co./2018 Form 10-K
Approximately 26% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or
HELOCs. The following table provides delinquency statistics for PCI junior lien home equity loans and lines of credit based on
the unpaid principal balance as of December 31, 2018 and 2017.
December 31,
(in millions, except ratios)
HELOCs:(a)(b)
HELOANs
Total
Total loans
Total 30+ day delinquency rate
2018
2017
2018
2017
$
$
6,531 $
280
6,811 $
7,926
360
8,286
4.00%
3.57
3.98%
4.62%
5.28
4.65%
(a) In general, these HELOCs are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at
the end of the loan’s term. Substantially all HELOCs are beyond the revolving period.
(b) Includes loans modified into fixed rate amortizing loans.
The table below presents the accretable yield activity for the Firm’s PCI consumer loans for the years ended December 31,
2018, 2017 and 2016, and represents the Firm’s estimate of gross interest income expected to be earned over the remaining
life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not
represent net interest income expected to be earned on these portfolios.
Year ended December 31,
(in millions, except ratios)
Beginning balance
Accretion into interest income
Changes in interest rates on variable-rate loans
Other changes in expected cash flows(a)
Balance at December 31
Accretable yield percentage
2018
Total PCI
2017
11,159
$
11,768
$
(1,249)
(109)
(1,379)
(1,396)
503
284
2016
13,491
(1,555)
260
(428)
8,422
$
11,159
$
11,768
4.92%
4.53%
4.35%
$
$
(a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model, for example cash flows expected
to be collected due to the impact of modifications and changes in prepayment assumptions.
Active and suspended foreclosure
At December 31, 2018 and 2017, the Firm had PCI residential real estate loans with an unpaid principal balance of
$964 million and $1.3 billion, respectively, that were not included in REO, but were in the process of active or suspended
foreclosure.
JPMorgan Chase & Co./2018 Form 10-K
233
Notes to consolidated financial statements
Credit card loan portfolio
The credit card portfolio segment includes credit card loans
originated and purchased by the Firm. Delinquency rates
are the primary credit quality indicator for credit card loans
as they provide an early warning that borrowers may be
experiencing difficulties (30 days past due); information on
those borrowers that have been delinquent for a longer
period of time (90 days past due) is also considered. In
addition to delinquency rates, the geographic distribution of
the loans provides insight as to the credit quality of the
portfolio based on the regional economy.
While the borrower’s credit score is another general
indicator of credit quality, the Firm does not view credit
scores as a primary indicator of credit quality because the
borrower’s credit score tends to be a lagging indicator. The
distribution of such scores provides a general indicator of
credit quality trends within the portfolio; however, the score
does not capture all factors that would be predictive of
future credit performance. Refreshed FICO score
information, which is obtained at least quarterly, for a
statistically significant random sample of the credit card
portfolio is indicated in the following table. FICO is
considered to be the industry benchmark for credit scores.
The Firm generally originates new card accounts to prime
consumer borrowers. However, certain cardholders’ FICO
scores may decrease over time, depending on the
performance of the cardholder and changes in credit score
calculation.
The table below provides information about the Firm’s
credit card loans.
As of or for the year ended December 31,
(in millions, except ratios)
Net charge-offs
2018
2017
$
4,518
$
4,123
% of net charge-offs to retained loans
3.10%
2.95%
Loan delinquency
Current and less than 30 days past due
and still accruing
$ 153,746
$ 146,704
30–89 days past due and still accruing
1,426
1,305
90 or more days past due and still accruing
Total retained credit card loans
1,444
$ 156,616
1,378
$ 149,387
Loan delinquency ratios
% of 30+ days past due to total retained loans
% of 90+ days past due to total retained loans
1.83%
0.92
1.80%
0.92
Credit card loans by geographic region(a)
California
Texas
New York
Florida
Illinois
New Jersey
Ohio
Pennsylvania
Colorado
Michigan
All other
$ 23,757
15,085
13,601
9,770
8,938
6,739
5,094
4,996
4,309
3,912
60,415
$ 22,245
14,200
13,021
9,138
8,585
6,506
4,997
4,883
4,006
3,826
57,980
Total retained credit card loans
$ 156,616
$ 149,387
Percentage of portfolio based on carrying
value with estimated refreshed FICO scores
Equal to or greater than 660
Less than 660
No FICO available
84.2%
15.0
0.8
84.0%
14.6
1.4
a) The geographic regions presented in the table are ordered based on the
magnitude of the corresponding loan balances at December 31, 2018.
234
JPMorgan Chase & Co./2018 Form 10-K
Credit card impaired loans and loan modifications
The table below provides information about the Firm’s
impaired credit card loans. All of these loans are considered
to be impaired as they have been modified in TDRs.
December 31, (in millions)
2018
2017
Impaired credit card loans with an
allowance(a)(b)(c)
Allowance for loan losses related to
impaired credit card loans
$
1,319 $
1,215
440
383
(a) The carrying value and the unpaid principal balance are the same for credit
card impaired loans.
(b) There were no impaired loans without an allowance.
(c) Predominantly all impaired credit card loans are in the U.S.
The following table presents average balances of impaired
credit card loans and interest income recognized on those
loans.
Year ended December 31,
(in millions)
2018
2017
2016
Average impaired credit card loans
$ 1,260 $ 1,214 $ 1,325
Interest income on
impaired credit card loans
65
59
63
Loan modifications
The Firm may offer one of a number of loan modification
programs to credit card borrowers who are experiencing
financial difficulty. Most of the credit card loans have been
modified under long-term programs for borrowers who are
experiencing financial difficulties. These modifications
involve placing the customer on a fixed payment plan,
generally for 60 months, and typically include reducing the
interest rate on the credit card. Substantially all
modifications are considered to be TDRs.
If the cardholder does not comply with the modified
payment terms, then the credit card loan continues to age
and will ultimately be charged-off in accordance with the
Firm’s standard charge-off policy. In most cases, the Firm
does not reinstate the borrower’s line of credit.
New enrollments in these loan modification programs for
the years ended December 31, 2018, 2017 and 2016, were
$866 million, $756 million and $636 million, respectively.
For all periods disclosed, new enrollments were less than
1% of total retained credit card loans.
Financial effects of modifications and redefaults
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.
Year ended December 31,
(in millions, except
weighted-average data)
Weighted-average interest rate
of loans – before TDR
Weighted-average interest rate
of loans – after TDR
Loans that redefaulted within
one year of modification(a)(b)
2018
2017
2016
17.98%
16.58%
15.56%
5.16
4.88
4.76
$
116
$
93
$
74
(a) Represents loans modified in TDRs that experienced a payment default in
the periods presented, and for which the payment default occurred within
one year of the modification. The amounts presented represent the balance
of such loans as of the end of the quarter in which they defaulted.
(b) The prior period amounts have been revised to conform with the current
period presentation.
For credit card loans modified in TDRs, payment default is
deemed to have occurred when the borrower misses two
consecutive contractual payments. A substantial portion of
these loans are expected to be charged-off in accordance
with the Firm’s standard charge-off policy. Based on
historical experience, the estimated weighted-average
default rate for modified credit card loans was expected to
be 33.38%, 31.54% and 28.87% as of December 31,
2018, 2017 and 2016, respectively.
JPMorgan Chase & Co./2018 Form 10-K
235
Risk ratings are reviewed on a regular and ongoing basis by
Credit Risk Management and are adjusted as necessary for
updated information affecting the obligor’s ability to fulfill
its obligations.
As noted above, the risk rating of a loan considers the
industry in which the obligor conducts its operations. As
part of the overall credit risk management framework, the
Firm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with actual or potential credit concern. Refer
to Note 4 for further detail on industry concentrations.
Notes to consolidated financial statements
Wholesale loan portfolio
Wholesale loans include loans made to a variety of clients,
ranging from large corporate and institutional clients to
high-net-worth individuals.
The primary credit quality indicator for wholesale loans is
the risk rating assigned to each loan. Risk ratings are used
to identify the credit quality of loans and differentiate risk
within the portfolio. Risk ratings on loans consider the PD
and the LGD. The PD is the likelihood that a loan will
default. The LGD is the estimated loss on the loan that
would be realized upon the default of the borrower and
takes into consideration collateral and structural support
for each credit facility.
Management considers several factors to determine an
appropriate risk rating, including the obligor’s debt capacity
and financial flexibility, the level of the obligor’s earnings,
the amount and sources for repayment, the level and nature
of contingencies, management strength, and the industry
and geography in which the obligor operates. The Firm’s
definition of criticized aligns with the banking regulatory
definition of criticized exposures, which consist of special
mention, substandard and doubtful categories. Risk ratings
generally represent ratings profiles similar to those defined
by S&P and Moody’s. Investment-grade ratings range from
“AAA/Aaa” to “BBB-/Baa3.” Noninvestment-grade ratings
are classified as noncriticized (“BB+/Ba1 and B-/B3”) and
criticized (“CCC+”/“Caa1 and below”), and the criticized
portion is further subdivided into performing and
nonaccrual loans, representing management’s assessment
of the collectibility of principal and interest. Criticized loans
have a higher probability of default than noncriticized
loans.
236
JPMorgan Chase & Co./2018 Form 10-K
The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment. For
additional information on industry concentrations, refer to Note 4.
As of or for the
year ended
December 31,
(in millions,
except ratios)
Loans by risk
ratings
Investment-
grade
Noninvestment-
grade:
Noncriticized
Criticized
performing
Criticized
nonaccrual
Total
noninvestment-
grade
Total retained
loans
% of total
criticized
exposure to
total retained
loans
% of criticized
nonaccrual to
total retained
loans
Loans by
geographic
distribution(a)
Total non-U.S.
Total U.S.
Total retained
loans
Net charge-offs/
(recoveries)
% of net
charge-offs/
(recoveries) to
end-of-period
retained loans
Loan
delinquency(b)
Current and less
than 30 days
past due and
still accruing
30–89 days past
due and still
accruing
90 or more days
past due and
still accruing(c)
Criticized
nonaccrual
Total retained
loans
Commercial
and industrial
Real estate
Financial
institutions
Governments &
Agencies
Other(d)
Total
retained loans
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
$ 73,497
$ 68,071
$100,107
$ 98,467
$ 32,178
$ 26,791
$ 13,984
$ 15,140
$119,963
$103,212
$ 339,729
$ 311,681
51,720
46,558
14,876
14,335
15,316
13,071
201
369
11,478
9,988
93,591
84,321
3,738
3,983
851
1,357
620
134
710
136
150
210
4
2
2
—
—
—
182
161
259
239
4,692
5,162
1,150
1,734
56,309
51,898
15,630
15,181
15,470
13,283
203
369
11,821
10,486
99,433
91,217
$129,806
$119,969
$115,737
$ 113,648
$ 47,648
$ 40,074
$ 14,187
$ 15,509
$131,784
$113,698
$ 439,162
$ 402,898
3.54%
4.45%
0.65%
0.74%
0.32%
0.53%
0.01%
—%
0.26%
0.44%
1.33%
1.71%
0.66
1.13
0.12
0.12
0.01
—
—
—
0.12
0.21
0.26
0.43
$ 29,572
100,234
$ 28,470
91,499
$
2,967
112,770
$
3,101
110,547
$ 18,524
29,124
$ 16,790
23,284
$ 3,150
11,037
$ 2,906
12,603
$ 48,433
83,351
$ 44,112
69,586
$ 102,646
336,516
$ 95,379
307,519
$129,806
$119,969
$115,737
$ 113,648
$ 47,648
$ 40,074
$ 14,187
$ 15,509
$131,784
$113,698
$ 439,162
$ 402,898
$
165
$
117
$
(20)
$
(4)
$
—
$
6
$
—
$
5
$
10
$
(5)
$
155
$
119
0.13%
0.10%
(0.02)%
—%
—%
0.01%
—%
0.03%
0.01%
—%
0.04%
0.03%
$128,678
$118,288
$115,533
$ 113,258
$ 47,622
$ 40,042
$ 14,165
$ 15,493
$130,918
$112,559
$ 436,916
$ 399,640
109
216
108
168
851
1,357
134
67
3
242
12
136
12
10
4
15
15
2
18
12
702
898
908
1,383
4
—
4
—
3
2
188
141
161
239
1,150
1,734
$129,806
$119,969
$115,737
$ 113,648
$ 47,648
$ 40,074
$ 14,187
$ 15,509
$131,784
$113,698
$ 439,162
$ 402,898
(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b) The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor’s ability to meet contractual obligations
rather than relying on the past due status, which is generally a lagging indicator of credit quality.
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
(d) Other includes individuals and individual entities (predominantly consists of Wealth Management clients within AWM and includes exposure to personal
investment companies and personal and testamentary trusts), SPEs and Private education and civic organizations. For more information on SPEs, refer to
Note 14.
JPMorgan Chase & Co./2018 Form 10-K
237
Notes to consolidated financial statements
The following table presents additional information on the real estate class of loans within the Wholesale portfolio for the
periods indicated. Exposure consists primarily of secured commercial loans, of which multifamily is the largest segment.
Multifamily lending finances acquisition, leasing and construction of apartment buildings, and includes exposure to real
estate investment trusts (“REITs”). Other commercial lending largely includes financing for acquisition, leasing and
construction, largely for office, retail and industrial real estate, and includes exposure to REITs. Included in real estate loans is
$10.5 billion and $10.8 billion as of December 31, 2018 and 2017, respectively, of construction and development exposure
consisting of loans originally purposed for construction and development, general purpose loans for builders, as well as loans
for land subdivision and pre-development.
December 31,
(in millions, except ratios)
Real estate retained loans
Criticized exposure
% of total criticized exposure to total real estate retained loans
Multifamily
Other Commercial
Total real estate loans
2018
2017
2018
2017
2018
2017
$
79,184
$
77,597
$
36,553
$
36,051
$ 115,737
$ 113,648
388
0.49%
491
0.63%
366
1.00%
355
0.98%
754
0.65%
846
0.74%
Criticized nonaccrual
$
57
$
44
$
77
$
92
$
134
$
136
% of criticized nonaccrual loans to total real estate retained loans
0.07%
0.06%
0.21%
0.26%
0.12%
0.12%
Wholesale impaired retained loans and loan modifications
Wholesale impaired retained loans consist of loans that have been placed on nonaccrual status and/or that have been modified
in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 13.
The table below sets forth information about the Firm’s wholesale impaired retained loans.
December 31,
(in millions)
Impaired loans
With an allowance
Without an allowance(a)
Total impaired loans
Allowance for loan losses related
to impaired loans
Unpaid principal balance of
impaired loans(b)
Commercial
and industrial
Real estate
Financial
institutions
Governments &
Agencies
Other
Total
retained loans
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
$
$
$
807 $ 1,170
140
228
947 $ 1,398
252 $
404
$
$
$
107 $
27
78
60
134 $
138
25 $
11
$
$
$
4 $
—
4 $
1 $
1,043
1,604
203
201
4
$
$
$
93
—
93
4
94
— $
—
— $
— $
—
$
$
$
—
—
—
—
—
152 $
168
$ 1,070
$ 1,509
13
70
180
358
165 $
238
$ 1,250 (c) $ 1,867 (c)
19 $
42
$
297
$
461
473
255
1,723
2,154
(a) When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an
allowance. This typically occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied
to the loan balance.
(b) Represents the contractual amount of principal owed at December 31, 2018 and 2017. The unpaid principal balance differs from the impaired loan
balances due to various factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and
unamortized discount or premiums on purchased loans.
(c) Based upon the domicile of the borrower, largely consists of loans in the U.S.
The following table presents the Firm’s average impaired
retained loans for the years ended 2018, 2017 and 2016.
Year ended December 31, (in millions)
2018
2017(b)
2016
Commercial and industrial
$
1,027 $
1,256 $
Real estate
Financial institutions
Governments & Agencies
Other
Total(a)
133
57
—
199
165
48
—
241
$
1,416 $
1,710 $
1,480
217
13
—
213
1,923
(a) The related interest income on accruing impaired loans and interest
income recognized on a cash basis were not material for the years
ended December 31, 2018, 2017 and 2016.
(b) The prior period amounts have been revised to conform with the
current period presentation.
Certain loan modifications are considered to be TDRs as
they provide various concessions to borrowers who are
experiencing financial difficulty. All TDRs are reported as
impaired loans in the tables above. TDRs were $576 million
and $614 million as of December 31, 2018 and 2017,
respectively. The impact of these modifications, as well as
new TDRs, were not material to the Firm for the years
ended December 31, 2018, 2017 and 2016.
238
JPMorgan Chase & Co./2018 Form 10-K
potential modifications of residential real estate loans is not
included in the statistical calculation because of the
uncertainty regarding the type and results of such
modifications.
The statistical calculation is then adjusted to take into
consideration model imprecision, external factors and
current economic events that have occurred but that are not
yet reflected in the factors used to derive the statistical
calculation; these adjustments are accomplished in part by
analyzing the historical loss experience for each major
product segment. However, it is difficult to predict whether
historical loss experience is indicative of future loss levels.
Management applies judgment in making this adjustment,
taking into account uncertainties associated with current
macroeconomic and political conditions, quality of
underwriting standards, borrower behavior, and other
relevant internal and external factors affecting the credit
quality of the portfolio. In certain instances, the
interrelationships between these factors create further
uncertainties. The application of different inputs into the
statistical calculation, and the assumptions used by
management to adjust the statistical calculation, are subject
to management judgment, and emphasizing one input or
assumption over another, or considering other inputs or
assumptions, could affect the estimate of the allowance for
credit losses for the consumer credit portfolio.
Overall, the allowance for credit losses for consumer
portfolios is sensitive to changes in the economic
environment (e.g., unemployment rates), delinquency rates,
the realizable value of collateral (e.g., housing prices), FICO
scores, borrower behavior and other risk factors. While all
of these factors are important determinants of overall
allowance levels, changes in the various factors may not
occur at the same time or at the same rate, or changes may
be directionally inconsistent such that improvement in one
factor may offset deterioration in another. In addition,
changes in these factors would not necessarily be consistent
across all geographies or product types. Finally, it is difficult
to predict the extent to which changes in these factors
would ultimately affect the frequency of losses, the severity
of losses or both.
Note 13 – Allowance for credit losses
JPMorgan Chase’s allowance for loan losses represents
management’s estimate of probable credit losses inherent
in the Firm’s retained loan portfolio, which consists of the
two consumer portfolio segments (primarily scored) and
the wholesale portfolio segment (risk-rated). The allowance
for loan losses includes a formula-based component, an
asset-specific component, and a component related to PCI
loans, as described below. Management also estimates an
allowance for wholesale and certain consumer lending-
related commitments using methodologies similar to those
used to estimate the allowance on the underlying loans.
The Firm’s policies used to determine its allowance for
credit losses are described in the following paragraphs.
Determining the appropriateness of the allowance is
complex and requires judgment by management about the
effect of matters that are inherently uncertain. Subsequent
evaluations of the loan portfolio, in light of the factors then
prevailing, may result in significant changes in the
allowances for loan losses and lending-related
commitments in future periods. At least quarterly, the
allowance for credit losses is reviewed by the CRO, the CFO
and the Controller of the Firm. As of December 31, 2018,
JPMorgan Chase deemed the allowance for credit losses to
be appropriate and sufficient to absorb probable credit
losses inherent in the portfolio.
Formula-based component
The formula-based component is based on a statistical
calculation to provide for incurred credit losses in all
consumer loans and performing risk-rated loans. All loans
restructured in TDRs as well as any impaired risk-rated
loans have an allowance assessed as part of the asset-
specific component, while PCI loans have an allowance
assessed as part of the PCI component. Refer to Note 12 for
more information on TDRs, Impaired loans and PCI loans.
Formula-based component - Consumer loans and certain
lending-related commitments
The formula-based allowance for credit losses for the
consumer portfolio segments is calculated by applying
statistical credit loss factors (estimated PD and loss
severities) to the recorded investment balances or loan-
equivalent amounts of pools of loan exposures with similar
risk characteristics over a loss emergence period to arrive
at an estimate of incurred credit losses. Estimated loss
emergence periods may vary by product and may change
over time; management applies judgment in estimating loss
emergence periods, using available credit information and
trends. In addition, management applies judgment to the
statistical loss estimates for each loan portfolio category,
using delinquency trends and other risk characteristics to
estimate the total incurred credit losses in the portfolio.
Management uses additional statistical methods and
considers actual portfolio performance, including actual
losses recognized on defaulted loans and collateral
valuation trends, to review the appropriateness of the
primary statistical loss estimate. The economic impact of
JPMorgan Chase & Co./2018 Form 10-K
239
Notes to consolidated financial statements
Formula-based component - Wholesale loans and lending-
related commitments
The Firm’s methodology for determining the allowance for
loan losses and the allowance for lending-related
commitments involves the early identification of credits that
are deteriorating. The formula-based component of the
allowance for wholesale loans and lending-related
commitments is calculated by applying statistical credit loss
factors (estimated PD and LGD) to the recorded investment
balances or loan-equivalent over a loss emergence period to
arrive at an estimate of incurred credit losses in the
portfolio. Estimated loss emergence periods may vary by
the funded versus unfunded status of the instrument and
may change over time.
The Firm assesses the credit quality of a borrower or
counterparty and assigns a risk rating. Risk ratings are
assigned at origination or acquisition, and if necessary,
adjusted for changes in credit quality over the life of the
exposure. In assessing the risk rating of a particular loan or
lending-related commitment, among the factors considered
are the obligor’s debt capacity and financial flexibility, the
level of the obligor’s earnings, the amount and sources for
repayment, the level and nature of contingencies,
management strength, and the industry and geography in
which the obligor operates. These factors are based on an
evaluation of historical and current information and involve
subjective assessment and interpretation. Determining risk
ratings involves significant judgment; emphasizing one
factor over another or considering additional factors could
affect the risk rating assigned by the Firm.
A PD estimate is determined based on the Firm’s history of
defaults over more than one credit cycle.
LGD estimate is a judgment-based estimate assigned to
each loan or lending-related commitment. The estimate
represents the amount of economic loss if the obligor were
to default. The type of obligor, quality of collateral, and the
seniority of the Firm’s lending exposure in the obligor’s
capital structure affect LGD.
The Firm applies judgment in estimating PD, LGD, loss
emergence period and loan-equivalent used in calculating
the allowance for credit losses. Estimates of PD, LGD, loss
emergence period and loan-equivalent used are subject to
periodic refinement based on any changes to underlying
external or Firm-specific historical data. Changes to the
time period used for PD and LGD estimates could also affect
the allowance for credit losses. The use of different inputs,
estimates or methodologies could change the amount of the
allowance for credit losses determined appropriate by the
Firm.
In addition to the statistical credit loss estimates applied to
the wholesale portfolio, management applies its judgment
to adjust the statistical estimates for wholesale loans and
lending-related commitments, taking into consideration
model imprecision, external factors and economic events
that have occurred but are not yet reflected in the loss
factors. Historical experience of both LGD and PD are
considered when estimating these adjustments. Factors
related to concentrated and deteriorating industries also
are incorporated where relevant. These estimates are based
on management’s view of uncertainties that relate to
current macroeconomic conditions, quality of underwriting
standards and other relevant internal and external factors
affecting the credit quality of the current portfolio.
Asset-specific component
The asset-specific component of the allowance relates to
loans considered to be impaired, which includes loans that
have been modified in TDRs as well as risk-rated loans that
have been placed on nonaccrual status. To determine the
asset-specific component of the allowance, larger risk-rated
loans (primarily loans in the wholesale portfolio segment)
are evaluated individually, while smaller loans (both risk-
rated and scored) are evaluated as pools using historical
loss experience for the respective class of assets.
The Firm generally measures the asset-specific allowance as
the difference between the recorded investment in the loan
and the present value of the cash flows expected to be
collected, discounted at the loan’s original effective interest
rate. Subsequent changes in impairment are reported as an
adjustment to the allowance for loan losses. In certain
cases, the asset-specific allowance is determined using an
observable market price, and the allowance is measured as
the difference between the recorded investment in the loan
and the loan’s fair value. Collateral-dependent loans are
charged down to the fair value of collateral less costs to
sell. For any of these impaired loans, the amount of the
asset-specific allowance required to be recorded, if any, is
dependent upon the recorded investment in the loan
(including prior charge-offs), and either the expected cash
flows or fair value of collateral. Refer to Note 12 for more
information about charge-offs and collateral-dependent
loans.
The asset-specific component of the allowance for impaired
loans that have been modified in TDRs (including forgone
interest, principal forgiveness, as well as other concessions)
incorporates the effect of the modification on the loan’s
expected cash flows, which considers the potential for
redefault. For residential real estate loans modified in TDRs,
the Firm develops product-specific probability of default
estimates, which are applied at a loan level to compute
expected losses. In developing these probabilities of
default, the Firm considers the relationship between the
credit quality characteristics of the underlying loans and
certain assumptions about home prices and unemployment,
based upon industry-wide data. The Firm also considers its
own historical loss experience to-date based on actual
redefaulted modified loans. For credit card loans modified
in TDRs, expected losses incorporate projected redefaults
based on the Firm’s historical experience by type of
modification program. For wholesale loans modified in
TDRs, expected losses incorporate management’s
expectation of the borrower’s ability to repay under the
modified terms.
240
JPMorgan Chase & Co./2018 Form 10-K
Estimating the timing and amounts of future cash flows is
highly judgmental as these cash flow projections rely upon
estimates such as loss severities, asset valuations, default
rates (including redefault rates on modified loans), the
amounts and timing of interest or principal payments
(including any expected prepayments) or other factors that
are reflective of current and expected market conditions.
These estimates are, in turn, dependent on factors such as
the duration of current overall economic conditions,
industry-, portfolio-, or borrower-specific factors, the
expected outcome of insolvency proceedings as well as, in
certain circumstances, other economic factors, including
the level of future home prices. All of these estimates and
assumptions require significant management judgment and
certain assumptions are highly subjective.
PCI loans
In connection with the acquisition of certain PCI loans,
which are accounted for as described in Note 12, the
allowance for loan losses for the PCI portfolio is based on
quarterly estimates of the amount of principal and interest
cash flows expected to be collected over the estimated
remaining lives of the loans.
These cash flow projections are based on estimates
regarding default rates (including redefault rates on
modified loans), loss severities, the amounts and timing of
prepayments and other factors that are reflective of current
and expected future market conditions. These estimates are
dependent on assumptions regarding the level of future
home prices, and the duration of current overall economic
conditions, among other factors. These estimates and
assumptions require significant management judgment and
certain assumptions are highly subjective.
JPMorgan Chase & Co./2018 Form 10-K
241
Notes to consolidated financial statements
Allowance for credit losses and related information
The table below summarizes information about the allowances for loan losses and lending-relating commitments, and includes
a breakdown of loans and lending-related commitments by impairment methodology.
(Table continued on next page)
Year ended December 31,
(in millions)
Allowance for loan losses
Beginning balance at January 1,
Gross charge-offs
Gross recoveries
Net charge-offs
Write-offs of PCI loans(a)
Provision for loan losses
Other
Ending balance at December 31,
Allowance for loan losses by impairment methodology
Asset-specific(b)
Formula-based
PCI
Total allowance for loan losses
Loans by impairment methodology
Asset-specific
Formula-based
PCI
Total retained loans
Impaired collateral-dependent loans
Net charge-offs
Loans measured at fair value of collateral less cost to sell
Allowance for lending-related commitments
Beginning balance at January 1,
Provision for lending-related commitments
Other
Ending balance at December 31,
Allowance for lending-related commitments by impairment methodology
Asset-specific
Formula-based
Total allowance for lending-related commitments
Lending-related commitments by impairment methodology
Asset-specific
Formula-based
Total lending-related commitments
5,184
$
4,115
2018
Consumer,
excluding
credit card
Credit card
Wholesale
Total
$
4,141
$
13,604
$
$
$
$
$
$
$
$
$
$
$
$
$
4,579
1,025
(842)
183
187
(63)
—
4,146
196
2,162
1,788
4,146
6,828
342,775
24,034
373,637
24
2,080
33
—
—
33
—
33
33
—
46,066
46,066
$
$
$
$
$
$
$
$
$
$
$
$
$
4,884
5,011
(493)
4,518
—
4,818
—
440 (c) $
4,744
—
5,184
1,319
155,297
—
156,616
—
—
—
—
—
—
—
—
—
—
605,379
605,379
$
$
$
$
$
$
$
$
$
$
313
(158)
155
—
130
(1)
297
3,818
—
4,115
1,250
437,909
3
439,162
21
202
6,349
(1,493)
4,856
187
4,885
(1)
13,445
933
10,724
1,788
13,445
9,397
935,981
24,037
969,415
45
2,282
$
$
$
$
$
$
1,035
$
1,068
(14)
1
1,022
99
923
1,022
469
$
$
$
$
(14)
1
1,055
99
956
1,055
469
387,344
1,038,789
387,813
$ 1,039,258
(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting
adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool.
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(c) The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans’ original contractual
interest rates and does not consider any incremental penalty rates.
242
JPMorgan Chase & Co./2018 Form 10-K
(table continued from previous page)
2017
2016
Consumer,
excluding
credit card
Credit card
Wholesale
Total
Consumer,
excluding
credit card
Credit card
Wholesale
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
5,198
1,779
(634)
1,145
86
613
(1)
4,579
246
2,108
2,225
4,579
8,036
333,941
30,576
372,553
64
2,133
26
7
—
33
—
33
33
—
48,553
48,553
$
$
$
$
$
$
$
$
$
$
$
$
$
383 (c) $
461
$
358 (c) $
342
$
4,034
4,521
(398)
4,123
—
4,973
—
$
4,544
$
13,776
$
212
(93)
119
—
(286)
2
6,512
(1,125)
5,387
86
5,300
1
4,884
$
4,141
$
13,604
4,501
—
4,884
1,215
148,172
—
149,387
—
—
—
—
—
—
—
—
—
—
572,831
572,831
3,680
—
1,090
10,289
2,225
$
$
$
$
$
$
$
$
$
$
4,141
$
13,604
1,867
$
11,118
401,028
3
883,141
30,579
402,898
$
924,838
31
$
233
95
2,366
1,052
$
1,078
(17)
—
(10)
—
1,035
$
1,068
$
187
848
187
881
1,035
$
1,068
731
$
731
369,367
990,751
370,098
$
991,482
5,806
1,500
(591)
909
156
467
(10)
5,198
308
2,579
2,311
5,198
8,940
319,787
35,679
364,406
98
2,391
14
—
12
26
—
26
26
—
53,247
53,247
$
$
$
$
$
$
$
$
$
$
$
$
$
3,434
3,799
(357)
3,442
—
4,042
—
$
4,315
$
13,555
398
(57)
341
—
571
(1)
5,697
(1,005)
4,692
156
5,080
(11)
4,034
$
4,544
$
13,776
3,676
—
4,034
1,240
140,471
—
141,711
—
—
—
—
—
—
—
—
—
—
553,891
553,891
4,202
—
1,008
10,457
2,311
$
$
$
$
$
$
$
$
$
$
4,544
$
13,776
2,017
$
12,197
381,770
3
842,028
35,682
383,790
$
889,907
7
$
300
105
2,691
$
772
281
(1)
786
281
11
1,052
$
1,078
$
169
883
169
909
1,052
$
1,078
506
$
506
367,508
974,646
368,014
$
975,152
$
$
$
$
$
$
$
$
$
$
$
$
JPMorgan Chase & Co./2018 Form 10-K
243
Notes to consolidated financial statements
Note 14 – Variable interest entities
For a further description of JPMorgan Chase’s accounting policies regarding consolidation of VIEs, refer to Note 1. Page 198
The following table summarizes the most significant types of Firm-sponsored VIEs by business segment. The Firm considers a
“sponsored” VIE to include any entity where: (1) JPMorgan Chase is the primary beneficiary of the structure; (2) the VIE is
used by JPMorgan Chase to securitize Firm assets; (3) the VIE issues financial instruments with the JPMorgan Chase name; or
(4) the entity is a JPMorgan Chase–administered asset-backed commercial paper conduit.
Line of Business
Transaction Type
Activity
CCB
Credit card securitization trusts
Mortgage securitization trusts
Mortgage and other securitization trusts
CIB
Multi-seller conduits
Securitization of originated credit card receivables
Servicing and securitization of both originated and
purchased residential mortgages
Securitization of both originated and purchased
residential and commercial mortgages, and other
consumer loans
Assist clients in accessing the financial markets in a
cost-efficient manner and structures transactions to
meet investor needs
Municipal bond vehicles
Financing of municipal bond investments
2018 Form 10-K
page references
244-245
245-247
245-247
247
247-248
The Firm’s other business segments are also involved with VIEs (both third-party and Firm-sponsored), but to a lesser extent,
as follows:
• Asset & Wealth Management: AWM sponsors and manages certain funds that are deemed VIEs. As asset manager of the
funds, AWM earns a fee based on assets managed; the fee varies with each fund’s investment objective and is competitively
priced. For fund entities that qualify as VIEs, AWM’s interests are, in certain cases, considered to be significant variable
interests that result in consolidation of the financial results of these entities.
• Commercial Banking: CB provides financing and lending-related services to a wide spectrum of clients, including certain
third-party-sponsored entities that may meet the definition of a VIE. CB does not control the activities of these entities and
does not consolidate these entities. CB’s maximum loss exposure, regardless of whether the entity is a VIE, is generally
limited to loans and lending-related commitments which are reported and disclosed in the same manner as any other third-
party transaction.
• Corporate: Corporate is involved with entities that may meet the definition of VIEs; however these entities are generally
subject to specialized investment company accounting, which does not require the consolidation of investments, including
VIEs. In addition, Treasury and CIO invest in securities generally issued by third parties which may meet the definition of
VIEs (e.g., issuers of asset-backed securities). In general, the Firm does not have the power to direct the significant
activities of these entities and therefore does not consolidate these entities. Refer to Note 10 for further information on the
Firm’s investment securities portfolio.
In addition, CIB also invests in and provides financing and other services to VIEs sponsored by third parties. Refer to page 249
of this Note for more information on the VIEs sponsored by third parties.
Significant Firm-sponsored variable interest entities
Credit card securitizations
CCB’s Card business securitizes originated credit card loans,
primarily through the Chase Issuance Trust (the “Trust”).
The Firm’s continuing involvement in credit card
securitizations includes servicing the receivables, retaining
an undivided seller’s interest in the receivables, retaining
certain senior and subordinated securities and maintaining
escrow accounts.
The Firm is considered to be the primary beneficiary of
these Firm-sponsored credit card securitization trusts based
on the Firm’s ability to direct the activities of these VIEs
through its servicing responsibilities and other duties,
including making decisions as to the receivables that are
transferred into those trusts and as to any related
modifications and workouts. Additionally, the nature and
extent of the Firm’s other continuing involvement with the
trusts, as indicated above, obligates the Firm to absorb
losses and gives the Firm the right to receive certain
benefits from these VIEs that could potentially be
significant.
The underlying securitized credit card receivables and other
assets of the securitization trusts are available only for
payment of the beneficial interests issued by the
securitization trusts; they are not available to pay the Firm’s
other obligations or the claims of the Firm’s creditors.
The agreements with the credit card securitization trusts
require the Firm to maintain a minimum undivided interest
in the credit card trusts (generally 5%). As of December 31,
2018 and 2017, the Firm held undivided interests in Firm-
sponsored credit card securitization trusts of $15.1 billion
and $15.8 billion, respectively. The Firm maintained an
average undivided interest in principal receivables owned
by those trusts of approximately 37% and 26% for the
years ended December 31, 2018 and 2017. The Firm did
244
JPMorgan Chase & Co./2018 Form 10-K
not retain any senior securities and retained $3.0 billion
and $4.5 billion of subordinated securities in certain of its
credit card securitization trusts as of December 31, 2018
and 2017, respectively. The Firm’s undivided interests in
the credit card trusts and securities retained are eliminated
in consolidation.
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and
purchased residential mortgages, commercial mortgages
and other consumer loans primarily in its CCB and CIB
businesses. Depending on the particular transaction, as well
as the respective business involved, the Firm may act as the
servicer of the loans and/or retain certain beneficial
interests in the securitization trusts.
The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans, holding senior interests or subordinated interests (including amounts required to be
held pursuant to credit risk retention rules), recourse or guarantee arrangements, and derivative contracts. In certain
instances, the Firm’s only continuing involvement is servicing the loans. Refer to Securitization activity on page 250 of this
Note for further information regarding the Firm’s cash flows associated with and interests retained in nonconsolidated VIEs,
and pages 250-251 of this Note for information on the Firm’s loan sales to U.S. government agencies.
Principal amount outstanding
Total assets
held by
securitization
VIEs
Assets
held in
consolidated
securitization
VIEs
Assets held in
nonconsolidated
securitization
VIEs with
continuing
involvement
JPMorgan Chase interest in securitized assets in
nonconsolidated VIEs(c)(d)(e)
Trading
assets
Investment
securities
Other
financial
assets
Total
interests
held by
JPMorgan
Chase
December 31, 2018 (in millions)
Securitization-related(a)
Residential mortgage:
Prime/Alt-A and option ARMs
$
63,350 $
3,237 $
Subprime
Commercial and other(b)
Total
December 31, 2017(in millions)
Securitization-related(a)
Residential mortgage:
16,729
102,961
32
—
50,679
15,434
79,387
$
623 $
647 $
— $
1,270
53
783
—
801
—
210
53
1,794
$
183,040 $
3,269 $
145,500
$
1,459 $
1,448 $
210 $
3,117
Principal amount outstanding
Total assets
held by
securitization
VIEs
Assets
held in
consolidated
securitization
VIEs
Assets held in
nonconsolidated
securitization
VIEs with
continuing
involvement
JPMorgan Chase interest in securitized assets in
nonconsolidated VIEs(c)(d)(e)
Trading
assets
Investment
securities
Other
financial
assets
Total
interests
held by
JPMorgan
Chase
Prime/Alt-A and option ARMs
$
68,874 $
3,615 $
$
410 $
943 $
— $
1,353
Subprime
Commercial and other(b)
Total
18,984
94,905
7
63
93
745
—
1,133
—
157
$
182,763 $
3,685 $
133,303
$
1,248 $
2,076 $
157 $
93
2,035
3,481
52,280
17,612
63,411
(a) Excludes U.S. government agency securitizations and re-securitizations, which are not Firm-sponsored. Refer to pages 250-251 of this Note for
information on the Firm’s loan sales to U.S. government agencies.
(b) Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third
parties.
(c) Excludes the following: retained servicing (refer to Note 15 for a discussion of MSRs); securities retained from loan sales to U.S. government agencies;
interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (refer to Note 5
for further information on derivatives); senior and subordinated securities of $87 million and $28 million, respectively, at December 31, 2018, and $88
million and $48 million, respectively, at December 31, 2017, which the Firm purchased in connection with CIB’s secondary market-making activities.
(d) Includes interests held in re-securitization transactions.
(e) As of December 31, 2018 and 2017, 60% and 61%, respectively, of the Firm’s retained securitization interests, which are predominantly carried at fair
value and include amounts required to be held pursuant to credit risk retention rules, were risk-rated “A” or better, on an S&P-equivalent basis. The
retained interests in prime residential mortgages consisted of $1.3 billion of investment-grade for both periods, and $16 million and $48 million of
noninvestment-grade at December 31, 2018 and 2017, respectively. The retained interests in commercial and other securitizations trusts consisted of
$1.2 billion and $1.6 billion of investment-grade and $623 million and $412 million of noninvestment-grade retained interests at December 31, 2018
and 2017, respectively.
JPMorgan Chase & Co./2018 Form 10-K
245
Notes to consolidated financial statements
Residential mortgage
The Firm securitizes residential mortgage loans originated
by CCB, as well as residential mortgage loans purchased
from third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans it
originated or purchased, and for certain mortgage loans
purchased by CIB. For securitizations of loans serviced by
CCB, the Firm has the power to direct the significant
activities of the VIE because it is responsible for decisions
related to loan modifications and workouts. CCB may also
retain an interest upon securitization.
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsored
securitization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests
and amounts required to be held pursuant to credit risk
retention rules) in residential mortgage securitizations at
the time of securitization, and/or reacquires positions in the
secondary market in the normal course of business. In
certain instances, as a result of the positions retained or
reacquired by CIB or held by CCB, when considered together
with the servicing arrangements entered into by CCB, the
Firm is deemed to be the primary beneficiary of certain
securitization trusts. Refer to the table on page 248 of this
Note for more information on consolidated residential
mortgage securitizations.
The Firm does not consolidate a residential mortgage
securitization (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have the
power to direct the most significant activities of the trust)
or does not hold a beneficial interest in the trust that could
potentially be significant to the trust. Refer to the table on
page 248 of this Note for more information on the
consolidated residential mortgage securitizations, and the
table on the previous page of this Note for further
information on interests held in nonconsolidated residential
mortgage securitizations.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,
and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests (including
amounts required to be held pursuant to credit risk
retention rules) in commercial mortgage securitizations at
the time of securitization but, generally, the Firm does not
service commercial loan securitizations. For commercial
mortgage securitizations the power to direct the significant
activities of the VIE generally is held by the servicer or
investors in a specified class of securities (“controlling
class”). The Firm generally does not retain an interest in the
controlling class in its sponsored commercial mortgage
securitization transactions. Refer to the table on page 248
of this Note for more information on the consolidated
commercial mortgage securitizations, and the table on the
previous page of this Note for further information on
interests held in nonconsolidated securitizations.
Re-securitizations
The Firm engages in certain re-securitization transactions in
which debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur in
connection with both agency (Federal National Mortgage
Association (“Fannie Mae”), Federal Home Loan Mortgage
Corporation (“Freddie Mac”) and Government National
Mortgage Association (“Ginnie Mae”)) and nonagency
(private-label) sponsored VIEs, which may be backed by
either residential or commercial mortgages. The Firm’s
consolidation analysis is largely dependent on the Firm’s
role and interest in the re-securitization trusts.
The following table presents the principal amount of
securities transferred to re-securitization VIEs.
Year ended December 31,
(in millions)
Transfers of securities to
VIEs
2018
2017
2016
Firm-sponsored private-label
$
— $
— $
647
Agency
15,532
12,617
11,241
Most re-securitizations with which the Firm is involved are
client-driven transactions in which a specific client or group
of clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that the
decision-making power of the entity is shared between the
Firm and its clients, considering the joint effort and
decisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
In more limited circumstances, the Firm creates a
nonagency re-securitization trust independently and not in
conjunction with specific clients. In these circumstances, the
Firm is deemed to have the unilateral ability to direct the
most significant activities of the re-securitization trust
because of the decisions made during the establishment
and design of the trust; therefore, the Firm consolidates the
re-securitization VIE if the Firm holds an interest that could
potentially be significant.
Additionally, the Firm may invest in beneficial interests of
third-party-sponsored re-securitizations and generally
purchases these interests in the secondary market. In these
circumstances, the Firm does not have the unilateral ability
to direct the most significant activities of the re-
securitization trust, either because it was not involved in the
initial design of the trust, or the Firm is involved with an
independent third-party sponsor and demonstrates shared
power over the creation of the trust; therefore, the Firm
does not consolidate the re-securitization VIE.
246
JPMorgan Chase & Co./2018 Form 10-K
The following table presents information on
nonconsolidated re-securitization VIEs.
December 31,
(in millions)
Firm-sponsored private-label
Assets held in VIEs with continuing
involvement(a)
Interest in VIEs
Agency
Interest in VIEs
Nonconsolidated
re-securitization VIEs
2018
2017
$
118
$
10
783
29
3,058
2,250
(a) Represents the principal amount and includes the notional amount of
interest-only securities.
As of December 31, 2018 and 2017, the Firm did not
consolidate any agency re-securitization VIEs or any Firm-
sponsored private-label re-securitization VIEs.
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 of commercial paper.
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. Refer to
page 248 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
$20.1 billion and $20.4 billion of the commercial paper
issued by the Firm-administered multi-seller conduits at
December 31, 2018 and 2017, respectively, which have
been eliminated in consolidation. The Firm’s investments
reflect the Firm’s funding needs and capacity and were not
driven by market illiquidity. Other than the amounts
required to be held pursuant to credit risk retention rules,
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 commitments were
$8.0 billion and $8.8 billion at December 31, 2018 and
2017, respectively, and are reported as off-balance sheet
lending-related commitments. For more information on off-
balance sheet lending-related commitments, refer to Note
27.
Municipal bond vehicles
Municipal bond vehicles or tender option bond (“TOB”)
trusts allow institutions 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. Customer TOB trusts are sponsored by a third
party; refer to page 249 on this Note for further
information. The Firm serves as sponsor for all non-
customer TOB transactions. The Firm may provide various
services to a TOB trust, including remarketing agent,
liquidity or tender option provider, and/or sponsor.
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,
JPMorgan Chase & Co./2018 Form 10-K
247
Notes to consolidated financial statements
but is not obligated to, make markets in floaters. Floaters
held by the Firm were not material during 2018 and 2017.
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 TOB trust’s purchase of the floaters, or it directly
purchases the tendered floaters.
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 it has the
right to receive benefits and bear losses that could
potentially be significant to the municipal bond vehicle.
Consolidated VIE assets and liabilities
The following table presents information on assets and liabilities related to VIEs consolidated by the Firm as of December 31,
2018 and 2017.
December 31, 2018 (in millions)
VIE program type
Assets
Liabilities
Trading
assets
Loans
Other(b)
Total
assets(c)
Beneficial
interests in
VIE assets(d)
Other(e)
Total
liabilities
Firm-sponsored credit card trusts
$
— $
31,760 $
491 $
32,251
$
13,404 $
12 $
13,416
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities(a)
Other
—
1,779
53
134
24,411
—
3,285
—
300
4
40
178
24,711
1,783
3,378
312
4,842
1,685
308
2
33
3
161
103
4,875
1,688
469
105
Total
$
1,966 $
59,456 $
1,013 $
62,435
$
20,241 $
312 $
20,553
December 31, 2017 (in millions)
VIE program type
Assets
Liabilities
Trading
assets
Loans
Other(b)
Total
assets(c)
Beneficial
interests in
VIE assets(d)
Other(e)
Total
liabilities
Firm-sponsored credit card trusts
$
— $
41,923 $
652 $
42,575
$
21,278 $
16 $
21,294
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities(a)
Other
—
1,278
66
105
23,411
—
3,661
48
3
55
—
1,916
23,459
1,281
3,782
2,021
3,045
1,265
359
134
28
2
199
104
3,073
1,267
558
238
Total
$
1,449 $
68,995 $
2,674 $
73,118
$
26,081 $
349 $
26,430
(a) Includes residential and commercial mortgage securitizations.
(b) Includes assets classified as cash and other assets on the Consolidated balance sheets.
(c) The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The assets and liabilities include
third-party assets and liabilities of consolidated VIEs and exclude intercompany balances that eliminate in consolidation.
(d) The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item on the Consolidated balance sheets titled,
“Beneficial interests issued by consolidated variable interest entities.” The holders of these beneficial interests generally do not have recourse to the
general credit of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $13.7 billion and $21.8 billion at
December 31, 2018 and 2017, respectively. For additional information on interest-bearing long-term beneficial interests, refer to Note 19.
(e) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.
248
JPMorgan Chase & Co./2018 Form 10-K
information on off-balance sheet lending-related
commitments, refer to Note 27.
Loan securitizations
The Firm has securitized and sold a variety of loans,
including residential mortgage, credit card, and commercial
mortgage. The purposes of these securitization transactions
were to satisfy investor demand and to generate liquidity
for the Firm.
For loan securitizations in which the Firm is not required to
consolidate the trust, the Firm records the transfer of the
loan receivable to the trust as a sale when all of the
following accounting criteria for a sale are met: (1) the
transferred financial assets are legally isolated from the
Firm’s creditors; (2) the transferee or beneficial interest
holder can pledge or exchange the transferred financial
assets; and (3) the Firm does not maintain effective control
over the transferred financial assets (e.g., the Firm cannot
repurchase the transferred assets before their maturity and
it does not have the ability to unilaterally cause the holder
to return the transferred assets).
For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.
VIEs sponsored by third parties
The Firm enters into transactions with VIEs structured by
other parties. These include, for example, acting as a
derivative counterparty, liquidity provider, investor,
underwriter, placement agent, remarketing agent, trustee
or custodian. These transactions are conducted at arm’s-
length, and individual credit decisions are based on the
analysis of the specific VIE, taking into consideration the
quality of the underlying assets. Where the Firm does not
have the power to direct the activities of the VIE that most
significantly impact the VIE’s economic performance, or a
variable interest that could potentially be significant, the
Firm generally does not consolidate the VIE, but it records
and reports these positions on its Consolidated balance
sheets in the same manner it would record and report
positions in respect of any other third-party transaction.
Tax credit vehicles
The Firm holds investments in unconsolidated tax credit
vehicles, which are limited partnerships and similar entities
that construct, own and operate affordable housing,
alternative energy, and other projects. These entities are
primarily considered VIEs. A third party is typically the
general partner or managing member and has control over
the significant activities of the tax credit vehicles, and
accordingly the Firm does not consolidate tax credit
vehicles. The Firm generally invests in these partnerships as
a limited partner and earns a return primarily through the
receipt of tax credits allocated to the projects. The
maximum loss exposure, represented by equity investments
and funding commitments, was $16.5 billion and $13.4
billion, of which $4.0 billion and $3.2 billion was unfunded
at December 31, 2018 and 2017, respectively. In order to
reduce the risk of loss, the Firm assesses each project and
withholds varying amounts of its capital investment until
the project qualifies for tax credits. Refer to Note 24 for
further information on affordable housing tax credits. For
more information on off-balance sheet lending-related
commitments, refer to Note 27.
Customer municipal bond vehicles (TOB trusts)
The Firm may provide various services to Customer TOB
trusts, including remarketing agent, liquidity or tender
option provider. 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, the
Firm has recourse to the third-party Residual holders for
any shortfall. The Firm does not have any intent to protect
Residual holders from potential losses on any of the
underlying municipal bonds. 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. The
Firm’s maximum exposure as a liquidity provider to
Customer TOB trusts at December 31, 2018 and 2017, was
$4.8 billion and $5.3 billion, respectively. The fair value of
assets held by such VIEs at December 31, 2018 and 2017
was $7.7 billion and $9.2 billion, respectively. For more
JPMorgan Chase & Co./2018 Form 10-K
249
Notes to consolidated financial statements
Securitization activity
The following table provides information related to the Firm’s securitization activities for the years ended December 31, 2018,
2017 and 2016, related to assets held in Firm-sponsored securitization entities that were not consolidated by the Firm, and
where sale accounting was achieved at the time of the securitization.
2018
2017
2016
Year ended December 31,
(in millions)
Principal securitized
All cash flows during the period:(a)
Proceeds received from loan sales as financial
instruments(b)(c)
Servicing fees collected(d)
Purchases of previously transferred financial assets (or
the underlying collateral)(e)
Cash flows received on interests
Residential
mortgage(f)
Commercial
and other(g)
Residential
mortgage(f)
Commercial
and other(g)
Residential
mortgage(f)
Commercial
and other(g)
$
$
$
$
6,431 $
10,159
6,449 $
10,218
319
—
411
2
—
301
$
$
5,532 $
10,252
5,661 $
10,340
338
1
463
3
—
918
1,817 $
8,964
1,831 $
9,094
477
37
482
3
—
1,441
(a) Excludes re-securitization transactions.
(b) Predominantly includes Level 2 assets.
(c) The carrying value of the loans accounted for at fair value approximated the proceeds received upon loan sale.
(d) The prior period amounts have been revised to conform with the current period presentation.
(e) Includes cash paid by the Firm to reacquire assets from nonconsolidated entities – for example, loan repurchases due to representation and warranties and servicer
“clean-up” calls.
(f) Includes prime mortgages only. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie Mac.
(g) Includes commercial mortgage and other consumer loans.
Key assumptions used to value retained interests originated
during the year are shown in the table below.
Year ended December 31,
2018
2017
2016
Residential mortgage retained interest:
Weighted-average life (in years)
Weighted-average discount rate
7.6
4.8
4.5
3.6%
2.9%
4.2%
Commercial mortgage retained interest:
Weighted-average life (in years)
Weighted-average discount rate
5.3
7.1
6.2
4.0%
4.4%
5.8%
Loans and excess MSRs sold to U.S. government-
sponsored enterprises, loans in securitization
transactions pursuant to Ginnie Mae guidelines, and other
third-party-sponsored securitization entities
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course of
business, sells originated and purchased mortgage loans
and certain originated excess MSRs on a nonrecourse basis,
predominantly to U.S. government-sponsored enterprises
(“U.S. GSEs”). These loans and excess MSRs are sold
primarily for the purpose of securitization by the U.S. GSEs,
who provide certain guarantee provisions (e.g., credit
enhancement of the loans). The Firm also sells loans into
securitization transactions pursuant to Ginnie Mae
guidelines; these loans are typically insured or guaranteed
by another U.S. government agency. The Firm does not
consolidate the securitization vehicles underlying these
transactions as it is not the primary beneficiary. For a
limited number of loan sales, the Firm is obligated to share
a portion of the credit risk associated with the sold loans
with the purchaser. Refer to Note 27 for additional
information about the Firm’s loan sales and securitization-
related indemnifications. Refer to Note 15 for additional
information about the impact of the Firm’s sale of certain
excess MSRs.
250
JPMorgan Chase & Co./2018 Form 10-K
The following table summarizes the activities related to
loans sold to the U.S. GSEs, loans in securitization
transactions pursuant to Ginnie Mae guidelines, and other
third-party-sponsored securitization entities.
Year ended December 31,
(in millions)
Carrying value of loans sold
Proceeds received from loan
sales as cash
$
$
Proceeds from loans sales as
securities(a)
Total proceeds received from
loan sales(b)
2018
2017
2016
44,609 $
64,542 $
52,869
9 $
117 $
592
43,671
63,542
51,852
$
43,680 $
63,659 $
52,444
Gains/(losses) on loan sales(c)(d) $
(93) $
163 $
222
(a) Predominantly includes securities from U.S. GSEs and Ginnie Mae that
are generally sold shortly after receipt.
(b) Excludes the value of MSRs retained upon the sale of loans.
(c) Gains/(losses) on loan sales include the value of MSRs.
(d) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.
Options to repurchase delinquent loans
In addition to the Firm’s obligation to repurchase certain
loans due to material breaches of representations and
warranties as discussed in Note 27, the Firm also has the
option to repurchase delinquent loans that it services for
Ginnie Mae loan pools, as well as for other U.S. government
agencies under certain arrangements. The Firm typically
elects to repurchase delinquent loans from Ginnie Mae loan
pools as it continues to service them and/or manage the
foreclosure process in accordance with the applicable
requirements, and such loans continue to be insured or
guaranteed. When the Firm’s repurchase option becomes
exercisable, such loans must be reported on the
Consolidated balance sheets as a loan with a corresponding
liability. For additional information, refer to Note 12.
The following table presents loans the Firm repurchased or
had an option to repurchase, real estate owned, and
foreclosed government-guaranteed residential mortgage
loans recognized on the Firm’s Consolidated balance sheets
as of December 31, 2018 and 2017. Substantially all of
these loans and real estate are insured or guaranteed by
U.S. government agencies.
December 31,
(in millions)
2018
2017
Loans repurchased or option to repurchase(a)
$
7,021 $
8,629
Real estate owned
Foreclosed government-guaranteed residential
mortgage loans(b)
75
95
361
527
(a) Predominantly all of these amounts relate to loans that have been
repurchased from Ginnie Mae loan pools.
(b) Relates to voluntary repurchases of loans, which are included in
accrued interest and accounts receivable.
Loan delinquencies and liquidation losses
The table below includes information about components of nonconsolidated securitized financial assets held in Firm-sponsored
private-label securitization entities, in which the Firm has continuing involvement, and delinquencies as of December 31, 2018
and 2017.
As of or for the year ended December 31, (in millions)
2018
2017
2018
2017
2018
2017
Securitized assets
90 days past due
Net liquidation losses(a)
Securitized loans
Residential mortgage:
Prime/ Alt-A & option ARMs
Subprime
Commercial and other
Total loans securitized
$ 50,679 $ 52,280
$
3,354 $
4,870
$
610 $
15,434
79,387
17,612
63,411
2,478
225
3,276
957
(169)
280
790
719
114
$ 145,500 $ 133,303
$
6,057 $
9,103
$
721 $
1,623
(a) Includes liquidation gains as a result of private label mortgage settlement payments during the first quarter of 2018, which were reflected as asset recoveries by
trustees.
JPMorgan Chase & Co./2018 Form 10-K
251
Notes to consolidated financial statements
Note 15 – Goodwill and Mortgage servicing rights
Goodwill
Goodwill is recorded upon completion of a business
combination as the difference between the purchase price
and the fair value of the net assets acquired. Subsequent to
initial recognition, goodwill is not amortized but is tested
for impairment during the fourth quarter of each fiscal
year, or more often if events or circumstances, such as
adverse changes in the business climate, indicate there may
be impairment.
The goodwill associated with each business combination is
allocated to the related reporting units, which are
determined based on how the Firm’s businesses are
managed and how they are reviewed by the Firm’s
Operating Committee. The following table presents goodwill
attributed to the business segments.
December 31, (in millions)
2018
2017
2016
Consumer & Community Banking
$ 30,984 $ 31,013 $ 30,797
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
6,770
2,860
6,857
6,776
2,860
6,858
6,772
2,861
6,858
Total goodwill
$ 47,471 $ 47,507 $ 47,288
The following table presents changes in the carrying
amount of goodwill.
Year ended December 31, (in
millions)
2018
2017
2016
Balance at beginning of period
$ 47,507
$ 47,288
$ 47,325
Changes during the period from:
Business combinations(a)
Dispositions(b)
Other(c)
—
—
(36)
199
—
20
—
(72)
35
Balance at December 31,
$ 47,471
$ 47,507
$ 47,288
(a) For 2017, represents CCB goodwill in connection with an acquisition.
(b) For 2016, represents AWM goodwill, which was disposed of as part of
a sale.
(c) Includes foreign currency remeasurement and other adjustments.
Goodwill impairment testing
The Firm’s goodwill was not impaired at December 31,
2018, 2017, and 2016.
The goodwill impairment test is performed in two steps. In
the first step, the current fair value of each reporting unit is
compared with its carrying value. If the fair value is in
excess of the carrying value, then the reporting unit’s
goodwill is considered not to be impaired. If the fair value is
less than the carrying value, then a second step is
performed. In the second step, the implied current fair
value of the reporting unit’s goodwill is determined by
comparing the fair value of the reporting unit (as
determined in step one) to the fair value of the net assets of
the reporting unit, as if the reporting unit were being
acquired in a business combination. The resulting implied
current fair value of goodwill is then compared with the
carrying value of the reporting unit’s goodwill. If the
carrying value of the goodwill exceeds its implied current
fair value, then an impairment charge is recognized for the
excess. If the carrying value of goodwill is less than its
implied current fair value, then no goodwill impairment is
recognized.
The Firm uses the reporting units’ allocated capital plus
goodwill and other intangible assets capital as a proxy for
the carrying values of equity for the reporting units in the
goodwill impairment testing. Reporting unit equity is
determined on a similar basis as the allocation of capital to
the Firm’s lines of business and takes into consideration
capital level of similarly-rated peers and applicable
regulatory requirements. Proposed line of business equity
levels are incorporated into the Firm’s annual budget
process, which is reviewed by the Firm’s Board of Directors.
Allocated capital is further reviewed on a periodic basis and
updated as needed.
252
JPMorgan Chase & Co./2018 Form 10-K
Mortgage servicing rights
MSRs represent the fair value of expected future cash flows
for performing servicing activities for others. The fair value
considers estimated future servicing fees and ancillary
revenue, offset by estimated costs to service the loans, and
generally declines over time as net servicing cash flows are
received, effectively amortizing the MSR asset against
contractual servicing and ancillary fee income. MSRs are
either purchased from third parties or recognized upon sale
or securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to account
for its MSRs at fair value. The Firm treats its MSRs as a
single class of servicing assets based on the availability of
market inputs used to measure the fair value of its MSR
asset and its treatment of MSRs as one aggregate pool for
risk management purposes. The Firm estimates the fair
value of MSRs using an option-adjusted spread (“OAS”)
model, which projects MSR cash flows over multiple interest
rate scenarios in conjunction with the Firm’s prepayment
model, and then discounts these cash flows at risk-adjusted
rates. The model considers portfolio characteristics,
contractually specified servicing fees, prepayment
assumptions, delinquency rates, costs to service, late
charges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates and
assumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.
The primary method the Firm uses to estimate the fair
value of its reporting units is the income approach. This
approach projects cash flows for the forecast period and
uses the perpetuity growth method to calculate terminal
values. These cash flows and terminal values are then
discounted using an appropriate discount rate. Projections
of cash flows are based on the reporting units’ earnings
forecasts which are reviewed with senior management of
the Firm. The discount rate used for each reporting unit
represents an estimate of the cost of equity for that
reporting unit and is determined considering the Firm’s
overall estimated cost of equity (estimated using the Capital
Asset Pricing Model), as adjusted for the risk characteristics
specific to each reporting unit (for example, for higher
levels of risk or uncertainty associated with the business or
management’s forecasts and assumptions). To assess the
reasonableness of the discount rates used for each
reporting unit management compares the discount rate to
the estimated cost of equity for publicly traded institutions
with similar businesses and risk characteristics. In addition,
the weighted average cost of equity (aggregating the
various reporting units) is compared with the Firms’ overall
estimated cost of equity to ensure reasonableness.
The valuations derived from the discounted cash flow
analysis are then compared with market-based trading and
transaction multiples for relevant competitors. Trading and
transaction comparables are used as general indicators to
assess the general reasonableness of the estimated fair
values, although precise conclusions generally cannot be
drawn due to the differences that naturally exist between
the Firm’s businesses and competitor institutions.
Management also takes into consideration a comparison
between the aggregate fair values of the Firm’s reporting
units and JPMorgan Chase’s market capitalization. In
evaluating this comparison, management considers several
factors, including (i) a control premium that would exist in a
market transaction, (ii) factors related to the level of
execution risk that would exist at the firmwide level that do
not exist at the reporting unit level and (iii) short-term
market volatility and other factors that do not directly
affect the value of individual reporting units.
Declines in business performance, increases in credit losses,
increases in capital requirements, as well as deterioration
in economic or market conditions, adverse regulatory or
legislative changes or increases in the estimated market
cost of equity, could cause the estimated fair values of the
Firm’s reporting units or their associated goodwill to
decline in the future, which could result in a material
impairment charge to earnings in a future period related to
some portion of the associated goodwill.
JPMorgan Chase & Co./2018 Form 10-K
253
Notes to consolidated financial statements
The fair value of MSRs is sensitive to changes in interest
rates, including their effect on prepayment speeds. MSRs
typically decrease in value when interest rates decline
because declining interest rates tend to increase
prepayments and therefore reduce the expected life of the
net servicing cash flows that comprise the MSR asset.
Conversely, securities (e.g., mortgage-backed securities),
principal-only certificates and certain derivatives (i.e.,
those for which the Firm receives fixed-rate interest
payments) increase in value when interest rates decline.
JPMorgan Chase uses combinations of derivatives and
securities to manage the risk of changes in the fair value of
MSRs. The intent is to offset any interest-rate related
changes in the fair value of MSRs with changes in the fair
value of the related risk management instruments.
The following table summarizes MSR activity for the years ended December 31, 2018, 2017 and 2016.
As of or for the year ended December 31, (in millions, except where otherwise noted)
Fair value at beginning of period
MSR activity:
Originations of MSRs
Purchase of MSRs
Disposition of MSRs(a)
Net additions
Changes due to collection/realization of expected cash flows
Changes in valuation due to inputs and assumptions:
Changes due to market interest rates and other(b)
Changes in valuation due to other inputs and assumptions:
Projected cash flows (e.g., cost to service)
Discount rates
Prepayment model changes and other(c)
Total changes in valuation due to other inputs and assumptions
Total changes in valuation due to inputs and assumptions
Fair value at December 31,
Change in unrealized gains/(losses) included in income related to MSRs held at December 31,
Contractual service fees, late fees and other ancillary fees included in income
Third-party mortgage loans serviced at December 31, (in billions)
Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(d)
2018
6,030
$
2017
$
6,096
$
2016
6,608
931
315
(636)
610
(740)
1,103
—
(140)
963
(797)
300
(202)
15
24
(109)
(70)
230
6,130
230
1,778
521.0
3.0
(102)
(19)
91
(30)
(232)
6,030
(232)
1,886
555.0
4.0
$
$
679
—
(109)
570
(919)
(72)
(35)
7
(63)
(91)
(163)
6,096
(163)
2,124
593.3
4.7
$
$
$
$
(a) Includes excess MSRs transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities (“SMBS”). In each transaction, a
portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired the remaining balance of those SMBS as trading securities.
(b) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and
expected prepayments.
(c) Represents changes in prepayments other than those attributable to changes in market interest rates.
(d) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within
a short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm’s credit risk associated with these servicer
advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right
to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if
they were not made in accordance with applicable rules and agreements.
254
JPMorgan Chase & Co./2018 Form 10-K
The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2018, 2017 and 2016.
Year ended December 31,
(in millions)
CCB mortgage fees and related
income
2018
2017
2016
Net production revenue
$ 268
$ 636
$ 853
Net mortgage servicing revenue:
Operating revenue:
Loan servicing revenue
1,835
2,014
2,336
Changes in MSR asset fair value
due to collection/realization of
expected cash flows
The table below outlines the key economic assumptions
used to determine the fair value of the Firm’s MSRs at
December 31, 2018 and 2017, and outlines the
sensitivities of those fair values to immediate adverse
changes in those assumptions, as defined below.
December 31,
(in millions, except rates)
Weighted-average prepayment speed
assumption (“CPR”)
2018
2017
8.78%
9.35%
Impact on fair value of 10% adverse change $ (205)
$ (221)
Impact on fair value of 20% adverse change
Weighted-average option adjusted spread
Impact on fair value of 100 basis points
adverse change
(397)
8.70%
(427)
9.04%
$ (235)
$ (250)
(740)
(795)
(916)
Impact on fair value of 200 basis points
Total operating revenue
1,095
1,219
1,420
adverse change
(452)
(481)
CPR: Constant prepayment rate.
Changes in fair value based on variations in assumptions
generally cannot be easily extrapolated, because the
relationship of the change in the assumptions to the change
in fair value are often highly interrelated and may not be
linear. In this table, the effect that a change in a particular
assumption may have on the fair value is calculated without
changing any other assumption. In reality, changes in one
factor may result in changes in another, which would either
magnify or counteract the impact of the initial change.
Risk management:
Changes in MSR asset fair value
due to market interest rates
and other(a)
Other changes in MSR asset fair
value due to other inputs and
assumptions in model(b)
Change in derivative fair value
and other
Total risk management
Total net mortgage servicing
revenue
300
(202)
(72)
(70)
(30)
(91)
(341)
(111)
(10)
(242)
380
217
984
977
1,637
Total CCB mortgage fees and
related income
All other
1,252
1,613
2,490
2
3
1
Mortgage fees and related income
$1,254
$ 1,616
$2,491
(a) Represents both the impact of changes in estimated future
prepayments due to changes in market interest rates, and the
difference between actual and expected prepayments.
(b) Represents the aggregate impact of changes in model inputs and
assumptions such as projected cash flows (e.g., cost to service),
discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices).
JPMorgan Chase & Co./2018 Form 10-K
255
Note 18 – Accounts payable and other liabilities
Accounts payable and other liabilities consist of brokerage
payables, which includes payables to customers, dealers
and clearing organizations, and payables from security
purchases that did not settle; accrued expenses, including
income tax payables and credit card rewards liability; and
all other liabilities, including obligations to return securities
received as collateral and litigation reserves.
The following table details the components of accounts
payable and other liabilities.
December 31, (in millions)
Brokerage payables
Other payables and liabilities(a)
Total accounts payable and other
liabilities
2018
2017
$ 114,794
$ 102,727
81,916
86,656
$ 196,710
$ 189,383
(a) Includes credit card rewards liability of $5.8 billion and $4.9 billion at
December 31, 2018 and 2017, respectively.
Notes to consolidated financial statements
Note 16 – Premises and equipment
Premises and equipment, including leasehold
improvements, are carried at cost less accumulated
depreciation and amortization. JPMorgan Chase computes
depreciation using the straight-line method over the
estimated useful life of an asset. For leasehold
improvements, the Firm uses the straight-line method
computed over the lesser of the remaining term of the
leased facility or the estimated useful life of the leased
asset.
JPMorgan Chase capitalizes certain costs associated with
the acquisition or development of internal-use software.
Once the software is ready for its intended use, these costs
are amortized on a straight-line basis over the software’s
expected useful life and reviewed for impairment on an
ongoing basis.
Note 17 – Deposits
At December 31, 2018 and 2017, noninterest-bearing and
interest-bearing deposits were as follows.
December 31, (in millions)
2018
2017
U.S. offices
Noninterest-bearing
$ 369,505
$ 393,645
Interest-bearing (included $19,691, and
$14,947 at fair value)(a)
831,085
793,618
Total deposits in U.S. offices
1,200,590
1,187,263
Non-U.S. offices
Noninterest-bearing
Interest-bearing (included $3,526 and
$6,374 at fair value)(a)
Total deposits in non-U.S. offices
Total deposits
19,092
15,576
250,984
270,076
241,143
256,719
$ 1,470,666
$1,443,982
(a) Includes structured notes classified as deposits for which the fair value
option has been elected. For further discussion, refer to Note 3.
At December 31, 2018 and 2017, time deposits in
denominations of $250,000 or more were as follows.
December 31, (in millions)
U.S. offices
Non-U.S. offices
Total
2018
2017
$ 25,119
$ 30,671
41,661
29,049
$ 66,780
$ 59,720
At December 31, 2018, the maturities of interest-bearing
time deposits were as follows.
December 31, 2018
(in millions)
2019
2020
2021
2022
2023
After 5 years
Total
U.S.
Non-U.S.
Total
$ 31,757
$ 40,259
$
72,016
6,309
5,235
2,884
1,719
3,515
229
19
173
372
2,023
6,538
5,254
3,057
2,091
5,538
$ 51,419
$ 43,075
$
94,494
256
JPMorgan Chase & Co./2018 Form 10-K
Note 19 – Long-term debt
JPMorgan Chase issues long-term debt denominated in various currencies, predominantly U.S. dollars, with both fixed and
variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed instruments,
which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions revenue in the
Consolidated statements of income, except for unrealized gains/(losses) due to DVA which are recorded in OCI. The following
table is a summary of long-term debt carrying values (including unamortized premiums and discounts, issuance costs,
valuation adjustments and fair value adjustments, where applicable) by remaining contractual maturity as of December 31,
2018.
Under 1 year
1-5 years
After 5 years
Total
2018
2017
Total
By remaining maturity at
December 31,
(in millions, except rates)
Parent company
Senior debt:
Fixed rate
$
Variable rate
8,958
4,037
$
55,362
$
81,500
$
145,820
$
141,551
14,025
4,916
22,978
Interest rates(a)
0.17-6.30%
0.23-4.95%
0.45-6.40%
0.17-6.40%
Subordinated debt:
Fixed rate
$
Variable rate
Interest rates(a)
146
—
8.53%
Subsidiaries
Federal Home Loan Banks
advances:
Subtotal
$
13,141
Fixed rate
$
Variable rate
12
11,000
$
$
$
—
3.38%
71,335
25
29,300
$
$
1,948
$
12,214
$
14,308
9
9
3.63-8.00%
3.38-8.53%
3.38-8.53%
98,639
$
183,115
$
182,667
Interest rates(a)
2.58-2.95%
2.36-2.96%
2.43-2.52%
2.36-2.96%
Senior debt:
Fixed rate
$
Variable rate
1,574
6,667
$
6,454
22,277
Interest rates(a)
1.65-7.50%
2.60-7.50%
Subordinated debt:
Fixed rate
Variable rate
Interest rates(a)
Subtotal
Junior subordinated debt:
Fixed rate
$
$
$
$
$
$
—
—
—%
19,253
—
—
—%
—
32,394
4,634
2,324
$
$
$
$
$
$
—
—
—%
58,056
—
—
—%
—
129,391
2,977
3,471
Variable rate
Interest rates(a)
Subtotal
Fixed rate
Variable rate
Total long-term debt(b)(c)(d)
Long-term beneficial
interests:
Total long-term beneficial
interests(e)
118
4,000
$
155
44,300
$
$
$
$
8,406
6,657
$
16,434
35,601
1.00-7.50%
1.00-7.50%
301
—
8.25%
19,482
659
1,466
$
$
$
301
—
8.25%
96,791
659
1,466
3.04-8.75%
3.04-8.75%
$
$
$
2,125
120,246
—
308
$
$
$
2,125
282,031
(f)(g)
7,611
6,103
26,461
0.16-7.25%
$
14,646
9
$
$
$
$
$
$
$
$
167
60,450
1.18-2.00%
11,990
26,218
0.22-7.50%
313
—
8.25%
99,138
690
1,585
1.88-8.75%
2,275
284,080
13,579
8,192
Interest rates
1.27-2.87%
0.00-3.01%
2.50-4.62%
0.00-4.62%
0.00-6.54%
$
6,958
$
6,448
$
308
$
13,714
$
21,771
(a) The interest rates shown are the range of contractual rates in effect at December 31, 2018 and 2017, respectively, including non-U.S. dollar fixed- and variable-rate issuances,
which excludes the effects of the associated derivative instruments used in hedge accounting relationships, if applicable. The use of these derivative instruments modifies the
Firm’s exposure to the contractual interest rates disclosed in the table above. Including the effects of the hedge accounting derivatives, the range of modified rates in effect at
December 31, 2018, for total long-term debt was (0.06)% to 8.88%, versus the contractual range of 0.17% to 8.75% presented in the table above. The interest rate ranges
shown exclude structured notes accounted for at fair value.
(b) Included long-term debt of $47.7 billion and $63.5 billion secured by assets totaling $207.0 billion and $208.4 billion at December 31, 2018 and 2017, respectively. The
amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
Included $54.9 billion and $47.5 billion of long-term debt accounted for at fair value at December 31, 2018 and 2017, respectively.
(c)
(d) Included $11.2 billion and $10.3 billion of outstanding zero-coupon notes at December 31, 2018 and 2017, respectively. The aggregate principal amount of these notes at their
respective maturities is $37.4 billion and $33.5 billion, respectively. The aggregate principal amount reflects the contractual principal payment at maturity, which may exceed
the contractual principal payment at the Firm’s next call date, if applicable.
(e) Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIEs. Also included $28 million and $45 million accounted for at fair value at
December 31, 2018 and 2017, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $6.5 billion and $4.3 billion at December 31,
2018 and 2017, respectively.
(f) At December 31, 2018, long-term debt in the aggregate of $138.2 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to maturity, based on the
terms specified in the respective instruments.
(g) The aggregate carrying values of debt that matures in each of the five years subsequent to 2018 is $32.4 billion in 2019, $46.7 billion in 2020, $40.0 billion in 2021, $16.3
billion in 2022 and $26.4 billion in 2023.
JPMorgan Chase & Co./2018 Form 10-K
257
Junior subordinated deferrable interest debentures
On September 10, 2018 the Firm’s last remaining issuer of
outstanding trust preferred securities (“issuer trust”) was
liquidated, resulting in $475 million of trust preferred
securities and $15 million of trust common securities
originally issued by the issuer trust being cancelled. The
junior subordinated debentures previously held by the trust
issuer were distributed pro rata to the holders of the trust
preferred and trust common securities. The carrying value
of the junior subordinated debt was $659 million as of
December 31, 2018.
Notes to consolidated financial statements
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for at
fair value were 3.28% and 2.87% as of December 31,
2018 and 2017, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, in
conjunction with some of its debt issuances. The use of
these instruments modifies the Firm’s interest expense on
the associated debt. The modified weighted-average
interest rates for total long-term debt, including the effects
of related derivative instruments, were 3.64% and 2.56%
as of December 31, 2018 and 2017, respectively.
JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including both long-term debt and
structured notes. These guarantees rank on parity with the
Firm’s other unsecured and unsubordinated indebtedness.
The amount of such guaranteed long-term debt and
structured notes was $10.9 billion and $7.9 billion at
December 31, 2018 and 2017, respectively.
The Firm’s unsecured debt does not contain requirements
that would call for an acceleration of payments, maturities
or changes in the structure of the existing debt, provide any
limitations on future borrowings or require additional
collateral, based on unfavorable changes in the Firm’s credit
ratings, financial ratios, earnings or stock price.
258
JPMorgan Chase & Co./2018 Form 10-K
Note 20 – Preferred stock
At December 31, 2018 and 2017, JPMorgan Chase was
authorized to issue 200 million shares of preferred stock, in
one or more series, with a par value of $1 per share.
In the event of a liquidation or dissolution of the Firm,
JPMorgan Chase’s preferred stock then outstanding takes
precedence over the Firm’s common stock with respect to
the payment of dividends and the distribution of assets.
The following is a summary of JPMorgan Chase’s non-cumulative preferred stock outstanding as of December 31, 2018 and 2017.
Shares at December 31,(a)
Carrying value
(in millions)
at December 31,
2018
2017
2018
2017
Issue date
Contractual
rate
in effect at
December
31, 2018
Earliest
redemption
date
Date at
which
dividend
rate
becomes
floating
Floating
annual
rate of
three-month
LIBOR plus:
90,000
92,500
88,000
143,000
142,500
115,000
169,625
90,000
$
900 $
92,500
88,000
143,000
142,500
115,000
—
925
880
1,430
1,425
1,150
1,696
900
925
880
1,430
1,425
1,150
2/5/2013
1/30/2014
6/23/2014
2/12/2015
6/4/2015
7/29/2015
—
9/21/2018
5.450% 3/1/2018
6.700
6.300
6.125
6.100
6.150
5.750
3/1/2019
9/1/2019
3/1/2020
9/1/2020
9/1/2020
12/1/2023
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
Dividend
declared
per
share(b)
$136.25
167.50
157.50
153.13
152.50
153.75
111.81
(c)
430,375
600,000
4,304
6,000
4/23/2008
LIBOR +
3.47% 4/30/2018 4/30/2018 LIBOR + 3.47% $395.00 (d)
(d)
147.34
Fixed-rate:
Series P
Series T
Series W
Series Y
Series AA
Series BB
Series DD
Fixed-to-floating-
rate:
Series I
Series Q
Series R
Series S
Series U
Series V
Series X
Series Z
Series CC
150,000
150,000
200,000
100,000
250,000
160,000
200,000
125,750
150,000
150,000
200,000
100,000
250,000
160,000
200,000
125,750
1,500
1,500
2,000
1,000
2,500
1,600
2,000
1,258
1,500
1,500
2,000
1,000
2,500
1,600
2,000
1,258
4/23/2013
7/29/2013
1/22/2014
3/10/2014
6/9/2014
9/23/2014
4/21/2015
10/20/2017
5.150
6.000
6.750
6.125
5.000
6.100
5.300
4.625
5/1/2023
5/1/2023
LIBOR + 3.25
8/1/2023
8/1/2023
LIBOR + 3.30
2/1/2024
2/1/2024
4/30/2024 4/30/2024
7/1/2019
7/1/2019
10/1/2024 10/1/2024
5/1/2020
5/1/2020
11/1/2022 11/1/2022
LIBOR + 3.78
LIBOR + 3.33
LIBOR + 3.32
LIBOR + 3.33
LIBOR + 3.80
LIBOR + 2.58
148.45
153.09
257.50
300.00
337.50
306.25
250.00
305.00
265.00
231.25
(d)
(d)
(c)
Total preferred
stock
2,606,750
2,606,750
$26,068 $26,068
(a) Represented by depositary shares.
(b) Dividends on fixed-rate preferred stock are payable quarterly. Dividends on fixed-to-floating-rate preferred stock are payable semiannually while at a fixed rate, and payable
quarterly after converting to a floating rate.
(c) Dividend per share is prorated based on the number of days outstanding for the period.
(d) The dividend rate for Series I preferred stock became floating and payable quarterly starting on April 30, 2018; prior to which the dividend rate was fixed at 7.90% or $395.00
per share payable semi annually. The Firm declared a dividend of $147.34, $148.45 and $153.09 per share on outstanding Series I preferred stock on June 15, 2018,
September 14, 2018 and December 14, 2018, respectively.
Each series of preferred stock has a liquidation value and
redemption price per share of $10,000, plus accrued but
unpaid dividends.
On January 24, 2019, the Firm issued $1.85 billion of
6.00% non-cumulative preferred stock, Series EE, and on
January 30, 2019, the Firm announced that it will redeem
all $925 million of its outstanding 6.70% non-cumulative
preferred stock, Series T, on March 1, 2019. On September
21, 2018, the Firm issued $1.7 billion of 5.75% non-
cumulative preferred stock, Series DD. On October 30,
2018, the Firm redeemed $1.7 billion of its fixed-to-floating
rate non-cumulative perpetual preferred stock, Series I.
On October 20, 2017, the Firm issued $1.3 billion of fixed-
to-floating rate non-cumulative preferred stock, Series CC,
with an initial dividend rate of 4.625%. On December 1,
2017, the Firm redeemed all $1.3 billion of its outstanding
5.50% non-cumulative preferred stock, Series O. Quarterly
dividend per share for Series O was $137.50 for the years
ended December 31, 2017 and 2016.
Redemption rights
Each series of the Firm’s preferred stock may be redeemed
on any dividend payment date on or after the earliest
redemption date for that series. All outstanding preferred
stock series except Series I may also be redeemed following
a “capital treatment event,” as described in the terms of
each series. Any redemption of the Firm’s preferred stock is
subject to non-objection from the Board of Governors of the
Federal Reserve System (the “Federal Reserve”).
JPMorgan Chase & Co./2018 Form 10-K
259
Notes to consolidated financial statements
Note 21 – Common stock
At December 31, 2018 and 2017, JPMorgan Chase was
authorized to issue 9.0 billion shares of common stock with
a par value of $1 per share.
Common shares issued (newly issued or reissuance from
treasury) by JPMorgan Chase during the years ended
December 31, 2018, 2017 and 2016 were as follows.
Year ended December 31,
(in millions)
Total issued – balance at
January 1
Treasury – balance at January 1
Repurchase
Reissuance:
Employee benefits and
compensation plans
Warrant exercise
Employee stock purchase plans
Total reissuance
Total treasury – balance at
December 31
2018
2017
2016
4,104.9
4,104.9
4,104.9
(679.6)
(181.5)
(543.7)
(166.6)
(441.4)
(140.4)
21.7
9.4
0.9
32.0
24.5
5.4
0.8
30.7
26.0
11.1
1.0
38.1
(829.1)
(679.6)
(543.7)
Outstanding at December 31
3,275.8
3,425.3
3,561.2
There were no warrants to purchase shares of common
stock (“Warrants”) outstanding at December 31, 2018, as
any Warrants that were not exercised on or before October
29, 2018, have expired. At December 31, 2017, and 2016,
respectively, the Firm had 15.0 million and 24.9 million
Warrants outstanding.
On June 28, 2018, in conjunction with the Federal Reserve’s
release of its 2018 CCAR results, the Firm’s Board of
Directors authorized a $20.7 billion common equity
repurchase program. As of December 31, 2018, $10.4
billion of authorized repurchase capacity remained under
the program. This authorization includes shares
repurchased to offset issuances under the Firm’s share-
based compensation plans.
The following table sets forth the Firm’s repurchases of
common equity for the years ended December 31, 2018,
2017 and 2016. There were no Warrants repurchased
during the years ended December 31, 2018, 2017 and
2016.
Year ended December 31, (in millions)
2018
2017
2016
Total number of shares of common stock
repurchased
Aggregate purchase price of common
stock repurchases
181.5
166.6
140.4
$19,983
$15,410
$ 9,082
The Firm from time to time enters into written trading plans
under Rule 10b5-1 of the Securities Exchange Act of 1934
to facilitate repurchases in accordance with the common
equity repurchase program. A Rule 10b5-1 repurchase plan
allows the Firm to repurchase its equity during periods
when it would not otherwise be repurchasing common
equity — for example, during internal trading “blackout
periods.” All purchases under a Rule 10b5-1 plan must be
made according to a predefined plan established when the
Firm is not aware of material nonpublic information. For
additional information regarding repurchases of the Firm’s
equity securities, refer to Part II, Item 5: Market for
registrant’s common equity, related stockholder matters
and issuer purchases of equity securities, on page 30.
As of December 31, 2018, approximately 85 million shares
of common stock were reserved for issuance under various
employee incentive, compensation, option and stock
purchase plans, and directors’ compensation plans.
260
JPMorgan Chase & Co./2018 Form 10-K
Note 22 – Earnings per share
Basic earnings per share (“EPS”) is calculated using the
two-class method. Dilutive EPS is calculated under both the
two-class and treasury stock methods, and the more
dilutive amount is reported. Under the two-class method, all
earnings (distributed and undistributed) are allocated to
each class of common stock and participating securities
based on their respective rights to receive dividends.
JPMorgan Chase grants RSUs under its share-based
compensation programs, which entitle recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to the dividends paid to holders of common
stock; these unvested awards meet the definition of
participating securities. Accordingly, these RSUs are treated
as a separate class of securities in computing basic EPS, and
are not included as incremental shares in computing
dilutive EPS; refer to Note 9 for additional information. For
each of the periods presented diluted EPS calculated under
the two-class method was more dilutive.
The following table presents the calculation of basic and
diluted EPS for the years ended December 31, 2018, 2017
and 2016.
Year ended December 31,
(in millions,
except per share amounts)
Basic earnings per share
2018
2017
2016
Net income
$ 32,474 $ 24,441 $ 24,733
Less: Preferred stock dividends
1,551
1,663
1,647
Net income applicable to common
equity
Less: Dividends and undistributed
earnings allocated to participating
securities
Net income applicable to common
stockholders
30,923
22,778
23,086
214
211
252
$ 30,709 $ 22,567 $ 22,834
Total weighted-average basic
shares outstanding
3,396.4
3,551.6
3,658.8
Net income per share
$
9.04 $
6.35 $
6.24
Diluted earnings per share
Net income applicable to common
stockholders
Total weighted-average basic shares
outstanding
Add: Employee stock options, SARs,
warrants and unvested PSUs
Total weighted-average diluted
shares outstanding
$ 30,709 $ 22,567 $ 22,834
3,396.4
3,551.6
3,658.8
17.6
25.2
31.2
3,414.0
3,576.8
3,690.0
Net income per share
$
9.00 $
6.31 $
6.19
JPMorgan Chase & Co./2018 Form 10-K
261
Notes to consolidated financial statements
Note 23 – Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), fair value changes of excluded components on fair value hedges, cash
flow hedging activities, and net loss and prior service costs/(credit) related to the Firm’s defined benefit pension and OPEB plans.
Year ended
December 31,
(in millions)
Balance at
December 31,
2015
Cumulative effect of
change in
accounting
principle(a)
Net change
Balance at
December 31,
2016
Net change
Balance at
December 31,
2017
Cumulative effect of
changes in
accounting
principles:(b)
Premium
amortization on
purchased
callable debt
securities
Hedge accounting
Reclassification of
certain tax
effects from
AOCI
Net change
Balance at
December 31,
2018
Unrealized
gains/(losses)
on investment
securities
Translation
adjustments,
net of hedges
Fair value
hedges(c)
Cash flow
hedges
Defined benefit pension
and OPEB plans
DVA on fair value
option elected
liabilities
Accumulated
other
comprehensive
income/(loss)
$ 2,629
$
(162)
NA
$
(44)
$
(2,231)
$
—
$
192
—
(1,105)
$ 1,524
$
640
—
(2)
(164)
(306)
NA
NA
NA
NA
—
(56)
—
(28)
$
(100)
$
(2,259)
176
738
$ 2,164
$
(470)
$
—
$
76
$
(1,521)
154
(330)
(176)
(192)
154
(1,521)
$
(1,175)
1,056
(368)
$
(119)
$
$
261
169
466
(1,858)
—
—
—
(54)
—
—
(277)
20
—
(107)
16
(201)
—
—
(414)
(373)
—
—
261
115
(79)
1,043
(288)
(1,476)
$ 1,202
$
(727)
$
(161) $
(109)
$
(2,308)
$
596
$
(1,507)
(a) Effective January 1, 2016, the Firm adopted new accounting guidance related to the recognition and measurement of financial liabilities where the fair
value option has been elected. This guidance requires the portion of the total change in fair value caused by changes in the Firm’s own credit risk (DVA) to
be presented separately in OCI; previously these amounts were recognized in net income.
(b) Represents the adjustment to AOCI as a result of the new accounting standards adopted in the first quarter of 2018. For additional information, refer to
Note 1.
(c) Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessment
of hedge effectiveness and recorded in other comprehensive income. The initial cost of cross-currency basis spreads is recognized in earnings as part of
the accrual of interest on the cross currency swap.
262
JPMorgan Chase & Co./2018 Form 10-K
The following table presents the pre-tax and after-tax changes in the components of OCI.
Year ended December 31, (in millions)
Pre-tax
Unrealized gains/(losses) on investment securities:
2018
Tax
effect
After-tax
Pre-tax
2017
Tax
effect
After-tax
Pre-tax
2016
Tax
effect
After-tax
Net unrealized gains/(losses) arising during the period
$ (2,825) $
665
$ (2,160) $
944
$ (346) $
598
$ (1,628) $
611
$ (1,017)
Reclassification adjustment for realized (gains)/losses
included in net income(a)
Net change
Translation adjustments(b):
Translation
Hedges
Net change
Fair value hedges, net change(c):
Cash flow hedges:
395
(2,430)
(1,078)
1,236
158
(140)
Net unrealized gains/(losses) arising during the period
(245)
Reclassification adjustment for realized (gains)/losses
included in net income(d)
Net change
Defined benefit pension and OPEB plans:
Prior service credit/(cost) arising during the period
Net gain/(loss) arising during the period
Reclassification adjustments included in net income(e):
Amortization of net loss
Amortization of prior service cost/(credit)
Curtailment (gain)/loss
Settlement (gain)/loss
Foreign exchange and other
Net change
(18)
(263)
(29)
(558)
103
(23)
21
2
34
(450)
(93)
572
156
(294)
(138)
33
58
4
62
7
102
(24)
6
(5)
—
(9)
77
302
66
(1,858)
1,010
(922)
1,313
942
20
(107)
(187)
(14)
(201)
(22)
(456)
79
(17)
16
2
25
(373)
(1,294)
19
NA
147
134
281
—
802
250
(36)
—
2
(54)
964
(24)
(370)
(801)
476
(325)
NA
42
640
(141)
(1,769)
53
664
(88)
(1,105)
512
(818)
(306)
NA
(261)
262
1
NA
99
(102)
(3)
NA
(162)
160
(2)
NA
(55)
92
(450)
168
(282)
(50)
(105)
—
(160)
(90)
13
—
(1)
12
(226)
84
176
—
642
160
(23)
—
1
(42)
738
360
(90)
—
(366)
257
(36)
—
4
77
(64)
(134)
34
—
145
(97)
14
—
(1)
(25)
36
199
930
226
(56)
—
(221)
160
(22)
—
3
52
(28)
$
(330)
$ (1,521)
DVA on fair value option elected liabilities, net change: $ 1,364
$
(321) $ 1,043
$
(303) $
111
$
(192) $ (529) $
Total other comprehensive income/(loss)
$ (1,761) $
285
$ (1,476) $ 1,971
$ (915) $ 1,056
$ (2,451) $
(a) The pre-tax amount is reported in investment securities gains/(losses) in the Consolidated statements of income.
(b) Reclassifications of pre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the
Consolidated statements of income. During the year ended December 31, 2018, the Firm reclassified a net pre-tax loss of $168 million to other expense
related to the liquidation of certain legal entities, $17 million related to net investment hedge losses and $151 million related to cumulative translation
adjustments. During the year ended December 31, 2017, the Firm reclassified a net pre-tax loss of $25 million to other expense related to the liquidation
of a legal entity, $50 million related to net investment hedge gains and $75 million related to cumulative translation adjustments.
(c) Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessment
of hedge effectiveness and recorded in other comprehensive income. The initial cost of cross-currency basis spreads is recognized in earnings as part of
the accrual of interest on the cross-currency swap.
(d) The pre-tax amounts are predominantly recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements
of income.
(e) The pre-tax amount is reported in other expense in the Consolidated statements of income.
JPMorgan Chase & Co./2018 Form 10-K
263
Notes to consolidated financial statements
Note 24 – Income taxes
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide income
taxes on all transactions recorded in the Consolidated
Financial Statements. This method requires that income
taxes reflect the expected future tax consequences of
temporary differences between the carrying amounts of
assets or liabilities for book and tax purposes. Accordingly,
a deferred tax asset or liability for each temporary
difference is determined based on the tax rates that the
Firm expects to be in effect when the underlying items of
income and expense are realized. JPMorgan Chase’s
expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance is
established to reduce deferred tax assets to the amount the
Firm expects to realize.
Due to the inherent complexities arising from the nature of
the Firm’s businesses, and from conducting business and
being taxed in a substantial number of jurisdictions,
significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chase
and the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, the
Firm’s final tax-related assets and liabilities may ultimately
be different from those currently reported.
Effective tax rate and expense
A reconciliation of the applicable statutory U.S. federal
income tax rate to the effective tax rate for each of the
years ended December 31, 2018, 2017 and 2016, is
presented in the following table.
Effective tax rate
Year ended December 31,
2018
2017
2016
Statutory U.S. federal tax rate
21.0%
35.0%
35.0%
Increase/(decrease) in tax rate
resulting from:
U.S. state and local income
taxes, net of U.S. federal
income tax benefit
Tax-exempt income
Non-U.S. subsidiary earnings
Business tax credits
Impact of the TCJA
Other, net
4.0
(1.5)
0.6
(3.5)
(0.7)
0.4
(a)
2.2
(3.3)
(3.1)
(4.2)
5.4
(0.1)
Effective tax rate
20.3%
31.9%
(a)
2.4
(3.1)
(1.7)
(3.9)
—
(0.3)
28.4%
(a) Predominantly includes earnings of U.K. subsidiaries that were deemed
to be reinvested indefinitely through December 31, 2017.
Impact of the TCJA
2018
The Firm’s effective tax rate decreased in 2018 due to the
TCJA, including the reduction in the U.S. federal statutory
income tax rate as well as a $302 million net tax benefit
recorded in 2018 resulting from changes in the estimates
related to the remeasurement of certain deferred taxes and
the deemed repatriation tax on non-U.S. earnings. The
change in estimate was recorded under SEC Staff
Accounting Bulletin No. 118 (“SAB 118”) and the
accounting under SAB 118 is complete.
2017
The Firm’s effective tax rate increased in 2017 driven by a
$1.9 billion income tax expense representing the estimated
impact of the enactment of the TCJA. The $1.9 billion tax
expense was predominantly driven by a deemed
repatriation of the Firm’s unremitted non-U.S. earnings and
adjustments to the value of certain tax-oriented
investments partially offset by a benefit from the
revaluation of the Firm’s net deferred tax liability.
The deemed repatriation of the Firm’s unremitted non-U.S.
earnings is based on the post-1986 earnings and profits of
each controlled foreign corporation. The calculation
resulted in an estimated income tax expense of $3.7 billion.
Furthermore, accounting for income taxes requires the
remeasurement of certain deferred tax assets and liabilities
based on the rates at which they are expected to reverse in
the future. The Firm remeasured its deferred tax asset and
liability balances in the fourth quarter of 2017 to the new
statutory U.S. federal income tax rate of 21% as well as any
federal benefit associated with state and local deferred
income taxes. The remeasurement resulted in an estimated
income tax benefit of $2.1 billion.
Adjustments were also recorded in 2017 to income tax
expense for certain tax-oriented investments. These
adjustments were driven by changes to affordable housing
proportional amortization resulting from the reduction of
the federal income tax rate under the TCJA. SAB 118 did not
apply to these adjustments.
264
JPMorgan Chase & Co./2018 Form 10-K
Prior to December 31, 2017, U.S. federal income taxes had
not been provided on the undistributed earnings of certain
non-U.S. subsidiaries, to the extent that such earnings had
been reinvested abroad for an indefinite period of time. The
Firm is no longer maintaining the indefinite reinvestment
assertion on the undistributed earnings of those non-U.S.
subsidiaries in light of the enactment of the TCJA. The U.S.
federal and state and local income taxes associated with the
undistributed and previously untaxed earnings of those
non-U.S. subsidiaries was included in the deemed
repatriation charge recorded as of December 31, 2017.
Affordable housing tax credits
The Firm recognized $1.5 billion, $1.7 billion and $1.7
billion of tax credits and other tax benefits associated with
investments in affordable housing projects within income
tax expense for the years 2018, 2017 and 2016,
respectively. The amount of amortization of such
investments reported in income tax expense was $1.2
billion, $1.7 billion and $1.2 billion, respectively. The
carrying value of these investments, which are reported in
other assets on the Firm’s Consolidated balance sheets, was
$7.9 billion and $7.8 billion at December 31, 2018 and
2017, respectively. The amount of commitments related to
these investments, which are reported in accounts payable
and other liabilities on the Firm’s Consolidated balance
sheets, was $2.3 billion and $2.4 billion at December 31,
2018 and 2017, respectively.
The components of income tax expense/(benefit) included
in the Consolidated statements of income were as follows
for each of the years ended December 31, 2018, 2017, and
2016.
Income tax expense/(benefit)
Year ended December 31,
(in millions)
Current income tax expense/(benefit)
U.S. federal
Non-U.S.
U.S. state and local
Total current income tax expense/
(benefit)
Deferred income tax expense/(benefit)
U.S. federal
Non-U.S.
U.S. state and local
Total deferred income tax
expense/(benefit)
2018
2017
2016
$ 2,854
$ 5,718
$ 2,488
2,077
1,638
2,400
1,029
1,760
904
6,569
9,147
5,152
1,359
2,174
4,364
(93)
455
(144)
282
(73)
360
1,721
2,312
4,651
Total income tax expense
$ 8,290
$ 11,459
$ 9,803
Total income tax expense includes $54 million, $252
million and $55 million of tax benefits recorded in 2018,
2017, and 2016, respectively, as a result of tax audit
resolutions.
Tax effect of items recorded in stockholders’ equity
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly in
stockholders’ equity. The tax effect of all items recorded
directly to stockholders’ equity resulted in an increase of
$172 million in 2018, a decrease of $915 million in 2017,
and an increase of $925 million in 2016.
Results from Non-U.S. earnings
The following table presents the U.S. and non-U.S.
components of income before income tax expense for the
years ended December 31, 2018, 2017 and 2016.
Year ended December 31,
(in millions)
U.S.
Non-U.S.(a)
2018
2017
2016
$ 33,052
$ 27,103
$ 26,651
7,712
8,797
7,885
Income before income tax expense
$ 40,764
$ 35,900
$ 34,536
(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.
JPMorgan Chase & Co./2018 Form 10-K
265
Notes to consolidated financial statements
Deferred taxes
Deferred income tax expense/(benefit) results from
differences between assets and liabilities measured for
financial reporting purposes versus income tax return
purposes. Deferred tax assets are recognized if, in
management’s judgment, their realizability is determined to
be more likely than not. If a deferred tax asset is
determined to be unrealizable, a valuation allowance is
established. The significant components of deferred tax
assets and liabilities are reflected in the following table as
of December 31, 2018 and 2017.
December 31, (in millions)
2018
2017
Deferred tax assets
Allowance for loan losses
$
3,433
$
Employee benefits
Accrued expenses and other
Non-U.S. operations
Tax attribute carryforwards
Gross deferred tax assets
Valuation allowance
1,129
2,701
629
163
8,055
(89)
3,395
688
3,528
327
219
8,157
(46)
Deferred tax assets, net of valuation
allowance
Deferred tax liabilities
Depreciation and amortization
Mortgage servicing rights, net of
$
$
hedges
Leasing transactions
Non-U.S. operations
Other, net
Gross deferred tax liabilities
7,966
$
8,111
2,533
$
2,299
2,586
4,719
—
3,713
13,551
2,757
3,483
200
3,502
12,241
Net deferred tax (liabilities)/assets
$
(5,585) $
(4,130)
JPMorgan Chase has recorded deferred tax assets of $163
million at December 31, 2018, in connection with U.S.
federal and non-U.S. net operating loss (“NOL”)
carryforwards and state and local capital loss
carryforwards. At December 31, 2018, total U.S. federal
NOL carryforwards were approximately $423 million, non-
U.S. NOL carryforwards were approximately $120 million
and state and local capital loss carryforwards were $1.3
billion. If not utilized, the U.S. federal NOL carryforwards
will expire between 2022 and 2036 and the state and local
capital loss carryforwards will expire between 2020 and
2022. Certain non-U.S. NOL carryforwards will expire
between 2028 and 2034 whereas others have an unlimited
carryforward period.
The valuation allowance at December 31, 2018, was due to
the state and local capital loss carryforwards and certain
non-U.S. deferred tax assets, including NOL carryforwards.
Unrecognized tax benefits
At December 31, 2018, 2017 and 2016, JPMorgan Chase’s
unrecognized tax benefits, excluding related interest
expense and penalties, were $4.9 billion, $4.7 billion and
$3.5 billion, respectively, of which $3.8 billion, $3.5 billion
and $2.6 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would not
affect the effective tax rate if they were recognized in the
Consolidated statements of income. These unrecognized
items include the tax effect of certain temporary
differences, the portion of gross state and local
unrecognized tax benefits that would be offset by the
benefit from associated U.S. federal income tax deductions,
and the portion of gross non-U.S. unrecognized tax benefits
that would have offsets in other jurisdictions. JPMorgan
Chase is presently under audit by a number of taxing
authorities, most notably by the Internal Revenue Service as
summarized in the Tax examination status table below. As
JPMorgan Chase is presently under audit by a number of
taxing authorities, it is reasonably possible that over the
next 12 months the resolution of these examinations may
increase or decrease the gross balance of unrecognized tax
benefits by as much as $0.9 billion. Upon settlement of an
audit, the change in the unrecognized tax benefit would
result from payment or income statement recognition.
The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits
for the years ended December 31, 2018, 2017 and 2016.
Year ended December 31,
(in millions)
2018
2017
2016
Balance at January 1,
$ 4,747
$ 3,450
$ 3,497
Increases based on tax positions
related to the current period
Increases based on tax positions
related to prior periods
Decreases based on tax positions
related to prior periods
Decreases related to cash
980
1,355
649
626
262
583
(1,249)
(350)
(785)
settlements with taxing authorities
(266)
(334)
(56)
Decreases related to a lapse of
applicable statute of limitations
—
—
(51)
Balance at December 31,
$ 4,861
$ 4,747
$ 3,450
After-tax interest expense/(benefit) and penalties related to
income tax liabilities recognized in income tax expense were
$192 million, $102 million and $86 million in 2018, 2017
and 2016, respectively.
At December 31, 2018 and 2017, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $887
million and $639 million, respectively, for income tax-
related interest and penalties.
266
JPMorgan Chase & Co./2018 Form 10-K
Tax examination status
JPMorgan Chase is continually under examination by the
Internal Revenue Service, by taxing authorities throughout
the world, and by many state and local jurisdictions
throughout the U.S. The following table summarizes the
status of significant income tax examinations of JPMorgan
Chase and its consolidated subsidiaries as of December 31,
2018.
December 31, 2018
Periods under
examination
JPMorgan Chase – U.S.
2006 – 2010
Status
Field examination of
amended returns
JPMorgan Chase – U.S.
2011 – 2013
Field Examination
JPMorgan Chase – U.S.
JPMorgan Chase – New
York State
2014 - 2016
2012 - 2014
Field Examination
Field Examination
JPMorgan Chase – New
2012 - 2014
Field Examination
York City
JPMorgan Chase –
California
2011 – 2012
Field Examination
JPMorgan Chase – U.K.
2006 – 2016
Field examination of
certain select entities
JPMorgan Chase & Co./2018 Form 10-K
267
Notes to consolidated financial statements
Note 25 – Restricted cash, other restricted
assets and intercompany funds transfers
Restricted cash and other restricted assets
Certain of the Firm’s cash and other assets are restricted as
to withdrawal or usage. These restrictions are imposed by
various regulatory authorities based on the particular
activities of the Firm’s subsidiaries.
The business of JPMorgan Chase Bank, N.A. is subject to
examination and regulation by the OCC. The Bank is a
member of the U.S. Federal Reserve System, and its
deposits in the U.S. are insured by the FDIC, subject to
applicable limits.
The Federal Reserve requires depository institutions to
maintain cash reserves with a Federal Reserve Bank. The
average required amount of reserve balances is deposited
by the Firm’s bank subsidiaries. In addition, the Firm is
required to maintain cash reserves at certain non-US
central banks.
The Firm is also subject to rules and regulations established
by other U.S. and non U.S. regulators. As part of its
compliance with the respective regulatory requirements,
the Firm’s broker-dealers (principally J.P. Morgan Securities
LLC in the U.S and J.P. Morgan Securities plc in the U.K.) are
subject to certain restrictions on cash and other assets.
Upon the adoption of the restricted cash guidance in the
first quarter of 2018, restricted and unrestricted cash are
reported together on the Consolidated balance sheets and
Consolidated statements of cash flows. The following table
presents the components of the Firm’s restricted cash:
December 31, (in billions)
2018
2017
$
22.1 $
25.7
Cash reserves – Federal Reserve
Banks
Segregated for the benefit of
securities and futures brokerage
customers
Cash reserves at non-U.S. central
banks and held for other general
purposes
Total restricted cash(a)
$
14.6
4.1
40.8 $
16.8
3.3
45.8
(a) Comprises $39.6 billion and $44.8 billion in deposits with banks, and
$1.2 billion and $1.0 billion in cash and due from banks on the
Consolidated balance sheets as of December 31, 2018 and 2017,
respectively.
Also, as of December 31, 2018 and 2017, the Firm had the
following other restricted assets:
• Cash and securities pledged with clearing organizations
for the benefit of customers of $20.6 billion and $18.0
billion, respectively.
• Securities with a fair value of $9.7 billion and $3.5
billion, respectively, were also restricted in relation to
customer activity.
Intercompany funds transfers
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase & Co. (“Parent Company”) and certain of its affiliates
from borrowing from banking subsidiaries unless the loans
are secured in specified amounts. Such secured loans
provided by any banking subsidiary to the Parent Company
or to any particular affiliate, together with certain other
transactions with such affiliate (collectively referred to as
“covered transactions”), are generally limited to 10% of the
banking subsidiary’s total capital, as determined by the risk-
based capital guidelines; the aggregate amount of covered
transactions between any banking subsidiary and all of its
affiliates is limited to 20% of the banking subsidiary’s total
capital.
The Parent Company’s two principal subsidiaries are
JPMorgan Chase Bank, N.A. and JPMorgan Chase Holdings
LLC, an intermediate holding company (the “IHC”). The IHC
holds the stock of substantially all of JPMorgan Chase’s
subsidiaries other than JPMorgan Chase Bank, N.A. and its
subsidiaries. The IHC also owns other assets and
intercompany indebtedness owing to the holding company.
The Parent Company is obligated to contribute to the IHC
substantially all the net proceeds received from securities
issuances (including issuances of senior and subordinated
debt securities and of preferred and common stock).
The principal sources of income and funding for the Parent
Company are dividends from JPMorgan Chase Bank, N.A.
and dividends and extensions of credit from the IHC. In
addition to dividend restrictions set forth in statutes and
regulations, the Federal Reserve, the OCC and the FDIC have
authority under the Financial Institutions Supervisory Act to
prohibit or to limit the payment of dividends by the banking
organizations they supervise, including the Parent Company
and its subsidiaries that are banks or bank holding
companies, if, in the banking regulator’s opinion, payment
of a dividend would constitute an unsafe or unsound
practice in light of the financial condition of the banking
organization. The IHC is prohibited from paying dividends or
extending credit to the Parent Company if certain capital or
liquidity “thresholds” are breached or if limits are otherwise
imposed by the Parent Company’s management or Board of
Directors.
At January 1, 2019, the Parent Company’s banking
subsidiaries could pay, in the aggregate, approximately $10
billion in dividends to their respective bank holding
companies without the prior approval of their relevant
banking regulators. The capacity to pay dividends in 2019
will be supplemented by the banking subsidiaries’ earnings
during the year.
268
JPMorgan Chase & Co./2018 Form 10-K
Note 26 – Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements and standards for the Firm’s
IDI, including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A.
Capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies and
banks, including the Firm and its IDI subsidiaries. Basel III
set forth two comprehensive approaches for calculating
RWA: a standardized approach (“Basel III Standardized”)
and an advanced approach (“Basel III Advanced”). Certain
of the requirements of Basel III were subject to phase-in
periods that began on January 1, 2014 and continued
through the end of 2018 (“transitional period”).
The three components of regulatory capital under the Basel
III rules are as illustrated below:
The following table presents the minimum and well-
capitalized ratios to which the Firm and its IDI subsidiaries
were subject as of December 31, 2018.
Minimum capital ratios
Well-capitalized ratios
BHC(a)(e)(f)
IDI(b)(e)(f)
BHC(c)
IDI(d)
9.0%
6.375%
—%
6.5%
10.5
12.5
4.0
5.0
7.875
9.875
4.00
6.00
6.0
10.0
5.0
—
8.0
10.0
5.0
6.0
Capital ratios
CET1
Tier 1
Total
Tier 1 leverage
SLR
Note: The table above is as defined by the regulations issued by the Federal
Reserve, OCC and FDIC and to which the Firm and its IDI subsidiaries are
subject.
(a) Represents the Transitional minimum capital ratios applicable to the
Firm under Basel III at December 31, 2018. At December 31, 2018,
the CET1 minimum capital ratio includes 1.875% resulting from the
phase in of the Firm’s 2.5% capital conservation buffer, and 2.625%
resulting from the phase in of the Firm’s 3.5% GSIB surcharge.
(b) Represents requirements for JPMorgan Chase’s IDI subsidiaries. The
CET1 minimum capital ratio includes 1.875% resulting from the phase
in of the 2.5% capital conservation buffer that is applicable to the IDI
subsidiaries. The IDI subsidiaries are not subject to the GSIB surcharge.
(c) Represents requirements for bank holding companies pursuant to
regulations issued by the Federal Reserve.
(d) Represents requirements for IDI subsidiaries pursuant to regulations
issued under the FDIC Improvement Act.
(e) For the period ended December 31, 2017 the CET1, Tier 1, Total and
Tier 1 leverage minimum capital ratios applicable to the Firm were
7.5%, 9.0%, 11.0% and 4.0% and the CET1, Tier 1, Total and Tier 1
leverage minimum capital ratios applicable to the Firm’s IDI
subsidiaries were 5.75%, 7.25%, 9.25% and 4.0% respectively.
(f) Represents minimum SLR requirement of 3.0%, as well as,
supplementary leverage buffers of 2.0% and 3.0% for BHC and IDI,
respectively.
Under the risk-based and leverage-based capital guidelines
of the Federal Reserve, JPMorgan Chase is required to
maintain minimum ratios for CET1, Tier 1, Total, Tier 1
leverage and the SLR. Failure to meet these minimum
requirements could cause the Federal Reserve to take
action. IDI subsidiaries are also subject to these capital
requirements by their respective primary regulators.
JPMorgan Chase & Co./2018 Form 10-K
269
Notes to consolidated financial statements
The following tables present the risk-based and leverage-based capital metrics for JPMorgan Chase and its significant IDI
subsidiaries under both the Basel III Standardized and Basel III Advanced Approaches. As of December 31, 2018 and 2017,
JPMorgan Chase and all of its IDI subsidiaries were well-capitalized and met all capital requirements to which each was subject.
December 31, 2018
(in millions, except ratios)
Regulatory capital
CET1 capital
Tier 1 capital
Total capital
Assets
Risk-weighted
Adjusted average(a)
Capital ratios(b)
CET1
Tier 1
Total
Tier 1 leverage(c)
December 31, 2017
(in millions, except ratios)
Regulatory capital
CET1 capital
Tier 1 capital
Total capital
Assets
Risk-weighted
Adjusted average(a)
Capital ratios(b)
CET1
Tier 1
Total
Tier 1 leverage(c)
Basel III Standardized Transitional
Basel III Advanced Transitional
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
$
183,474
$
187,259
$
23,696
$
183,474
$
187,259
$
209,093
237,511
187,259
198,494
23,696
28,628
209,093
227,435
187,259
192,250
23,696
23,696
27,196
1,528,916
2,589,887
1,348,230
2,189,293
112,513
118,036
1,421,205
2,589,887
1,205,539
2,189,293
174,469
118,036
12.0%
13.9%
21.1%
12.9%
15.5%
13.6%
13.7
15.5
8.1
13.9
14.7
8.6
21.1
25.4
20.1
14.7
16.0
8.1
15.5
15.9
8.6
13.6
15.6
20.1
Basel III Standardized Transitional
Basel III Advanced Transitional
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
$
183,300
$
184,375
$
21,600
$
183,300
$
184,375
$
208,644
238,395
184,375
195,839
21,600
27,691
208,644
227,933
184,375
189,510
(d)
21,600
21,600
26,250
1,499,506
2,514,270
1,338,970
(d)
2,116,031
113,108
126,517
1,435,825
2,514,270
1,241,916
(d)
2,116,031
190,523
126,517
12.2%
13.8%
19.1%
12.8%
14.8% (d)
11.3%
13.9
15.9
8.3
13.8
14.6
8.7
(d)
19.1
24.5
17.1
14.5
15.9
8.3
(d)
(d)
14.8
15.3
8.7
11.3
13.8
17.1
(a) Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assets
that are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
(b) For each of the risk-based capital ratios, the capital adequacy of the Firm and its IDI subsidiaries is evaluated against the lower of the two ratios as
calculated under Basel III approaches (Standardized or Advanced).
(c) The Tier 1 leverage ratio is not a risk-based measure of capital.
(d) The prior period amounts have been revised to conform with the current period presentation.
December 31, 2018
December 31, 2017
Basel III Advanced Fully Phased-In
Basel III Advanced Transitional
(in millions, except ratios)
Total leverage exposure(a)
SLR(a)
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
3,269,988
$
2,813,396
$
177,328
$
3,204,463
$
2,775,041
$
182,803
6.4%
6.7%
13.4%
6.5%
6.6%
11.8%
(a) Effective January 1, 2018, the SLR was fully phased-in under Basel III. The December 31, 2017 amounts were calculated under the Basel III Transitional
rules.
270
JPMorgan Chase & Co./2018 Form 10-K
Note 27 – Off–balance sheet lending-related
financial instruments, guarantees, and
other commitments
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to address
the financing needs of its customers and clients. The
contractual amount of these financial instruments
represents the maximum possible credit risk to the Firm
should the customer or client draw upon the commitment
or the Firm be required to fulfill its obligation under the
guarantee, and should the customer or client subsequently
fail to perform according to the terms of the contract. Most
of these commitments and guarantees are refinanced,
extended, cancelled, or expire without being drawn or a
default occurring. As a result, the total contractual amount
of these instruments is not, in the Firm’s view,
representative of its expected future credit exposure or
funding requirements.
To provide for probable credit losses inherent in wholesale
and certain consumer lending-commitments, an allowance
for credit losses on lending-related commitments is
maintained. Refer to Note 13 for further information
regarding the allowance for credit losses on lending-related
commitments. The following table summarizes the
contractual amounts and carrying values of off-balance
sheet lending-related financial instruments, guarantees and
other commitments at December 31, 2018 and 2017. The
amounts in the table below for credit card and home equity
lending-related commitments represent the total available
credit for these products. The Firm has not experienced,
and does not anticipate, that all available lines of credit for
these products will be utilized at the same time. The Firm
can reduce or cancel credit card lines of credit by providing
the borrower notice or, in some cases as permitted by law,
without notice. In addition, the Firm typically closes credit
card lines when the borrower is 60 days or more past due.
The Firm may reduce or close HELOCs when there are
significant decreases in the value of the underlying
property, or when there has been a demonstrable decline in
the creditworthiness of the borrower.
JPMorgan Chase & Co./2018 Form 10-K
271
Notes to consolidated financial statements
Off–balance sheet lending-related financial instruments, guarantees and other commitments
Expires in
1 year or
less
Expires
after
1 year
through
3 years
Contractual amount
2018
Expires
after
3 years
through
5 years
Expires
after 5
years
2017
Carrying value(i)
2017
2018
Total
Total
$
796 $
1,095 $
1,813 $ 17,197 $
20,901
$ 20,360
$
12 $
12
5,469
6,954
10,580
23,799
605,379
629,178
—
878
566
—
78
102
12
101
425
2,539
1,993
17,735
—
—
—
2,539
1,993
17,735
5,481
8,011
11,673
46,066
605,379
651,445
5,736
9,255
13,202
48,553
572,831
621,384
—
2
19
33
—
33
—
2
19
33
—
33
By remaining maturity at December 31,
(in millions)
Lending-related
Consumer, excluding credit card:
Home equity
Residential mortgage(a)
Auto
Consumer & Business Banking
Total consumer, excluding credit card
Credit card
Total consumer(b)
Wholesale:
Other unfunded commitments to extend credit(c)
62,384
123,751
154,177
11,178
351,490
331,160
852
840
Standby letters of credit and other financial
guarantees(c)
Other letters of credit(c)
Total wholesale(d)
Total lending-related
Other guarantees and commitments
Securities lending indemnification agreements and
guarantees(e)
14,408
11,462
5,248
2,380
2,608
177
40
—
33,498
2,825
35,226
3,712
521
3
636
3
79,400
135,390
159,465
13,558
387,813
370,098
1,376
1,479
$ 708,578 $ 137,929 $ 161,458 $ 31,293 $ 1,039,258
$ 991,482
$ 1,409 $ 1,512
Derivatives qualifying as guarantees
2,099
299
12,614
40,259
55,271
57,174
367
$ 186,077 $
— $
— $
— $ 186,077
$ 179,490
$
— $
Unsettled resale and securities borrowed
agreements
Unsettled repurchase and securities loaned
agreements
Loan sale and securitization-related
indemnifications:
Mortgage repurchase liability
Loans sold with recourse
Exchange & clearing house guarantees and
commitments(f)(g)
Other guarantees and commitments (g)(h)
102,008
57,732
NA
NA
58,960
3,874
—
—
NA
NA
—
542
—
—
NA
NA
—
299
—
—
NA
NA
—
3,468
102,008
76,859
57,732
44,205
NA
1,019
58,960
8,183
NA
1,169
13,871
8,206
—
304
—
—
111
38
—
—
—
89
30
—
(73)
(76)
(a) Includes certain commitments to purchase loans from correspondents.
(b) Predominantly all consumer lending-related commitments are in the U.S.
(c) At December 31, 2018 and 2017, reflected the contractual amount net of risk participations totaling $282 million and $334 million, respectively, for
other unfunded commitments to extend credit; $10.4 billion and $10.4 billion, respectively, for standby letters of credit and other financial guarantees;
and $385 million and $405 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown
gross of risk participations.
(d) Predominantly all wholesale lending-related commitments are in the U.S.
(e) At December 31, 2018 and 2017, collateral held by the Firm in support of securities lending indemnification agreements was $195.6 billion and $188.7
billion, respectively. Securities lending collateral primarily consists of cash and securities issued by governments that are members of G7 and U.S.
government agencies.
(f) At December 31, 2018, includes guarantees to the Fixed Income Clearing Corporation under the sponsored member repo program and commitments and
guarantees associated with the Firm’s membership in certain clearing houses. At December 31, 2017 includes commitments and guarantees associated
with the Firm’s membership in certain clearing houses.
(g) Certain guarantees and commitments associated with the Firm’s membership in clearing houses previously disclosed in “other guarantees and
commitments” are now disclosed in “Exchange and clearing house guarantees and commitments”. Prior period amounts have been revised to conform
with the current period presentation.
(h) At December 31, 2018 and 2017, primarily includes letters of credit hedged by derivative transactions and managed on a market risk basis, and unfunded
commitments related to institutional lending. Additionally, includes unfunded commitments predominantly related to certain tax-oriented equity
investments.
(i) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-
related products, the carrying value represents the fair value.
272
JPMorgan Chase & Co./2018 Form 10-K
Other unfunded commitments to extend credit
Other unfunded commitments to extend credit generally
consist of commitments for working capital and general
corporate purposes, extensions of credit to support
commercial paper facilities and bond financings in the event
that those obligations cannot be remarketed to new
investors, as well as committed liquidity facilities to clearing
organizations. The Firm also issues commitments under
multipurpose facilities which could be drawn upon in
several forms, including the issuance of a standby letter of
credit.
The Firm acts as a settlement and custody bank in the U.S.
tri-party repurchase transaction market. In its role as
settlement and custody bank, the Firm in part is exposed to
the intra-day credit risk of its cash borrower clients, usually
broker-dealers. This exposure arises under secured
clearance advance facilities that the Firm extended to its
clients (i.e. cash borrowers); these facilities contractually
limit the Firm’s intra-day credit risk to the facility amount
and must be repaid by the end of the day. As of
December 31, 2017, the secured clearance advance facility
maximum outstanding commitment amount was $1.5
billion. As of December 31, 2018 the Firm no longer offers
such arrangements to its clients.
Guarantees
U.S. GAAP requires that a guarantor recognize, at the
inception of a guarantee, a liability in an amount equal to
the fair value of the obligation undertaken in issuing the
guarantee. U.S. GAAP defines a guarantee as a contract that
contingently requires the guarantor to pay a guaranteed
party based upon: (a) changes in an underlying asset,
liability or equity security of the guaranteed party; or (b) a
third party’s failure to perform under a specified
agreement. The Firm considers the following off–balance
sheet arrangements to be guarantees under U.S. GAAP:
standby letters of credit and other financial guarantees,
securities lending indemnifications, certain indemnification
agreements included within third-party contractual
arrangements, certain derivative contracts and the
guarantees under the sponsored member repo program.
As required by U.S. GAAP, the Firm initially records
guarantees at the inception date fair value of the obligation
assumed (e.g., the amount of consideration received or the
net present value of the premium receivable). For certain
types of guarantees, the Firm records this fair value amount
in other liabilities with an offsetting entry recorded in cash
(for premiums received), or other assets (for premiums
receivable). Any premium receivable recorded in other
assets is reduced as cash is received under the contract, and
the fair value of the liability recorded at inception is
amortized into income as lending and deposit-related fees
over the life of the guarantee contract. For indemnifications
provided in sales agreements, a portion of the sale
proceeds is allocated to the guarantee, which adjusts the
gain or loss that would otherwise result from the
transaction. For these indemnifications, the initial liability is
amortized to income as the Firm’s risk is reduced (i.e., over
time or when the indemnification expires). Any contingent
liability that exists as a result of issuing the guarantee or
indemnification is recognized when it becomes probable
and reasonably estimable. The contingent portion of the
liability is not recognized if the estimated amount is less
than the carrying amount of the liability recognized at
inception (adjusted for any amortization). The contractual
amount and carrying value of guarantees and
indemnifications are included in the table on page 272. For
additional information on the guarantees, see below.
Standby letters of credit and other financial guarantees
Standby letters of credit and other financial guarantees are
conditional lending commitments issued by the Firm to
guarantee the performance of a client or customer to a
third party under certain arrangements, such as
commercial paper facilities, bond financings, acquisition
financings, trade and similar transactions.
The following table summarizes the contractual amount and carrying value of standby letters of credit and other financial
guarantees and other letters of credit arrangements as of December 31, 2018 and 2017.
Standby letters of credit, other financial guarantees and other letters of credit
December 31,
(in millions)
Investment-grade(a)
Noninvestment-grade(a)
Total contractual amount
Allowance for lending-related commitments
Guarantee liability
Total carrying value
Commitments with collateral
2018
2017
Standby letters of credit and
other financial guarantees
Other letters
of credit
Standby letters of credit and
other financial guarantees
Other letters
of credit
$
$
$
$
$
26,420
7,078
33,498
167
354
521
17,400
$
$
$
$
$
2,079
746
2,825
3
—
3
583
$
$
$
$
$
28,492
6,734
35,226
192
444
636
17,421
$
$
$
$
$
(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.
JPMorgan Chase & Co./2018 Form 10-K
2,646
1,066
3,712
3
—
3
878
273
Notes to consolidated financial statements
Securities lending indemnifications
Through the Firm’s securities lending program,
counterparties’ securities, via custodial and non-custodial
arrangements, may be lent to third parties. As part of this
program, the Firm provides an indemnification in the
lending agreements which protects the lender against the
failure of the borrower to return the lent securities. To
minimize its liability under these indemnification
agreements, the Firm obtains cash or other highly liquid
collateral with a market value exceeding 100% of the value
of the securities on loan from the borrower. Collateral is
marked to market daily to help assure that collateralization
is adequate. Additional collateral is called from the
borrower if a shortfall exists, or collateral may be released
to the borrower in the event of overcollateralization. If a
borrower defaults, the Firm would use the collateral held to
purchase replacement securities in the market or to credit
the lending client or counterparty with the cash equivalent
thereof.
Derivatives qualifying as guarantees
The Firm transacts certain derivative contracts that have
the characteristics of a guarantee under U.S. GAAP. These
contracts include written put options that require the Firm
to purchase assets upon exercise by the option holder at a
specified price by a specified date in the future. The Firm
may enter into written put option contracts in order to meet
client needs, or for other trading purposes. The terms of
written put options are typically five years or less.
Derivatives deemed to be guarantees also includes stable
value contracts, commonly referred to as “stable value
products”, that require the Firm to make a payment of the
difference between the market value and the book value of
a counterparty’s reference portfolio of assets in the event
that market value is less than book value and certain other
conditions have been met. Stable value products are
transacted in order to allow investors to realize investment
returns with less volatility than an unprotected portfolio.
These contracts are typically longer-term or may have no
stated maturity, but allow the Firm to elect to terminate the
contract under certain conditions.
The notional value of derivatives guarantees generally
represents the Firm’s maximum exposure. However,
exposure to certain stable value products is contractually
limited to a substantially lower percentage of the notional
amount.
The fair value of derivative guarantees reflects the
probability, in the Firm’s view, of whether the Firm will be
required to perform under the contract. The Firm reduces
exposures to these contracts by entering into offsetting
transactions, or by entering into contracts that hedge the
market risk related to the derivative guarantees.
The following table summarizes the derivatives qualifying as
guarantees as of December 31, 2018 and 2017.
(in millions)
Notional amounts
Derivative guarantees
Stable value contracts with
contractually limited exposure
Maximum exposure of stable
value contracts with
contractually limited exposure
Fair value
Derivative payables
Derivative receivables
December 31,
2018
December 31,
2017
$
55,271
$
57,174
28,637
29,104
2,963
3,053
367
—
304
—
In addition to derivative contracts that meet the
characteristics of a guarantee, the Firm is both a purchaser
and seller of credit protection in the credit derivatives
market. For a further discussion of credit derivatives, refer
to Note 5.
Unsettled securities financing agreements
In the normal course of business, the Firm enters into resale
and securities borrowed agreements. At settlement, these
commitments result in the Firm advancing cash to and
receiving securities collateral from the counterparty. The
Firm also enters into repurchase and securities loaned
agreements. At settlement, these commitments result in the
Firm receiving cash from and providing securities collateral
to the counterparty. Such agreements settle at a future
date. These agreements generally do not meet the
definition of a derivative, and therefore, are not recorded
on the Consolidated balance sheets until settlement date.
These agreements predominantly have regular-way
settlement terms. For a further discussion of securities
financing agreements, refer to Note 11.
Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale and
securitization activities with GSEs the Firm has made
representations and warranties that the loans sold meet
certain requirements, and that may require the Firm to
repurchase mortgage loans and/or indemnify the loan
purchaser if such representations and warranties are
breached by the Firm. Further, although the Firm’s
securitizations are predominantly nonrecourse, the Firm
does provide recourse servicing in certain limited cases
where it agrees to share credit risk with the owner of the
mortgage loans. To the extent that repurchase demands
that are received relate to loans that the Firm purchased
from third parties that remain viable, the Firm typically will
have the right to seek a recovery of related repurchase
losses from the third party. Generally, the maximum amount
of future payments the Firm would be required to make for
breaches of these representations and warranties would be
equal to the unpaid principal balance of such loans that are
deemed to have defects that were sold to purchasers
(including securitization-related SPEs) plus, in certain
circumstances, accrued interest on such loans and certain
expenses.
274
JPMorgan Chase & Co./2018 Form 10-K
Private label securitizations
The liability related to repurchase demands associated with
private label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
For additional information regarding litigation, refer to Note
29.
Loans sold with recourse
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse and
nonrecourse basis. In nonrecourse servicing, the principal
credit risk to the Firm is the cost of temporary servicing
advances of funds (i.e., normal servicing advances). In
recourse servicing, the servicer agrees to share credit risk
with the owner of the mortgage loans, such as Fannie Mae
or Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying a
defaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and the
cost of holding and disposing of the underlying property.
The Firm’s securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. At December 31, 2018 and 2017, the
unpaid principal balance of loans sold with recourse totaled
$1.0 billion and $1.2 billion, respectively. The carrying
value of the related liability that the Firm has recorded in
accounts payable and other liabilities on the Consolidated
balance sheets, which is representative of the Firm’s view of
the likelihood it will have to perform under its recourse
obligations, was $30 million and $38 million at
December 31, 2018 and 2017, respectively.
Other off-balance sheet arrangements
Indemnification agreements – general
In connection with issuing securities to investors outside the
U.S., the Firm may agree to pay additional amounts to the
holders of the securities in the event that, due to a change
in tax law, certain types of withholding taxes are imposed
on payments on the securities. The terms of the securities
may also give the Firm the right to redeem the securities if
such additional amounts are payable. The Firm may also
enter into indemnification clauses in connection with the
licensing of software to clients (“software licensees”) or
when it sells a business or assets to a third party (“third-
party purchasers”), pursuant to which it indemnifies
software licensees for claims of liability or damages that
may occur subsequent to the licensing of the software, or
third-party purchasers for losses they may incur due to
actions taken by the Firm prior to the sale of the business or
assets. It is difficult to estimate the Firm’s maximum
exposure under these indemnification arrangements, since
this would require an assessment of future changes in tax
law and future claims that may be made against the Firm
that have not yet occurred. However, based on historical
experience, management expects the risk of loss to be
remote.
Card charge-backs
Under the rules of Visa USA, Inc., and MasterCard
International, JPMorgan Chase Bank, N.A., is primarily liable
for the amount of each processed card sales transaction
that is the subject of a dispute between a cardmember and
a merchant. If a dispute is resolved in the cardmember’s
favor, Merchant Services will (through the cardmember’s
issuing bank) credit or refund the amount to the
cardmember and will charge back the transaction to the
merchant. If Merchant Services is unable to collect the
amount from the merchant, Merchant Services will bear the
loss for the amount credited or refunded to the
cardmember. Merchant Services mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or by obtaining other collateral. However, in the
unlikely event that: (1) a merchant ceases operations and is
unable to deliver products, services or a refund; (2)
Merchant Services does not have sufficient collateral from
the merchant to provide cardmember refunds; and (3)
Merchant Services does not have sufficient financial
resources to provide cardmember refunds, JPMorgan Chase
Bank, N.A., would recognize the loss.
Merchant Services incurred aggregate losses of $30 million,
$28 million, and $85 million on $1,366.1 billion, $1,191.7
billion, and $1,063.4 billion of aggregate volume processed
for the years ended December 31, 2018, 2017 and 2016,
respectively. Incurred losses from merchant charge-backs
are charged to other expense, with the offset recorded in a
valuation allowance against accrued interest and accounts
receivable on the Consolidated balance sheets. The carrying
value of the valuation allowance was $23 million and $7
million at December 31, 2018 and 2017, respectively,
which the Firm believes, based on historical experience and
the collateral held by Merchant Services of $144 million
and $141 million at December 31, 2018 and 2017,
respectively, is representative of the payment or
performance risk to the Firm related to charge-backs.
Clearing Services – Client Credit Risk
The Firm provides clearing services for clients by entering
into securities purchases and sales and derivative contracts
with CCPs, including ETDs such as futures and options, as
well as OTC-cleared derivative contracts. As a clearing
member, the Firm stands behind the performance of its
clients, collects cash and securities collateral (margin) as
well as any settlement amounts due from or to clients, and
remits them to the relevant CCP or client in whole or part.
There are two types of margin: variation margin is posted
on a daily basis based on the value of clients’ derivative
contracts and initial margin is posted at inception of a
derivative contract, generally on the basis of the potential
changes in the variation margin requirement for the
contract.
As a clearing member, the Firm is exposed to the risk of
nonperformance by its clients, but is not liable to clients for
the performance of the CCPs. Where possible, the Firm
seeks to mitigate its risk to the client through the collection
of appropriate amounts of margin at inception and
throughout the life of the transactions. The Firm can also
cease providing clearing services if clients do not adhere to
JPMorgan Chase & Co./2018 Form 10-K
275
Sponsored Member Repo Program
In 2018 the Firm commenced the sponsored member repo
program, wherein the Firm acts as a sponsoring member to
clear eligible overnight resale and repurchase agreements
through the Government Securities Division of the Fixed
Income Clearing Corporation (“FICC”) on behalf of clients
that become sponsored members under the FICC’s rules.
The Firm also guarantees to the FICC the prompt and full
payment and performance of its sponsored member clients’
respective obligations under the FICC’s rules. The Firm
minimizes its liability under these overnight guarantees by
obtaining a security interest in the cash or high quality
securities collateral that the clients place with the clearing
house therefore the Firm expects the risk of loss to be
remote. The Firm’s maximum possible exposure, without
taking into consideration the associated collateral, is
included in the Exchange & clearing house guarantees and
commitments line on page 272. For additional information
on credit risk mitigation practices on resale agreements and
the types of collateral pledged under repurchase
agreements, refer to Note 11.
Guarantees of subsidiaries
In the normal course of business, the Parent Company may
provide counterparties with guarantees of certain of the
trading and other obligations of its subsidiaries on a
contract-by-contract basis, as negotiated with the Firm’s
counterparties. The obligations of the subsidiaries are
included on the Firm’s Consolidated balance sheets or are
reflected as off-balance sheet commitments; therefore, the
Parent Company has not recognized a separate liability for
these guarantees. The Firm believes that the occurrence of
any event that would trigger payments by the Parent
Company under these guarantees is remote.
The Parent Company has guaranteed certain long-term debt
and structured notes of its subsidiaries, including JPMorgan
Chase Financial Company LLC (“JPMFC”), a 100%-owned
finance subsidiary. All securities issued by JPMFC are fully
and unconditionally guaranteed by the Parent Company.
These guarantees, which rank on a parity with the Firm’s
unsecured and unsubordinated indebtedness, are not
included in the table on page 272 of this Note. For
additional information, refer to Note 19.
Notes to consolidated financial statements
their obligations under the clearing agreement. In the event
of nonperformance by a client, the Firm would close out the
client’s positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, with
any remaining shortfalls required to be paid by the Firm as
a clearing member.
The Firm reflects its exposure to nonperformance risk of the
client through the recognition of margin receivables from
clients and margin payables to CCPs; the clients’ underlying
securities or derivative contracts are not reflected in the
Firm’s Consolidated Financial Statements.
It is difficult to estimate the Firm’s maximum possible
exposure through its role as a clearing member, as this
would require an assessment of transactions that clients
may execute in the future. However, based upon historical
experience, and the credit risk mitigants available to the
Firm, management believes it is unlikely that the Firm will
have to make any material payments under these
arrangements and the risk of loss is expected to be remote.
For information on the derivatives that the Firm executes
for its own account and records in its Consolidated Financial
Statements, refer to Note 5.
Exchange & Clearing House Memberships
The Firm is a member of several securities and derivative
exchanges and clearing houses, both in the U.S. and other
countries, and it provides clearing services to its clients.
Membership in some of these organizations requires the
Firm to pay a pro rata share of the losses incurred by the
organization as a result of the default of another member.
Such obligations vary with different organizations. These
obligations may be limited to the amount (or a multiple of
the amount) of the Firm’s contribution to the guarantee
fund maintained by a clearing house or exchange as part of
the resources available to cover any losses in the event of a
member default. Alternatively, these obligations may also
include a pro rata share of the residual losses after applying
the guarantee fund. Additionally, certain clearing houses
require the Firm as a member to pay a pro rata share of
losses that may result from the clearing house’s investment
of guarantee fund contributions and initial margin,
unrelated to and independent of the default of another
member. Generally a payment would only be required
should such losses exceed the resources of the clearing
house or exchange that are contractually required to absorb
the losses in the first instance. In certain cases, it is difficult
to estimate the Firm’s maximum possible exposure under
these membership agreements, since this would require an
assessment of future claims that may be made against the
Firm that have not yet occurred. However, based on
historical experience, management expects the risk of loss
to the Firm to be remote. Where the Firm’s maximum
possible exposure can be estimated, the amount is disclosed
in the table on page 272, in the Exchange & clearing house
guarantees and commitments line.
276
JPMorgan Chase & Co./2018 Form 10-K
Note 28 – Commitments, pledged assets and
collateral
Lease commitments
At December 31, 2018, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancelable operating leases for premises and equipment
used primarily for banking purposes. Certain leases contain
renewal options or escalation clauses providing for
increased rental payments based on maintenance, utility
and tax increases, or they require the Firm to perform
restoration work on leased premises. No lease agreement
imposes restrictions on the Firm’s ability to pay dividends,
engage in debt or equity financing transactions or enter into
further lease agreements.
The following table presents required future minimum
rental payments under operating leases with noncancelable
lease terms that expire after December 31, 2018.
Year ended December 31, (in millions)
2019
2020
2021
2022
2023
After 2023
Total minimum payments required
Less: Sublease rentals under noncancelable subleases
Net minimum payments required
Total rental expense was as follows.
1,561
1,520
1,320
1,138
973
4,480
10,992
(825)
$
10,167
Pledged assets
The Firm may pledge financial assets that it owns to
maintain potential borrowing capacity at discount windows
with Federal Reserve banks, various other central banks and
FHLBs. Additionally, pledged assets are used for other
purposes, including to collateralize repurchase and other
securities financing agreements, to cover short sales and to
collateralize derivative contracts and deposits. Certain of
these pledged assets may be sold or repledged or otherwise
used by the secured parties and are parenthetically
identified on the Consolidated balance sheets as assets
pledged.
The following table presents the Firm’s pledged assets.
December 31, (in billions)
2018
2017
Assets that may be sold or repledged or
otherwise used by secured parties
Assets that may not be sold or repledged or
otherwise used by secured parties
Assets pledged at Federal Reserve banks and
FHLBs
Total assets pledged
$ 104.0
$ 135.8
83.7
68.1
475.3
493.7
$ 663.0
$ 697.6
Total assets pledged do not include assets of consolidated
VIEs; these assets are used to settle the liabilities of those
entities. Refer to Note 14 for additional information on
assets and liabilities of consolidated VIEs. For additional
information on the Firm’s securities financing activities,
refer to Note 11. For additional information on the Firm’s
long-term debt, refer to Note 19. The significant
components of the Firm’s pledged assets were as follows.
Year ended December 31,
(in millions)
Gross rental expense
Sublease rental income
Net rental expense
2018
2017
2016
$
$
1,881
$
1,853
$
1,860
(239)
(251)
(241)
1,642
$
1,602
$
1,619
December 31, (in billions)
Investment securities
Loans
Trading assets and other
Total assets pledged
2018
2017
$
59.5
$
86.2
440.1
163.4
437.7
173.7
$ 663.0
$ 697.6
Collateral
The Firm accepts financial assets as collateral that it is
permitted to sell or repledge, deliver or otherwise use. This
collateral is generally obtained under resale and other
securities financing agreements, customer margin loans and
derivative contracts. Collateral is generally used under
repurchase and other securities financing agreements, to
cover short sales and to collateralize derivative contracts and
deposits.
The following table presents the fair value of collateral
accepted.
December 31, (in billions)
2018
2017
Collateral permitted to be sold or repledged,
delivered, or otherwise used
Collateral sold, repledged, delivered or
otherwise used
$ 1,245.3
$ 968.8
998.3
771.0
Certain prior period amounts for both collateral and pledged
assets (including the corresponding pledged assets
parenthetical disclosure for trading assets and other assets on
the Consolidated balance sheets) have been revised to
conform with the current period presentation.
JPMorgan Chase & Co./2018 Form 10-K
277
Notes to consolidated financial statements
Note 29 – Litigation
Contingencies
As of December 31, 2018, the Firm and its subsidiaries and
affiliates are defendants or putative defendants in
numerous legal proceedings, including private, civil
litigations and regulatory/government investigations. The
litigations range from individual actions involving a single
plaintiff to class action lawsuits with potentially millions of
class members. Investigations involve both formal and
informal proceedings, by both governmental agencies and
self-regulatory organizations. These legal proceedings are
at varying stages of adjudication, arbitration or
investigation, and involve each of the Firm’s lines of
business and geographies and a wide variety of claims
(including common law tort and contract claims and
statutory antitrust, securities and consumer protection
claims), some of which present novel legal theories.
The Firm believes the estimate of the aggregate range of
reasonably possible losses, in excess of reserves
established, for its legal proceedings is from $0 to
approximately $1.5 billion at December 31, 2018. This
estimated aggregate range of reasonably possible losses
was based upon currently available information for those
proceedings in which the Firm believes that an estimate of
reasonably possible loss can be made. For certain matters,
the Firm does not believe that such an estimate can be
made, as of that date. The Firm’s estimate of the aggregate
range of reasonably possible losses involves significant
judgment, given:
•
•
•
•
the number, variety and varying stages of the
proceedings, including the fact that many are in
preliminary stages,
the existence in many such proceedings of multiple
defendants, including the Firm, whose share of liability
(if any) has yet to be determined,
the numerous yet-unresolved issues in many of the
proceedings, including issues regarding class
certification and the scope of many of the claims, and
the attendant uncertainty of the various potential
outcomes of such proceedings, including where the Firm
has made assumptions concerning future rulings by the
court or other adjudicator, or about the behavior or
incentives of adverse parties or regulatory authorities,
and those assumptions prove to be incorrect.
In addition, the outcome of a particular proceeding may be
a result which the Firm did not take into account in its
estimate because the Firm had deemed the likelihood of
that outcome to be remote. Accordingly, the Firm’s estimate
of the aggregate range of reasonably possible losses will
change from time to time, and actual losses may vary
significantly.
Set forth below are descriptions of the Firm’s material legal
proceedings.
American Depositary Receipts Pre-Release Inquiry. In
December 2018, JPMorgan Chase Bank, N.A. reached a
settlement with the U.S. Securities and Exchange
Commission regarding its inquiry into activity relating to
pre-released American Depositary Receipts.
Foreign Exchange Investigations and Litigation. The Firm
previously reported settlements with certain government
authorities relating to its foreign exchange (“FX”) sales and
trading activities and controls related to those activities. FX-
related investigations and inquiries by government
authorities, including competition authorities, are ongoing,
and the Firm is cooperating with and working to resolve
those matters. In May 2015, the Firm pleaded guilty to a
single violation of federal antitrust law. In January 2017,
the Firm was sentenced, with judgment entered thereafter
and a term of probation ending in January 2020. The
Department of Labor has granted the Firm a five-year
exemption of disqualification that allows the Firm and its
affiliates to continue to rely on the Qualified Professional
Asset Manager exemption under the Employee Retirement
Income Security Act (“ERISA”) until January 2023. The Firm
will need to reapply in due course for a further exemption
to cover the remainder of the ten-year disqualification
period. Separately, in February 2017 the South Africa
Competition Commission referred its FX investigation of the
Firm and other banks to the South Africa Competition
Tribunal, which is conducting civil proceedings concerning
that matter.
The Firm is also one of a number of foreign exchange
dealers named as defendants in a class action filed in the
United States District Court for the Southern District of New
York by U.S.-based plaintiffs, principally alleging violations
of federal antitrust laws based on an alleged conspiracy to
manipulate foreign exchange rates (the “U.S. class action”).
In January 2015, the Firm entered into a settlement
agreement in the U.S. class action. Following this
settlement, a number of additional putative class actions
were filed seeking damages for persons who transacted FX
futures and options on futures (the “exchanged-based
actions”), consumers who purchased foreign currencies at
allegedly inflated rates (the “consumer action”),
participants or beneficiaries of qualified ERISA plans (the
“ERISA actions”), and purported indirect purchasers of FX
instruments (the “indirect purchaser action”). Since then,
the Firm has entered into a revised settlement agreement to
resolve the consolidated U.S. class action, including the
exchange-based actions. The Court granted final approval of
that settlement agreement in August 2018. Certain
members of the settlement class filed requests to the Court
to be excluded from the class, and certain of them filed a
complaint against the Firm and a number of other foreign
exchange dealers in November 2018 (the “opt-out action”).
278
JPMorgan Chase & Co./2018 Form 10-K
The District Court has dismissed one of the ERISA actions,
and the United States Court of Appeals for the Second
Circuit affirmed that dismissal in July 2018. The second
ERISA action was voluntarily dismissed with prejudice in
November 2018. The indirect purchaser action, the
consumer action and the opt-out action remain pending in
the District Court.
General Motors Litigation. JPMorgan Chase Bank, N.A.
participated in, and was the Administrative Agent on behalf
of a syndicate of lenders on, a $1.5 billion syndicated Term
Loan facility (“Term Loan”) for General Motors Corporation
(“GM”). In July 2009, in connection with the GM bankruptcy
proceedings, the Official Committee of Unsecured Creditors
of Motors Liquidation Company (“Creditors Committee”)
filed a lawsuit against JPMorgan Chase Bank, N.A., in its
individual capacity and as Administrative Agent for other
lenders on the Term Loan, seeking to hold the underlying
lien invalid based on the filing of a UCC-3 termination
statement relating to the Term Loan. In January 2015,
following several court proceedings, the United States Court
of Appeals for the Second Circuit reversed the Bankruptcy
Court’s dismissal of the Creditors Committee’s claim and
remanded the case to the Bankruptcy Court with
instructions to enter partial summary judgment for the
Creditors Committee as to the termination statement. The
proceedings in the Bankruptcy Court thereafter continued
with respect to, among other things, additional defenses
asserted by JPMorgan Chase Bank, N.A. and the value of
additional collateral on the Term Loan that was unaffected
by the filing of the termination statement at issue. In
addition, certain Term Loan lenders filed cross-claims in the
Bankruptcy Court against JPMorgan Chase Bank, N.A.
seeking indemnification and asserting various claims. In
January 2019, the parties reached an agreement in
principle to fully resolve the litigation, including the cross-
claims filed against the Firm. The agreement is subject to
definitive documentation and court approval, and is not
expected to have any material impact on the Firm. The
Bankruptcy Court has stayed all deadlines in the action to
allow the parties to finalize the settlement agreement for
submission to the Bankruptcy Court.
Interchange Litigation. A group of merchants and retail
associations filed a series of class action complaints alleging
that Visa and Mastercard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees and enacted respective rules in violation of
antitrust laws. The parties settled the cases for a cash
payment, a temporary reduction of credit card interchange,
and modifications to certain credit card network rules. In
December 2013, the District Court granted final approval of
the settlement.
A number of merchants appealed the settlement to the
United States Court of Appeals for the Second Circuit,
which, in June 2016, vacated the District Court’s
certification of the class action and reversed the approval of
the class settlement. In March 2017, the U.S. Supreme
Court declined petitions seeking review of the decision of
the Court of Appeals. The case was remanded to the District
Court for further proceedings consistent with the appellate
decision. The original class action was divided into two
separate actions, one seeking primarily monetary relief and
the other seeking primarily injunctive relief. In September
2018, the parties to the class action seeking monetary
relief finalized an agreement which amends and supersedes
the prior settlement agreement, and the plaintiffs filed a
motion seeking preliminary approval of the modified
settlement. This settlement provides for the defendants to
contribute an additional $900 million to the approximately
$5.3 billion currently held in escrow from the original
settlement. In January 2019, the amended agreement was
preliminarily approved by the District Court, and formal
notice of the class settlement will proceed in accordance
with the District Court’s order. $600 million of the
additional amount will be funded from the litigation escrow
account established under the Visa defendants’
Retrospective Responsibility Plan, and $300 million will be
paid by Mastercard and certain banks in accordance with an
agreement among themselves regarding their respective
shares. In June 2018, Visa deposited an additional $600
million into its litigation escrow account, which in turn led
to a corresponding change in the conversion rate of Visa
Class B to Class A shares. Of the Mastercard-related portion,
the Firm’s share is approximately $36 million. The class
action seeking primarily injunctive relief continues
separately.
In addition, certain merchants have filed individual actions
raising similar allegations against Visa and Mastercard, as
well as against the Firm and other banks, and those actions
are proceeding.
LIBOR and Other Benchmark Rate Investigations and
Litigation. JPMorgan Chase has received subpoenas and
requests for documents and, in some cases, interviews,
from federal and state agencies and entities, including the
U.S. Commodity Futures Trading Commission and various
state attorneys general, as well as the European
Commission (“EC”), the Swiss Competition Commission
(“ComCo”) and other regulatory authorities and banking
associations around the world relating primarily to the
process by which interest rates were submitted to the
British Bankers Association (“BBA”) in connection with the
setting of the BBA’s London Interbank Offered Rate
(“LIBOR”) for various currencies, principally in 2007 and
2008. Some of the inquiries also relate to similar processes
by which information on rates was submitted to the
European Banking Federation (“EBF”) in connection with
the setting of the EBF’s Euro Interbank Offered Rate
(“EURIBOR”). The Firm continues to cooperate with these
investigations to the extent that they are ongoing. ComCo’s
investigation relating to EURIBOR, to which the Firm and
other banks are subject, continues. In December 2016, the
EC issued a decision against the Firm and other banks
finding an infringement of European antitrust rules relating
to EURIBOR. The Firm has filed an appeal of that decision
JPMorgan Chase & Co./2018 Form 10-K
279
Notes to consolidated financial statements
with the European General Court, and that appeal is
pending.
In addition, the Firm has been named as a defendant along
with other banks in a series of individual and putative class
actions related to benchmarks filed in various United States
District Courts, including two putative class actions relating
to U.S. dollar LIBOR during the period that it was
administered by ICE Benchmark Administration. These
actions have been filed, or consolidated for pre-trial
purposes, in the United States District Court for the
Southern District of New York. In these actions, plaintiffs
make varying allegations that in various periods, starting in
2000 or later, defendants either individually or collectively
manipulated various benchmark rates by submitting rates
that were artificially low or high. Plaintiffs allege that they
transacted in loans, derivatives or other financial
instruments whose values are affected by changes in these
rates and assert a variety of claims including antitrust
claims seeking treble damages. These matters are in various
stages of litigation.
The Firm has agreed to settle putative class actions related
to exchange-traded Eurodollar futures contracts, Swiss
franc LIBOR, EURIBOR, the Singapore Interbank Offered
Rate, the Singapore Swap Offer Rate and the Australian
Bank Bill Swap Reference Rate. Those settlements are all
subject to further documentation and court approval.
In actions related to U.S. dollar LIBOR during the period that
it was administered by the BBA, the District Court dismissed
certain claims, including antitrust claims brought by some
plaintiffs whom the District Court found did not have
standing to assert such claims, and permitted antitrust
claims, claims under the Commodity Exchange Act and
common law claims to proceed. The plaintiffs whose
antitrust claims were dismissed for lack of standing have
filed an appeal. In February 2018, as to those actions which
the Firm has not agreed to settle, the District Court (i)
granted class certification with respect to certain antitrust
claims related to bonds and interest rate swaps sold directly
by the defendants, (ii) denied class certification with
respect to state common law claims brought by the holders
of those bonds and swaps and (iii) denied class certification
with respect to the putative class action related to LIBOR-
based loans held by plaintiff lending institutions.
Municipal Derivatives Litigation. Several civil actions were
commenced against the Firm relating to certain Jefferson
County, Alabama (the “County”) warrant underwritings and
swap transactions. The actions generally alleged that the
Firm made payments to certain third parties in exchange for
being chosen to underwrite more than $3.0 billion in
warrants issued by the County and to act as the
counterparty for certain swaps executed by the County. The
County subsequently filed for bankruptcy and in November
2013, the Bankruptcy Court confirmed a Plan of Adjustment
pursuant to which the above-described actions against the
Firm were released and dismissed with prejudice. Certain
sewer rate payers filed an appeal challenging the
confirmation of the Plan of Adjustment, and that appeal was
dismissed by the United States Court of Appeals for the
Eleventh Circuit. The appellants have filed a petition seeking
review by the Supreme Court of the United States.
Precious Metals Investigations and Litigation. Various
authorities, including the Department of Justice’s Criminal
Division, are conducting investigations relating to trading
practices in the precious metals markets and related
conduct. The Firm is responding to and cooperating with
these investigations. Several putative class action
complaints have been filed in the United States District
Court for the Southern District of New York against the Firm
and certain current and former employees, alleging a
precious metals futures and options price manipulation
scheme in violation of the Commodity Exchange Act. The
Firm is also a defendant in a consolidated action filed in the
United States District Court for the Southern District of New
York alleging monopolization of silver futures in violation of
the Sherman Act.
Wendel. Since 2012, the French criminal authorities have
been investigating a series of transactions entered into by
senior managers of Wendel Investissement (“Wendel”)
during the period from 2004 through 2007 to restructure
their shareholdings in Wendel. JPMorgan Chase Bank, N.A.,
Paris branch provided financing for the transactions to a
number of managers of Wendel in 2007. JPMorgan Chase
has cooperated with the investigation. The investigating
judges issued an ordonnance de renvoi in November 2016,
referring JPMorgan Chase Bank, N.A. to the French tribunal
correctionnel for alleged complicity in tax fraud. No date for
trial has been set by the court. The Firm has been
successful in legal challenges made to the Court of
Cassation, France’s highest court, with respect to the
criminal proceedings. In January 2018, the Paris Court of
Appeal issued a decision cancelling the mise en examen of
JPMorgan Chase Bank, N.A. The Court of Cassation ruled in
September 2018 that a mise en examen is a prerequisite for
an ordonnance de renvoi and remanded the case to the
Court of Appeal to consider JPMorgan Chase Bank, N.A.’s
application for the annulment of the ordonnance de renvoi
referring JPMorgan Chase Bank, N.A. to the French tribunal
correctionnel. Any further actions in the criminal
proceedings are stayed pending the outcome of that
application. In addition, a number of the managers have
commenced civil proceedings against JPMorgan Chase
Bank, N.A. The claims are separate, involve different
allegations and are at various stages of proceedings.
* * *
In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
defend itself vigorously. Additional legal proceedings may
be initiated from time to time in the future.
280
JPMorgan Chase & Co./2018 Form 10-K
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance with
the provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probable
that such a liability has been incurred and the amount of
the loss can be reasonably estimated. The Firm evaluates its
outstanding legal proceedings each quarter to assess its
litigation reserves, and makes adjustments in such reserves,
upwards or downward, as appropriate, based on
management’s best judgment after consultation with
counsel. During the year ended December 31, 2018, the
Firm’s legal expense was $72 million, and for the years
ended December 31, 2017 and 2016, it was a benefit of
$(35) million and $(317) million, respectively. There is no
assurance that the Firm’s litigation reserves will not need to
be adjusted in the future.
In view of the inherent difficulty of predicting the outcome
of legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matters
present novel legal theories, involve a large number of
parties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or
consequences related to those matters. JPMorgan Chase
believes, based upon its current knowledge and after
consultation with counsel, consideration of the material
legal proceedings described above and after taking into
account its current litigation reserves and its estimated
aggregate range of possible losses, that the other legal
proceedings currently pending against it should not have a
material adverse effect on the Firm’s consolidated financial
condition. The Firm notes, however, that in light of the
uncertainties involved in such proceedings, there is no
assurance that the ultimate resolution of these matters will
not significantly exceed the reserves it has currently
accrued or that a matter will not have material reputational
consequences. As a result, the outcome of a particular
matter may be material to JPMorgan Chase’s operating
results for a particular period, depending on, among other
factors, the size of the loss or liability imposed and the level
of JPMorgan Chase’s income for that period.
JPMorgan Chase & Co./2018 Form 10-K
281
Notes to consolidated financial statements
Note 30 – International operations
The following table presents income statement and balance
sheet-related information for JPMorgan Chase by major
international geographic area. The Firm defines
international activities for purposes of this footnote
presentation as business transactions that involve clients
residing outside of the U.S., and the information presented
below is based predominantly on the domicile of the client,
the location from which the client relationship is managed,
or the location of the trading desk. However, many of the
Firm’s U.S. operations serve international businesses.
As the Firm’s operations are highly integrated, estimates
and subjective assumptions have been made to apportion
revenue and expense between U.S. and international
operations. These estimates and assumptions are consistent
with the allocations used for the Firm’s segment reporting
as set forth in Note 31.
The Firm’s long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm’s long-lived assets
are located in the U.S.
As of or for the year ended December 31,
(in millions)
Revenue(b)(c)
Expense(c)(d)
Income before
income tax
expense
Net income
Total assets
2018
Europe/Middle East/Africa
Asia/Pacific
Latin America/Caribbean
Total international
North America(a)
Total
2017
Europe/Middle East/Africa
Asia/Pacific
Latin America/Caribbean
Total international
North America(a)
Total
2016
Europe/Middle East/Africa
Asia/Pacific
Latin America/Caribbean
Total international
North America(a)
Total
$
16,181
$
9,953
$
6,228
$
4,444
$
423,835 (e)
$
$
$
$
7,119
2,435
25,735
83,294
4,866
1,413
16,232
52,033
2,253
1,022
9,503
1,593
718
6,755
171,242
46,560
641,637
31,261
25,719
1,980,895
109,029
$
68,265
$
40,764
$
32,474
$ 2,622,532
15,120
$
9,347
$
5,773
$
4,007
$
407,145 (e)
6,028
1,994
23,142
77,563
4,500
1,523
15,370
49,435
1,528
471
7,772
28,128
852
299
5,158
19,283
163,718
44,569
615,432
1,918,168
100,705
$
64,805
$
35,900
$
24,441
$ 2,533,600
14,418
$
9,126
$
5,292
$
3,783
$
394,134 (e)
6,313
1,959
22,690
73,879
4,414
1,632
15,172
46,861
1,899
327
7,518
1,212
208
5,203
156,946
42,971
594,051
27,018
19,530
1,896,921
$
96,569
$
62,033
$
34,536
$
24,733
$ 2,490,972
(a) Substantially reflects the U.S.
(b) Revenue is composed of net interest income and noninterest revenue.
(c) Effective January 1, 2018, the Firm adopted the revenue recognition guidance. The revenue recognition guidance was applied retrospectively and,
accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(d) Expense is composed of noninterest expense and the provision for credit losses.
(e) Total assets for the U.K. were approximately $296 billion, $309 billion, and $310 billion at December 31, 2018, 2017 and 2016, respectively.
282
JPMorgan Chase & Co./2018 Form 10-K
Note 31 – Business segments
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 & Wealth 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 the Firm’s Operating Committee.
Segment results are presented on a managed basis. For a
further discussion concerning JPMorgan Chase’s business
segments, refer to Segment results of this footnote.
The following is a description of each of the Firm’s business
segments, and the products and services they provide to
their respective client bases.
Consumer & Community Banking
CCB offers services to consumers and businesses through
bank branches, ATMs, digital (including online and mobile)
and telephone banking. CCB is organized into Consumer &
Business Banking (including Consumer Banking/Chase
Wealth Management and Business Banking), Home Lending
(including Home Lending Production, Home Lending
Servicing and Real Estate Portfolios) and Card, Merchant
Services & Auto. Consumer & Business Banking offers
deposit and investment products and services to
consumers, and lending, deposit, and cash management
and payment solutions to small businesses. Home Lending
includes mortgage origination and servicing activities, as
well as portfolios consisting of residential mortgages and
home equity loans. Card, Merchant Services & Auto issues
credit cards to consumers and small businesses, offers
payment processing services to merchants, and originates
and services auto loans and leases.
Corporate & Investment Bank
The CIB, which consists of Banking and Markets & Investor
Services, offers a broad suite of investment banking,
market-making, prime brokerage, and treasury and
securities products and services to a global client base of
corporations, investors, financial institutions, government
and municipal entities. Banking offers a full range of
investment banking products and services in all major
capital markets, including advising on corporate strategy
and structure, capital-raising in equity and debt markets, as
well as loan origination and syndication. Banking also
includes Treasury Services, which provides transaction
services, consisting of cash management and liquidity
solutions. Markets & Investor Services is a global market-
maker in cash securities and derivative instruments, and
also offers sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services also
includes Securities Services, a leading global custodian
which provides custody, fund accounting and
administration, and securities lending products principally
for asset managers, insurance companies and public and
private investment funds.
Commercial Banking
CB delivers extensive industry knowledge, local expertise
and dedicated service to U.S. and U.S. multinational clients,
including corporations, municipalities, financial institutions
and nonprofit entities with annual revenue generally
ranging from $20 million to $2 billion. In addition, CB
provides financing to real estate investors and owners.
Partnering with the Firm’s other businesses, CB provides
comprehensive financial solutions, including lending,
treasury services, investment banking and asset
management to meet its clients’ domestic and international
financial needs.
Asset & Wealth Management
AWM, with client assets of $2.7 trillion, is a global leader in
investment and wealth management. AWM clients include
institutions, high-net-worth individuals and retail investors
in many major markets throughout the world. AWM offers
investment management across most major asset classes
including equities, fixed income, alternatives and money
market funds. AWM also offers multi-asset investment
management, providing solutions for a broad range of
clients’ investment needs. For Wealth Management clients,
AWM also provides retirement products and services,
brokerage and banking services including trusts and
estates, loans, mortgages and deposits. The majority of
AWM’s client assets are in actively managed portfolios.
Corporate
The Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff functions and expense that is centrally
managed. Treasury and CIO is predominantly responsible
for measuring, monitoring, reporting and managing the
Firm’s liquidity, funding, capital, structural interest rate and
foreign exchange risks. The major Other Corporate functions
include Real Estate, Technology, Legal, Corporate Finance,
Human Resources, Internal Audit, Risk Management,
Compliance, Control Management, Corporate Responsibility
and various Other Corporate groups.
JPMorgan Chase & Co./2018 Form 10-K
283
Notes to consolidated financial statements
Segment results
The following table provides a summary of the Firm’s
segment results as of or for the years ended December 31,
2018, 2017 and 2016, on a managed basis. The Firm’s
definition of managed basis starts with the reported U.S.
GAAP results and includes certain reclassifications to
present total net revenue for the Firm (and each of the
reportable business segments) on an FTE basis. Accordingly,
revenue from investments that receive tax credits and tax-
exempt securities is presented in the managed results on a
basis comparable to taxable investments and securities.
This allows management to assess the comparability of
revenue from year-to-year arising from both taxable and
tax-exempt sources. The corresponding income tax impact
related to tax-exempt items is recorded within income tax
expense/(benefit). These adjustments have no impact on
net income as reported by the Firm as a whole or by the
lines of business.
Each business segment is allocated capital by taking into
consideration capital levels of similarly rated peers and
applicable regulatory capital requirements. ROE is
measured and internal targets for expected returns are
established as key measures of a business segment’s
performance.
The Firm’s allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, leverage, the
GSIB surcharge, and a simulation of capital in a severe
stress environment. On at least an annual basis, the
assumptions and methodologies used in capital allocation
are assessed and as a result, the capital allocated to lines of
business may change.
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were
applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
Net income in 2018 for each of the business segments reflects the favorable impact of the reduction in the U.S. federal
statutory income tax rate as a result of the TCJA.
Segment results and reconciliation
(Table continued on next page)
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
$ 16,260
$ 14,710
$ 15,255
$ 26,968
$ 24,539
$ 24,449
$
2,343
$
2,522
$
2,320
$ 10,539
$ 10,456
$
9,789
35,819
31,775
29,660
9,480
10,118
10,891
52,079
46,485
44,915
36,448
34,657
35,340
6,716
9,059
6,083
8,605
5,133
7,453
3,537
3,379
3,033
14,076
13,835
12,822
4,753
5,572
4,494
(60)
(45)
563
129
(276)
282
53
39
26
27,835
26,062
24,905
20,918
19,407
19,116
3,386
3,327
2,934
10,353
10,218
9,255
Income tax expense/(benefit)
4,639
5,456
5,802
3,817
4,482
4,846
19,491
14,851
15,516
15,590
15,295
15,661
5,544
1,307
5,554
2,015
4,237
1,580
$ 14,852
$
9,395
$
9,714
$ 11,773
$ 10,813
$ 10,815
$
4,237
$
3,539
$
2,657
$ 51,000
$ 51,000
$ 51,000
$ 70,000
$ 70,000
$ 64,000
$ 20,000
$ 20,000
$ 16,000
3,670
817
2,853
9,000
$
$
3,578
1,241
2,337
9,000
3,541
1,290
2,251
9,000
$
$
$
$
557,441
552,601
535,310
903,051
826,384
803,511
220,229
221,228
214,341
170,024
151,909
138,384
28%
53
17%
56
18%
55
16%
14%
57
56
16%
54
20%
37
17%
39
16%
39
31%
74
25%
74
24%
72
As of or for the year ended
December 31,
(in millions, except ratios)
Noninterest revenue
Net interest income
Total net revenue
Provision for credit losses
Noninterest expense
Income/(loss) before income
tax expense/(benefit)
Net income/(loss)
Average equity
Total assets
Return on equity
Overhead ratio
284
JPMorgan Chase & Co./2018 Form 10-K
(Table continued from previous page)
As of or for the year ended
December 31,
(in millions, except ratios)
Noninterest revenue
Net interest income
Total net revenue
Provision for credit losses
Noninterest expense
Income/(loss) before income
tax expense/(benefit)
Income tax expense/(benefit)
Net income/(loss)
Average equity
Total assets
Return on equity
Overhead ratio
Corporate
Reconciling Items(a)
Total
2018
2017
2016
2018
2017
2016
2018
2017
2016
$
(263) $
1,085 $
938
$
(1,877) $
(2,704) (b) $
(2,265)
$
53,970
$
50,608
$
50,486
55
(1,425)
(628)
(1,313)
(1,209)
55,059
50,097
(2,505)
(4,017)
(3,474)
109,029
100,705
—
—
—
—
—
—
4,871
5,290
63,394
59,515
56,672
46,083
96,569
5,361
$
$
(1,241) $
(1,643) $
79,222 $
80,350 $
84,631
771,787
781,478
799,426
NM
NM
NM
NM
NM
NM
$
$
— $
— $
NA
NM
NM
—
—
NA
NM
NM
(2,505)
(4,017)
(3,474)
40,764
(2,505)
(4,017) (b)
(3,474)
8,290
$
$
—
—
$
$
32,474
229,222
$
$
35,900
11,459
24,441
230,350
34,536
9,803
24,733
224,631
$
$
NA
NM
NM
2,622,532
2,533,600
2,490,972
13%
58
10%
59
10%
59
135
(128)
(4)
902
(1,026)
215
1,140
—
501
639
2,282
(487)
(4)
462
(945)
(241)
(704)
(a) Segment results on a managed basis reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments
are eliminated in reconciling items to arrive at the Firm’s reported U.S. GAAP results.
(b) Included $375 million related to tax-oriented investments as a result of the enactment of the TCJA.
JPMorgan Chase & Co./2018 Form 10-K
285
2017
2016
Other operating adjustments
(4,400)
4,635
(18,166)
Note 32 – Parent Company
The following tables present Parent Company-only financial
statements. Effective January 1, 2018, the Parent Company
adopted several new accounting standards. Certain of the new
accounting standards were applied retrospectively and,
accordingly, prior period amounts were revised. For additional
information, refer to Note 1.
Statements of income and comprehensive income(a)
Year ended December 31,
(in millions)
2018
Income
Dividends from subsidiaries and
affiliates:
Bank and bank holding company
Non-bank(b)
Interest income from subsidiaries
Other interest income
$ 32,501
2
216
—
$ 13,000
540
72
41
$ 10,000
3,873
794
207
Other income from subsidiaries:
Bank and bank holding company
Non-bank
Other income
Total income
Expense
Interest expense to subsidiaries
and affiliates(b)
Other interest expense
Noninterest expense
Total expense
Income before income tax benefit
and undistributed net income of
subsidiaries
Income tax benefit
Equity in undistributed net income
of subsidiaries
515
(444)
888
33,678
2,291
4,581
1,793
8,665
1,553
(88)
(623)
14,495
400
5,202
(1,897)
3,705
25,013
1,838
10,790
1,007
852
1,165
(846)
16,045
105
4,413
1,643
6,161
9,884
876
5,623
12,644
13,973
Net income
Other comprehensive income, net
Comprehensive income
$ 32,474
(1,476)
$ 30,998
$ 24,441
1,056
$ 25,497
$ 24,733
(1,521)
$ 23,212
Balance sheets(a)
December 31, (in millions)
Assets
2018
2017
Cash and due from banks
$
55
$
Deposits with banking subsidiaries
Trading assets
Advances to, and receivables from, subsidiaries:
Bank and bank holding company
Non-bank
Investments (at equity) in subsidiaries and
affiliates:
Bank and bank holding company
Non-bank(b)
Other assets
Total assets
5,315
3,304
3,334
74
163
5,338
4,773
2,106
82
449,628
451,713
1,077
10,478
422
10,426
$ 473,265
$ 475,023
Liabilities and stockholders’ equity
Borrowings from, and payables to, subsidiaries
and affiliates(b)
$ 20,017
$ 23,426
Short-term borrowings
Other liabilities
Long-term debt(c)(d)
Total liabilities(d)
Total stockholders’ equity
2,672
8,821
185,240
216,750
256,515
3,350
8,302
184,252
219,330
255,693
Total liabilities and stockholders’ equity
$ 473,265
$ 475,023
Statements of cash flows(a)
Year ended December 31,
(in millions)
Operating activities
Net income
Less: Net income of subsidiaries
and affiliates(b)
2018
2017
2016
$ 32,474
$ 24,441
$ 24,733
38,125
26,185
27,846
Parent company net loss
(5,651)
(1,744)
(3,113)
Cash dividends from subsidiaries
and affiliates(b)
32,501
13,540
13,873
—
—
(9,082)
(8,476)
(905)
Net cash provided by/(used in)
operating activities
Investing activities
Net change in:
Proceeds from paydowns and
maturities from available-for-
sale securities
Other changes in loans, net
Advances to and investments in
subsidiaries and affiliates, net
All other investing activities, net
Net cash provided by/(used in)
investing activities
Financing activities
Net change in:
Borrowings from subsidiaries
and affiliates(b)
Short-term borrowings
Proceeds from long-term
borrowings
22,450
16,431
(7,406)
—
—
8,036
63
8,099
—
78
353
1,793
(280)
(51,967)
49
114
(153)
(49,707)
(2,273)
13,862
(678)
(481)
2,957
109
25,845
25,855
41,498
Payments of long-term borrowings
(21,956)
(29,812)
(29,298)
Proceeds from issuance of
preferred stock
1,696
1,258
Redemption of preferred stock
(1,696)
(1,258)
Treasury stock repurchased
(19,983)
(15,410)
Dividends paid
All other financing activities, net
Net cash used in financing
activities
Net decrease in cash and due from
banks and deposits with banking
subsidiaries
Cash and due from banks and
deposits with banking
subsidiaries at the beginning of
the year
Cash and due from banks and
deposits with banking
subsidiaries at the end of the
year
Cash interest paid
Cash income taxes paid, net(e)
(10,109)
(1,526)
(8,993)
(1,361)
(30,680)
(16,340)
(3,197)
(131)
(62)
(60,310)
5,501
5,563
65,873
$
$
$
$
5,370
6,911
1,782
$
$
5,501
5,426
1,775
5,563
4,550
1,053
(a) In 2016, in connection with the Firm’s 2016 Resolution Submission, the Parent
Company established the IHC, and contributed substantially all of its direct
subsidiaries (totaling $55.4 billion) other than JPMorgan Chase Bank, N.A., as
well as most of its other assets (totaling $160.5 billion) and intercompany
indebtedness to the IHC. Total noncash assets contributed were $62.3 billion. In
2017, the Parent Company transferred $16.2 billion of noncash assets to the IHC
to complete the contributions to the IHC.
(b) Affiliates include trusts that issued guaranteed capital debt securities (“issuer
trusts”). For further discussion on these issuer trusts, refer to Note 19.
(c) At December 31, 2018, long-term debt that contractually matures in 2019
through 2023 totaled 13.1 billion, $22.1 billion, $20.3 billion, $12.8 billion,
and $16.2 billion, respectively.
(d) For information regarding the Parent Company’s guarantees of its subsidiaries’
obligations, refer to Notes 19 and 27.
(e) Represents payments, net of refunds, made by the Parent Company to various
taxing authorities and includes taxes paid on behalf of certain of its subsidiaries
that are subsequently reimbursed. The reimbursements were $1.2 billion, $4.1
billion, and $3.0 billion for the years ended December 31, 2018, 2017, and
2016, respectively.
286
JPMorgan Chase & Co./2018 Form 10-K
Supplementary information
Selected quarterly financial data (unaudited)
As of or for the period ended
(in millions, except per share, ratio, headcount
data and where otherwise noted)
Selected income statement data
Total net revenue
Total noninterest expense
Pre-provision profit
Provision for credit losses
Income before income tax expense
Income tax expense
Net income
Earnings per share data
Net income: Basic
Diluted
Average shares: Basic
Diluted
Market and per common share data
Market capitalization
Common shares at period-end
Book value per share
TBVPS(a)
Cash dividends declared per share
Selected ratios and metrics
ROE(b)
ROTCE(a)(b)
ROA(b)
Overhead ratio
Loans-to-deposits ratio
LCR (average)(c)
CET1 capital ratio(d)
Tier 1 capital ratio(d)
Total capital ratio(d)
Tier 1 leverage ratio(d)
SLR(e)
Selected balance sheet data (period-end)
Trading assets
Investment Securities
Loans
Core loans
Average core loans
Total assets
Deposits
Long-term debt
Common stockholders’ equity
Total stockholders’ equity
Headcount
Credit quality metrics
2018
2017
4th quarter
3rd quarter
2nd quarter
1st quarter
4th quarter
3rd quarter
2nd quarter
1st quarter
$
$
$
$
$
$
$
$
$
$
26,109
15,720
10,389
1,548
8,841
1,775
7,066
1.99
1.98
3,335.8
3,347.3
319,780
3,275.8
70.35
56.33
0.80
12%
14
1.06
60
67
113
12.0
13.7
15.5
8.1
6.4
413,714
261,828
984,554
931,856
907,271
2,622,532
1,470,666
282,031
230,447
256,515
256,105
27,260
15,623
11,637
948
10,689
2,309
8,380
2.35
2.34
3,376.1
3,394.3
375,239
3,325.4
69.52
55.68
0.80
14%
17
1.28
57
65
115
12.0
13.6
15.4
8.2
6.5
419,827
231,398
954,318
899,006
894,279
2,615,183
1,458,762
270,124
231,192
258,956
255,313
$
$
$
$
$
$
$
$
$
$
27,753
15,971
11,782
1,210
10,572
2,256
8,316
2.31
2.29
3,415.2
3,434.7
350,204
3,360.9
68.85
55.14
0.56
14%
17
1.28
58
65
115
12.0
13.6
15.5
8.2
6.5
418,799
233,015
948,414
889,433
877,640
2,590,050
1,452,122
273,114
231,390
257,458
252,942
27,907
16,080
11,827
1,165
10,662
1,950
8,712
2.38
2.37
3,458.3
3,479.5
374,423
3,404.8
67.59
54.05
0.56
$
$
$
$
24,457
14,895
9,562
1,308
8,254
4,022
4,232
1.08
1.07
3,489.7
3,512.2
366,301
3,425.3
67.04
53.56
0.56
15%
19
1.37
58
63
115
11.8
13.5
15.3
8.2
6.5
7%
8
0.66
61
64
119
12.2
13.9
15.9
8.3
6.5
412,282
238,188
934,424
870,536
861,089
2,609,785
1,486,961
274,449
230,133
256,201
253,707
$
$
$
381,844
249,958
930,697
863,683
850,166
2,533,600
1,443,982
284,080
229,625
255,693
252,539
$
(g) $
$
$
$
25,578
14,570
11,008
1,452
9,556
2,824
6,732
1.77
1.76
3,534.7
3,559.6
331,393
3,469.7
66.95
54.03
0.56
11%
13
1.04
57
63
120
12.5
14.1
16.1
8.4
6.6
420,418
263,288
913,761
843,432
837,522
2,563,074
1,439,027
288,582
232,314
258,382
251,503
$
$
$
$
$
25,731
14,767
10,964
1,215
9,749
2,720
7,029
1.83
1.82
3,574.1
3,599.0
321,633
3,519.0
66.05
53.29
0.50
12%
14
1.10
57
63
115
12.5
14.2
16.0
8.5
6.7
407,064
263,458
908,767
834,935
824,583
2,563,174
1,439,473
292,973
232,415
258,483
249,257
$
$
$
$
$
24,939
15,283
9,656
1,315
8,341
1,893
6,448
1.66
1.65
3,601.7
3,630.4
312,078
3,552.8
64.68
52.04
0.50
11%
13
1.03
61
63
N/A
12.4
14.1
15.6
8.4
6.6
402,513
281,850
895,974
812,119
805,382
2,546,290
1,422,999
289,492
229,795
255,863
246,345
Allowance for credit losses
Allowance for loan losses to total retained loans
Allowance for loan losses to retained loans
excluding purchased credit-impaired loans(f)
Nonperforming assets
Net charge-offs
Net charge-off rate
$
14,500
$
14,225
$
14,367
$
14,482
$
14,672
$
14,648
$
14,480
$
14,490
1.39%
1.39%
1.41%
1.44%
1.47%
1.49%
1.49%
1.52%
$
1.23
5,190
1,236
$
1.23
5,034
1,033
$
1.22
5,767
1,252
$
1.25
6,364
1,335
$
1.27
6,426
1,264
$
1.29
6,154
1,265
$
1.28
6,432
1,204
$
1.31
6,826
1,654
(h)
0.52%
0.43%
0.54%
0.59%
0.55%
0.56%
0.54%
0.76% (h)
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly,
prior period amounts were revised. For additional information, refer to Note 1.
(a) TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP
Financial Measures and Key Performance Measures on pages 57-59.
(b) Quarterly ratios are based upon annualized amounts.
(c) The percentage represents the Firm’s reported average LCR per the U.S. LCR public disclosure requirements, which became effective April 1, 2017.
(d) Ratios presented are calculated under the Basel III Transitional rules and for the capital ratios represent the lower of the Standardized or Advanced approach. As of
December 31, 2018, and September 30, 2018, the Firm’s capital ratios were equivalent whether calculated on a transitional or fully phased-in basis. Refer to Capital
Risk Management on pages 85-94 for additional information on Basel III.
(e) Effective January 1, 2018, the SLR was fully phased-in under Basel III. The SLR is defined as Tier 1 capital divided by the Firm’s total leverage exposure. Ratios prior to
March 31, 2018 were
calculated under the Basel III Transitional rules.
(f) Excludes the impact of residential real estate PCI loans, a non-GAAP financial measure. For further discussion of these measures, refer to Explanation and
Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59, and the Allowance for credit losses on pages 120–
122.
(g) The Firm’s results for the three months ended December 31, 2017, included a $2.4 billion decrease to net income as a result of the enactment of the TCJA. For
additional information related to the impact of the TCJA, refer to Note 24.
(h) Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rates for the three months ended March 31, 2017 would have
been 0.54%.
JPMorgan Chase & Co./2018 Form 10-K
287
Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differentials
Consolidated average balance sheet, interest and rates
Provided below is a summary of JPMorgan Chase’s
consolidated average balances, interest rates and interest
differentials on a taxable-equivalent basis for the years
2016 through 2018. Income computed on a taxable-
equivalent basis is the income reported in the Consolidated
statements of income, adjusted to present interest income
(Table continued on next page)
(Unaudited)
Year ended December 31,
(Taxable-equivalent interest and rates; in millions, except rates)
and average rates earned on assets exempt from income
taxes (i.e. federal taxes) on a basis comparable with other
taxable investments. The incremental tax rate used for
calculating the taxable-equivalent adjustment was
approximately 24%, 37% and 38% in 2018, 2017 and
2016, respectively.
Average
balance
2018
Interest(g)
Average
rate
(i)
$
$
1.46%
1.76
0.63
3.36
2.91
4.68
3.23
5.06
7.00
3.50
5,907
3,819
728
8,763
5,653
1,987
7,640
47,796 (h)
3,417
78,070
405,514
217,150
115,082
261,051
194,232
42,456
236,688
944,885
48,818
2,229,188
(13,269)
21,694
101,872
60,734
54,669
154,010
2,608,898
Assets
Deposits with banks
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets – debt instruments
Taxable securities
Non-taxable securities(a)
Total investment securities
Loans
All other interest-earning assets(b)
Total interest-earning assets
Allowance for loan losses
Cash and due from banks
Trading assets – equity instruments
Trading assets – derivative receivables
Goodwill, MSRs and other intangible assets
Other assets
Total assets
Liabilities
Interest-bearing deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings(c)
Trading liabilities – debt and all other interest-bearing liabilities(d)(e)
Beneficial interests issued by consolidated VIEs
Long-term debt
Total interest-bearing liabilities
Noninterest-bearing deposits
Trading liabilities – equity instruments(e)
Trading liabilities – derivative payables
All other liabilities, including the allowance for lending-related commitments
Total liabilities
Stockholders’ equity
Preferred stock
Common stockholders’ equity
Total stockholders’ equity
Total liabilities and stockholders’ equity
Interest rate spread
Net interest income and net yield on interest-earning assets
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period
amounts were revised. For additional information, refer to Note 1.
1,060,605
189,282
63,523
178,161
21,079
276,414
1,789,064
395,856
34,295
43,075
91,137
2,353,427
5,973
3,066
1,144
3,729
493
7,978
22,383
0.56%
1.62
1.80
2.09
2.34
2.89
1.25
26,249
229,222
255,471 (f)
2.25%
2.50
2,608,898
55,687
$
$
$
$
$
(a) Represents securities that are tax-exempt for U.S. federal income tax purposes.
(b) Includes held-for-investment margin loans, which are classified in accrued interest and accounts receivable, and all other interest-earning assets, which are classified in other
assets on the Consolidated balance sheets.
Includes commercial paper.
(c)
(d) Other interest-bearing liabilities include brokerage customer payables.
(e)
The combined balance of trading liabilities – debt and equity instruments were $107.0 billion, $90.7 billion and $92.8 billion for the years ended December 31, 2018, 2017
and 2016, respectively.
(f) The ratio of average stockholders’ equity to average assets was 9.8% for 2018, 10.0% for 2017, and 10.2% for 2016. The return on average stockholders’ equity, based on net
income, was 12.7% for 2018, 9.5% for 2017, and 9.9% for 2016.
(g) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(h) Fees and commissions on loans included in loan interest amounted to $1.2 billion in 2018, $1.0 billion in 2017, and $808 million in 2016.
(i) The annualized rate for securities based on amortized cost was 3.25% in 2018, 3.13% in 2017, and 2.99% in 2016, and does not give effect to changes in fair value that are
reflected in AOCI.
(j) Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book activity and the
negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities – debt and all other interest-bearing
liabilities.
288
JPMorgan Chase & Co./2018 Form 10-K
Within the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans have
been included in the average loan balances used to determine the average interest rate earned on loans. For additional
information on nonaccrual loans, including interest accrued, refer to Note 12.
(Table continued from previous page)
Average
balance
2017
Interest(g)
Average
rate
Average
balance
2016
Interest(g)
Average
rate
4,238
2,327
(37) (j)
7,714
5,534
2,769
8,303
41,296 (h)
1,844
65,685
2,857
1,611
481
2,070
503
6,753
14,275
0.96%
1.21
(0.04)
3.25
2.48
6.14
3.09
4.56
4.44
3.01
(i)
0.28%
0.86
1.03
1.21
1.55
2.32
0.82
$
$
$
$
$
439,663
191,820
95,324
237,206
223,592
45,086
268,678
906,397
41,504
2,180,592
(13,453)
20,432
115,913
59,588
53,999
138,991
2,556,062
1,013,221
187,386
46,532
171,814
32,457
291,489
1,742,899
404,165
21,022
44,122
87,292
2,299,500
26,212
230,350
256,562 (f)
$
2,556,062
1,879
2,265
(332) (j)
7,373
5,538
2,662
8,200
36,866 (h)
859
57,110
1,356
1,089
203
1,102
504
5,564
9,818
0.48%
1.10
(0.32)
3.42
2.35
6.03
2.94
4.26
2.24
2.72
(i)
0.15%
0.61
0.56
0.62
1.25
1.88
0.59
$
$
$
$
$
393,599
205,367
102,964
215,565
235,211
44,176
279,387
866,378
38,344
2,101,604
(13,965)
18,705
95,528
70,897
53,752
135,098
2,461,619
925,270
178,720
36,140
177,765
40,180
295,573
1,653,648
402,698
20,737
55,927
77,910
2,210,920
26,068
224,631
250,699 (f)
$
2,461,619
$
51,410
2.19%
2.36
$
47,292
2.13%
2.25
JPMorgan Chase & Co./2018 Form 10-K
289
Interest rates and interest differential analysis of net interest income – U.S. and non-U.S.
Presented below is a summary of interest rates and interest
differentials segregated between U.S. and non-U.S.
operations for the years 2016 through 2018. The
segregation of U.S. and non-U.S. components is based on
the location of the office recording the transaction.
Intercompany funding generally consists of dollar-
denominated deposits originated in various locations that
are centrally managed by Treasury and CIO.
(Table continued on next page)
(Unaudited)
Year ended December 31,
(Taxable-equivalent interest and rates; in millions, except rates)
Interest-earning assets
Deposits with banks:
U.S.
Non-U.S.
Federal funds sold and securities purchased under resale agreements:
U.S.
Non-U.S.
Securities borrowed:
U.S.
Non-U.S.
Trading assets – debt instruments:
U.S.
Non-U.S.
Investment securities:
U.S.
Non-U.S.
Loans:
U.S.
Non-U.S.
All other interest-earning assets, predominantly U.S.
Total interest-earning assets
Interest-bearing liabilities
Interest-bearing deposits:
U.S.
Non-U.S.
Federal funds purchased and securities loaned or sold under repurchase agreements:
U.S.
Non-U.S.
Trading liabilities – debt, short-term and all other interest-bearing liabilities:(a)
U.S.
Non-U.S.
Beneficial interests issued by consolidated VIEs, predominantly U.S.
Long-term debt:
U.S.
Non-U.S.
Intercompany funding:
U.S.
Non-U.S.
Total interest-bearing liabilities
Noninterest-bearing liabilities(b)
Total investable funds
Net interest income and net yield:
U.S.
Non-U.S.
Percentage of total assets and liabilities attributable to non-U.S. operations:
Assets
Liabilities
2018
Average balance
Interest
Average rate
$
305,117 $
100,397
102,144
115,006
77,027
38,055
141,134
119,917
200,883
35,805
864,149
80,736
48,818
2,229,188
816,305
244,300
117,754
71,528
150,694
90,990
21,079
256,220
20,194
(51,933)
51,933
1,789,064
440,124
2,229,188 $
$
$
5,703
204
2,427
1,392
640
88
5,068
3,695
6,943
697
45,395
2,401
3,417
78,070
4,562
1,411
2,562
504
3,389
1,484
493
7,954
24
(746)
746
22,383
22,383
55,687
50,236
5,451
1.87%
0.20
2.38
1.21
0.83
0.23
3.59
3.08
3.46
1.95
5.25
2.97
7.00
3.50
0.56
0.58
2.18
0.70
2.25
1.63
2.34
3.10
0.12
—
—
1.25
1.00%
2.50%
2.91
1.09
24.7
22.3
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior
period amounts were revised. For additional information, refer to Note 1.
(a) Includes commercial paper.
(b) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
(c) Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book
activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities – debt,
short-term and all other interest-bearing liabilities.
290
JPMorgan Chase & Co./2018 Form 10-K
For further information, refer to the “Net interest income” discussion in Consolidated Results of Operations on pages 48–51.
(Table continued from previous page)
2017
2016
Average balance
Interest
Average rate
Average balance
Interest
Average rate
$
366,814 $
72,849
90,879
100,941
68,110
27,214
128,293
108,913
223,140
45,538
832,608
73,789
41,504
2,180,592
776,049
237,172
115,574
71,812
138,470
79,876
32,457
276,750
14,739
(2,874)
2,874
1,742,899
437,693
2,180,592 $
$
$
4,093
145
1,360
967
(66) (c)
29
4,186
3,528
7,490
813
39,439
1,857
1,844
65,685
2,223
634
1,349
262
1,271
1,280
503
6,745
8
(25)
25
14,275
14,275
51,410
46,059
5,351
$
329,498 $
64,101
112,901
92,466
73,297
29,667
116,211
99,354
216,726
62,661
788,213
78,165
38,344
2,101,604
703,738
221,532
121,945
56,775
133,788
80,117
40,180
283,169
12,404
(20,405)
20,405
1,653,648
447,956
2,101,604 $
$
$
1,707
172
1,166
1,099
(341) (c)
9
3,825
3,548
6,971
1,229
35,110
1,756
859
57,110
1,029
327
773
316
86
1,219
504
5,533
31
10
(10)
9,818
9,818
47,292
40,705
6,587
1.12%
0.20
1.50
0.96
(0.10)
0.11
3.26
3.24
3.36
1.79
4.74
2.52
4.44
3.01
0.29
0.27
1.17
0.37
0.92
1.60
1.55
2.44
0.05
—
—
0.82
0.65%
2.36%
2.68
1.15
22.5
21.1
0.52%
0.27
1.03
1.19
(0.46)
0.03
3.29
3.57
3.22
1.97
4.45
2.25
2.24
2.72
0.15
0.15
0.63
0.56
0.06
1.52
1.25
1.95
0.25
—
—
0.59
0.47%
2.25%
2.49
1.42
23.1
20.7
JPMorgan Chase & Co./2018 Form 10-K
291
Changes in net interest income, volume and rate analysis
The table below presents an attribution of net interest income between volume and rate. The attribution between volume and rate
is calculated using annual average balances for each category of assets and liabilities shown in the table and the corresponding
annual average rates (refer to pages 288–292 for more information on average balances and rates). In this analysis, when the
change cannot be isolated to either volume or rate, it has been allocated to volume. The average annual rates include the impact of
changes in market rates as well as the impact of any change in composition of the various products within each category of asset
or liability. This analysis is calculated separately for each category without consideration of the relationship between categories
(for example, the net spread between the rates earned on assets and the rates paid on liabilities that fund those assets). As a
result, changes in the granularity or groupings considered in this analysis would produce a different attribution result, and due to
the complexities involved, precise allocation of changes in interest rates between volume and rates is inherently complex and
judgmental.
(Unaudited)
2018 versus 2017
2017 versus 2016
Increase/(decrease) due
to change in:
Increase/(decrease) due
to change in:
Year ended December 31,
(On a taxable-equivalent basis; in millions)
Volume
Rate
Net
change
Volume
Rate
Net
change
Interest-earning assets
Deposits with banks:
U.S.
Non-U.S.
Federal funds sold and securities purchased under resale
$
(1,141) $
59
$
2,751
—
1,610
59
$
$
409
18
$
1,977
(45)
2,386
(27)
agreements:
U.S.
Non-U.S.
Securities borrowed:
U.S.
Non-U.S.
Trading assets – debt instruments:
U.S.
Non-U.S.
Investment securities:
U.S.
Non-U.S.
Loans:
U.S.
Non-U.S.
All other interest-earning assets, predominantly U.S.
Change in interest income
Interest-bearing liabilities
Interest-bearing deposits:
U.S.
Non-U.S.
Federal funds purchased and securities loaned or sold under
repurchase agreements:
U.S.
Non-U.S.
Trading liabilities – debt, short-term and all other interest-bearing
liabilities: (a)
U.S.
Non-U.S.
Beneficial interests issued by consolidated VIEs, predominantly
U.S.
Long-term debt:
U.S.
Non-U.S.
Intercompany funding:
U.S.
Non-U.S.
Change in interest expense
Change in net interest income
267
173
73
26
459
341
(770)
(189)
1,710
212
510
1,730
244
42
46
5
276
180
(266)
(618)
6
(704)
704
(85)
800
252
633
33
423
(174)
223
73
4,246
332
1,063
1,067
425
706
59
882
167
(547)
(116)
5,956
544
1,573
10,655
12,385
2,095
735
1,167
237
1,842
24
256
1,827
10
(17)
17
8,193
2,339
777
1,213
242
2,118
204
(10)
(122)
1,209
16
(721)
721
8,108
(176)
2
151
(151)
(33)
(337)
81
11
(4)
396
308
216
(303)
2,043
(110)
141
2,869
209
41
(83)
54
45
(3)
531
(213)
264
24
(35)
(328)
303
(113)
2,286
211
844
5,706
194
(132)
275
20
361
(20)
519
(416)
4,329
101
985
8,575
985
266
1,194
307
659
(108)
576
(54)
1,140
64
121
1,388
(25)
(186)
186
4,490
1,185
61
(1)
1,212
(23)
(35)
35
4,457
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,
accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(a) Includes commercial paper.
292
JPMorgan Chase & Co./2018 Form 10-K
$
1,815
$
2,462
$
4,277
$
2,902
$
1,216
$
4,118
Glossary of Terms and Acronyms
2018 Form 10-K: Annual report on Form 10-K for year
ended December 31, 2018, filed with the U.S. Securities
and Exchange Commission.
ABS: Asset-backed securities
AFS: Available-for-sale
ALCO: Asset Liability Committee
AWM: Asset & Wealth Management
AOCI: Accumulated other comprehensive income/(loss)
ARM: Adjustable rate mortgage(s)
AUC: Assets under custody
AUM: “Assets under management”: Represent assets
managed by AWM on behalf of its Private Banking,
Institutional and Retail clients. Includes “Committed capital
not Called.”
Auto loan and lease origination volume: Dollar amount of
auto loans and leases originated.
Beneficial interests issued by consolidated VIEs:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIEs that
JPMorgan Chase consolidates.
Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.
BHC: Bank holding company
Card Services includes the Credit Card and Merchant
Services businesses.
CB: Commercial Banking
CBB: Consumer & Business Banking
CCAR: Comprehensive Capital Analysis and Review
CCB: Consumer & Community Banking
CCO: Chief Compliance Officer
CCP: “Central counterparty” is a clearing house that
interposes itself between counterparties to contracts traded
in one or more financial markets, becoming the buyer to
every seller and the seller to every buyer and thereby
ensuring the future performance of open contracts. A CCP
becomes counterparty to trades with market participants
through novation, an open offer system, or another legally
binding arrangement.
CDS: Credit default swaps
CEO: Chief Executive Officer
CET1 Capital: Common equity Tier 1 capital
CFTC: Commodity Futures Trading Commission
CFO: Chief Financial Officer
CFP: Contingency funding plan
Chase Bank USA, N.A.: Chase Bank USA, National
Association
CIB: Corporate & Investment Bank
CIO: Chief Investment Office
Client assets: Represent assets under management as well
as custody, brokerage, administration and deposit accounts.
Client deposits and other third-party liabilities: Deposits,
as well as deposits that are swept to on-balance sheet
liabilities (e.g., commercial paper, federal funds purchased
and securities loaned or sold under repurchase
agreements) as part of client cash management programs.
CLO: Collateralized loan obligations
CLTV: Combined loan-to-value
Collateral-dependent: A loan is considered to be collateral-
dependent when repayment of the loan is expected to be
provided solely by the underlying collateral, rather than by
cash flows from the borrower’s operations, income or other
resources.
Commercial Card: provides a wide range of payment
services to corporate and public sector clients worldwide
through the commercial card products. Services include
procurement, corporate travel and entertainment, expense
management services, and business-to-business payment
solutions.
Core loans: Represents loans considered central to the
Firm’s ongoing businesses; core loans excludes loans
classified as trading assets, runoff portfolios, discontinued
portfolios and portfolios the Firm has an intent to exit.
Credit cycle: A period of time over which credit quality
improves, deteriorates and then improves again (or vice
versa). The duration of a credit cycle can vary from a couple
of years to several years.
Credit derivatives: Financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk to
another party (the protection seller). Upon the occurrence
of a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its
obligations, or certain restructurings of the debt of the
reference entity, neither party 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 at the time of settling
the credit derivative contract. The determination as to
whether a credit event has occurred is generally made by
the relevant International Swaps and Derivatives
Association (“ISDA”) Determinations Committee.
Criticized: Criticized loans, lending-related commitments
and derivative receivables that are classified as special
mention, substandard and doubtful categories for
regulatory purposes and are generally consistent with a
JPMorgan Chase & Co./2018 Form 10-K
293
Glossary of Terms and Acronyms
rating of CCC+/Caa1 and below, as defined by S&P and
Moody’s.
Federal Reserve: The Board of the Governors of the Federal
Reserve System
CRO: Chief Risk Officer
FFELP: Federal Family Education Loan Program
CRSC: Conduct Risk Steering Committee
FFIEC: Federal Financial Institutions Examination Council
CTC: CIO, Treasury and Corporate
CVA: Credit valuation adjustment
Debit and credit card sales volume: Dollar amount of card
member purchases, net of returns.
Deposit margin/deposit spread: Represents net interest
income expressed as a percentage of average deposits.
Distributed denial-of-service attack: The use of a large
number of remote computer systems to electronically send
a high volume of traffic to a target website to create a
service outage at the target. This is a form of cyberattack.
Dodd-Frank Act: Wall Street Reform and Consumer
Protection Act
FHA: Federal Housing Administration
FHLB: Federal Home Loan Bank
FICC: The Fixed Income Clearing Corporation
FICO score: A measure of consumer credit risk provided by
credit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by the
credit bureaus.
Firm: JPMorgan Chase & Co.
Forward points: Represents the interest rate differential
between two currencies, which is either added to or
subtracted from the current exchange rate (i.e., “spot rate”)
to determine the forward exchange rate.
DRPC: Board of Directors’ Risk Policy Committee
FRC: Firmwide Risk Committee
DVA: Debit valuation adjustment
EC: European Commission
Eligible LTD: Long-term debt satisfying certain eligibility
criteria
Embedded derivatives: are implicit or explicit terms or
features of a financial instrument that affect some or all of
the cash flows or the value of the instrument in a manner
similar to a derivative. An instrument containing such terms
or features is referred to as a “hybrid.” The component of
the hybrid that is the non-derivative instrument is referred
to as the “host.” For example, callable debt is a hybrid
instrument that contains a plain vanilla debt instrument
(i.e., the host) and an embedded option that allows the
issuer to redeem the debt issue at a specified date for a
specified amount (i.e., the embedded derivative). However,
a floating rate instrument is not a hybrid composed of a
fixed-rate instrument and an interest rate swap.
ERISA: Employee Retirement Income Security Act of 1974
EPS: Earnings per share
ETD: “Exchange-traded derivatives”: Derivative contracts
that are executed on an exchange and settled via a central
clearing house.
EU: European Union
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCA: Financial Conduct Authority
FCC: Firmwide Control Committee
FDIA: Federal Depository Insurance Act
FDIC: Federal Deposit Insurance Corporation
Freddie Mac: Federal Home Loan Mortgage Corporation
Free standing derivatives: a derivative contract entered
into either separate and apart from any of the Firm’s other
financial instruments or equity transactions. Or, in
conjunction with some other transaction and is legally
detachable and separately exercisable.
FSB: Financial Stability Board
FTE: Fully taxable equivalent
FVA: Funding valuation adjustment
FX: Foreign exchange
G7: Group of Seven nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
G7 government bonds: Bonds issued by the government of
one of the G7 nations.
Ginnie Mae: Government National Mortgage Association
GSE: Fannie Mae and Freddie Mac
GSIB: Global systemically important banks
Headcount-related expense: Includes salary and benefits
(excluding performance-based incentives), and other
noncompensation costs related to employees.
HELOAN: Home equity loan
HELOC: Home equity line of credit
Home equity – senior lien: Represents loans and
commitments where JPMorgan Chase holds the first
security interest on the property.
Home equity – junior lien: Represents loans and
commitments where JPMorgan Chase holds a security
interest that is subordinate in rank to other liens.
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Glossary of Terms and Acronyms
Households: A household is a collection of individuals or
entities aggregated together by name, address, tax
identifier and phone number.
HQLA: High quality liquid assets
HTM: Held-to-maturity
ICAAP: Internal capital adequacy assessment process
IDI: Insured depository institutions
IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company
Impaired loan: Impaired loans are loans measured at
amortized cost, for which it is probable that the Firm will be
unable to collect all amounts due, including principal and
interest, according to the contractual terms of the
agreement. Impaired loans include the following:
• All wholesale nonaccrual loans
• All TDRs (both wholesale and consumer), including ones
that have returned to accrual status
Investment-grade: An indication of credit quality based on
JPMorgan Chase’s internal risk assessment system.
“Investment grade” generally represents a risk profile
similar to a rating of a “BBB-”/“Baa3” or better, as defined
by independent rating agencies.
ISDA: International Swaps and Derivatives Association
JPMorgan Chase: JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association
JPMorgan Clearing: J.P. Morgan Clearing Corp.
JPMorgan Securities: J.P. Morgan Securities LLC
Loan-equivalent: Represents the portion of the unused
commitment or other contingent exposure that is expected,
based on historical portfolio experience, to become drawn
prior to an event of a default by an obligor.
LCR: Liquidity coverage ratio
LDA: Loss Distribution Approach
LGD: Loss given default
LIBOR: London Interbank Offered Rate
LLC: Limited Liability Company
LOB: Line of business
collateral (i.e., residential real estate) securing the loan.
Origination date LTV ratio
The LTV ratio at the origination date of the loan. Origination
date LTV ratios are calculated based on the actual appraised
values of collateral (i.e., loan-level data) at the origination
date.
Current estimated LTV ratio
An estimate of the LTV as of a certain date. The current
estimated LTV ratios are calculated using estimated
collateral values derived from a nationally recognized home
price index measured at the metropolitan statistical area
(“MSA”) level. These MSA-level home price indices consist of
actual data to the extent available and forecasted data
where actual data is not available. As a result, the estimated
collateral values used to calculate these ratios do not
represent actual appraised loan-level collateral values; as
such, the resulting LTV ratios are necessarily imprecise and
should therefore be viewed as estimates.
Combined LTV ratio
The LTV ratio considering all available lien positions, as well
as unused lines, related to the property. Combined LTV
ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of Firmwide
financial results that includes reclassifications to present
revenue on a fully taxable-equivalent basis. Management
also uses this financial measure at the segment level,
because it believes this provides information to enable
investors to understand the underlying operational
performance and trends of the particular business segment
and facilitates a comparison of the business segment with
the performance of competitors.
Master netting agreement: A single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due).
Measurement alternative: Measures equity securities
without readily determinable fair values at cost less
impairment (if any), plus or minus observable price changes
from an identical or similar investment of the same issuer.
LOB CROs: Line of Business and CTC Chief Risk Officers
MBS: Mortgage-backed securities
Loss emergence period: Represents the time period
between the date at which the loss is estimated to have
been incurred and the ultimate realization of that loss.
LTIP: Long-term incentive plan
LTV: “Loan-to-value”: For residential real estate loans, the
relationship, expressed as a percentage, between the
principal amount of a loan and the appraised value of the
MD&A: Management’s discussion and analysis
Merchant Services: is a business that primarily processes
transactions for merchants.
MMDA: Money Market Deposit Accounts
Moody’s: Moody’s Investor Services
Mortgage origination channels:
JPMorgan Chase & Co./2018 Form 10-K
295
Glossary of Terms and Acronyms
Retail – Borrowers who buy or refinance a home through
direct contact with a mortgage banker employed by the
Firm using a branch office, the Internet or by phone.
Borrowers are frequently referred to a mortgage banker by
a banker in a Chase branch, real estate brokers, home
builders or other third parties.
Correspondent – Banks, thrifts, other mortgage banks and
other financial institutions that sell closed loans to the Firm.
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality than
subprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of the
following: (i) limited documentation; (ii) a high CLTV ratio;
(iii) loans secured by non-owner occupied properties; or (iv)
a debt-to-income ratio above normal limits. A substantial
proportion of the Firm’s Alt-A loans are those where a
borrower does not provide complete documentation of his
or her assets or the amount or source of his or her income.
Option ARMs
The option ARM real estate loan product is an adjustable-
rate mortgage loan that provides the borrower with the
option each month to make a fully amortizing, interest-only
or minimum payment. The minimum payment on an option
ARM loan is based on the interest rate charged during the
introductory period. This introductory rate is usually
significantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Once
the introductory period ends, the contractual interest rate
charged on the loan increases to the fully indexed rate and
adjusts monthly to reflect movements in the index. The
minimum payment is typically insufficient to cover interest
accrued in the prior month, and any unpaid interest is
deferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, which
converts the loan to a variable-rate fully amortizing loan
upon meeting specified loan balance and anniversary date
triggers.
Prime
Prime mortgage loans are made to borrowers with good
credit records who meet specific underwriting
requirements, including prescriptive requirements related
to income and overall debt levels. New prime mortgage
borrowers provide full documentation and generally have
reliable payment histories.
Subprime
Subprime loans are loans that, prior to mid-2008, were
offered to certain customers with one or more high risk
characteristics, including but not limited to: (i) unreliable or
poor payment histories; (ii) a high LTV ratio of greater than
80% (without borrower-paid mortgage insurance); (iii) a
high debt-to-income ratio; (iv) an occupancy type for the
loan is other than the borrower’s primary residence; or (v) a
history of delinquencies or late payments on the loan.
MSA: Metropolitan statistical areas
MSR: Mortgage servicing rights
Multi-asset: Any fund or account that allocates assets under
management to more than one asset class.
NA: Data is not applicable or available for the period
presented.
NAV: Net Asset Value
Net Capital Rule: Rule 15c3-1 under the Securities
Exchange Act of 1934.
Net charge-off/(recovery) rate: Represents net charge-
offs/(recoveries) (annualized) divided by average retained
loans for the reporting period.
Net mortgage servicing revenue: Includes operating
revenue earned from servicing third-party mortgage loans
which is recognized over the period in which the service is
provided, changes in the fair value of MSRs and the impact
of risk management activities associated with MSRs.
Net production revenue: Includes fees and income
recognized as earned on mortgage loans originated with the
intent to sell; the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans; and changes in the fair value of any residual interests
held from mortgage securitizations. Net production revenue
also includes gains and losses on sales of mortgage loans,
lower of cost or fair value adjustments on mortgage loans
held-for-sale, changes in fair value on mortgage loans
originated with the intent to sell and measured at fair value
under the fair value option, as well as losses recognized as
incurred related to repurchases of previously sold loans.
Net revenue rate: Represents Card Services net revenue
(annualized) expressed as a percentage of average loans for
the period.
Net interchange income includes the following
components:
• Interchange income: Fees earned by credit and debit
card issuers on sales transactions.
• Rewards costs: The cost to the Firm for points earned by
cardholders enrolled in credit card rewards programs.
• Partner payments: Payments to co-brand credit card
partners based on the cost of loyalty program rewards
earned by cardholders on credit card transactions.
Net yield on interest-earning assets: The average rate for
interest-earning assets less the average rate paid for all
sources of funds.
NM: Not meaningful
NOL: Net operating loss
Nonaccrual loans: Loans for which interest income is not
296
JPMorgan Chase & Co./2018 Form 10-K
Glossary of Terms and Acronyms
recognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual status
when full payment of principal and interest is not expected,
regardless of delinquency status, or when principal and
interest have been in default for a period of 90 days or
more unless the loan is both well-secured and in the
process of collection. Collateral-dependent loans are
typically maintained on nonaccrual status.
Nonperforming assets: Nonperforming assets include
nonaccrual loans, nonperforming derivatives and certain
assets acquired in loan satisfaction, predominantly real
estate owned and other commercial and personal property.
NOW: Negotiable Order of Withdrawal
OAS: Option-adjusted spread
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income/(loss)
OPEB: Other postretirement employee benefit
ORMF: Operational Risk Management Framework
OTTI: Other-than-temporary impairment
Over-the-counter (“OTC”) derivatives: Derivative contracts
that are negotiated, executed and settled bilaterally
between two derivative counterparties, where one or both
counterparties is a derivatives dealer.
Over-the-counter cleared (“OTC-cleared”) derivatives:
Derivative contracts that are negotiated and executed
bilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.
Overhead ratio: Noninterest expense as a percentage of
total net revenue.
Parent Company: JPMorgan Chase & Co.
Participating securities: Represents unvested share-based
compensation awards containing nonforfeitable rights to
dividends or dividend equivalents (collectively, “dividends”),
which are included in the earnings per share calculation
using the two-class method. JPMorgan Chase grants RSUs to
certain employees under its share-based compensation
programs, which entitle the recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to the dividends paid to holders of common
stock. These unvested awards meet the definition of
participating securities. Under the two-class method, all
earnings (distributed and undistributed) are allocated to
each class of common stock and participating securities,
based on their respective rights to receive dividends.
PCA: Prompt corrective action
PCI: “Purchased credit-impaired” loans represents certain
loans that were acquired and deemed to be credit-impaired
on the acquisition date in accordance with the guidance of
the FASB. The guidance allows purchasers to aggregate
credit-impaired loans acquired in the same fiscal quarter
into one or more pools, provided that the loans have
common risk characteristics(e.g., product type, LTV ratios,
FICO scores, past due status, geographic location). A pool is
then accounted for as a single asset with a single composite
interest rate and an aggregate expectation of cash flows.
PD: Probability of default
PRA: Prudential Regulatory Authority
Pre-provision profit/(loss): Represents total net revenue
less noninterest expense. The Firm believes that this
financial measure is useful in assessing the ability of a
lending institution to generate income in excess of its
provision for credit losses.
Pretax margin: Represents income before income tax
expense divided by total net revenue, which is, in
management’s view, a comprehensive measure of pretax
performance derived by measuring earnings after all costs
are taken into consideration. It is one basis upon which
management evaluates the performance of AWM against
the performance of their respective competitors.
Principal transactions revenue: Principal transactions
revenue is driven by many factors, including the bid-offer
spread, which is the difference between the price at which
the Firm is willing to buy a financial or other instrument and
the price at which the Firm is willing to sell that instrument.
It also consists of realized (as a result of closing out or
termination of transactions, or interim cash payments) and
unrealized (as a result of changes in valuation) gains and
losses on financial and other instruments (including those
accounted for under the fair value option) primarily used in
client-driven market-making activities and on private equity
investments. In connection with its client-driven market-
making activities, the Firm transacts in debt and equity
instruments, derivatives and commodities (including
physical commodities inventories and financial instruments
that reference commodities).
Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk-management activities, including: (a)
certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges of
commodity and foreign exchange risk), (b) certain
derivatives used for specific risk management purposes,
primarily to mitigate credit risk, foreign exchange risk and
commodity risk, and (c) other derivatives.
PSU(s): Performance share units
REIT: “Real estate investment trust”: A special purpose
investment vehicle that provides investors with the ability to
participate directly in the ownership or financing of real-
estate related assets by pooling their capital to purchase
and manage income property (i.e., equity REIT) and/or
mortgage loans (i.e., mortgage REIT). REITs can be publicly
or privately held and they also qualify for certain favorable
tax considerations.
JPMorgan Chase & Co./2018 Form 10-K
297
Glossary of Terms and Acronyms
Receivables from customers: Primarily represents held-for-
investment margin loans to brokerage customers that are
collateralized through assets maintained in the clients’
brokerage accounts, as such no allowance is held against
these receivables. These receivables are reported within
accrued interest and accounts receivable on the Firm’s
Consolidated balance sheets.
Regulatory VaR: Daily aggregated VaR calculated in
accordance with regulatory rules.
REO: Real estate owned
Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalent
adjustments.
Retained loans: Loans that are held-for-investment (i.e.,
excludes loans held-for-sale and loans at fair value).
Revenue wallet: Proportion of fee revenue based on
estimates of investment banking fees generated across the
industry (i.e., the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, and
loan syndications. Source: Dealogic, a third-party provider
of investment banking competitive analysis and volume-
based league tables for the above noted industry products.
RHS: Rural Housing Service of the U.S. Department of
Agriculture
Risk-rated portfolio: Credit loss estimates are based on
estimates of the probability of default (“PD”) and loss
severity given a default. The probability of default is the
likelihood that a borrower will default on its obligation; the
loss given default (“LGD”) is the estimated loss on the loan
that would be realized upon the default and takes into
consideration collateral and structural support for each
credit facility.
ROA: Return on assets
ROE: Return on equity
ROTCE: Return on tangible common equity
RSU(s): Restricted stock units
RWA: “Risk-weighted assets”: Basel III establishes two
comprehensive approaches for calculating RWA (a
Standardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, and
in the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between the
Standardized and Advanced approaches are that for Basel
III Advanced, credit risk RWA is based on risk-sensitive
approaches which largely rely on the use of internal credit
models and parameters, whereas for Basel III Standardized,
credit risk RWA is generally based on supervisory risk-
weightings which vary primarily by counterparty type and
asset class. Market risk RWA is calculated on a generally
consistent basis between Basel III Standardized and Basel III
Advanced.
S&P: Standard and Poor’s 500 Index
298
SAR(s): Stock appreciation rights
Scored portfolio: The scored portfolio predominantly
includes residential real estate loans, credit card loans and
certain auto and business banking loans where credit loss
estimates are based on statistical analysis of credit losses
over discrete periods of time. The statistical analysis uses
portfolio modeling, credit scoring and decision-support
tools.
SEC: Securities and Exchange Commission
Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring the
fund is of sufficient size to represent a viable offering to
clients, enabling pricing of its shares, and allowing the
manager to develop a track record. After these goals are
achieved, the intent is to remove the Firm’s capital from the
investment.
Single-name: Single reference-entities
SLR: Supplementary leverage ratio
SMBS: Stripped mortgage-backed securities
SPEs: Special purpose entities
Structural interest rate risk: Represents interest rate risk
of the non-trading assets and liabilities of the Firm.
Structured notes: Structured notes are financial
instruments whose cash flows are linked to the movement
in one or more indexes, interest rates, foreign exchange
rates, commodities prices, prepayment rates, or other
market variables. The notes typically contain embedded
(but not separable or detachable) derivatives. Contractual
cash flows for principal, interest, or both can vary in
amount and timing throughout the life of the note based on
non-traditional indexes or non-traditional uses of traditional
interest rates or indexes.
Taxable-equivalent basis: In presenting results on a
managed basis, the total net revenue for each of the
business segments and the Firm is presented on a tax-
equivalent basis. Accordingly, revenue from investments
that receive tax credits and tax-exempt securities is
presented in managed basis results on a level comparable
to taxable investments and securities; the corresponding
income tax impact related to tax-exempt items is recorded
within income tax expense.
TBVPS: Tangible book value per share
TCE: Tangible common equity
TDR: “Troubled debt restructuring” is deemed to occur
when the Firm modifies the original terms of a loan
agreement by granting a concession to a borrower that is
experiencing financial difficulty.
TLAC: Total Loss Absorbing Capacity
U.K.: United Kingdom
Unaudited: Financial statements and information that have
JPMorgan Chase & Co./2018 Form 10-K
Glossary of Terms and Acronyms
not been subjected to auditing procedures sufficient to
permit an independent certified public accountant to
express an opinion.
U.S.: United States of America
U.S. GAAP: Accounting principles generally accepted in the
U.S.
U.S. government-sponsored enterprises (“U.S. GSEs”) and
U.S. GSE obligations: In the U.S., GSEs are quasi-
governmental, privately held entities established by
Congress to improve the flow of credit to specific sectors of
the economy and provide certain essential services to the
public. U.S. GSEs include Fannie Mae and Freddie Mac, but
do not include Ginnie Mae, which is directly owned by the
U.S. Department of Housing and Urban Development. U.S.
GSE obligations are not explicitly guaranteed as to the
timely payment of principal and interest by the full faith and
credit of the U.S. government.
U.S. LCR: Liquidity coverage ratio under the final U.S. rule.
U.S. Treasury: U.S. Department of the Treasury
VA: U.S. Department of Veterans Affairs
VaR: “Value-at-risk” is a measure of the dollar amount of
potential loss from adverse market moves in an ordinary
market environment.
VCG: Valuation Control Group
VGF: Valuation Governance Forum
VIEs: Variable interest entities
Warehouse loans: Consist of prime mortgages originated
with the intent to sell that are accounted for at fair value
and classified as trading assets.
JPMorgan Chase & Co./2018 Form 10-K
299
Member of:
1 Audit Committee
2 Compensation & Management
Development Committee
3 Corporate Governance &
Nominating Committee
4 Directors’ Risk Policy Committee
5 Public Responsibility Committee
Board of Directors
Linda B. Bammann 4
Retired Deputy Head of Risk
Management
JPMorgan Chase & Co.
(Financial services)
James A. Bell 1
Retired Executive Vice President
The Boeing Company
(Aerospace)
Stephen B. Burke 2, 3
Chief Executive Officer
NBCUniversal, LLC
(Television and entertainment)
Todd A. Combs 4, 5
Investment Officer
Berkshire Hathaway Inc.
(Conglomerate)
Michael A. Neal 4
Retired Vice Chairman
General Electric Company;
Retired Chairman and
Chief Executive Officer
GE Capital
(Industrial and financial services)
Lee R. Raymond 2, 3
Lead Independent Director
JPMorgan Chase & Co.;
Retired Chairman and
Chief Executive Officer
Exxon Mobil Corporation
(Oil and gas)
William C. Weldon 2, 3
Retired Chairman and
Chief Executive Officer
Johnson & Johnson
(Healthcare products)
James S. Crown 4
Chairman and
Chief Executive Officer
Henry Crown and Company
(Diversified investments)
James Dimon
Chairman and
Chief Executive Officer
JPMorgan Chase & Co.
(Financial services)
Timothy P. Flynn 1, 5
Retired Chairman and
Chief Executive Officer
KPMG
(Professional services)
Mellody Hobson 1, 5
President
Ariel Investments, LLC
(Investment management)
Laban P. Jackson, Jr. 1
Chairman and Chief Executive Officer
Clear Creek Properties, Inc.
(Real estate development)
Operating Committee
James Dimon
Chairman and
Chief Executive Officer
Daniel E. Pinto
Co-President and
Chief Operating Officer;
CEO, Corporate & Investment Bank
Ashley Bacon
Chief Risk Officer
Marianne Lake
Chief Financial Officer
Lori Beer
Chief Information Officer
Robin Leopold
Head of Human Resources
Mary Callahan Erdoes
CEO, Asset & Wealth Management
Douglas B. Petno
CEO, Commercial Banking
Gordon A. Smith
Co-President and
Chief Operating Officer;
CEO, Consumer & Community Banking
Stacey Friedman
General Counsel
Peter L. Scher
Head of Corporate Responsibility;
Chairman of the Mid-Atlantic Region
Other Corporate Officers
Molly Carpenter
Secretary
Nicole Giles
Firmwide Controller
Jason R. Scott
Investor Relations
Joseph M. Evangelisti
Corporate Communications
Lou Rauchenberger
General Auditor
300
JPMorgan Chase & Co./2018 Annual Report
Regional Chief Executive Officers
Asia Pacific
Europe/Middle East/Africa
Latin America/Canada
Nicolas Aguzin
Viswas Raghavan
Martin G. Marron
Senior Country Officers and Location Heads
Asia Pacific
Europe/Middle East/Africa
Latin America/Caribbean
Australia and New Zealand
Paul Uren
China
Mark Leung
Hong Kong
Filippo Gori
Japan
Steve Teru Rinoie
Korea
Tae Jin Park
South and South East Asia
Kalpana Morparia
Indonesia
Haryanto T. Budiman
Malaysia
Steve R. Clayton
Philippines
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Singapore
Edmund Y. Lee
Thailand
M.L. Chayotid Kridakon
Taiwan
Carl K. Chien
Vietnam
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Kazakhstan, Middle East, Pakistan,
Russia and Turkey
Sjoerd Leenart
Bahrain, Egypt and Lebanon
Ali Moosa
Kazakhstan and Russia
Yan L. Tavrovsky
Middle East and North Africa
Khaled Hobballah
Karim Tannir
Saudi Arabia
Bader A. Alamoudi
Sub-Saharan Africa
Marc J. Hussey
Kevin G. Latter
Turkey
Mustafa Bagriacik
Austria, Germany, Ireland, Israel,
Nordics and Switzerland
Dorothee Blessing
Andean, Caribbean and Central
America
Moises Mainster
Colombia
Angela Hurtado
Argentina
Facundo D. Gomez Minujin
Brazil
José Berenguer
Chile
Alfonso Eyzaguirre
Mexico
Felipe Garcia-Moreno
North America
Canada
David E. Rawlings
Austria
Anton J. Ulmer
Ireland
Carin Bryans
Israel
Roy Navon
Switzerland
Nick Bossart
Belgium, France, Greece,
Iberia, Italy and the Netherlands
Kyril Courboin
Belgium
Tanguy A. Piret
Iberia
Ignacio de la Colina
Italy
Francesco Cardinali
The Netherlands
Peter A. Kerckhoffs
Luxembourg
Pablo Garnica
JPMorgan Chase Vice Chairs
Phyllis J. Campbell
John L. Donnelly
Jacob A. Frenkel
Mark S. Garvin
Vittorio U. Grilli
Walter A. Gubert
Mel R. Martinez
David Mayhew
E. John Rosenwald
JPMorgan Chase & Co./2018 Annual Report
301
J.P. Morgan International Council
Rt. Hon. Tony Blair
Chairman of the Council
Former Prime Minister of Great Britain
and Northern Ireland
London, United Kingdom
The Hon. Robert M. Gates
Vice Chairman of the Council
Partner
RiceHadleyGates LLC
Washington, District of Columbia
Bernard Arnault
Chairman and Chief Executive Officer
LVMH Moët Hennessy — Louis Vuitton
Paris, France
Paul Bulcke
Member of the Board of Directors
Nestlé S.A.
Vevey, Switzerland
Jamie Dimon*
Chairman and Chief Executive Officer
JPMorgan Chase & Co.
New York, New York
John Elkann
Chairman
Fiat Chrysler Automobiles N.V.
Torino, Italy
Martin Feldstein
Professor of Economics
Harvard University
Cambridge, Massachusetts
Ignacio Galán
Chairman
Iberdrola, S.A.
Madrid, Spain
Joe Kaeser
President and Chief Executive Officer
Siemens AG
Munich, Germany
Ratan Naval Tata
Chairman Emeritus
Tata Trusts
Mumbai, India
Armando Garza Sada
Chairman of the Board
ALFA
Nuevo León, Mexico
The Hon. Henry A. Kissinger
Chairman
Kissinger Associates, Inc.
New York, New York
Joseph C. Tsai
Executive Vice Chairman
Alibaba Group
Hong Kong, China
Alex Gorsky
Chairman and Chief Executive Officer
Johnson & Johnson
New Brunswick, New Jersey
Jorge Paulo Lemann
Director
The Kraft Heinz Company
Pittsburgh, Pennsylvania
Herman Gref
Chief Executive Officer,
Chairman of the Executive Board
Sberbank
Moscow, Russia
William B. Harrison, Jr.
Former Chairman and
Chief Executive Officer
JPMorgan Chase & Co.
New York, New York
The Hon. Carla A. Hills
Chairman and Chief Executive Officer
Hills & Company International Consultants
Washington, District of Columbia
The Hon. John Howard OM AC
Former Prime Minister of Australia
Sydney, Australia
Nancy McKinstry
Chief Executive Officer
Wolters Kluwer
Alphen aan den Rijn, The Netherlands
Amin H. Nasser
President and Chief Executive Officer
Saudi Aramco
Dhahran, Saudi Arabia
The Hon. Condoleezza Rice
Partner
RiceHadleyGates LLC
Stanford, California
Paolo Rocca
Chairman and Chief Executive Officer
Tenaris
Buenos Aires, Argentina
Nassef Sawiris
Chief Executive Officer
OCI N.V.
London, United Kingdom
The Hon. Tung Chee Hwa GBM
Vice Chairman
National Committee of the Chinese
People’s Political Consultative Conference
Hong Kong, China
Masahiko Uotani
President and
Group Chief Executive Officer
Shiseido., Ltd.
Tokyo, Japan
Cees J.A. van Lede
Former Chairman and Chief Executive
Officer, Board of Management
Akzo Nobel
Amsterdam, The Netherlands
Douglas A. Warner III
Former Chairman of the Board
JPMorgan Chase & Co.
New York, New York
Jaime Augusto Zobel de Ayala
Chairman and Chief Executive Officer
Ayala Corporation
Makati City, Philippines
*Ex-officio
302
JPMorgan Chase & Co./2018 Annual Report
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